Leasehold and Freehold Reform Bill
Monday 11th December 2023
(1 year ago)
Commons ChamberRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Secretary of State for Levelling Up, Housing and Communities (Michael Gove)
I beg to move, That the Bill be now read a Second time.
Before proceeding to the heart of the Bill, may I offer a few words of thanks to those who have laboured long in this field? We all know that leasehold and freehold legislation has preoccupied the House not just in this Parliament, but in many Parliaments in the past. Indeed, in the 1860s, 1870s and 1880s, much of the House’s time was taken up debating the finer points of such legislation. I was once described as a young man in a hurry. I am now an old man, but I am still in a hurry, in order to make sure that this legislation makes progress and that we liberate leaseholders from many of the unfair practices to which they are still subject.
I will say a bit more about that in a second, but I want first to say a special word of thanks to my predecessors as Secretary of State, who helped to issue the consultations and lay the groundwork for the measures that we are introducing today. I thank my right hon. Friends the Members for Newark (Robert Jenrick) and for Bromsgrove (Sajid Javid), but in particular I thank the late James Brokenshire, who did so much work to get us to this point. Having thanked them, I cannot but thank my hon. Friend the Member for Redditch (Rachel Maclean), who was a brilliant colleague in the Department and did so much of the heavy lifting to ensure that this legislation was ready to be introduced. She has been a brilliant colleague and a great Minister in so many ways. All the good things in the Bill are down to her; anything that is lacking is down to me.
I also thank members of the all-party parliamentary group on leasehold and commonhold reform, who have worked so hard for so long to ensure that the ground could be laid for today’s legislation. I thank the hon. Member for Ellesmere Port and Neston (Justin Madders) for his work and, in particular, his predecessor, the former MP for Poplar and Limehouse, Jim Fitzpatrick. I must thank the Father of the House, my hon. Friend the Member for Worthing West (Sir Peter Bottomley), who has been the single most consistent and bravest voice in standing up for leaseholders. I also thank—even though she is not in the Chamber—the hon. Member for St Albans (Daisy Cooper), who speaks on behalf of the Liberal Democrats and has contributed to the work of the APPG.
The APPG would not have been able to do its work without the Leasehold Knowledge Partnership. In particular, I thank Martin Boyd, who has been hired by the Government to head up our Leasehold Advisory Service, and Sebastian O’Kelly. Both have contributed to helping leaseholders and providing them with the advice and counsel they need to navigate this tangled landscape. I also thank the campaigners, some of whom I had a chance to talk to earlier, who have been indefatigable in making it clear that the law needs to change. I thank, in particular, Katie Kendrick, Cath Williams and Joanne Darbyshire, all of whom have made an impeccable case for change throughout.
What is the problem that we are trying to solve? Basically, it is this: leasehold as a form of tenure is essentially a deal where someone is invited to buy a home and then, instead of becoming a full homeowner, they are treated, or can be treated, as a tenant. It is a fundamentally unfair system and a fundamentally inequitable tenure, because those who buy flats and—increasingly, in recent years—houses, in good faith, paying market rates, assuming and hoping that they would be homeowners in the fullest sense of the word, have found that, rather than being homeowners, they are at the whim of the ultimate owner of the freehold, who is in effect their landlord.
In the past, there were justifications. There were cases and examples where those who held the freehold operated in an enlightened and paternalistic way. For example, the freehold of properties was sometimes held by trade unions or other enlightened organisations that would ensure that the common interests of all those within a particular building were looked after. It is still the case that some landowners and freeholders take their obligations towards leaseholders seriously, ensure that the service charges are levied in an appropriate way, keep the ground rent at an appropriately low level, and ensure that the building is maintained in a good state of repair. However, individual leaseholders should not simply have to rely on the good will and good character of whoever the freeholder is; they need better protection in law, which is what we seek to achieve with the Bill.
Alexander Stafford (Rother Valley) (Con)
Many of the leasehold homes in Rother Valley were built by the National Coal Board to provide homes for miners and their families, with the intention that the ground rent would be peppercorn, but since the closure of the pits many of those freeholds, especially in areas such as Thurcroft, Wales and North Anston, have been sold to private developers who are taking advantage of their leaseholders. For example, in Thurcroft, leaseholders were forced to represent themselves in court when the freeholder tried to raise the ground rent from £10 a year to £2,500 a year, which is absolutely shameful. How can we ensure that freeholders must act reasonably, and not stray too far from the spirit of the original legislation?
Michael Gove
My hon. Friend is absolutely right. The miners’ families and their descendants, whom he represents so well, were originally in homes that the NCB established to ensure that those in the pit villages he represents would have a proper landlord, providing stewardship, care and support, but as he rightly points out, the freehold ownership has subsequently been used not as an obligation towards the leaseholder but as a commodity to be traded. More and more freeholds are in the hands of entities, often based offshore, that regard them as a licence to extort from the leaseholder, rather than as an obligation to be discharged.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
I have raised concerns on behalf of leaseholders in my constituency on many occasions in this House—particularly on the issue of service charges, which the Secretary of State referred to a moment ago, and the lack of transparency around them. I have seen again and again cases where certain information is not provided to leaseholders, where they are not sure that the moneys are being spent on what they have provided funding for, or where it is not clear whether, for example, there has been an adequate tendering process for works, insurance and so on. Can he explain what will be done on that, and whether it will fully extend to England and Wales? What co-operation has he had with the Welsh Government about those provisions?
Michael Gove
It is the case that this Bill covers England and Wales. Obviously the hon. Gentleman is aware that there are slightly different tribunals that operate in each jurisdiction, but it will precisely address the situation he mentioned: it will ensure there is transparency over service charges and, through the appropriate tribunal in each jurisdiction it will become easier on the part of the leaseholder to contest any unfairness.
Several hon. Members rose—
Michael Gove
I just want to make one or two additional points and then I am happy to give way.
Personally, one of the moments where I realised that the system, which is hard to defend in any case, was fundamentally broken was in the aftermath of the Grenfell tragedy. We knew then that it was important that responsibility be taken for remediating buildings that were unsafe. We knew then that individuals and organisations had to take that responsibility on their own shoulders. We knew then that freeholders, if they were true to the spirit of the original legislation, would say, “Yes, we have a responsibility for this building and for all those within it. We have a responsibility to make sure this building is safe. Therefore, we should have a responsibility to pay for the remediation.”
But did we find freeholders queueing up to do that? Absolutely not. They were there ready to extract income at the highest possible rate whenever they could, through ground rents and service charges, but when they were called upon to discharge their responsibility to the leaseholders within those flats, they were absent. They ran away from their responsibilities. That is why I have limited to no patience now with the well-funded lobby groups that stand up for those freeholders and seek to ensure that they can continue to extract money from leaseholders. It seems to me that, at a critical point, the argument that is sometimes made on behalf of those people disappeared because of their negligence and their moral fault.
Mr Kevan Jones (North Durham) (Lab)
The right hon. Gentleman says that traditionally it was flats that were leasehold, but increasingly it was houses, mainly fuelled by the Government’s Help to Buy scheme. In my constituency, Persimmon Homes’s business model was structured around not only selling on the leaseholds, but the tactic of including areas of the estate that traditionally would have been passed over to local authorities as the responsibility of the leaseholders. Would he agree that the Government need to take some responsibility for the tsunami of money they threw at some of those developers, and for turning a blind eye to what they were doing in their business models?
Michael Gove
I take the right hon. Gentleman’s point, but he is conflating two things. Help to Buy can be criticised or defended on its own terms, and I believe it was the right intervention to ensure, in particular, that more first-time buyers could get on to the property market. However, he is also right that leasehold, which as he says was originally a tenure designed for flats, was then extended to houses, and in a way that is difficult to defend. It has expanded over recent years. That is why we are legislating now to ensure that we can stop it. There are two separate arguments that can be had there.
Sir Julian Lewis (New Forest East) (Con)
I particularly look forward to that part of the Secretary of State’s speech when he will tell us whether this will apply to new leaseholds or will be retrospective on those suffering under existing leasehold arrangements. However, there is one step the Government took that has not been helpful to leaseholders, and of which I have personal experience: creating a presumption in favour of developments where the airspace above a block of flats is sold and the freeholder then insists on having one or two more floors built on top. That can cause immense damage to the building, not to mention disruption, and then who gets the bill for paying for the damage? It is transferred from the freeholder to the leaseholders. The Government should think again about that presumption in allowing that sort of ill-considered development.
Michael Gove
My right hon. Friend makes an important point on permitted development rights. On the whole, I am in favour of the extension of permitted development rights, because I want to see an increase in housing supply overall, but it is incumbent on the Government to review how those rights have been operating. He raises one concern, but there are other legitimate concerns about the way permitted development rights, when commercial buildings have been turned into residential, have meant that the quality of those new residential flats has been insufficiently high. I also know that colleagues, not least in London, are concerned about potential future extensions of permitted development rights. There is a responsibility on me and others to review their impact, and that is what we are doing, separate from this particular legislation.
Several hon. Members rose—
Michael Gove
An embarrassment of riches! I will give way to all colleagues currently standing, and then I will try to make progress.
Mark Tami (Alyn and Deeside) (Lab)
I represent an area with a lot of leasehold houses. It is just a cynical money-making scam. Some people own a house but are required to pay an admin charge to change the flooring or have a pet, so it does not feel as if they own it. I can understand the flooring thing if they are in flats, but not if they are in houses. It is just a con.
Stella Creasy (Walthamstow) (Lab/Co-op)
One of the challenges here is the lack of voice for our constituents in trying to address the problems. The Secretary of State says that he cannot defend leasehold. None of us can. It is a feudal process that still denies our constituents a voice over the thing that is most precious to them: their home. If he agrees with that, why will he not agree with us that we should move forward to commonhold, whereby everybody has a voice and a say in their own building?
Michael Gove
I actually agree that commonhold is the ideal form of tenure, but there are certain technical questions about when commonhold can apply, not least if a building also has commercial uses on the lower floors.
Rachael Maskell (York Central) (Lab/Co-op)
When we come to clause 27, will the Secretary of State clarify whether “best value” applies to leaseholders or to freeholders? It certainly seems that leaseholders do not get best value when testing what additionalities and enhancements are put into their schemes.
Munira Wilson (Twickenham) (LD)
The Secretary of State was talking about leasehold houses. I was recently visited by a group of residents from Hampton Wick in my constituency who have been collectively trying to buy the freehold on their houses. They have a very obstructive freeholder and are now resorting to an enfranchisement notice under section 5 of the Leasehold Reform Act 1967, but that requires a valuation from 1965, for which there are no records available, so they are now being obstructed in buying the freehold by that legislative basis. When the Bill introduces a new methodology for calculating the value of enfranchisement, will that old provision be got rid of?
Michael Gove
I believe that it should be, and I encourage the hon. Lady’s constituents—as I am sure she has done—to be in touch with Martin Boyd’s Leasehold Advisory Service to be absolutely clear that they are getting the support they need.
Mr Clive Betts (Sheffield South East) (Lab)
It is a little disappointing that the Secretary of State did not refer to the Levelling Up, Housing and Communities Committee’s report of 2019. The Government, working with the APPG, have followed many of the report’s recommendations, but some of those recommendations —we will come to them later, with your permission, Mr Deputy Speaker—have not been included, so I will make just a couple of points.
The real challenge is, first, that freeholders who will not comply with any legislation, or will try to avoid it, do not reply to letters. I have exchanged information with the Minister for Housing, Planning and Building Safety on how to deal with Coppen Estates and what the penalties will be for non-compliance. Secondly, there are freeholders who seek to move the ownership of a property around in order to avoid the legislation. Why not give existing leaseholders the right of first refusal before any freehold is sold?
Michael Gove
I am very grateful to the hon. Gentleman and his Committee for all their work—it was discourteous of me, when running through the names of those to whom I am grateful, not to mention them. His broader point, about not just the operation of the freehold system but the way in which different aspects of the property market work, is a fair one. The use of opaque overseas entities and special purpose vehicles—the way in which ultimate beneficial ownership can be hidden—are all problems that require to be addressed. The Bill is pretty lengthy and substantial, and deals with many of the issues—I will go on to explain why we have taken the approach that we have—but there are other abuses within the property and land market system that require to be addressed, which we will address, and not just in this Parliament but after we are returned at the next general election.
Mrs Natalie Elphicke (Dover) (Con)
I thank my right hon. Friend for giving way, and for the pragmatic approach that the Government have taken in this very complex area. In my constituency of Dover and Deal, we have a failed development—Sunningdale homes—and a long-standing problem with Persimmon Homes in relation to Sholden. Both situations relate to the lack of adoption by local authorities, and to service charges and other management arrangements. I would be grateful if my right hon. Friend could say more about the way in which those sorts of situations will be helped, and whether there will be any retrospective help for situations that have remained unresolved for many years.
Michael Gove
I am very grateful to my hon. Friend. She and my hon. Friend the Member for North East Bedfordshire (Richard Fuller) have been particularly energetic in pressing me to deal with this issue of leasehold homes—fleecehold estates, as they have become widely known—which is, I believe, precisely the phenomenon that the right hon. Member for North Durham (Mr Jones) was also referring to.
The Bill will ensure that there is a ban on new leasehold homes, but as well as averting that problem in the future, we are attempting to deal with the difficult situation we have all inherited. We will do so by making sure that we squeeze every possible income stream that freeholders currently use, so that in effect, their capacity to put the squeeze on leaseholders ends. That will mean the effective destruction of the leasehold system. Do not take my word for it: as Sebastian O’Kelly of the Leasehold Knowledge Partnership has made clear in his writing,
“The Bill is a full-on assault on leasehold’s income streams”.
First, we have a consultation on ground rents. I cannot pre-empt that consultation, but at its conclusion, we will legislate on the basis of that set of responses in order to ensure that ground rents are reduced, and can only be levied in a justifiable way. As I say, I cannot pre-empt the consultation, but in a way I already have, because I was asked by the Select Committee last week what my favoured approach would be, and I believe that it should be a peppercorn. Of course, if compelling evidence is produced, as a Secretary of State with great civil servants, I will look at it, but my preference is clear, and I suspect that it is the preference of the House as well.
Indeed, it is important to say that that particular squeezing of the freeholder’s income stream goes beyond what the Law Commission recommended. We are really grateful for all of the Law Commission’s work, but it was a little bit cautious in this area; we are deliberately saying no. I know that some people will say, “What about A1P1 rights under the European convention on human rights? You are taking property away from people.” I respect the ECHR, but if it stands in the way of me defending the interests of people in this country who have been exploited by ground-rent massaging, I am determined to legislate on behalf of those people, because their interests matter more than that particular piece of legislation.
Matt Rodda (Reading East) (Lab)
I am grateful to the Secretary of State for the way he is addressing this issue. Can I draw his attention to a particular variant of this practice that exists in my constituency? Between a developer and a local authority, a scheme was allowed whereby residents were—and continue to be—charged for access to public open space on their estate and, indeed, to maintain a neighbouring park that residents across the district can enjoy. That is surely wrong, and I hope he will look into that matter.
Michael Gove
The hon. Gentleman is absolutely right: a number of the people who have built, operated and retain the freehold on these estates levy service charges for all sorts of things that, in my view, are totally inappropriate. That is why the Bill makes clear that service charges have to be issued in a standardised format, so that they can be more easily scrutinised and challenged. It also makes clear that those charges can be challenged in such a way as to ensure that egregious examples, such as the one the hon. Gentleman has mentioned, will end.
Sir Edward Leigh (Gainsborough) (Con)
I am not against what the Secretary of State is trying to do, but philosophically there is a reason why the Conservative party has been the defender of property rights. It is to do with freedom and established rights, so it is nothing to do with the ECHR or anything like that. Before this debate becomes just about bashing landlords, what about the Duchy of Cornwall? There are excellent freeholders that have traditionally maintained properties and done wonderful work in ensuring that properties are well maintained and in looking after their tenants.
Michael Gove
I quite agree with my right hon. Friend. There are good landlords, and the Duchy of Cornwall has been a stand-out example, as have been the Cadogan estate, the Howard de Walden estate and so on—they are responsible landlords, absolutely—but an individual leaseholder should not have to rely on the good will and the grace of His Grace, as it were, to get the protection they need.
There is no stauncher defender of capitalism and property rights than me, but what has happened is that freeholds have become utterly torn away from the warp and weft of the capitalist system as we understand it in this country, and have become tradeable commodities that foreign entities are using to exploit our people who have worked hard and saved to get their own home. So whose side am I on—homeowners who have worked hard and saved up to secure a mortgage, or shadowy foreign entities that are essentially attempting to rip off British citizens? I am on the side of homeowners.
Rachel Maclean (Redditch) (Con)
When the Secretary of State is considering the evidence from the consultation he mentioned, will he adhere to his own adage of “follow the money”, and remember that those people advocating for a higher ground rent probably have a motivation for doing so?
Michael Gove
My hon. Friend is completely right. I will be looking at the responses to the consultation, and I am sure that some of London’s finest legal firms and most eloquent solicitors will be putting in some very thoughtful contributions, but the question will be: who is paying for them and how much are they being paid? To my mind, people can buy silver-tongued eloquence, but what is far more important is actually being on the right side of justice.
Michael Gove
I believe that most of the people in the House are on the right side of justice, especially the hon. Lady.
Marsha De Cordova
On ground rents, shared owners who have staircased their way up to 100% and become leaseholders obviously have a long lease of 999 years, but face the issue of having their ground rents doubled every, say, 20 years. Clearly, that is an unfairness in the system, so will the Secretary of State’s consultation address that point?
Michael Gove
I believe it will. I must now make progress because I know a number of people want to contribute, so I will try to run through the other arguments about why we are taking the approach that we are.
I mentioned service charges, and one other example, to which the Father of the House has of course persistently drawn our attention, of where those who have been managing properties on behalf of the ultimate owners have abused their position is that of insurance commissions. We will be taking steps in the Bill to make sure that insurance charges are transparent and that fair handling fees are brought in. The fact that I can list all these examples just shows hon. Members the way in which freeholders have operated. Many who have got hold of such freeholds have been thinking, “Right, okay, we can jack up the ground rent, great! We can have service charges, keep them opaque and add something. Tell you what—insurance; let’s try to get more out of that.” It is a persistent pattern of behaviour that does require reform.
Another pattern of behaviour is the way that lease extensions and the whole question of enfranchisement have been going. If someone’s lease goes below 80 years and they want to enfranchise themselves, they have to pay what is called marriage value. That is the principle that, by bringing together the ownership of the freehold and the leasehold in one by enfranchising themselves—bringing those two together in a marriage—people are enriching themselves. Again, however, it has been used by freeholders to bilk leaseholders overall, which is why the approach we are taking will in effect eliminate marriage value. It is also why, when we talk about lease extension, instead of people having to extend and extend again generation after generation, we are saying that leases can be extended to 990 years. In effect, as I say, this will make sure that one of the approaches that freeholders have taken to extracting more cash from leaseholders will end.
Sir Stephen Timms (East Ham) (Lab)
I agree with the Secretary of State about the seriousness of the problem of excessive insurance premiums being charged to leaseholders, and I will give an example if I am able to contribute later. Does the Secretary of State agree that the solution requires risk-pooling among insurers? The initiative on that seems to have stalled; can he hold out the prospect of the delay being resolved?
Michael Gove
Broadly on the whole question of insurance, I am due to meet the chair, Baroness Morgan of Cotes, and the chief executive of the Association of British Insurers later this week to address not just that question but some other related questions.
Michael Gove
I won’t at this stage.
I freely admit that this Bill does not go as far as some in the House and elsewhere would like. Strong arguments have been made about how property agents can be better regulated and Lord Best in another place has made arguments that I find incredibly persuasive—so why not legislate for them now? Well, as I mentioned earlier, this Bill has many clauses, deals with technical aspects of property law, requires close scrutiny and is likely to face a lobbying exercise from deep-pocketed interests outside attempting to derail it. Legislating to give effect to Lord Best’s proposals and to set up a new regulator—I am always a wee bit wary about setting up new quangos but on this occasion he makes a good case—would require significant additional legislative time of a kind we simply do not have in the lifetime of this Parliament. There are changes we are making overall in order to deal with some of the abuses for which managing agents are responsible, but there is still some unfinished business. I happily grant that, and there are organisations like FirstPort, which many of us will be familiar with from our work as constituency MPs, that require some gentle direction towards behaving in a better fashion.
Richard Fuller (North East Bedfordshire) (Con)
I am grateful to my right hon. Friend, my hon. Friend the Member for Redditch (Rachel Maclean) and Ministers for bringing the Bill forward. The Secretary of State spoke about leasehold improvements and improving the rights of leaseholders, but he will be aware that part 4 of the Bill looks to protect and improve the rights of families who hold the freehold of their property against the estate management charges about which he is speaking; the Bill does a lot to meet some of the requests of many of my Conservative colleagues on this matter.
One issue that is not addressed in the Bill, however, is the right to manage. In the 2019 response to the 2017 consultation, the Government said they would look at that and introduce legislation. What is the current Government thinking on giving people the right to manage, and therefore to take back control from the estate management companies?
Michael Gove
My hon. Friend makes a good point. I was going to say there are two other areas in particular that we should look at in Committee: the right to manage; and the abuse of forfeiture, which is sometimes used by freeholders to intimidate leaseholders. I am very open to improving the Bill in Committee; we will be improving it ourselves by bringing forward the legislation that will ban new leasehold homes in the future, so I hope we will have a chance to do that.
I mentioned earlier that we have been debating leasehold and freehold in this place for a long time. In the preparation of this Bill, one of the brilliant civil servants in the Department drew to my attention comments made by Harry Levy-Lawson, 1st Viscount Burnham and MP for St Pancras, as it happens, when the Leasehold Enfranchisement Bill 1889 was brought forward by another great reforming Conservative Government under the Marquess of Salisbury.
Michael Gove
Exactly: the Minister is, like me, a great fan of the Marquess.
In that debate the opening remarks of the Minister were:
“We do not claim for this Bill any perfection of draftsmanship, but it is so far complete that if it pass through Parliament, we believe it would be smooth, just and reliable in its working. The principle, however, is now exactly what it has always been, viz., the grant to urban leaseholders, with a substantial interest in their holdings, of the power to purchase the fee simple”—
the ownership—
“on fair and equitable terms.”—[Official Report, 1 May 1889; Vol. 335, c. 889.]
This Bill does so much more. Is it perfect? No, I would not claim for this Bill any perfection of draftsmanship. Is it substantive—does it move the dial, does it change the business model, will it effectively mean that leasehold will become a thing of the past? I believe absolutely it will, and I am fortified in that belief by the strong support for this legislation shown by leasehold campaigners. I commend the Bill to the House.
Angela Rayner (Ashton-under-Lyne) (Lab)
It is a pleasure to open this debate on behalf of the Opposition. Let me say at the outset that we do not intend to oppose the Bill today. Simply, it is better late than never. May I associate myself with the Secretary of State’s comments at the start of the debate, because many people have contributed and campaigned on this issue over the years that it has been spoken about? Many have long needed this overdue Bill, and they need it to be improved. Leaseholders across the country have been waiting for years—six years, to be exact—to see the Government’s flagship Bill to end leasehold and to break free the millions of people trapped in what the Secretary of State himself describes as a feudal and absurd system of home ownership.
If this is the Secretary of State going in a hurry, I would hate to see his normal pace. It was back in 2017 that his fifth predecessor as Housing Secretary pledged action. He talked a good talk today, and he is theatrical. I love the passion—it is really there—and I love the “squeeze”. We want to see the squeeze, but frankly I have lost count of the number of times Ministers have promised to finally put Britain in line with other developed countries across the world that have all ended this medieval system. To be fair to the Secretary of State, none of them has said it is an assault on leasehold and a squeeze on income, so he is going a little bit further, but after all that time and all those promises and after that theatrical squeeze, we still have a Bill that does not actually abolish leasehold. I suppose that that is no surprise, as it comes alongside a Bill that pledges to ban section 21 no-fault evictions that does not ban no-fault evictions and a Bill to stop the small boats that does not stop the small boats.
It is all well and good for the Secretary of State to say that the Government plan to amend the Bill in the usual way, but is it too much to ask for the Government to include a clause that bans leasehold in a Bill whose stated purpose was to ban leasehold? Why make those promises, only to produce a Bill that does no such thing? In a word, it sounds like chaos. Even the day before it was published, the Department’s press release said that the Bill would ban developers from selling new houses under leasehold. Given the tiny proportion of leaseholds that are houses, rather than flats, it is hardly an ambitious pledge, but the Bill does not even introduce that ban.
Mr Kevan Jones
Does my right hon. Friend agree with what I said to the Secretary of State? The Government could have stopped this, if they had not done the Help to Buy scheme, which fuelled this practice among large developers. They could have stopped it in its tracks, if they had stopped the finance to those companies. Does she also agree that expectations have been raised among a lot of the leaseholders who were put into the trap of their houses being leasehold? They thought they were going to get out of that trap, when actually they are not.
Angela Rayner
I absolutely agree with my right hon. Friend. The Government have been in government for 13 years. We have had six years of these promises, and he is absolutely right that there is more than one way that the Government could have ensured that leaseholders were not treated in this way. The botched drafting of the Bill means we are still waiting to see a single clause that prohibits a single new leasehold property, whether it is a flat or a house.
It was on 30 January this year that the Secretary of State promised my predecessor, my hon. Friend the Member for Wigan (Lisa Nandy),
“we will maintain our commitment to abolish the feudal system of leasehold. We absolutely will. We will bring forward legislation shortly.”—[Official Report, 30 January 2023; Vol. 727, c. 49.]
In February, he said he aimed in the forthcoming King’s Speech
“to introduce legislation to fundamentally reform the system…to end this feudal form of tenure”.—[Official Report, 20 February 2023; Vol. 728, c. 3.]
In May, the then Housing Minister told this House that
“my Department are working flat out”—[Official Report, 23 May 2023; Vol. 733, c. 214.]
on the legislation. If it has taken them this long with not a word to show for it, can they guarantee that they will put their amendments to the House by 30 January next year—a full 12 months after the Secretary of State’s promise at the Dispatch Box?
We have heard the Secretary of State say that it is perfectly normal to bring forward vast swathes of amendments in Committee—believe me, the Committee will be doing some considerable heavy lifting. Having shadowed him through the final stages of the Levelling-up and Regeneration Bill, I would say that perhaps he does think that making endless last-minute amendments to his own Bills is a normal way of legislating, but the anonymous sources close to the Secretary of State may have let the cat out of the bag about the real reason the Bill is so empty when they briefed the press last month. We know from them what he cannot admit today: the Prime Minister was blocking this Bill from the King’s Speech in the face of lobbying from vested interests opposing the reform. In the chaos of this Government, it was added only at the very last minute. We may have heard many warm words, and the Secretary of State was very theatrical about his ambition for reform, but he is stuck in the daily Tory doom loop in which vested interests always come before the national interest.
The truth is that the time wasting and backtracking all go back to the Prime Minister’s desperate attempt to extend the lease on No. 10 Downing Street. The fact is that even if the Government belatedly fix their leasehold house loophole, flat owners will be left out of the picture, yet 70% of all leasehold properties are flats and there are over 600,000 more owner-occupied leasehold flats than houses in England. Having listened to the Secretary of State, those owners will still be wondering just when the Government will fulfil their pledge to them. As I am sure everyone in the House will agree, property law is, by nature, extremely complex, but we cannot and must not lose sight of the daily impact that these laws have on the lives of millions across our country, including over 5 million owners of leasehold properties in England and Wales. I am sure that most of us in the House know what that means in human terms for our constituents.
For most freehold homeowners, ownership means security and control, yet for far too many leaseholders, the reality of home ownership falls woefully short of the dream they were promised. Too many leaseholders face constant struggles with punitive and ever rising ground rents—rent for a home that they actually own, in exchange for which the freeholder needs to do nothing at all. Leaseholders are locked into expensive agreements and face unjustified administration fees and extortionate charges. Conditions are imposed with little or no consultation. For leaseholders also affected by the building safety crisis, the situation is even worse.
Michael Gove
The right hon. Lady has made it clear from the Dispatch Box that she opposes excessive ground rents. Can she explain why the Labour leader made it clear at the Labour party conference that he would get new houses built by creating “attractive investment products” that had residential ground rents at their heart? How can it possibly be the case that she intends to deal with excessive ground rents, when the leader of the Labour party wanted to fund new development by pursuing precisely that policy? Which is it: against them or for them?
Angela Rayner
I thank the Secretary of State, but he has just used the word “excessive”. If he wants to let me deal with this problem, I am happy to take over and show that I am not just about theatrical performances at the Dispatch Box; I will actually deal with it. He has been given 13 years on the Government Benches and has failed to do that. This Bill still fails to do that, so I would like to see where he will deal with this issue.
Regulation of freeholders has fallen behind that of landlords, leaving leaseholders stripped of the rights enjoyed even by tenants in the private rented sector. Perhaps the Secretary of State can tell us what measures exist that prevent the worst actors in the market from repeatedly ripping off leaseholders in one place after another.
Stephen Doughty
My right hon. Friend is making a strong speech, and she accurately describes the mental and financial anguish that has been felt by many leaseholders in my constituency. She is absolutely right. In my constituency, this issue predominantly affects those in flats, not in leasehold houses, and what they have gone through with service charges and fire and building safety remediation has taken a toll on many of them. They have found themselves in despair. Does she agree that much more needs to be done to deal with managing agents on the transparency of service fees? It was good to hear the Secretary of State mention FirstPort, and I hope to meet it soon, but does she agree that this is a much wider problem that needs to be addressed?
Angela Rayner
I absolutely agree. As I said before, and as I think the Secretary of State acknowledged, there is a lot of work to be done in Committee on these issues. Hopefully, we will be able to help the Secretary of State improve his own Bill, which needs significant improvements.
Alistair Strathern (Mid Bedfordshire) (Lab)
I suspect that my right hon. Friend will welcome the strengthening of the regulation of management companies in the Bill, but we need to go further. Just last Friday, I had some heartbreaking conversations with residents on the Froghall Fields estate in Flitwick—a lovely part of the world with which I am sure many Members will be familiar from the by-election—who have been left brutally exposed to successive failed management companies by ongoing adoption conversations with the council that are dragging on and on. Does my right hon. Friend agree that there is more we can do to strengthen the proposed regulations in this area, to ensure that my long-suffering residents finally get the redress and resolution they deserve?
Angela Rayner
I absolutely agree with my hon. Friend. I am so pleased about the work he has been doing since he was elected to this place and the way in which he has been a real champion of his constituents, which they did not feel they had previously. He makes a really important point, and he is right to point out the huge problem of estate agent charges and fees. The steps the Government are taking to address the issue are welcome, of course, but we absolutely believe there is room to improve the measures in the Bill. The shadow Housing Minister, my hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook), will look to do so in Committee.
Mr Betts
Following on from that point, when the Select Committee looked at this issue—it is a real problem—we said that whenever a property is sold, the purchaser or leaseholder, and in some cases the freeholder, should have a right at the beginning to see precisely what the agreement was between the local authority and the developer about where responsibility for ongoing maintenance of the estate and so forth rests. Many purchasers simply do not know who to go to and who is responsible. It would be helpful if that was set out very clearly at the beginning of the purchase.
Angela Rayner
I absolutely agree, and I congratulate my hon. Friend on his fabulous work in this area. Transparency is incredibly important because it is the first step towards getting accountability.
We spoke before about pets—we all love our pets—and the Secretary of State has rightly protected the reasonable right of tenants to keep pets, yet it is not clear whether he intends to extend that right to leaseholders. I have seen leases that contain an outright ban, so I hope he ensures that the Bill reflects that. It is just one example of the restrictions that terms in leases increasingly impose, but I could cite many more—for example, basic modifications or decorations to flats, or the right to conduct business from home. I know that some Government Members may not be keen on working from home, but it is quite another thing to say that someone could lose their home over it. They might be more sympathetic if I point out the impact on the self-employed, who are often banned from running their own business from their own home.
There are basic principles at stake for the Opposition, and I hope the whole House can agree that people’s rights to bring up a family, to care for a loved family pet, to own and run their own business, and to pay a fair price and receive what they have paid for are basic British rights and values. The incredible thing is that they are being denied to people in their very own homes—homes that they own. That is surely at the heart of today’s debate, because for leaseholders, their flat or house is not an investment; it is their home—a place to live, to grow up, to grow old, to raise a family, to get on in life and to be part of a community. A home is more than bricks and mortar; it is about security and having power over your own life.
As a leaseholder, someone may have ownership but not control. The dream of home ownership has already slipped away from far too many, but it is less of a dream and more of a nightmare for too many who now achieve it. From what the Secretary of State has said, there is some agreement between us on the problems those people face, but the contents of the Bill do not quite match up to his sentiments or the energy that he brings to the Dispatch Box. So I hope that in winding up, the Minister will not just tell us exactly how far the Bill addresses the problems raised today but accept that we can work together in later stages to go further.
Rachael Maskell
This is a point that I wanted to make to the Secretary of State as well. There is a long-standing injustice for leaseholders who experience flooding as they currently do not have access to the Flood Re scheme. Will my right hon. Friend seek—I hope she will—to ensure a level playing field for leaseholders and freeholders in accessing the Flood Re scheme?
Angela Rayner
I thank my hon. Friend for that. Just as the Secretary of State earlier brought enthusiasm to the Dispatch Box on cladding and some issues we faced there, I hope that, in Committee, we can explore that and the effect on people who have been affected more and more by flooding.
The Secretary of State may not have the support of his Prime Minister, or his Back Benchers—[Interruption.] Many of them are not here at the moment—watch this space!
On the Labour Benches, we are united behind the decisive action that leaseholders need. If the Government cannot deliver it, we are ready to do so. A Labour Government will make commonhold the default tenure for all new properties as part of our commitment to fundamentally and comprehensively reform the leasehold system. We will also enact the Law Commission’s recommendations on enfranchisement, commonhold and the right to manage in full.
The fact is, unless and until leaseholders of houses and flats get a renewed commitment from Ministers on all the Law Commission’s recommendations, leaseholders will reasonably conclude that the Government have scaled down their ambition with the scaled-back Bill before us. Leaseholders deserve to know the real reason why they are being fobbed off with such limited steps. Unfortunately, the answer, as ever, lies in the chaos of this Government. The Secretary of State has talked a good game, but he might be the only functional cog in a dysfunctional Government—there is a compliment in there; I am trying. [Laughter.] I hope that he will face down his Prime Minister and his own Back Benchers and accept Labour’s proposals to make the Bill meet the challenges of the moment. But if he does not, a Labour Government will.
Madam Deputy Speaker (Dame Rosie Winterton)
I call the Father of the House.
Sir Peter Bottomley (Worthing West) (Con)
The House will be grateful to know that the official Opposition support what the Government are trying to do. I pay tribute, as the right hon. Member for Ashton-under-Lyne (Angela Rayner) and my right hon. Friend the Secretary of State did, to the people in the all-party parliamentary group on leasehold and commonhold reform—Liberals, Labour, Conservatives and others—who, over the last 11 years, have worked together to try to get to a situation where it is not possible for freeholders, on purpose or by mistake, to exploit residential leaseholders.
When I first spoke on this issue about 11 years ago, I declared my interest as a leaseholder in my constituency with no problems whatsoever. Six of us bought the freehold willingly from a willing seller—the person who developed the block of flats—when he retired. I have since acquired an interest in another leasehold property. I do not take part in these debates to try to feather my own nest; I am trying to ensure that the 5 million people who are in a worse position have as good an experience as I have had.
It is 10 years since I first started quoting Leasehold Knowledge Partnership. In addition to Sebastian O’Kelly and Martin Boyd, whom the Secretary of State referred to as well as the campaigners in the National Leasehold Campaign, I would like to name one or two journalists who have helped—in particular, the people at “Newsnight”—and the people who have batted away at the issue. Major media organisations ought to have a housing correspondent or editor rather than putting it with home affairs. We cannot expect Mark Easton at the BBC, when he covers the Home Office, to be able to become expert in residential leasehold in the way that is needed.
I hope that in Committee, and especially in the House of Lords, the parts of the Law Commission’s recommendations that have not been incorporated in the Bill will be put forward for decision by the House and the other place. The three reports that it produced in 2020 should be implemented in full, or else, when those reports came out the Government should have said what was wrong with the proposals.
May I emphasise what the Secretary of State said about the ongoing consultation and continuing conversation on modern leasehold—the ground rent issue—where the period of consultation has been extended from, I think, late-December to the middle of January? People will be grateful for that. There are five options. As Dean Buckner, a trustee of LKP, the campaigning charity, has said, those who own freehold interests have known since Scotland abolished leasehold that the gravy train was going to end. When the Government came forward with the proposal that ground rent should not be more than 0.1% of the capital value, they knew that their value was not as high as some were estimating, and when people start looking at the discount rate—I think in the impact assessment it is about 3.5%; in fact, long-term debt for the Government is now at 4.5%—they see that that again will reduce it. I make the suggestion, which is also on the LKP website, that the Government can deal with any possible compensation by saying that they will tax it at 45% or higher, which will make attempts by people to take it to judicial review or challenges to the Government on human rights terms null and void, or at least not worth trying.
May I say to the Government that after the Grenfell fire tragedy, while it became clear that up to £15 billion of remediation was needed not just for cladding but for other fire defects and that the only people who could eventually pay those costs by law would be the leaseholders who own not a brick in the building, the people who ought to be paying are the insurers for those who were responsible—the designers, the architects, the builders, the developers, the subcontractors, the component manufacturers and the like; they were all insured? I commend to the House that, in Committee, it should somehow be written into the Bill that potential claims by leaseholders be gathered together in an agency, which could sue the insurance companies and those they insured to get a contribution from them. That would reduce the costs both to leaseholders and to the Government, who have been providing a lot of money to try to ensure that remediation has happened.
I pay tribute to successive Secretaries of State, who have had to give written instructions to their permanent secretaries for some of the compensation for fire defect costs, and I say to the Government that the artificial distinction of 11 metres is unjustified. Actually, fire death certificates show that more people die in fires in lower buildings, and higher buildings are not riskier. We ought to try to recognise the realities. It is also worth saying in passing that when Dame Judith Hackitt produced her report and recommendations, I do not think she was well briefed on the law on leasehold, which is why some of her recommendations were not properly appropriate. I am glad that since Gavin Barwell we have had a succession of Ministers who have put the Government on the side of leaseholders; we now know that there are 5 million to 6 million of them.
Bob Blackman (Harrow East) (Con)
I thank my hon. Friend for what he is saying. Does he agree that, at some stage or other, these unsafe buildings were signed off as fit and proper buildings under building regulations and that leaseholders also have a valid claim against the individuals who signed them off, who are also insured?
Sir Peter Bottomley
I agree with my hon. Friend and pay tribute to him for his work in this field. It is worth noting that building standards were set not by those who sign buildings off—the building control people—but by the Government or quasi-Government agencies, so the Government bear some responsibility as well, as I think they recognise.
In my thanks. I want to include Katherine O’Riordan, who has helped the secretariat of the all-party group and worked remarkably well. Given that my involvement as an active campaigner on this matter came through a constituency case, I pay tribute to my senior caseworker, Colette Hanson, who for many years—over a decade—has helped to support constituents facing awful problems, whether on this matter or others.
The Secretary of State referred to James Brokenshire, who carried forward many leasehold reforms. I also thank Sir Nigel Shadbolt and Sir Tim Berners-Lee and their Open Data Institute for providing help to LKP, the campaigning charity, in getting information that is publicly available and putting it together so that we could know the scale of the problem that we are facing. I pay tribute to the law commissioner Professor Nick Hopkins and his team for their 13th programme of law reform. I also pay tribute to Wendy Wilson at the House of Commons Library, who has since left, and Hannah Cromarty, who have produced briefings for Members of Parliament, which I commend to those outside this building. If they look at the House of Commons research and the LKP site, they will be as knowledgeable as me and will put across these points as effectively or more so.
Over and again I want to emphasise that people must respond to the Government’s very good consultation on ground rent. It is well-written and brings out the issues properly. I would be surprised if the dominant view were anything other than that ground rents should be reduced to peppercorns. At one stage, the Government suggested bringing it down to £10, but that still leaves most of the superstructure and the problems with leaseholders. It should be brought down to a peppercorn to eliminate those. When the consultation is analysed, I ask the Secretary of State to look with favour on reducing ground rents to zero. If I get any benefit, I will give it to a good cause, but I am not saying this for me.
I could go on at length, and at some stage I probably will. Having made my preliminary remarks, I want to say to the House that this is the opportunity, before a general election—whoever wins—to get legislation through that may be complicated in law but not in politics. Are we on the side of the people who have been at risk or exploited by interests who have owned freeholds? I have given my list of past shame, and I will not trouble the House with it now. If people have problems with their landlords or freeholders, they should tell their Member of Parliament so that they can bring it up in Committee or on Report.
I suggest that those who have used expensive lawyers to screw residential leaseholders use their money on something else. When a notable charity uses expensive lawyers to raise the cost of enfranchisement or lease extension by a third—an issue that should have come to Parliament rather than be done in the privacy of an upper property tribunal—we know that those running charities can get it wrong, too. We have left this too long. Let us now get on with it.
Madam Deputy Speaker
I call the Chair of the Levelling Up, Housing and Communities Committee.
Mr Clive Betts (Sheffield South East) (Lab)
Generally, I welcome what is in the Bill, as does the Select Committee, based on our 2019 inquiry. It is what is not in the Bill that is disappointing—that is the difference. Let me go back to our report, which built on the work of the APPG—I congratulate the Father of the House, the hon. Member for Worthing West (Sir Peter Bottomley), and my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders), who is now a shadow Minister, on their work. That report led to the work of the Competition and Markets Authority on mis-selling and the Law Commission report.
I want to go through some of the Select Committee’s recommendations and what the Government have followed through on, which we welcome. I also want to look at the matters omitted from the legislation, which could easily be added in Committee if the Government want to. Leasehold flats are more complicated, and they will probably not be added to the Bill in Committee. The Select Committee accepts the complications, particularly where properties are part commercial, part residential. However, our report was four years ago, which is a long time for the Secretary of State to work up a scheme to deal with leasehold flats, but we are not there. In the meantime, I hope that he will commit to the Committee’s recommendation for a programme of education and information for leaseholders, to ensure a better understanding of what commonhold is all about. There is a lack of understanding and information, and if we are to move to commonhold for new properties and encourage leaseholders in existing properties to convert, that programme is needed.
The legislation deals primarily with leasehold houses. We welcome the commitment to no new leasehold houses—or we will when the clauses are added to the Bill. We understand that that is for Committee. We welcome the commitment to removing onerous ground rents. The Select Committee looked in detail at the argument about the European convention on human rights.
Mr Kevan Jones
Does my hon. Friend agree that the Bill does not address issues associated with the growth in leasehold houses over the last few years? Earlier, I mentioned Persimmon, which has left a lot of residents with leases that include not only their own properties but common areas. Traditionally, when my hon. Friend and I were in local government, those would have been taken over by a local authority.
Mr Betts
There are real issues with that, which I was going to address later, but I will do so now. It is important to strengthen the right to manage, both for leaseholders and for freeholders in these estates who own the freehold of their house but not of the communal areas. I said earlier that in all property purchases where common areas remain in private ownership, there should be, at the point of purchase, a clear understanding of the agreement between the local authority and the developer about who is responsible for those common areas. In many circumstances it is simply opaque. Often, purchasers do not know who is responsible and are sent on a wild goose chase to find out once they have bought their property.
Returning to onerous ground rents, the Select Committee took counsel’s opinion, which was quite interesting, and made recommendations in paragraphs 114 to 116 of our report. There were two clear arguments why removing onerous ground rents from leases retrospectively was completely compatible with the European convention on human rights. The first, which most of us may not have thought about, is that controlling or changing rent is not confiscation of property but control of its use, so it does not conflict with the article on removing people’s property rights. Secondly, the convention includes a justification where the proposal has a wider beneficial impact on society, which can be offset against any impact on the property owner. Counsel’s opinion was that it was therefore perfectly justifiable under the European convention to remove onerous ground rents on existing properties.
Barry Gardiner (Brent North) (Lab)
My hon. Friend will remember that when the Labour Government overturned the case of Custins v. Hearts of Oak in 1967, they used exactly those grounds to justify doing so.
Mr Betts
I do remember that far back. Many will not remember the Labour Government’s ’67 reforms, but they were quite important on those grounds—absolutely.
Other good aspects of the Bill include its reducing the price of enfranchisement and trying to make it simpler. Now, I am not sure that it makes it simpler; it is still a bit complicated. In the end, it partly depends on the capitalisation rates that the Government introduce, which will determine the price. But a lot of my constituents who are leaseholders live in houses, and they often face enormous barriers to carry through the enfranchisement process. I have referred to Coppen Estates in my constituency, which is notorious for simply not replying to letters. I once got it to reply to a recorded letter at the third time of asking. Normally, it ignores everything. That is just its way of trying to hang on to its ground rents and its income from leases. How will we deal with those sorts of individuals and companies, and the fact that they transfer ownership around from one company to another?
Why is there no right of first refusal for leaseholders in the Bill? I was pleased that, some years ago, Sheffield Council agreed that when it sold freeholds, the right of first refusal would go to the leaseholder. That would be a simple reform, and I hope the Secretary of State will consider it. The improvement of the enfranchisement process to make it simpler and reduce the cost is right, but I would like further improvements to ensure that it will work.
I welcome the standardisation of service charges. One big complaint to the Committee was that leaseholders often simply do not know what they are paying and why. They cannot work out which services are supposed to be provided and which are not. That is an important step forward.
On commission fees, we heard about the £150 to change a doorbell and the £3,000 to put up a conservatory—complete rip-offs. There is no justification for them in houses in particular, and very little justification in flats. I am pleased that freeholders will now have to provide a schedule of rates that will be charged. We called for a cap on rates, which might have taken reform a little further, but at least there now has to be clarity and transparency. I also welcome the clause that means leaseholders will not end up paying for the legal and other costs of freeholders where there is any conflict or dispute.
A number of other measures have been omitted from the Bill, but they could be included very easily. The Secretary of State mentioned forfeiture. If leasehold is a feudal tenure, then forfeiture is prehistoric—it really is. If a leaseholder in a very small way fails to comply with an element of their lease, they could have the property taken off them. That is just unacceptable and unjustifiable. The Secretary of State was right in what he said. Forfeiture is not necessarily something that gets used, but the threat of its being used puts the onus on leaseholders to “behave” or do what the freeholder wants them to do. The removal of that with a simple clause would be really welcome.
Sir Peter Bottomley
I should have included the hon. Gentleman and the Select Committee in my thanks, and I do so belatedly. On forfeiture, we could ban it completely, although there may be times when it is necessary to have an order to sell a property to pay debts. The limit should be raised from £350 to a significant figure such as £5,000, and any remaining equity should go back to the person who owned the lease and not be pocketed by the freeholder.
Mr Betts
The Father of the House makes a very reasonable point. My point is simply that forfeiture is currently a blanket possibility that can apply to any breach of a lease, however minor, and non-payment of a very small amount could cost the leaseholder the total of the value of their property. That is what we have to stop.
Why do freeholders not have to join a redress scheme? The Committee called for them to be included in the redress schemes. The Secretary of State is bringing in a number of redress schemes and ombudsmen extensions, so why can freeholders not be included?
One of the big issues raised with us, where again there is a lack of transparency, is that many leaseholders have to pay into a reserve fund—a sinking fund—for their property. Can we not have some protection for those funds formally written into law? Currently, many leaseholders have no idea what the money is being spent on. There is no obligation on the freeholder to explain it and certainly no protection that funds have to be used for the purpose for which they are paid.
On mis-selling, one of the big complaints we heard when we met leaseholders—this related to houses in particular; Persimmon Homes has been mentioned, but there were other developers too—was the fact that they were being sold a leasehold as though it was the same as a freehold. The solicitors were compliant in that, because they had been recommended by the developer. Often, a bonus was thrown in: “We’ll give you new carpets in the living room if you use that solicitor.” The Competition and Markets Authority investigated at our request and said there was mis-selling, but so far nothing has been done about it. The Government have done absolutely nothing to rectify that injustice. Can we not see something on that again? I do not think that there is any great conflict across the House, or between anyone who has been involved in this matter. It is wrong—absolutely wrong. Solicitors should not be induced in this way to provide conveyancing to a purchaser, when the developer is recommending that solicitor. It simply is not right and it needs addressing.
My final point is one that we raised on the private rented reforms that the Government will hopefully pursue —and hopefully this year coming, rather than waiting any longer with regard to section 21. We have called repeatedly for a housing court. I know the Secretary of State will explain again why he does not want to do that, but I think we ought to keep asking. There are so many issues in the housing field that need a specialism, and need quick decisions and quick resolution. A housing court would be one way of doing that and of trying to improve the process.
Stella Creasy
One thing I think so many leaseholders find frustrating with our current court system and the first-tier tribunals is that they do not set a precedent, so even if we identify something with a freeholder who may have multiple thousands of properties, every single individual has to go through the process if they were not a party to the original case. Does my hon. Friend agree that a specialist housing court could at least have precedent built in?
Mr Betts
That is an extremely good point. I do not think the Select Committee actually made that point, but it adds to its recommendations in a very thoughtful and helpful way.
There are a lot of issues, and I am sure we will not resolve all of them in today’s debate, but they need to be addressed in Committee. There are reforms to the proposed legislation that could be made, most of them quite easily. The bigger issue of leasehold flats is for another day, but it ought to be kept on the agenda. I welcome what is in the Bill, which could be the basis for a much-improved piece of legislation. Perhaps we will see an improved Bill come back to us on report.
Rachel Maclean (Redditch) (Con)
I am delighted to speak on this flagship piece of legislation, which will restore true home ownership to millions, end rip-off charges and introduce fairness to the leasehold market. I am confident that it is a good piece of legislation not because I did all the preparatory work on it, but because I worked with brilliant officials, whom I thank.
We heard the testimony of so many thousands of leaseholders who struggled with blighted properties that led to blighted lives. There are too many of them to mention individually, but the strength and tenacity of the campaigners—and the organisations, such as the Leasehold Knowledge Partnership and the Leasehold Advisory Service, under the leadership of the superb Martin Boyd, which helped them—is enormously impressive. Take, for example, Liam Spender, who was able to show that leaseholders in his block had paid £1.6 million in excess service charges to their freeholder, FirstPort. Incidentally, FirstPort is one of the worst offenders I heard about in my time as Minister. Yet freeholders still had the audacity to sit in front of me while I was a Minister and claim that
“some people like the security of paying service charges”
and that there is no evidence that they oppose ground rents. Yes, truly, that is what they said. Shockingly, I understand that Mr Spender and his tenants have received nothing yet, and now the freeholders are appealing the decision with the leaseholders’ own money. I would like the Minister to set out clearly how the Bill will tackle their situation and end that scandal once and for all.
We got here because of the greed and unethical behaviour of predatory freeholders who have treated leasehold properties as a cash cow and the leaseholders as a milking machine to produce an endless stream of income for no work at all. It is the ultimate definition of rent-seeking behaviour. In its worst excesses, it is frankly disgusting. I and many others find it appalling.
Sir Peter Bottomley
On the case that Liam Spender has so rightly been pursuing for his fellow leaseholders, does my hon. Friend think it would be a good idea if the Select Committee considered inviting in the people he has been engaging with to ask why they did not put their hands up straightaway, settle and give back all the money they wrongly took from leaseholders, without having to have extended legal proceedings?
Rachel Maclean
That is an excellent suggestion from my hon. Friend the Father of the House, with which I strongly agree—as I do with everything he says about this issue.
Despite the theatrics we heard from the right hon. Member for Ashton-under-Lyne (Angela Rayner), who spoke for the Opposition, it is the Conservatives who are finally bringing in sweeping reforms. It is right that we note that Labour ducked the issue while they were in office. They could have fixed it then. They could have saved millions from misery—nearly 5 million homes, accounting for 20% of the entire housing market, are owned on a leasehold basis across the UK—but it appears they bowed to pressure from freeholders. We will never know why, but thankfully things will now change.
Barry Gardiner
The hon. Lady may not remember—but I do—that before the Commonhold and Leasehold Reform Act 2002 was passed, a great deal of pressure had been applied since 1999. At that stage, however, their lordships down at the other end of the building threatened to block all of Labour’s legislation if we insisted on putting through some of the measures that were ultimately taken out of that Bill. The hon. Lady is right; those measures should have been included. I lobbied and campaigned for them to be included, and made my speech in the House accordingly, but their lordships were in the majority—and, at the time, 66% of their lordships had declared in the Register of Interests that they derived most of their income from the management of land.
Rachel Maclean
I thank the hon. Member for the history lesson but, regardless, we are determined to fix this now.
Rachel Maclean
No, because I need to make progress. Perhaps I will allow the right hon. Gentleman to intervene a little later.
The key factor here is choice. At present, leaseholders do not have a choice, or they have a fake choice. The Bill will give them a genuine choice when it comes to how they manage and own their homes. However, while I warmly welcome these measures, we can and must go further. May I draw the attention of the Secretary of State and the Minister to a few of my suggestions?
The measures in the Bill will clearly be of enormous benefit to individual leaseholders, making it easier and cheaper for them to buy freeholds or extend leases, but of course this is a very complicated area, and I know it will be difficult for many leaseholders to understand exactly how much they will benefit financially. My first suggestion, therefore, is the provision of an easy-to-use digital calculator enabling people to see what the Bill means for them.
Then there is the issue of commonhold fixes. I know that the focus here is on ensuring that leaseholders cannot be exploited and can take control of their homes, but there is a clear Conservative and free-market rationale for accepting the Law Commission’s recommendations on reforming commonhold so that more developers choose it, rather than leasehold, for new blocks of flats—not because they are forced to do so, but because it is the best option for their business model. Can the Government look at that again? All the work has already been done.
I strongly welcome the Government’s consultation on capping ground rents. As I said in an intervention earlier, the Secretary of State must look at who is making the representations, and bear in mind the old adage, “They would say that, wouldn’t they?” when people oppose such caps. We know that ground rents are sheer exploitation. Let us call a spade a spade: this is money for nothing. Can the Minister assure me that there will be time to get a cap into the Bill once the consultation has closed?
We have all heard of too many sad cases involving a hard core of truly exploitative and dodgy freeholders—the bad apples—ripping off and exploiting leaseholders. We know that there are some freeholders who treat people properly, but the others know that going to court will be too much hassle for most people, and indeed that the odd tribunal defeat is just part of the cost of doing business. We must do something to ensure that there is a real cost to those unscrupulous companies and their directors.
Ruth Cadbury (Brentford and Isleworth) (Lab)
I thank the hon. Member for the work that she has been doing on this issue. However, she implies that the rip-off merchants constitute only a certain proportion of freeholders. Is she not aware that these people have been working in cahoots over the past 10 years, attending conferences, identifying the weaknesses in the law, sharing information and forming links with professionals such as agents and solicitors in order to rip off innocent leaseholders? This is a consistent, organised scam that has been growing over 10 years, which is why there are so many more problems now than there were, say, 15 or 20 years ago.
Rachel Maclean
Of course I am aware of that. When I was privileged to hold the position of Housing Minister, I strongly supported the relevant legislation, because those people sat in front of me and cried crocodile tears, telling me that if we went ahead with it we would destabilise the pensions industry and leave lots of little old ladies with no pensions—which is obviously complete and utter nonsense, as I am sure the Secretary of State and the current Housing Minister, my hon. Friend the Member for North East Derbyshire (Lee Rowley), will be able to tell me on the basis of the analysis that they have conducted.
We also need assurances about section 24 managers. I note that, in recent weeks, at least one freeholder has tried to wrest control of a building back from a court-appointed manager—a so-called section 24 manager—claiming that it is incompatible with the Building Safety Act 2022. That is obviously nonsense. If a freeholder has been found not to be managing his building properly, it shows some cheek to try to ditch a court appointee on such spurious grounds. I hope that the Minister will take the opportunity later to give us the Government’s view.
I welcome the Government’s intention of introducing building safety measures to ensure that remediation continues to accelerate, and to make it easier to ensure that the right people pay, but may I press the Minister for a little more detail? I know that, even as we speak, people are making serious decisions about their own finances.
My constituents in Brockhill, especially those in the Persimmon Homes development, have faced innumerable issues relating to freehold estates, and I must press the Minister on what measures he will introduce to help them and, most importantly, when he will do so. I know that the Government intend to introduce a right to manage for freeholders, and to challenge arrangements and charges through the first-tier property tribunal. However, I urge him to read again the Hansard report of the Westminster Hall debate in which I responded, on behalf of the Government, to my hon. Friend the Member for North East Bedfordshire (Richard Fuller), who had told a story about one of his constituents who had had to pay thousands of pounds for one lamp post. This is an outrageous state of affairs, and I want the Government to introduce measures that will tackle it and many others. Currently, throughout the country, people’s new dream homes are turning out to be a nightmare. They are being ripped off by small-print clauses that turn into big bills, and they have no redress. That must be fixed.
Finally, there is a need for regulation of the property management sector more broadly. I recognise that the Bill was not the right vehicle for it, but I urge the Minister to continue to push ahead with a reform that must happen, if not on this side of a general election, then on the other side.
We Conservatives believe that the opportunity to own one’s home is sacrosanct, and the Bill takes another important stride towards the creation of a true property-owning democracy. While, as we have made clear, we stand firmly on the side of fairness and those who want to own a home, we are still none the wiser when it comes to where Labour Members stand. One week they are on the side of the builders, not the blockers—or so they say. The next week, they are blocking our proposals to build 100,000 new homes that first-time buyers and young families would desperately want to possess. While they decide whose side they are on, we are taking important steps to improve the lives of millions up and down the country. I look forward to working with Ministers on the Bill as it goes through the House to strengthen some of its measures, particularly those on commonhold and freehold estates, and to ensure that we deliver on the promise that it holds.
Let me end by wishing my hon. Friend the Minister better luck than I had in his tenure of this important role. I especially hope that he can remain to finish the vital job of leasehold and freehold reform and restore true property ownership to millions. He will have my full support in the Lobbies.
Sir Stephen Timms (East Ham) (Lab)
I am pleased to follow the hon. Member for Redditch (Rachel Maclean), the former Housing Minister, and I congratulate her on her work in this regard. I was disappointed that she chose to adopt a rather partisan tone in some of her remarks—unnecessarily, I thought—but I was grateful for the more generous tone taken by the Secretary of State. I especially welcomed his generous and appropriate tribute to our former colleague, Jim Fitzpatrick, for his work in the all-party parliamentary group—I am glad that he was mentioned.
Let me begin by identifying a specific concern that the Bill has raised. I am aware of it because of the work that the Work and Pensions Committee has done on asbestos. Under the Control of Asbestos Regulations 2012, premises can be sold while containing asbestos; ownership can be transferred. Asbestos management is regulated in relation to workplaces, where it is the responsibility of the Health and Safety Executive, but not in domestic properties. In a lot of shared dwellings, such as flats and conversions, the landlord or freeholder has regulated duties under the existing regulations to manage asbestos in the shared areas in those developments. This legislation, as I understand it, may well give rise to the transfer of those obligations to domestic owners.
The existence and extent of asbestos in a building might not be known, leaving homeowners taking on these responsibilities with a hidden liability and, potentially, a life-threatening risk to handle as well. Homeowners are unlikely to have the wherewithal to manage asbestos in situ effectively, and this could leave a complex set of responsibilities and liabilities between owners in shared properties or where the nominal landlord no longer exists. At the moment, there is tax relief for businesses removing asbestos from a workplace—they can offset it against corporation tax—but there is no support for homeowners to remove or manage asbestos.
It has been suggested to me—this is something I am looking at—that there should be an amendment proposing that change in ownership of a property in the circumstances envisaged in the Bill, or a change in the extent of landlord control, should be a trigger for removing asbestos. Otherwise, more asbestos will move outside effective control under this legislation, meaning that nobody will be responsible for managing it and potentially creating a significant public health risk.
I will focus the rest of my remarks on part 3 of the Bill and draw attention to some particular instances that have arisen in my constituency. My right hon. Friend the Member for Ashton-under-Lyne (Angela Rayner), in opening the debate, rightly expressed the disappointment of many that the more radical ambitions for the Bill have been dropped, at least for the time being, but there are lots of practical problems for our constituents that need addressing and that the Bill can potentially help with.
The Minister for Housing, Planning and Building Safety, who is in his place, is aware of Barrier Point in my constituency, which comprises eight towers and 257 apartments. Tower 8, the largest of the towers, has 50 apartments and a flammable cladding problem. In 2017, buildings insurance for the whole of Barrier Point cost £104,000. Last year, Aviva, which insured the block previously, refused to quote, so this year residents have ended up paying £443,547 for insurance, and Tower 8 residents have shouldered that huge increase at a cost of between £6,000 and £12,000 each. I am grateful both to Aviva and to Barratt, which built the development, for meeting residents to try to find a way forward. I am also grateful to the Minister for the interest he has shown in this and for his agreeing to visit—I hope we will have a date for that soon.
I can see that the Bill could go some way towards tackling those problems. I particularly welcome clauses 27, 28 and 29, which increase transparency around service charges and give occupants the right to obtain information about service charges and costs on request. Clauses 30, 34 and 35 will help tenants to enforce those rights and rebalance the costs of litigation in their favour. The Financial Conduct Authority’s 2020 report on insurance for multi-occupancy buildings found that commission was often at least 30% on a transaction, and it found one case where it was over 60%. The FCA was worried that insurance commissions lacked transparency and it feared the conflict of interest that stemmed from brokers regularly sharing half their commission with the freeholder or managing agent. Replacing commission with transparent handling fees, as clauses 31 and 32 envisage, should certainly help.
Barry Gardiner
I appreciate everything that my right hon. Friend is saying. He will be aware, though, that many companies holding freeholds will also set up an arm’s-length company that is the broker, thus taking a double take in terms of the commission. It is not just that they get cut from the broker; they are the broker.
Sir Stephen Timms
My hon. Friend makes an important point and I welcome his work in this area over a long period.
The changes in the Bill are not likely to do much to help the residents of Barrier Point who have exercised their right to manage. The FCA has argued that
“the intervention most likely to reduce prices for the minority of multi-occupancy buildings with the most substantial price increases would be cross-industry risk pooling”.
I was pleased to hear from the Secretary of State, in answer to my intervention, that he will be meeting representatives of the Association of British Insurers this week. The ABI initiative on this issue appears, up to now, to have stalled. The FCA recommended that the ABI should work with it and with the Government to introduce a risk pooling scheme in 2022. The scheme was expected to come forward last summer, but we are still waiting. I am hoping that, as a result of the meeting this week that the Secretary of State has told us about, things will get moving.
I checked with the FCA last week about this. It said that the ABI plan is
“credible and capable of delivering savings to those worst affected buildings”,
but it went on to add that the plan is delayed with “no firm launch date” because the ABI is struggling to secure “the reinsurance capacity required”. That seems to be the obstacle. I very much hope that the Secretary of State can find a way to push this forward at his meeting. The ABI urged the Government to increase capacity by backing catastrophic losses in the scheme. It did that most recently in June. Can the Minister tell us whether that appeal has been considered by the Department and whether that might be taken forward at the meeting with the Secretary of State later this week? When does he think risk pooling will commence?
On remediation, there is a power imbalance between leaseholders and freeholders. That has been highlighted to me by Barrier Point residents. The Bill does not really address that. Section 72 of the Building Safety Act 2022 makes a right-to-manage company the “accountable person” for a high-risk multi-occupancy building, making the directors criminally liable if negligence can be proved. The same Act, however, requires only that freeholders “co-operate” with accountable persons, without any enforcement mechanism in place at all. The freeholder at Barrier Point has held up remediation works for several months and is refusing to sign off on them. The directors of the right-to-manage company desperately want to fulfil their legal obligations but they are left liable because of the refusal of the freeholder to say okay, and there is no comparable liability on the freeholder. That seems wrong, and I wonder whether that imbalance can be addressed in the course of the Bill’s passage through the House.
The Minister said in oral questions just last week that the Government plan to make changes to the Bill as it goes through Parliament, and I hope he will consider how that imbalance can be addressed to ensure that remediation work can go ahead in a case such as that, which I suspect is by no means unique. The residents of Barrier Point want to purchase their freehold. To do so, they need to get at least 50% of all the leaseholders to agree to, and be able to afford, a freehold purchase. That is very difficult in a building with 257 households. I do not think the Bill does anything to make that process easier, so I very much hope that Ministers will be open to further improvements as it progresses through the House.
Gareth Johnson (Dartford) (Con)
My speech will be brief, as I want to concentrate on one aspect of the Bill. Estate management companies are a massive and growing issue in my Dartford constituency. Some 7,000 new homes have been built in my constituency over the last 10 years, and they are predominantly “looked after” by management companies.
I welcome the measures in the Bill that will rightly allow residents to challenge the invoices and bills they are sent by management companies. This will help to transfer some of the power back to residents, by giving them a tool to say, “This invoice is unfair,” “This bill is not right,” or, “These accounts are not right.”
It is absolutely right that power is transferred away from management companies and into the hands of local residents, because at the moment management companies seem to do pretty much whatever they like. They can put up the charges they levy on residents way above inflation while providing a very poor service, and local residents can do very little about it. Local residents find themselves completely restricted in challenging what is, on occasion, a hideously poor service with extortionate fees. They are trodden on by the management companies.
Of course, residents question why they have to pay council tax at the same time as paying management fees, as they often find that their management fees are used to pay for, say, play parks that the whole community can use for free. They have to pay for it, they have to pay for the maintenance and they have to pay council tax, too, which seems very unfair.
In my experience, local residents want to be able to change their management company. They want to be able to switch over and to say to their management company, “No, you have not provided a good enough service. You are charging us too much money, and therefore we are going to use a different management company.” If that happens, it will help to tackle most of the problems we are experiencing with management companies. It will end the monopoly by returning competition to the system, enabling the good management companies to prevail and the poor ones to fall by the wayside.
Sir Peter Bottomley
The whole House will accept that my hon. Friend is rightly arguing for total transparency. There ought to be open-book accounting by these managing agents, so that those who are paying can see what is happening.
Does my hon. Friend agree that the amalgamation of managing agents is a dangerous trend? It means that the choice is reducing, not increasing. Given that some managing agents are very large and people’s experience of them is not very good, we ought to try to make sure that there is not this continual amalgamation and that there is a good choice of good managing agents that want to earn a better reputation.
Gareth Johnson
The Father of the House makes a very good point. I would like to see co-operation between companies, rather than amalgamation. In my constituency, we often see two management companies sending two people to mow the grass on the same estate. Residents look out of their window and see the grass on one side of the estate being mowed by one company and the grass on the other side of the estate being mowed by a different company. Of course, they have to pay twice for that pleasure. If the companies co-operated, that situation would not arise.
Some 20% of the people attending my surgeries are there to complain about management companies. Even a constituent of the hon. Member for Greenwich and Woolwich (Matthew Pennycook) came to my surgery—with two of my constituents, I hasten to add—to raise issues about management companies. She was very complimentary of the hon. Gentleman, by the way, but I put her straight. However, she was not very complimentary about the management company that she was suffering from. This problem happens in Greenwich, in Dartford and across the country, and we need this Bill to get to grips with it.
Mr Kevan Jones
Is the hon. Gentleman aware that management fees slowly go up in some retirement villages and retirement complexes? Older people do not challenge them, and it ends up making their flats either unsellable or worth less than they paid.
Gareth Johnson
The right hon. Gentleman makes an excellent point, and it highlights how management fees undermine the whole housing sector. We will end up in a situation where people do not want to buy nice homes because of the management companies that operate on these estates.
It undermines freehold, because people living on these estates have to go to the management company to get an information pack in order to sell their home. Of course, the information pack does not come free. On most estates in my constituency, people have to pay the management company £350 effectively to ask for permission to sell their house.
A lady contacted me and, apart from the cost, some of the information in her information pack was wrong. When she contacted the management company to ask some questions about the information it had provided, she was told that each question would be charged at £60 plus VAT, but this was the management company’s fault, not hers. That is just one example—I could give thousands—of just how horrifically some management companies behave. The Bill needs to deal with these organisations.
Barry Gardiner
The hon. Gentleman is making some excellent points. Is he aware that some companies managing residential properties for the elderly charge 10% of the property’s sale price, which they take to themselves for the privilege of allowing it to be sold?
Gareth Johnson
I have heard of those kinds of things. The same happens with park homes, and we are also trying to tackle that. It is only right that we tackle this issue with management companies, because it totally undermines the concept of freehold. The Secretary of State rightly says that he supports home ownership, yet we have a system that undermines the principle of home ownership.
People bought these houses in my constituency because they are nice homes in a nice area, and they often bought them in a seller’s market. They were literally standing in a queue, with other people waiting behind them to buy the same property. If they had not signed on the dotted line there and then, there were plenty of people behind them who would have. They signed without a full appreciation of the terms of the contract, which effectively said that the management company can put up its management fees way beyond inflation, and there is nothing that can be done about it.
I echo the Father of the House. As we consider the Bill throughout its passage, Members have to decide which side we are on. Are we on the side of the management companies, or are we on the side of local residents? It should be a no-brainer for every Member of the House, and I hope we will come together. After the Bill gets its Second Reading, I am sure we would all like to see some amendments in Committee.
Marsha De Cordova (Battersea) (Lab)
It is a pleasure to follow the hon. Member for Dartford (Gareth Johnson). He is absolutely right about management companies needing more transparency and more accountability.
Today’s Second Reading of the Leasehold and Freehold Reform Bill is long overdue for my Battersea constituents. Many are trapped in the exploitative leasehold system, which denies them control, safety, security and a future in their home. Unfortunately, the Bill falls short of what the Secretary of State committed to when he said that the Government
“will maintain our commitment to abolish the…system of leasehold. We absolutely will.”—[Official Report, 30 January 2023; Vol. 727, c. 49.]
This is yet another broken promise by the Tories.
We all know that everyone deserves to live in a safe, decent and affordable home, and that means abolishing the unfair and outdated leasehold system. In London alone, leasehold accounts for more than 30% of homes. Some 74% of homes sold in Battersea in 2022 were leasehold transactions, making Battersea the 18th highest constituency in the country for leasehold. So this Bill really matters to the people of my constituency.
I have been in this House for only six and a half years, and we have debated leasehold reform continuously. Indeed, we have passed legislation, by way of the Fire Safety Act 2021 and the Building Safety Act 2022, which followed the awful, awful tragedy at Grenfell Tower. However, we know that even with all that legislation and despite all these debates, the system is still flawed and not all leaseholders are protected. In England and Wales, our approach has not been in keeping with that of the rest of the world, because many countries have chosen to do away with this feudal system or have reformed it; we are still in this state of stalemate. The Law Commission’s proposals back in 2020 had cross-party support. Everybody was in favour of them all, so it is disappointing that the Bill does not include all of its proposals and recommendations. That is sad because the Government have missed an opportunity to make some positive change that would protect our leaseholders. The Government’s inaction and delay in tackling the extortionate costs associated with being a leaseholder have had an impact, not least on people’s finances, as well as on their mental health and wellbeing. Many of my constituents regularly tell me about the range of problems they face: surging ground rents; high service charges; a lack of transparency over charges; poor customer service; excessive administration charges; charges for applications to extend lease agreements or enfranchise; and a lack of knowledge and information about their rights and obligations. The leaseholders in Battersea do not receive value for money on service charges, which can be increased at the last minute; they can go up drastically, with little warning. In one case, someone had their service charge increased by 30%, without any breakdown of costs or transparency as to why that had happened. At that time, the management company was—I am not sure of the best way to describe this—not forthcoming. In addition, it was abrasive, belittling and rude in its responses to us. So it is important that the role of these management companies and the way they are handled is addressed.
I am pleased that the Government are introducing long overdue measures to improve home ownership for many leaseholders. The Bill will make it cheaper and easier to extend a lease or buy the freehold; and it will increase the standard lease extension term from 90 years to 990 years, with the ground rent reduced to a peppercorn—obviously, upon payment of a premium. That is good and I welcome the fact that the Secretary of State said today that the Government will be consulting on grounds rents. Sadly, he did not address my point about shared ownership and those who staircase to 100% and then become leaseholders, so I hope the Minister will clarify whether the consultation will seek to address that issue as well. We need more transparency on things such as service charges, and it is right that the Bill will provide that. It will also provide for a right to request information about those charges.
However, as was mentioned by my right hon. Friend the Member for Ashton-under-Lyne (Angela Rayner) and many others, despite multiple assurances from Ministers, the Government have U-turned on their commitment to end the leasehold system. After all that they had been promised, my constituents would have expected the Government to go further and end this outdated system. The Bill does not even contain provisions to ban the creation of new leasehold houses, as was promised in the King’s Speech. I understand that that will be brought forward in Committee, but why on earth was it not in the Bill today? There is never going to be enough time to really go into detail about the challenges with the Bill, but it is important to note that housing is a human right. Everybody should be able to live in a safe, decent, warm and affordable home. Homeowners should be able to have security and have the power of their own home, regardless of the type of tenure. If you buy your home, you expect it to be yours; you do not expect there to be a freeholder who owns this aspect of it. The Government could take some lessons from Labour, as we will protect leaseholders through making commonhold the default tenure for all new properties and by overhauling the system so that existing leaseholders can collectively purchase more easily and move to commonhold if that is their wish. We are also committed to supporting house building, in order to deal with the housing crisis that the Tories have created and not addressed. That is why we need this leadership on housing; we do not need any more broken promises and failed policies from this Government, which have really left this country in a mess.
Bob Blackman (Harrow East) (Con)
It is a pleasure to follow the hon. Member for Battersea (Marsha De Cordova). Let me start by paying tribute to the Father of the House, my hon. Friend the Member for Worthing West (Sir Peter Bottomley), who has been campaigning on this issue for many years, to great success, eventually. I also pay tribute to my hon. Friend the Member for Redditch (Rachel Maclean), who is no longer in her place, for all the work she has done in the preparation of this Bill. I welcome the principle of the Bill. Some Opposition Members may say it is too timid, but with 58 pages of detailed legislation and equations, which remind me of my time studying physics and maths at university, it can hardly be said to be less than complex. The key issue is: have the Government gone far enough in what they intended to do?
Our manifesto commitment was clear: to promote fairness and transparency for leaseholders, and ensure that consumers are protected from abuse and poor service. Clearly, that is a fundamental requirement. The Law Commission’s 2017 review of leasehold law represented it, and it is has taken us six years to get to this point in dealing with some of the abuses. We have to remember that 94% of people who have bought leasehold properties regret buying them and 70% of leaseholders are worried that they will not be able to sell their homes because they are leasehold. That is one fundamental thing we need to answer. We also need this leasehold reform to reform and support the housing market, because almost half of leaseholders are first-time buyers and 28% are under 35. At a time when fewer and fewer people are buying their first home at such an age, it is vital that we not only encourage people to buy their first home, but simplify the system.
So I welcome the overarching aims of the Bill to modernise this complex system, but clearly there is still a lot of work to do. Obviously, making it cheaper and easier for existing leaseholders in houses and flats to extend their lease and buy their freehold is a key point. The so-called “marriage rates” make it almost impossible for leaseholders to buy properties with fewer than 80 years left on the lease and to extend that lease to 990 years, which is what we are now going to be looking at. Having that as the standard position for houses and flats has to be the right thing to do. We should remember that the original position on extensions was 90 years for flats and 50 years for houses, so we are introducing a massive change and it is extremely welcome.
Barry Gardiner
I thank my constituency neighbour for giving way; if he is fortunate at the next election, he may inherit some more leasehold flats. As he will know, in this country a freeholder holds their freehold for a period of 999 years from the Crown and that may run out before any new leasehold is able to conclude its 999 years. Does he understand what the Government propose to do in that situation?
Bob Blackman
Longevity may run in my family, but not to the extent of 1,000 years. The hon. Gentleman makes a good point and I am sure the Minister will seek to answer it in his summing up.
Introducing new rights for long leaseholders to buy out the ground rent without needing to extend the term of the lease is another extremely welcome move, as is removing the requirement for a new leaseholder to have owned their house for two years before they can benefit from the changes. The new right to require the freeholder to take a leaseback of non-participating units when a collective enfranchisement claim is made is also vital. We do not want to get to a position where people are deterred from enfranchisement because they cannot take on those who do not take on enfranchisement.
A new costs regime for enfranchisement and right-to-manage claims so that each party bears their own costs is vital. Far too often, the freeholder has sought to obtain their costs from the purchaser, which is clearly unfair and unjust. Moving jurisdiction for enfranchisement and right-to-manage disputes to the first tier tribunal and the leasehold valuation tribunal in Wales makes it much easier for parties to identify how they can bring about a dispute. I note the point the Chair of the Levelling Up, Housing and Communities Committee, the hon. Member for Sheffield South East (Mr Betts), raised when he said that freeholders often make it as difficult as possible for enfranchisement to take place.
The issue of transparency of service charges is vital. One of the benefits of serving on a Select Committee for a long time is being able to remember the reports the Committee was involved in, and I well remember an inquiry into this issue. We wanted all service charges to be transparent and fixed to the cost of providing that service, as opposed to a figure plucked out of the air and then passed on to the person supposedly receiving the service. It is welcome to see that the Bill contains measures for minimum key financial and non-financial information to be supplied to those receiving the service on a regular basis, including through a standardised service charge and an annual report. That means leaseholders can scrutinise and better challenge costs if they are unreasonable.
Equally, replacing buildings insurance commissions for managing agents, landlords and freeholders with transparent administration fees stops leaseholders from being charged exorbitant, opaque commissions on top of their premiums, an issue that has already been raised in the debate. I welcome scrapping the presumption for leaseholders to pay their freeholders’ legal costs, which in my opinion is outrageous, as well as granting freehold owners on private and mixed-tenure estates the same rights of redress as leaseholders, by extending their equivalent rights to transparency over their estate charges and to challenge the charges they pay by taking a case to a tribunal.
All these measures are welcome, but there are many other areas where we need to go further. The promise to do away with leasehold—or fleecehold—completely was clear in the manifesto; in my view, that promise should be honoured, particularly on the sale of new-build flats. In London, they are now the most common property type; almost all flats are sold on leasehold basis, compared to just 6% of houses.
On the individual building firms, we have heard about Persimmon, but we should also remember Bellway, whose chief executive came in front of our Select Committee and told us—I repeat what they said almost word for word—that it was the company’s policy not to offer the freehold to leaseholders at the first opportunity. Instead, six months after building the properties and selling the leaseholds, it would transfer them to a finance company, which would go through the detail of all the charges it could make and then really leverage up those charges, and the finance company would refuse to allow the leaseholder to even consider buying the freehold. That was the policy of that company. I think Permission admitted that that was its policy too, and other building companies do exactly the same. That is a scandal and it should be stopped, and we should legislate for that.
Clearly, we all want to see the promotion of commonhold. However, as the Chairman of the Committee said, we need more education for individuals, so they understand not only their rights but the responsibilities they would take on with commonhold.
One concern that has been raised with me on several occasions is about what will happen, once this welcome Bill is on the statute book—we look forward to the amendments that are made—to existing leaseholders who bought their leaseholds in good faith but are not being dealt with properly or effectively. We need to ensure that squeezing out the bad practices of freeholders and managing agents, which are unfair to individuals, is part and parcel of the legislation.
There is also the issue of conveyancing. Most people who buy their first property pay the minimum legal costs they can get away with. As a result, they often are not given proper advice about the consequences of their decisions. We need to ensure that individuals are given the opportunity to understand the responsibilities they are taking on and, more importantly, what will happen to them in the future if there are service charges involved.
Local authorities hold a huge number of properties under lease conditions and, if they want to sell the freehold to leaseholders, they are often among the worst sets of people to deal with across the country. I agree that a leaseholder should have the right of first refusal if a freehold is being offered. Will my hon. Friend the Minister give a commitment that, after we have engaged in consultations on service charges, the results of those consultations will be reflected in Committee so that we can strengthen the Bill?
Finally, I want to refer to a particular building in a constituency that neighbours mine. It has 13 floors and still has the old, Grenfell-style cladding. We all know the tragedy of Grenfell, but the owners of the building are refusing point blank to remove the cladding unless and until they are given planning permission to build on top of the building, so that they can sell more property to pay for the cost of remediating the cladding. The self-same company, Ballymore, although it has yet to submit a planning application, wants to build 29 blocks of flats, the tallest of which will be 29 storeys and the majority of which will be more than 20 storeys, at a density greater than Manhattan, Singapore or any other place in the world. That is a scandal. When the Secretary of State named certain building companies, he promised that if they refused to carry out the work that they should do, they would not be given planning permission to enable the development of more leasehold flats. I call on him to ensure that they are not given planning permission until such time as they are putting right what they have put wrong.
I pay tribute to all those who have fought for so long and so hard to achieve this limited reform. I will support the Bill, and I look forward to us taking forward further measures so that we can end the feudal system of leasehold once and for all.
Helen Morgan (North Shropshire) (LD)
I have mentioned before that Liberals have been campaigning to end leasehold since the days of Lloyd George, so I am pleased to see this piece of legislation finally being debated in the dying days of this Parliament. I hope that there is the time left to pass it and see meaningful change for the many leaseholders—leaseholds comprise 20% of the housing stock in England—who are boxed in by exorbitant management charges and uncapped ground rents.
The content of the Bill is welcome, and the Liberal Democrats will not oppose it on Second Reading, but, like other Members, we have significant concerns about the omissions from it. First, the Bill does not actually ban leasehold. Perhaps more importantly, it does not ban the creation of new leasehold flats. I do not grasp the logic of arguing that leasehold is outdated and unsuitable for the modern housing market, while allowing 70%—the vast majority—of leasehold arrangements to go ahead.
The Liberal Democrats support the comments made recently in The Guardian by the shadow Minister, the hon. Member for Greenwich and Woolwich (Matthew Pennycook), that
“commonhold should be the new default tenure”
for all flats, and that it should be easier for leaseholders to collectively purchase their freehold should they wish. I also agree with several other Members that giving leaseholders first refusal when the freehold is sold is a good idea. It seems to me that without those more radical measures, the Bill is less leasehold reform and more leasehold tinkering.
I think that we all agree with the Secretary of State that this is a feudal system that needs radical overhaul, and I am not sure why the Bill does not go further to achieve that. I have been lobbied, and I have some sympathy for the argument that there is a need to ensure that there is a clear line of responsibility, and indeed liability, for building maintenance and safety in large blocks of flats, but most other countries—in fact, all countries other than Australia—have managed to achieve that without reliance on the leasehold model. Indeed, our recent experience regarding the safety of large blocks of flats, with the cladding scandal, suggests that in many instances the leasehold model has demonstrably failed to provide it. We probably all agree on that point.
I am also confused about why the Bill omits to introduce professionalisation in the management of leasehold buildings. The British Property Federation has said that
“the lack of any provision to introduce competency standards or regulation to our sector is a missed opportunity.”
Given the experience of many leaseholders over the cladding scandal, and the welcome professionalisation of the social housing sector, I hope that the Government recognise the importance of ensuring that management is professionalised and will seek to introduce such measures in Committee. I wonder whether the Minister would commit to that in his closing remarks.
In my North Shropshire constituency we do not have a large number of flats, but we have been plagued to some extent by new housing developments in which the housing is freehold but shared areas, services and essential infrastructure are managed by the original developer. As we all know, those are referred to as fleeceholds, and since being elected I have told a number of horror stories regarding such arrangements, both in this Chamber and in Westminster Hall. The provisions in the Bill that allow the right to challenge charges, provide for greater transparency of information, and relate to the quality of work and an associated system of civil penalties, are a welcome step in the right direction, but I wonder whether I could push the Government to go further in that area.
The tenants of such developments pay both their council tax and an estate management charge, yet they often receive a far worse service than those who live in adopted developments and are subject only to council tax. The hon. Member for Dartford (Gareth Johnson) laid out some of the issues in his excellent speech, so I will not go into too much detail, but I urge the Minister to consider ending the practice of shared ownership of public spaces for the vast majority of new developments. They have the commercial substance of a leasehold, and I would like to see a presumption that the shared areas around new developments are almost always adopted by the local authority where the development is standard in nature. Where there is no good reason for that not to happen, homeowners on those developments should have their rights clearly set out so that the matter can be settled quickly in court.
I ask the Minister to consider further the specific circumstances where assets such as sewage pumping equipment or a ground source heat pump are shared by everyone on the estate. I am grateful to him for listening to my concerns prior to the debate. Freeholders using such equipment are dependent on its being installed and maintained to a high standard, but the experience of my constituents is that conveyancing solicitors do not alert buyers to the risks involved in this type of structure, and that the ownership structure can be opaque and almost impossible to challenge. I have one development in which the developer retained the ground source heat pump to be used by the rest of the houses in a separate company. He charges the full cost of running that pump to the residents but keeps the renewable heat incentive payments to himself, making a huge profit in the process. The freeholders’ only route of redress is through the courts. Because of the opaque management structure, it is not clear that they will win, and they do not really have the resources to commit to those legal proceedings.
It is not uncommon in rural places such as North Shropshire for a new development to use a shared septic tank rather than be connected to the mains sewer. If the tank has been installed to a poor standard, the costs of rectification are charged to the freeholders once they move in. Those are costs that they would not have anticipated when they bought the property. I would welcome greater clarity over who is responsible for ensuring that such shared assets are fit for purpose before the freehold houses are sold for habitation. Currently, such assets and services are outside the building control regime. That means that if someone gets a completion certificate on their house, which might have been properly constructed, but their sewage system is not fit for purpose, they will still have a valid building control certificate, and will be none the wiser when they buy the property.
I ask the Minister to consider whether further protections can be put in place, such as ensuring that inspections of those assets are included as part of the building control sign-off, ensuring that reserve funds are being collected and appropriately ringfenced through reasonable service charges throughout the life of such assets, and allowing freeholders to take joint ownership of the assets for a nominal fee if they wish to do so. A right to manage would be so welcome for residents trapped in such situations.
Will the Minister also expand on the issue of enforcement? The additional rights afforded to leaseholders and those paying estate management charges will be effective only if there is an affordable way for leaseholders and fleeceholders to ensure that they can be enforced. We all have experience of freeholders simply failing to respond to correspondence, or requiring their tenants to take them to court in a highly unaffordable process, often charging the costs of that court process to leaseholders. Enforcement is therefore not really achievable at the moment, but it is so important to ensure that those revenue streams are effectively squeezed for freeholders.
The Bill is a small step in the right direction, but so much more could be done to end this outdated form of tenure. It was 1909 when Lloyd George described leasehold as “not business, but blackmail”. It is high time that we grasped the nettle and ended it.
Wendy Morton (Aldridge-Brownhills) (Con)
There is much to welcome in the Bill. It is all too easy to believe that leasehold affects only London and the larger cities across the country, but that is not so. In the past 30 to 40 years in particular, many more properties have been built on a leasehold basis. Many leaseholders are now facing the dilemma of whether to extend. It is estimated that there are 4.98 million leasehold properties, equating to 20% of the housing stock. That includes properties in my constituency, and I have raised the matter in the House previously. I also have a personal interest as a leaseholder. Many years before coming to this place, I had the unpleasant experience of extending our own lease. The Government made good progress with the Leasehold Reform (Ground Rent) Act 2022, which limited ground rents to a peppercorn on all new leases. The Bill that we are considering today does not include the same limitation to protect existing leaseholders from onerous and potentially very expensive ground rents. Without that, up to 4.98 million homeowners will be left saddled with unfair ground rents.
My right hon. Friend the Secretary of State, who is no longer in his place, said that
“liberating leaseholders forms a vital part of the government’s long-term plan for housing.”
We cannot have a situation in which we are liberating future leaseholders while leaving existing homeowners trapped. This is an urgent problem. The Government’s own consultation in 2017 identified it as a trend leaving leaseholders facing significant and unsustainable increases in ground rents, which often affects the saleability of their homes, so I hope it will be addressed.
On new leasehold houses, I welcome the Government’s commitment to ending the creation of new leasehold houses. It is time we moved on from what other hon. Members have also described as an archaic system that holds homeowners back. However, I was concerned that measures to do that have not appeared in the Bill as drafted. My understanding is that the Government intend to bring forward amendments for that purpose, but I would also like an assurance from my hon. Friend the Minister at the Dispatch Box that that will be the case.
I am also concerned that new leasehold houses may still be permitted under exceptional circumstances. I ask my hon. Friend the Minister to tell me exactly what those circumstances cover, and to assure me that safeguards will also be put in place. We need to ensure that that exception is used sparingly, if at all, and does not become a loophole for developers who simply wish to push more leaseholds in through the back door.
Turning to the extension of existing leases or the acquisition of freeholds, an important and necessary part of the proposed changes will be the extension of the lease, with a new standard 990-year lease with zero ground rent. The removal of the marriage value from the premium calculation is also welcome and much needed, and potentially represents a fair and equitable change for leaseholders. As you may recall, Mr. Deputy Speaker, I raised my concerns in the debate on the King’s Speech that those reforms are long overdue. I am disappointed that they have come forward so late in this Parliament, especially when we promised reform as far back as February 2017.
I for one would not want to see current leaseholders, who have no choice but to renegotiate their current leases now, unfairly left out in the cold by our legislating so late in this Parliament. I therefore ask the Minister to consider a sunset clause in the Bill, to allow anyone who has had to negotiate since the start of the current Parliament to be afforded a right of passage under the reforms to extend their lease to the new standard.
Like my hon. Friend the Member for Redditch (Rachel Maclean), who is no longer in her place, I would welcome the introduction of an online calculator for calculating the cost of an extension. I believe that would make the process simpler and more streamlined for those who are seeking to extend their lease or acquire the freehold. However, it must also be quick and inexpensive for leaseholders to calculate and find out the cost of an extension, because currently that is not the case. Put simply, the current system of using archaic graphs is another way to set the system against the leaseholder—and, sadly, too much of the current system is weighted in favour of the freeholder. That is why this legislation is so badly needed.
The change to ensure that legal costs be shared, as opposed to the current system whereby the leaseholder bears all the costs, is also welcome. We also need to end the weighting of independent arbitration through the Tribunals Service in favour of the freeholder. In considering this Bill, we have the opportunity to shape legislation and create a level playing field for both parties.
On commonhold we also need to do more. Reform would give the leaseholders of flats the right to acquire and manage the common parts of the building. That is potentially a welcome change, provided that protections against the abuse of service charges are in place. However, when it comes to disputes, there is a clear need to revamp the tribunal system. It does not fulfil what it was set out to achieve. The tribunal system was created to strengthen the rights of long leaseholders, and to provide a cheaper and quicker way to resolve disputes, yet in reality it is the antithesis of that.
Leaseholders often avoid the tribunal system altogether, due to fear of becoming liable for the freeholder’s tribunal costs, and regrettably there are many cases where freeholder landlords recruit high-powered barristers and simply pass their fees on to the leaseholders, regardless of whether they win or lose. It is also fair to say that that leads to leaseholders worrying that they will be unable adequately to defend their position on, for example, raising a dispute over unreasonable administration charges. That needs to change. We need a renewed and refreshed tribunal system that empowers and protects leaseholders.
There are additional things that we can also do to see improvements now for those with leaseholds. The right to manage is an important part of our toolkit, and I welcome measures in the Bill to improve that process. The current claims process is complex, and leaseholders can find their attempts frustrated by rogue freeholders who block them from exercising their rights. I would like to see more of the Law Commission’s recommendations implemented, particularly where we can make the process cheaper and less complicated to implement. Let us be bold and include more measures to help our homeowners to take back control.
There is also a strong need for a new regulatory model for managing agents. Under the current system, anyone can become a managing agent, regardless of experience. Unfortunately, many leaseholders report countless problems with their agent, from high service charges to lack of transparency or exclusion from decision making. Of course, there are some managing agents who perform well and choose to sign up to standards of practice, but there are many who do not. This, for me, is a clear case of a moral hazard. It must be addressed, and we have the opportunity to do so through this Bill.
I am pleased that the Government have committed to regulating managing agents through a single, mandatory and legally enforceable code of practice. Managing agents will be required to have a nationally recognised qualification to practice, which will be overseen by an independent regulator. By requiring them to adhere to minimum standards through a professional body, we can expect to see higher levels of professional conduct among all managing agents.
Finally, I want to mention housing associations. I would hope to see under this new legislation a requirement for greater transparency on service charges and the replacement of building insurance commissions for managing agents or landlords, with transparent administration fees, to benefit leaseholders who have exercised their right to buy within the social housing sector and those within the leasehold retirement bracket. Recently, I have come across numerous examples in my own constituency where leaseholders in those sectors have been left with unexplainable and unjustifiable bills—something that this legislation must stamp out.
To conclude, we have an opportunity with this Bill to get rid of archaic processes and systems, to renew and refresh the legislation on leasehold and to create a level playing field. There is much to welcome, but I still believe there is more that we can do through this legislation.
Ruth Cadbury (Brentford and Isleworth) (Lab)
It is a pleasure to speak on the Second Reading of the Leasehold and Freehold Reform Bill and to follow so many excellent contributions from Members across the House. They have all provided examples, most of which I have experienced in my eight and a half years in this place.
For years and years, leaseholders, campaigners and groups such as the Leasehold Knowledge Partnership have been warning the Government about the huge harm being done by our outdated, feudal and antique leasehold system. Many of us have raised it in this House. Problems with leaseholds is one of the biggest issues brought to me by constituents, and I am sure if the Minister joined me in meeting residents of just one or two blocks in my constituency, whether it was Great West Quarter in Brentford, Grove House in Isleworth or Wheatstone House in Chiswick, he would see the wide array of problems caused by the leasehold system.
We have had nearly four years of promises from successive Conservative Housing Ministers and Secretaries of State to commit definitely to leasehold reform. The Government have talked a good game but failed to deliver the big comprehensive package of reforms needed. This piece of legislation is yet another example of that failure.
This was supposed to be the grand reforming Bill from the grand reforming Secretary of State, who is not currently in his place. He has become the Conservatives’ Mr Fix-It. He was sent in to fix the justice system and then the Cabinet Office, and even to deliver the parting blow to the former Prime Minister. When he was presented with the leasehold system, there was a glimmer of hope that the Government would slay the vested interests and finally fix this antique system—but no, the right hon. Member has flinched. He has failed, because before us today we see a timid and narrow Bill that does not go anywhere near far enough to fix the problems faced by leaseholders.
Most new homes in my constituency are flats, not houses, so although ending the sale of leasehold houses is welcome overall, it will not help my constituents and the millions across the country who are still living in, or face the prospect of living in, leasehold flats. If the House will indulge me, I will give a typical example of why the leasehold system is outdated and just what the legislation should be addressing.
Imagine someone in their early 30s on the career ladder in a reasonably well-paid job. They have saved up for years, often while stuck in private rentals. They finally have enough for a mortgage, and they can just about afford the monthly repayment rates. They look across west London and cannot afford to buy a house, but they then see a glossy advert for a flat. At first glance, it looks perfect. They have worked out that they can get a mortgage and use their deposit to get a foot on the ladder. It looks as if their salary can pay the mortgage and the service charge, so they buy and assume that they have a stake in the home that they now own.
Too often, they are kept in the dark by solicitors who are often recommended by developers. They move in and the problems start. They notice a few problems: the promised concierge might not be there; the gym on the brochure never opens; rubbish is left in the hallways; the car park barrier and the door from the car park into the flats are often broken, creating a security hazard; and heating and hot water stop working for weeks on end. They report those issues, but nothing happens. Then, they get their service charge bill in the post: it has increased to more than £7,000 a year, over 50% more than what they were told they would be spending.
One constituent has seen a trebling of their service charge since they bought their flat in 2017, but while the service charge goes up, the services get worse. Leaseholders feel that they are treated like cash cows. Then they are hit with an increase in their building insurance: what was £200 a year is now £400, £500 or more. They ask why those costs have gone up, but they do not receive a specific or clear answer. Many are faced with having to sell, sometimes at a loss.
If they were lured into shared ownership, managed by housing associations, they face additional problems. The part-buy/part-rent set-up is supposed to be targeted at keyworkers in the public sector, many of whom are on fixed pay. On top of the mortgage and service charges, those so-called owners—they are not really owners, are they?—find out that their rent is going up. In many cases, my constituents in shared ownership have seen rent increases of 6%, 7% or 8%. They only own 20% or 25%, and if they need to sell, they have to sell through their housing association, unless they are in the fortunate position of being able to step up and own the lease outright. A report that I read said that many housing associations drag their feet on resales as there is not much money to make from them. They focus their energy on getting the new blocks sold.
I have heard from many constituents who are shared owners. They wait months and months to sell, and have to pay for costly valuations, while they are trapped in limbo trying to get on with their lives. Many of my constituents who are leaseholders are also unable to sell because they are waiting for remediation work to begin on blocks deemed to be unsafe. Much of that emerged following the tragedy at Grenfell. Banks will still not approve mortgages for those blocks until the work is carried out, which means that, again, those leaseholders are trapped in limbo.
In one case in my constituency, Galliard Homes has delayed and delayed taking any action, despite promises that it would start months ago. Leaseholders in blocks below 12 metres are still responsible for funding building safety fixes. They were carved out and left to deal with the crisis themselves. For one of my constituents, that means a £20,000 bill hanging over their head. The building safety crisis is a wider symptom of the building culture that the leasehold system encouraged; a system in which a small number of people and companies are able to make huge profits, with absolutely zero oversight of the build quality.
Let me move on to repairs. The residents of Wheatstone House in Chiswick, which is managed by L&Q, face an example of poor repairs services. Leaseholders and tenants in that block have known their hot water and heating not to work for days on end. That started last winter and is back again this winter. Each time, residents get a lacklustre and slow response from L&Q. We saw a repeat of such poor service when Peabody-Catalyst dragged its feet for months in fixing the lift at Aplin Way in Isleworth, trapping some residents upstairs. The developer then tried to leave leaseholders with a huge bill. Others have district heating systems that run at 35% efficiency but cost a lot of money. What does the legislation do to address those issues?
On service charges, management companies have their cake and eat it. The hon. Member for Dartford (Gareth Johnson), who is no longer in his place, mentioned the excess charges, increases well above inflation, deteriorating service and opaque bills. Management companies are often too closely aligned by ownership with the freeholders. The same names keep coming up: Rendall & Rittner and FirstPort appear to be hoovering up the management contracts for a range of blocks, including housing association, shared ownership and resident management companies, all the while providing an appalling service to the leaseholders.
On declining value and the need to extend leases, constituents have told me about how they worry about their future if they have less than 80 years left on their lease. I do not think that the Bill does enough to address that challenge.
I am pleased that my hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook) has said that a Labour Government would go further and ensure that everyone who wanted to move from leasehold to commonhold would be able to do so. A Labour Government will make commonhold the default tenure for all new properties, and will carry out the Law Commission’s recommendations—I welcome that. Labour will also address the omission on deferment rates. We will do what the Conservatives have failed to do.
I have touched on only some of the many and varied issues that my leaseholder constituents have faced. The legislation does not go far enough for them and will not fix the problems that they face. It will not help those who are stuck in limbo and unable to sell, it will not help those who were tricked into shared ownership with false promises, and it will not prevent yet more leaseholders from having their lives turned upside down. When someone is handed their first set of keys, it should be a day of dreams, but for so many of my constituents and millions of people across the country, that dream has turned into a nightmare. The Government had a chance to end that nightmare through this piece of legislation, but they have failed to do so.
Nickie Aiken (Cities of London and Westminster) (Con)
Leaseholders at 8 Artillery Row pay on average £2,000 in service charges each month. The managing agent, Avon Ground Rents Ltd, refuses to disclose what is included in those charges and to provide invoices. One of the charges was £30,000 for legal and professional fees, requested without explanation or detail, even though leaseholders asked—reasonably—for information for over two years.
Leaseholders in Neville House in Westminster are living in a cladding nightmare. Although Westminster City Council issued a hazard awareness notice on the building, no remedial works have been undertaken because the managing agent, Estates & Management Ltd, has failed to agree with the developers, Berkeley Homes, on the terms of a survey licence. As a result, the homes are unsellable.
The leaseholders of Blake Tower on the Barbican estate are living in a building with ongoing fire safety issues. The developer, Redrow, committed to dealing with those issues but has yet to undertake the necessary inspections. The tower also has building defects so serious that they have resulted in several flats being unliveable. The local authority, the City of London Corporation, shares my concerns and those of my constituents, and I understand that it is about to take action.
Those are just a few examples of the appalling behaviour of freeholders in my constituency. I have been contacted by countless leaseholders who routinely report appalling practices related to service charges, the cost of major works and the extortionate charges they face when renewing their leases. When they request information or explanation, they often face a wall of silence from freeholders and their agents. “Extortionate” is probably the correct word, as what some freeholders and their accomplices—including managing agents, lawyers and accountants—are involved in is often little better than extortion. Those freeholders should instead be described as freeloaders.
The Bill responds to the concerns raised by so many of my constituents. For example, clause 27 aims to make service charges more transparent, ending the practice of demanding unexplained service charges that too many freeholders engage in, often just to profit off leaseholders. The introduction of a standardised form for freeholders requesting service charges from their leaseholders is certainly welcome, but I would like more detail about what information will need to be disclosed and how much warning freeholders will have to give leaseholders regarding costs.
Too many of my leaseholder constituents have told me that they choose not to take their landlords to tribunal, as they could be liable for their huge legal fees even if they win. I therefore welcome clause 34, which responds to that concern by ensuring that leaseholders will no longer be liable for those costs. I also welcome the fact that the Bill overhauls previous legislation by increasing the standard lease extension term for houses and flats to 990 years, as well as reducing ground rent to a peppercorn upon payment of a premium. That will ensure that leaseholders can enjoy secure, ground-rent-free ownership of their own property without the hassle and expense of repeated lease extensions.
Another game changer in the Bill is the commitment to removing marriage value. For far too long, when leaseholders want to extend their leases, they have been at the mercy of their freeholder and that freeholder’s agents, and have faced some questionable practices. The Bill makes it cheaper and easier for leaseholders to extend their lease or buy their freehold. It removes the requirement to pay marriage value, capping the treatment of ground rents at 0.1% of the freehold value in the calculation and prescribing rates for that calculation.
Clause 22 will increase the non-residential limit of a block from 25% to 50% when it comes to securing the right to manage and enfranchisement, meaning that more blocks that are a mix of residential and commercial property will have the right to manage and buy their freehold. However, that still requires 50% of the leaseholders in a block to agree to go ahead with the right to manage, which could prove near impossible for many of my constituents, due to the unique nature of the Cities of London and Westminster. Over 1,300 properties in the City of London, and a staggering 12,100 in Westminster, have owners who live abroad or are owned by companies using central London’s golden postcodes as a place to park their cash. As such, while my constituents and I warmly welcome the Government’s intention to support leaseholders who want to manage their blocks, it will prove difficult in my constituency to achieve the 50% of signatories required.
If the proposed legislation is to achieve what the Government hope for constituencies such as mine, I ask them to consider making the thresholds more flexible—perhaps by stating that 50% of signatories should be leaseholders of apartments that are their main home, rather than an investment, or reducing the threshold for the right to manage to 35% of leaseholders. I would welcome further discussions with the Minister, my hon. Friend the Member for North East Derbyshire (Lee Rowley), on that point. I thank him for meeting me and my leasehold reform working group, made up of constituents who are dealing with some of the most egregious freeholders in my constituency. The 50% threshold was discussed in some detail with the Minister at that meeting.
Another area of huge concern for leaseholders is the cost of major works and estate management charges. I have lost count of the number of constituents who have contacted me for help regarding those issues: for example, leaseholders living on the Golden Lane estate in the City are being asked to pay tens of thousands of pounds extra because the freeholder, the City of London Corporation, is 20 years behind schedule. In Russell House and Churchill Gardens, which are both in Pimlico, residents are failing to secure details on timings and costs from Westminster City Council.
Time and again, I receive complaints from constituents living in private and social blocks that, while they appreciate that they have to pay for major works and repairs, they want the freeholder—whether it is a private company or a local authority—to be open and transparent about costs. I therefore welcome clause 40 of the Bill, which will provide more transparency about major work costs. Similar to service charge expenses, landlords will have to fill out a standardised form to demonstrate exactly how the leaseholders’ money will be spent and ensure that the works are carried out to a certain standard.
I take this opportunity to thank Harry Scoffin, the founder of Free Leaseholders, for his incredible work. His support and technical knowledge has been invaluable to me and my constituents when considering the Bill. I welcome the Bill, and look forward to working with the Minister and my constituents to ensure that we end the many questionable practices of some freeholders and ensure that the leasehold and freehold system in this country is open, transparent and fair.
Samantha Dixon (City of Chester) (Lab)
It is a pleasure to take part in this debate—it has been fascinating to hear from Members from around the Chamber. I pay tribute to the dedicated campaigners, including the Leasehold Knowledge Partnership and the National Leasehold Campaign, for their hard work up to this point. They have campaigned tirelessly for justice in the broken leasehold system, and for the Government to live up to their own manifesto promise and bring this Bill before the House. I am sure they will continue to campaign.
It is estimated that there are 4.86 million leasehold homes in England. That is 4.86 million households stuck in a system that denies people power, control or even a say over the security, safety and future of their own home. As we have seen, this is a cross-party issue: Members from across the House have been expressing the concerns of their constituents for many years, long before I arrived in this place a year ago. This Bill is an opportunity to rebalance the scales in favour of leaseholders, but the question remains: will it actually do so? Unfortunately, I and many others feel disappointed by the limited state of the Bill before us.
It is often said that an empty vessel makes the loudest noise. We have heard a lot of noise, which may reveal the reality that this Bill is somewhat hollow. Not only does it not ensure that new flats will be sold as freehold, contrary to what Ministers have claimed; it does not even do what it says on the tin and ban the sale of new leasehold houses, as the Government originally promised, because it contains no provisions to end leaseholds on newly built houses in England and Wales. I understand that that ban is going to be brought in in Committee, but it was first promised in December 2017 by the right hon. Member for Bromsgrove (Sajid Javid). Originally, the Government claimed to have run out of time to put it into the Bill, but they have been planning it for six years. They repeatedly comment on how complicated leasehold law is, yet they cannot include that one simple provision in the Bill. In reality, it is leaseholders who are exasperated.
Indeed, it appears that the Government have dropped quite a lot of the Law Commission’s recommendations. They claim that the Bill will make it easier, cheaper and quicker to buy the freehold or extend the lease on a property, but how do we know that without knowing what the prescribed rates will be? Thousands of leaseholders have been waiting for this Bill to arrive, and in the meantime they remain in a state of leasehold limbo, trapped by this iniquitous system. Many are unable to sell and move on with their lives. They are being forced into a game of poker in which the stakes could not be higher. Do leaseholders stick, and wait to buy their freehold or extend their lease—in itself, an appreciating asset—in the hope that Government promises to make it cheaper actually materialise, or do they twist, and pay these faceless offshore investment companies thousands of pounds? I do not know the answer, and I am not too sure the Government do either. Professional valuers and leasehold solicitors are struggling to advise their clients, too. Without knowing what the prescribed rates are going to be when calculating these figures, the claim that this legislation will make it cheaper to buy is unsubstantiated.
Also missing from the Bill is the regulation of property agents. The single biggest rip-off in the leasehold system is service charges, and without robust regulation of this, it will continue and leaseholders will remain at the mercy of bad managing agents. On the Opposition Benches, we are committed to implementing the recommendations of Lord Best’s working group, which were published by the Government four long years ago and on which they have sat. The Government have yet another consultation, which leaseholders are busy completing as we speak, on reducing current ground rents for existing leaseholders. As the hon. Member for Harrow East (Bob Blackman) has pointed out, it is not quite clear what the relationship is between this Bill and that consultation, but perhaps the Minister will expand on that.
After so many years of unfulfilled promises, the Government appear to have yet again failed to deliver for our constituents. As my right hon. Friend the Member for Ashton-under-Lyne (Angela Rayner) has said, a Labour Government will make commonhold the default tenure for all new properties, as part of our commitment to reform the leasehold system fundamentally and comprehensively, by enacting in full the Law Commission’s recommendations on enfranchisement, commonhold and the right to manage. I am glad to see this Bill in front of us, but from listening to this debate, it is still clear that there remains a great deal of work ahead before these fine ambitions become a reality. In fact, it is becoming increasingly clear that we need a Labour Government to truly deliver for the so many people stuck in this feudal system.
Duncan Baker (North Norfolk) (Con)
It is a pleasure to be speaking on the Second Reading of this Bill, which sees long-term changes to improve home ownership for leaseholders and freeholders alike. As many people have said, the Bill is much needed, and I am glad it is finally here. It is also a pleasure to be speaking on behalf of a constituent of mine, who does not wish to be named, but who, through the numerous conversations I have had with her over the years, has enlightened me about the significant difficulties and obstacles that many leaseholders face.
These difficulties include, but are not limited to, high service and administration fees, disproportionate costs when wanting to extend leases, managing agents displaying poor practice and, in particular, imbalances in the dispute mechanism. Most of these my constituent has had to deal with personally, and they have impacted on her in numerous ways and led to a long, hard battle that she is still fighting. I can only imagine the stress and concerns that this brings to many families, and many of these points have been raised already this evening. It is through these conversations that I know how many leaseholders feel insecure and uneasy about owning a home with the sector as it currently stands. Leaseholders are a residential sector that makes up 20%—almost 5 million properties—of the housing stock in England. As such, it is important that we strike a balance between the rights of the tenants and those of the landlords, while ensuring that there are more powers and protections for those owning a home.
The Government have committed to not only increasing housing supply, but ensuring that more people feel protected and secure when looking to rent or own their own home. That is a problem I do not need to mention in this House yet again, given the pressures of living in an idyllic coastal area such as North Norfolk, which has some of the highest numbers of second homes and holiday accommodation in the UK. I similarly welcomed the Renters (Reform) Bill for tenants and landlords, and it is encouraging to see that extended to leasehold and freehold as well.
However, as others in the Chamber have said, the Bill does not go far enough in the eyes of many. It can be incredibly tiring, financially taxing and stressful for leaseholders, especially when trying to extend their lease or challenge poor practice. The Bill is trying to make it cheaper and easier for leaseholders in houses and flats to extend their lease and buy the freehold, improve transparency and rebalance the legal costs regime, as well as removing barriers for leaseholders to challenge their landlords’ unreasonable charges at a tribunal.
Jim Shannon (Strangford) (DUP)
I commend the hon. Gentleman for what he is saying. I know the Leasehold and Freehold Reform Bill is for England and Wales, but it seems that there are many good things in it that, even if the Bill does not go far enough, are to be welcomed. May I, through the hon. Gentleman, ask the Minister, on the finalisation of the Bill, to share information about it with the Northern Ireland Assembly, and the Northern Ireland Department for Communities in particular, to ensure that we can take advantage of the good things in the Bill back home?
Duncan Baker
I thank the hon. Gentleman for that intervention, and I think he is right. There are many good things in the Bill, but it does need to go further. I will come on to some of the issues in a moment, but the particular items on which we need to go further are those raised directly by my constituent, who has written to me about this for the last couple of years. It is welcome that the Bill is here, but I already understand that it will be amended, which will be important as it goes forward.
As I have said, I am aware that the Government are planning amendments to take the Bill further. I say to my hon. Friend the Minister that we should give ample time to consult on those amendments, particularly—for me and my constituent—those in respect of the first-tier tribunal system to ensure that all barriers are removed for leaseholders challenging their landlords. We also need to take time to discuss the benefits of bolstering commonholds to ensure that leaseholders who own flats have the same protections and freedoms as those who live in houses. There needs to be better regulation of managing agents—that has been mentioned already—and, as a basic requirement, the first-tier tribunal system needs the jurisdiction to enforce its own orders. Without strengthening the Bill on that in particular, there will not be a significant impact on my constituent.
We have said all along that the Bill has cross-party support, which is really positive in this place. As I have said before, it is positive to see the Government are taking a leading step to help ensure that leaseholders are better protected. It is opening up further opportunities for people to own their own homes, but I hope it does go further so that I can support my constituent and we can really deliver the radical changes we need.
Stella Creasy (Walthamstow) (Lab/Co-op)
May I begin by echoing the comments of those on both Front Benches in supporting all those who, for many years, have been working on leasehold reform? As we have seen from this debate, this cuts across the Benches, because it is a classic example of the reality that we see in our constituency surgeries day in and day out. I also pay tribute to the all-party parliamentary group on leasehold and commonhold reform for all the work it has done. I know that I have benefited from reading much of its material while trying—often in vain, frankly—to help constituents with freehold manager companies.
As we head into the festive period, I know that this would be the best possible Christmas present we could give to so many people who are struggling with the impact of what I call “leasemin”—the day-to-day admin or work they have to do to manage the fact that they have a leasehold property. In my constituency, like that of so many other hon. Members, thousands of people are in that position. It is not just about the costs of renewing a lease; it is the day-to-day problems that come from being in a leasehold block.
Given that it is the festive period and we all want to give people good news at this time of the year, I have to tell the Minister that it does feel a bit as though my constituents have seen Santa’s sleigh flying past with all the lovely presents, but all they are getting is a lump of coal because so many of them are in flats that will not be affected by this legislation. May I urge him to think about what more we could do to protect those people in flats, because there has been an explosion of this, particularly in cities and in areas such as mine?
Sadly, I am told this evening that Condé Nast has described part of my constituency as one of the new hot places. I always dread it when I see that because it means a lot more building, a lot more pressure on house prices and very little support for my local residents. So many of the people who move into those properties will be moving into leasehold properties and face these problems; they will face that basic nightmare of thinking they own their home when they really do not. It is theirs but only under certain conditions; it is not their castle to do what they want with. Those conditions can be about whether they can have pets or a loft extension. During the pandemic, many residents could not access the energy-saving proposals because that had to be done at leaseholder level and their leasehold managers were not doing anything about it.
There have been good freehold companies as well as bad ones; there is variation. But the fundamental challenge at the heart of this legislation, and why I asked the Secretary of State about it earlier, is that commonhold is the only way we can genuinely give voice to people. It is a voice that deals with the “leasemin” problem—much more so than having the most efficient freehold management companies possible. So I want to stress to the Minister that there is still time to put commonhold as the default tenure into this legislation, and give people the Christmas present they really deserve—the most proper protection against being exploited that we could offer.
Let me give the Minister some context for why I feel so strongly about this. The number of flats in my community has risen 13% in the last eight years while the numbers of other types of properties have remained broadly static. Frankly, every time Kirstie and Phil turn up in Walthamstow, we see another tower block go up, and those tower blocks are leasehold; more than half the property transactions last year were for leasehold properties.
This is a massive issue now for most local residents, fundamentally changing the nature of my community both in terms of the people who can afford to live in those properties and the impact this is having on the cost of living. It is no surprise to me that I have the ninth highest level of child poverty when I look at people who have bought what they think are great starter homes but then find themselves saddled with charges and costs that they cannot afford in order to try to stay in the area. The question for me is whether this legislation will address the challenges that they are facing, and I do not see that happening, However, I do want to acknowledge there are many things in the legislation that we all welcome, such as the shift to peppercorn rents and ending escalating ground rents, which for some of my constituents has been a massive challenge, and the idea of longer default leases.
Many people in my constituency are part of a group of leaseholders because they live in properties that were built en masse. That is not a recent phenomenon. Indeed, I want to talk about the Warner estate in Walthamstow. They are beautiful properties, and I declare that I used to live in one myself. They were built from the 1930s to house the workers for our local industrial estates in the Lea valley. They were purpose-built flats built in two-storey terraced rows with a double front door and a split back garden. On a practical basis, that means that both residents in the properties have to want to buy the freehold, which creates a barrier for people and a challenge for so many of my constituents.
More fundamentally, the frustration I see is that, although thousands of residents live in these properties, every single one of them has a different interaction with the freehold manager. That is partly because in 2002 a situation happened which this legislation would not deal with. The Warner estate was sold and split up between Circle 33, Final Brief and various other commercial freeholders. The Minister might say that the residents would have had the right of first refusal, but because the leasehold companies were sold within parent companies and child companies of each other, residents did not get a look in. Therefore, local residents who organised themselves into Warner estate residents groups have had to deal with different companies even though they live side-by-side, complicating their ability to exercise what few rights they have under existing legislation. That means that there are different prices for renewal of the same length of leases, and different prices for quotes for having an extension and the paperwork needed for that. The most egregious difference is in the insurance they were all charged. In fact, many years ago they were asked to take on terrorism insurance for living in these properties. When I queried that with the freehold company, I was sent back the details of somebody who had been accused of terrorism and lived in Walthamstow; therefore, those who wanted to continue to live in the Warner properties as leaseholders needed to pay that additional premium. That is all perfectly legal and at the moment in this legislation there is no way to challenge that when a freeholder “takes the mickey”—I was trying to find a polite parliamentary term.
I guess my leaseholders on the Warner estate are at least grateful that they do not have a lease for Bridge Court, which is under—I am sure the Minister will know the name of this management company— Y&Y Management.
The Minister for Housing, Planning and Building Safety (Lee Rowley)
indicated assent.
Stella Creasy
As the Minister is nodding, he will know the amount of casework that small set of properties, only 24 flats, has generated for me over the years. To give some examples of the charges residents have faced, one was given an extra £1,500 bill and another was due to be evicted for being spuriously charged £5,000 by that company. It is not legally possible for those residents to withhold those payments and not lose their properties, so they had to try to find the money to pay, even though it was patently obvious that that egregious company was levying the charges as punishment for their having dared to exercise their rights. The only option open to them was to go to court.
Again, this legislation offers nothing to help support people in such a situation. It offers nothing to help support people when their freehold manager shifts the leasehold around to avoid them having the right to manage or even the right to buy their own freehold out. This company decided the private communal gardens could be turned into a public car park, opening up the entire estate and letting in huge problems with antisocial behaviour, all because it thought it could make a fast buck in the London area with a car park.
Y&Y then transferred the ownership of the building to Triplerose, a management company owned by Israel Moskovitz, who is part of Y&Y Management. Just the other week a resident came to me to point out that they had an onerous ground rent clause, which means that their ground rent has to be reviewed every five years against the retail price rate. That was not in the original lease but was added in. The owners of that property tried to sell the flat, and they asked whether they could vary that condition, because it was stopping them being able to sell it. Triplerose responded, demanding an immediate non-refundable payment to provide a quote—just a quote—for what it would cost to vary that condition. It then came back with a quote of £700 for an admin fee, £1,400 for legal fees and £8,000 for the premium.
Richard Foord (Tiverton and Honiton) (LD)
I have some casework that sounds similar to that which the hon. Lady is describing. It is at Pebble Beach in Seaton. A constituent wrote to say that she wanted to change the name on the deeds and introduce her partner’s name, and FirstPort wanted to charge her £540 just to get its approval. Does the hon. Lady agree that some of the leasehold companies we are talking about are charging Fortnum & Mason prices for services we might associate with Trotters Independent Traders?
Stella Creasy
I think even Del Boy had limits compared with some of the people we are talking about.
The Minister would probably say that in those circumstances the changes being made to ground rent should resolve the situation, and he would be right, but my broader point is that those residents have no redress. At the moment, the Bill does not come with forms of redress, and without redress it does not matter what rights people have because they cannot action them.
Those residents actually did go to a first-tier tribunal. They clubbed together, took on the risk and won—and understandably so, because if someone turns the private gardens into a car park, allowing people into the block, that does rather undermine the concept of service charges. They have been waiting three years for the compensation they are entitled to as a result of that ruling. Again, nothing in the Bill would change that. But that they went to a tribunal with a company with such a track record for doing these things over and over again, and that it meant nothing for future legislation and had no preventive effect, is perhaps the biggest and most important message Ministers should take from this debate. The fact that people cannot set precedent by winning a leasehold tribunal means that residents who live in blocks that are very similar go through the same fights again and again, and the same companies know they can get away with it again and again.
In any other legal situation there would be court precedent and opportunities for redress for our constituents. Surely, one of the things that we can do through the Bill is to change that and learn from other courts, because that “leasemin” is so time-consuming and stressful to so many of these people, and that is why they end up at our doorstep. Nobody wants to take on the risk of legal action if they can avoid it, especially if they have no guarantee that, even though the situation is patently unfair and somebody else has won a very similar case, that will make a difference.
We see it every single day. We see the people with repairs. I think of Hainault Court in my constituency, which has a freeholder of various names, including Freshwater, Highdorn and Daejan—it uses different ones all the time—where residents have spent hours of their lives trying to get the basic repairs that they pay their service charge for. They were charged £10,000 to replace a collapsed boundary wall. They got their own estimates, and it should have cost only £2,000 or £3,000. In a community where everybody is short of cash at the end of the month and every single penny counts, knowing that they have no alternative is a very poor place to be.
I wish I could say that situation is just in the private sector, but my own council was taken to court successfully by leaseholders over the charges being proposed for repairs and renovations in some of our local estates. Again, I hope that the Minister thinks about the right to manage, which is difficult to do in a block with a mix of social housing and leasehold property. In London, there are an awful lot of those properties, thanks to right to buy.
I also think of those people stuck with nothing to put any impetus on their property managers to do the right thing, even though they recognise that they need to do the right thing. I think of Hoffmans Road in my constituency, which is in that patch that Condé Nast is telling everybody to visit right now. The residents have no security on their building, because the doors do not work. The property company, Fexco, tells me that it is a problem for the developer, Taylor Wimpey. Taylor Wimpey, however, thinks it is for the property manager to use the money from the service charge to fix it. Nothing in this legislation will give those residents—my constituents—the ability to just get it sorted in the way that commonhold would.
We all have hundreds of examples. One thing that I have learned in this place over 13 years is that when we get these precious opportunities—when there is cross-party agreement that reform needs to happen—we should aim for the big reform, because we might not get the opportunity ever again. Nobody in this Chamber can defend freehold. Nobody can defend leasehold. We can all see the value in having a system that allows our constituents to have a direct voice. Goodness knows, I am sure for many of us it would cut the amount of casework we have, if nothing else. It would be a lot clearer what redress our residents have, before they have to go to court in the first place.
If we cannot have courts making precedent-setting rulings, can we at least look at how we can give our residents a stronger voice? For so many of them, it is the difference between a life well lived and a life lived in stress, wishing that they had never even bought the thing that they dreamed of, fought for and saved for longest of all. I had a cladding developer that said that it had put itself out of business so that it did not have to do the cladding; it was too small to be liable for it. Those residents are still waiting for redress.
All those issues tell us that this is not about a big-P political issue; it is about the day-to-day practical implementation. If we get this legislation right, we can solve so many headaches for so many people. I hope the Minister will not be Scrooge. I hope he will not be the Grinch. I hope he will think about what he can do for all those people sitting in those flats tonight, looking at the lump of coal that this legislation represents for them. Will he extend the Christmas cheer not just to those who might have been threatened by leasehold for houses, but to all those in leasehold flats right now? I know it would give everybody a very good 2024 if he did.
Ian Byrne (Liverpool, West Derby) (Lab)
It has been a privilege to sit here for five hours and listen to all the passionate contributions from all parts of the House, with a pretty unanimous view. First, I thank Cath Williams, Katie Kendrick and Barry Kushner for their help in my constituency with the many leaseholder issues that I have had. For millions of people, the housing sector is broken. Everywhere within it we see a huge imbalance of power, and that has had a devastating impact on the health and wellbeing of thousands of my constituents in Liverpool, West Derby, and so many people across the country, as we have heard today. That injustice is encapsulated by the frankly medieval ownership framework, which creates a clear imbalance of power between leaseholder and freeholder. The scandal of leasehold must be brought to an end for the millions who have bought their home but do not feel like they own it.
While I welcome the promise of some of the reforms in this long-overdue Bill, many of which came from the Select Committee on which I serve, I am extremely disappointed that it does not directly tackle ground rents. I suspect that the Government know exactly what existing leaseholders urgently require from them on ground rents, so I am dismayed that rather than addressing that matter directly, they have decided to consult on it. The vested interests have definitely won again.
Practically every constituent I have heard from on this matter—and there have been many—tells me that they want ground rents abolished so that they can be guaranteed secure, ground rent-free ownership of their property for years to come, without the stress and expense of repeated lease extensions. I note that the hon. Member for Harrow East (Bob Blackman) agrees. He spoke eloquently about it today, and he said last week that ground rents on leasehold properties needed to be
“peppercorn or zero, it’s as simple as that.”
My constituents also want to see a Bill that contains all the Law Commission’s proposals, rather than the watered-down version before us today. I am glad that our Front Bench team confirmed that that is what we will do if we get into government.
I am also dismayed that the Government have not gone so far as to abolish new leaseholds on flats. That is a huge mistake. Can the Minister give a reason why flats, which make up 70% of leasehold properties, will continue to be sold as leasehold, when he was elected on a specific manifesto promise to end that practice? The Government had the opportunity in this Bill to put a stop to what the Secretary of State himself recently called the outdated “feudal system” of leasehold. Instead, they appear content for new flats to continue to be bought and sold as leasehold. That is incredibly disappointing for so many people across the country.
If Ministers are serious about doing away with leasehold, they need to ban leasehold on all new flats, as well as new houses. Let us be clear: the only argument for retaining leasehold on flats is to allow management agencies and freeholders to continue to exploit leaseholders for the purpose of profit over principle, with the status quo prevailing. That has not been the mood music from those on the Government Front Bench, but talk is cheap in this place, as I have found out.
Until leasehold is banned, homeowners will continue to be held hostage in their own homes. Given the current economic situation, the delays and lack of clarity on a timetable for overdue reform are increasingly frustrating for my constituents. It is unacceptable that they continue to be subjected to extortionate, unjustified charges and escalating ground rents. What is more, I am convinced that the leasehold system is not only unfair, but a genuine health and safety risk, as has been outlined today, when we consider the continued delays to the vital fire safety recommendations made by the inquiry into the Grenfell Tower fire.
The National Leasehold Campaign has welcomed this long-overdue legislation, but considers several key items to be missing from the Bill, and I completely agree. Those measures include, but are not limited to: prescribed capitalisation and deferment rates for valuers to value lease extensions or freehold purchases; abolishing forfeiture, which is used against leaseholders and serves as a massive windfall for freeholders; an online calculator for lease extension and freehold purchase; steps to progress the adoption of commonhold; the regulation of managing agents, as we have heard about today; and making it easier for leaseholders to have the right to manage.
If the Government are truly serious about ending the nightmare for leaseholders, they need to urgently revisit this legislation. I suggest that they meet the National Leasehold Campaign and the Law Commission to ensure that the key recommendations by both bodies are included in the Bill as it moves forward.
Matthew Pennycook (Greenwich and Woolwich) (Lab)
I start by declaring an interest: my wife is the joint chief executive of the Law Commission, whose work I intend to cite in my remarks.
It is a pleasure to close this Second Reading debate for the Opposition, and I thank all right hon. and hon. Members who have participated in it. I echo what so many others have said and add my own tribute to all the individuals and organisations who have campaigned for so long for reform in this area.
As a number of contributors to the debate have pointed out, we have waited a long time for this Bill. It was just under six years ago that the then Secretary of State, the right hon. Member for Bromsgrove (Sajid Javid), announced that the Government intended to introduce a series of measures to end unfair and abusive practices within the leasehold system, including—I quote here from a Government press release in December 2017—
“legislating to prevent the sale of new build leasehold houses”.
That 2017 announcement was developed three years later, during the tenure of the right hon. Member for Newark (Robert Jenrick) as Secretary of State. In a written ministerial statement dated 11 January 2021, he announced
“seminal two-part legislation to implement leasehold and commonhold reforms in this Parliament”.
The first part of that two-part legislative agenda duly followed, in the form of the Leasehold Reform (Ground Rent) Act 2022. Although we—and in particular the shadow Minister for homelessness and building safety, my hon. Friend the Member for Weaver Vale (Mike Amesbury)—pressed Ministers to use that Act to implement further reform, we nonetheless supported the Government in passing it. In the 17 months since the Act came into force, successive Ministers have made all manner of extravagant promises about what the second part of the “seminal two-part legislation” would entail. Indeed, the current Secretary of State, in an interview with The Sunday Times in January this year, even went so far as to declare, without qualification, that he intended to abolish the leasehold system in its entirety.
Leaseholders across the country, whose daily lives are often made miserable by the unjust and discriminatory practices that our archaic leasehold system facilitates, took Tory Ministers at their word. They expected the second part of the promised two-part legislative agenda to live up to the weighty promises made by the Government. They have been badly let down. Having waited so long and had their expectations raised so high, they are understandably disappointed at the limited Bill that we are considering today. And it is a limited Bill, and no amount of bravado from the Secretary of State can alter that fact. They are also perplexed, as we are, that legislation that the Government claimed would end leaseholds on newly built houses in England and Wales does not actually contain any provision to end such leaseholds.
When the Minister responds to the debate, he will no doubt attempt to brush that criticism aside, as he did in oral questions last week, on the grounds that it is entirely normal for key provisions of a Bill to be added in Committee. Sadly, as my right hon. Friend the Member for Ashton-under-Lyne (Angela Rayner) mentioned in opening the debate, it is common practice for this Government, and this Secretary of State in particular, to significantly expand the size and scope of Bills by incorporating swathes of Government amendments in Committee and on Report in a way that limits the ability of hon. Members to ensure that full scrutiny takes place. However, the Minister is fooling no one in attempting to suggest that the omission from the legislation of key provisions was always the Government’s intent.
I remind the House, as my hon. Friend the Member for City of Chester (Samantha Dixon) did, that the right hon. Member for Bromsgrove committed the Government to legislating to prevent the sale of new build leasehold houses nearly six years ago. The Government have no excuse whatsoever for failing to include in the Bill the provisions necessary to enact that commitment in order for the House to consider them properly today. That they failed to do so no doubt owes more to hurried drafting, and to the wrangling between the Department and No. 10 that has taken place over recent months in respect of this Bill, than to any considered design. However, for all the confusion that surrounded it, the legislation before us has answered one important question: how ambitious do the Government wish to be when it comes to leasehold reform? Because this unambitious piece of legislation makes it clear that proponents of caution and restraint have won out over those who want to lay claim to a legacy of bold reform in this area.
That criticism cannot simply be brushed aside as carping on the part of the Opposition. The Government’s poverty of ambition has real implications for leaseholders being routinely gouged by freeholders under the present system. Take flats, which are the overwhelming majority of new leasehold properties being created and the source of most of the leasehold-related complaints that I receive from constituents. The Government’s stated solution for them, as made clear by Baroness Penn in the other place just last week, is reinvigorating commonhold, yet the Minister of State made it clear on Monday that the Government do not intend to incorporate into this Bill any provisions whatsoever relating to commonhold, despite the clear commitment they made in 2021. Instead, it remains part of their “long-term approach”. In other words, the Government’s offer to swathes of leaseholders across the country is jam tomorrow.
The hon. Member for Redditch (Rachel Maclean), known affectionately as No. 15 on these Benches, gave the game away. She said that all the work has already been done on commonhold, so it is not a matter of complexity; it is a political choice on the Government’s part not to introduce commonhold provisions in this legislation. What is so galling about the position that Ministers have adopted is that there is clearly widespread support across the House for the more ambitious leasehold reform that could have been incorporated into the Bill, and this debate has demonstrated it. However, in the dying days of this Government, we are where we are.
While we deeply regret the Bill’s lack of ambition, we have no intention of voting against Second Reading this evening. We support the intent of the provisions in the legislation before us and the principle of the Bill as a whole. The measures it contains will give homeowners in England and Wales some greater rights, powers and protections over their homes. That is not to say that we do not have concerns about the efficacy of some of them; we do, and we will seek to strengthen the Bill in a number of ways in Committee. For example, we believe that clauses 12 and 13, which are intended to protect leaseholders from covering the legal and valuation costs associated with lease extensions, require tightening if we are to prevent, in practice, freeholders recovering litigation and non-litigation costs. To take another example, we believe that clause 23, which seeks to replace the existing costs regime for right to manage claims, is flawed and needs overhauling if it is to protect, in practice, RTM companies from cost claims by landlords.
We also believe that this limited Bill can be improved in ways that will give future leaseholders more control over their future. For example, we think there is an iron-strong case for adding to the Bill provisions that would abolish forfeiture for leases entirely and replace it with a more equitable means for freeholders to recover costs in a dispute that does not involve a windfall. I was pleased by the signal that the Secretary of State gave on that front in opening the debate. To take another example, we think there is merit in adding to the Bill provisions that would ensure that leases on new flats include a requirement to establish and operate a residents’ management company responsible for all service charge matters and associated works, with each leaseholder given a share.
We will seek to convince the Government of the merits of those and other measures when we go into Committee in the new year, and we will engage constructively with the Government if they decide to introduce other bold measures into the Bill at that stage—for example, if Ministers are minded to implement the Law Commission’s proposals on the right to manage, covering both flats and houses.
However, we recognise that there is only so much that we can do with the legislation before us. Given the paucity of the Bill’s ambition and the fact that it does not contain so many of the commitments that successive Secretaries of State have made, not least in relation to the promised widespread introduction of the commonhold tenure, it is clear that it will now fall to a Labour Government to fundamentally and comprehensively reform the leasehold system, including the reinvigoration of commonhold to such an extent that it will become the default and ultimately render leasehold obsolete.
We are pleased that the Bill will progress today. It will provide some limited relief to leaseholders. We will seek to improve it with a view to extracting from the Government any extra measures that further empower leaseholders and disturb the historical iniquity on which the present system rests. Leaseholders across the country who remain at the mercy of arcane and discriminatory practices, to their detriment and to the benefit of freeholders, rightly expect nothing less. But leaseholders across the country expected so much more from the Government. We are clear that, in due course, Labour will have to finish the job and enact all the Law Commission’s recommendations on enfranchisement, right to manage and commonhold in full. We are determined to do so.
The Minister for Housing, Planning and Building Safety (Lee Rowley)
It is a pleasure to wind up the debate after so many useful, thoughtful and detailed contributions. In that spirit, I want to spend a little time going through some of those details. Before doing so, I wish to thank, as so many others have, all the campaigners and all those who have spent so much time working in this area for so many years.
I thank my hon. Friend the Member for Worthing West (Sir Peter Bottomley), the hon. Member for Sheffield South East (Mr Betts), my hon. Friend the Member for Redditch (Rachel Maclean), the right hon. Member for East Ham (Sir Stephen Timms), my hon. Friend the Member for Dartford (Gareth Johnson), the hon. Member for Battersea (Marsha De Cordova), my hon. Friend the Member for Harrow East (Bob Blackman), the hon. Member for North Shropshire (Helen Morgan), my right hon. Friend the Member for Aldridge-Brownhills (Wendy Morton), the hon. Member for Brentford and Isleworth (Ruth Cadbury), my hon. Friend the Member for Cities of London and Westminster (Nickie Aiken), the hon. Member for City of Chester (Samantha Dixon), my hon. Friend the Member for North Norfolk (Duncan Baker), the hon. Member for Walthamstow (Stella Creasy), the hon. Member for Liverpool, West Derby (Ian Byrne), and all those who intervened for the helpful comments they provided.
I welcome the general and broad support for the actions that are being taken in the Bill. I also welcome the consensus in the House on the need for reform, which I know, as was highlighted several times, has been some time coming. I hope right hon. and hon. Members will recognise that this is a complicated and intricate area, which is observable not least from the many examples given in the debate. We now have in front of us a good proposition for making progress.
Our focus in the Bill is on being able to make practical progress—to make the Bill as practically useful as it can be—and then to have the greatest impact that it can have. Some, including hon. Members tonight, have said that it does not go far enough; others have said that we should return to first principles and seek to build the whole system again. I am sure that those hon. Members will make their case in Committee if they are part of it, and on Report and in subsequent stages. The Government seek to have a proposition on which can be built; one that is practical, achievable and makes a difference. The art of politics is about being able to make progress, and we think that the Bill will make a significant difference to people’s lives.
Let me turn to some comments made in the debate. I pay tribute to the long-standing work of the Father of the House, my hon. Friend the Member for Worthing West. He raised a number of points, which we will go through in more detail in Committee, but I want to highlight his point on building safety with regard to sub-11 metre properties. A number of Members made similar comments. We have a process in place, so if colleagues have concerns about fire remediation issues in sub-11 metre properties, they should ensure that they get the appropriate fire assessments needed in all buildings. If substantial works are needed to those properties, they can be raised with the Department, which has committed at this Dispatch Box and has executed commitments to look into those issues in more detail.
I pay tribute to the work of the Select Committee, chaired by my constituency neighbour, the hon. Member for Sheffield South East. I particularly enjoy our interactions on this issue because it gives me, like him, the opportunity repeatedly to say as a constituency MP how outraged I am about Coppen Estates’s consistent failure to respond. That is a hallmark of a small cohort of actors in this area, which consistently and flagrantly ignore reality and their ability to make a difference to our residents’ lives. Coppen Estates is a good example of such actors, but there are many others.
Mr Betts
I thank the Minister for responding to that point. Will he look at strengthening the Bill to stop companies like Coppen Estates avoiding the legislation? Strengthening the legislation is fine, and so is changing the way that enfranchisement fees are calculated so that people get a better deal, but in the end, the freeholder has to respond, which Coppen Estates refuses to do. My constituents in the Flockton estate in Sheffield have tried and failed for years to get a response. How will the legislation be strengthened to ensure that such companies respond?
Lee Rowley
I am very happy to look at specific issues in Committee. As the Secretary of State highlighted in his opening speech, if there are areas where we can improve the Bill, we will be happy to do so. I cannot make promises, but we are happy to look at them. The hon. Gentleman’s constituents in Sheffield, my constituents in Dronfield and constituents all across the country have similar issues to those with Coppen Estates, so I hope we will be able to make progress.
The hon. Gentleman, the hon. Member for Battersea and others rightly talked about leaseholders not knowing what they are paying for. A few weeks ago, I had the privilege of taking part in a two-hour discussion with one of the better estate managers about an issue in my constituency in Hunloke Grove. They were willing to go into detail, talk about the issues, work through and be transparent on their fees in a way that so many other managing agents are not. The importance of that came home to me in that discussion.
My hon. Friend the Member for Redditch should rightly take all the credit for where we are today. I am surfing on all her work over many months to get the Bill ready. She deserves a huge amount of credit for that. She was an exceptional Housing Minister and has made some extremely constructive comments today, which we will look at along with the similar comments from my hon. Friend the Member for North Norfolk. I can confirm that our intention is that there will be sufficient time to be clear on ground rents. As my hon. Friend the Member for Redditch rightly said, it is so important that we secure a property-owning democracy for the next generation.
I thank the right hon. Member for East Ham for making a series of important points, which I am happy to look at. The Government are happy to see whether they are possible. He made a specific point about asbestos, which we will take away and review with the detail it deserves. I look forward to the visit to Barrier Point, which I wanted to make following his correspondence. It is important that, on building safety, we look at not just the overall macro picture but individual circumstances, to see whether we can learn anything.
I am also grateful to the right hon. Member for giving me this opportunity to make the point about insurance from the Dispatch Box. I am as keen as him to see progress on insurance. I have met representatives of the insurance sector on a very regular basis in the year that I have been in post. I hope that they will hold to their intentions. They have told us that they will launch the scheme, and we are keen to see it. The Secretary of State’s further meeting this week will, I hope, enable progress.
My hon. Friend the Member for Dartford made extremely important points on estate management. He has continually articulated the challenges on a regular basis, and has been a champion on this matter. He rightly speaks of the outrages he has seen in his constituency. It is important that we respond to that as best we can.
I am grateful to my hon. Friend the Member for Harrow East for highlighting a number of the important changes that are coming. He is right that our objective is to squeeze out the bad practice in the sector. There are honourable people out there and there are honourable ways in which it is done, but where bad practice occurs it gives the entire sector a bad name. We will legislate and regulate to remove it in a proportionate way.
My hon. Friend also highlighted an example of a property that has not yet made progress on remediation, and similar examples were given by the hon. Members for Brentford and Isleworth and for Walthamstow and my hon. Friend the Member for Cities of London and Westminster. We can see significant progress. We have only recently produced a new detailed set of data covering all the funds that are open on building safety. I hope hon. Members will see the progress that has been made, but we recognise that there is more to do. The hon. Member for Walthamstow is absolutely right that there are a number of names that pop up repeatedly—for example Y&Y Management and E&M. There are many others and they should be on notice that they need to change their practices, because they are not acceptable.
Matthew Pennycook
The Minister touched on building safety. In the briefing notes on the Bill that accompanied the King’s Speech, under the heading “Improving leaseholders’ consumer rights”, reference was made to:
“Building on the legislation brought forward by the Building Safety Act 2022”.
Is it the Government’s intention to incorporate building safety measures in the Bill?
Lee Rowley
We are looking at what may be possible. We recognise that, while the Secretary of State for Levelling Up, Housing and Communities has brought forward a very solid prospectus, tweaks can always be made. We see real momentum in this area. I know that that is not good enough for buildings that have not yet had their remediation or for leaseholders who are hugely frustrated by the inability or unwillingness of freeholders to make progress, but we have made significant changes and steps forward in the last year or so, and we are committed to doing more in the coming months.
I am grateful to the hon. Member for North Shropshire for meeting me earlier to talk about specific points about assets. We will look at those points and come back to her.
I can confirm to my right hon. Friend the Member for Aldridge-Brownhills that we intend to tackle ground rents. I am grateful to her for highlighting exceptions in leasehold houses. We intend that to be a very narrow element. She sought an example. One example I can give is that of National Trust land where freeholds cannot be sold and a small number of leasehold homes may therefore be required.
The hon. Member for Liverpool, West Derby talked about his disappointment with, I believe, the consultation on ground rents. We must consult on that because we must ensure that we are listening and that we take a decision based on the broad range of evidence in front of us, to ensure that it is legally sound when the decision is made. He encourages me to speak to the Law Commission. I can tell him that I have spoken to the Law Commission probably more regularly than any other external organisation outside the Department in the past three or four weeks.
The hon. Members for Walthamstow, for Battersea and for Brentford and Isleworth are seeking to push a narrative—if I may say that very gently to them, with the best of intentions—that this is not a significant intervention with regard to flats. I gently encourage them to continue to engage with the Bill. They will see long and cheap extensions, easier enfranchisement, service charge transparency, easier redress, lease extensions, standard forms, annual reports and many, many other significant measures that will have salience for those living in flats.
Before I conclude, I would like to thank the hon. Member for Greenwich and Woolwich (Matthew Pennycook) for his constructive comments. I look forward to meeting him in Committee to talk about them more. While I may disappoint the right hon. Member for East Ham, I would like to turn to some of the comments made from the Opposition Front Bench.
The right hon. Member for Ashton-under-Lyne (Angela Rayner), despite acknowledging that the Government have brought forward important legislation, despite confirming that Labour would not be opposing it and despite advancing the most enthusiastic compliment I have ever heard her give a Conservative—that the Secretary of State has reached the lofty heights of being a “functional cog”; heavy praise indeed!—showed that, as ever, she deals in rhetoric rather than reality, and in politics rather than policy. She called the Bill “empty”. This is a Bill with 65 clauses, eight schedules and 133 pages, and there are 67 pages of explanatory notes. Given its comprehensive reform of enfranchisement and extensions, its comprehensive reform of redress, and its comprehensive reform of service charges, estate management and valuation, that is a funny definition of “empty”.
Bob Blackman
I asked the Minister to answer this question in summing up the debate. Will he undertake to include the outcome of the consultations that are currently taking place, particularly that on ground rents, in the amendments that the Government table in Committee?
Lee Rowley
That is our intention, yes.
We have had a good debate today, which I hope—indeed, I know—will start the passage of this important Bill into law and lead to a better system for everyone in the long term. This is an outcome that is fundamentally Conservative because, fundamentally, the Bill is about empowering people, about levelling the playing field where it has been distorted, about reining in those who are trying to rent-seek for no purpose at the expense of those who just want to get on with living their lives, and about giving people the security of home ownership—proper home ownership, for the long term—so that they can build their lives and build their futures. I hope that all Members will join the Government in supporting the Bill tonight, and I look forward to further constructive conversations during its future stages.
Question put and agreed to.
Bill accordingly read a Second time.
Leasehold and Freehold Reform Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Leasehold and Freehold Reform Bill:
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 1 February 2024.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
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.—(Scott Mann.)
Question agreed to.
Leasehold and Freehold Reform Bill (Money)
King’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 and Freehold Reform Bill, it is expedient to authorise the payment out of money provided by Parliament of:
(1) any expenditure incurred under or by virtue of the Act by the Secretary of State, and
(2) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Scott Mann.)
Question agreed to.
Leasehold and Freehold Reform Bill (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Leasehold and Freehold Reform Bill, it is expedient to authorise the charging of fees under or by virtue of the Act.—(Scott Mann.)
Question agreed to.
Leasehold and Freehold Reform Bill (First sitting)
Tuesday 16th January 2024
(11 months ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 January 2024 - (16 Jan 2024)
The Chair
Before I begin, I have a couple of announcements. Hansard colleagues would be grateful if Members emailed their speaking notes to hansardnotes@parliament.uk. Obviously, electronic devices should be switched off. Date Time Witness Tuesday 16 January Until no later than 9.50 am The Leasehold Advisory Service (LEASE) Tuesday 16 January Until no later than 10.25 am Leasehold Knowledge Partnership; Velitor Law Tuesday 16 January Until no later than 11.00 am The National Leasehold Campaign Tuesday 16 January Until no later than 11.25 am Law & Lease Tuesday 16 January Until no later than 2.30 pm The Law Commission Tuesday 16 January Until no later than 3.00 pm The Financial Conduct Authority Tuesday 16 January Until no later than 3.40 pm Free Leaseholders; Commonhold Now; HoRnet (the Home Owners Rights Network) Tuesday 16 January Until no later than 4.15 pm The Property Institute; Fanshawe White Tuesday 16 January Until no later than 4.50 pm The Home Buying and Selling Group; The Conveyancing Association Tuesday 16 January Until no later than 5.15 pm Public First Tuesday 16 January Until no later than 5.40 pm Dr Douglas Maxwell Thursday 18 January Until no later than 12.10 pm HomeOwners Alliance; The Federation of Private Residents’ Associations; Shared Ownership Resources Thursday 18 January Until no later than 12.40 pm Professor Andrew J. M. Steven (Professor of Property Law, University of Edinburgh); Professor Christopher Hodges OBE (Emeritus Professor of Justice Systems, University of Oxford) Thursday 18 January Until no later than 1.00 pm The Building Societies Association Thursday 18 January Until no later than 2.20 pm Competition and Markets Authority Thursday 18 January Until no later than 2.40 pm Policy Exchange Thursday 18 January Until no later than 3.10 pm The Law Society; Philip Rainey KC Thursday 18 January Until no later than 3.30 pm The Residential Freehold Association Thursday 18 January Until no later than 3.50 pm End Our Cladding Scandal
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 16 January) meet—
(a) at 2.00 pm on Tuesday 16 January;
(b) at 11.30 am and 2.00 pm on Thursday 18 January;
(c) at 9.25 am and 2.00 pm on Tuesday 23 January;
(d) at 11.30 am and 2.00 pm on Thursday 25 January;
(e) at 9.25 am and 2.00 pm on Tuesday 30 January;
(f) at 11.30 am and 2.00 pm on Thursday 1 February;
(2) the Committee shall hear oral evidence in accordance with the following Table:
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 4; Schedule 1; Clauses 5 to 11; Schedules 2 to 5; Clauses 12 to 19; Schedule 6; Clauses 20 and 21; Schedule 7; Clauses 22 to 37; Schedule 8; Clauses 38 to 65; new Clauses; new Schedules; remaining proceedings on the Bill. (4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 1 February.—(Lee Rowley.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Lee Rowley.)
The Chair
I take it that we do not need to move the motion about deliberating in private; just intimate to the Clerk or me that you want to speak, and we will proceed informally. We are sitting in public, and the proceedings are being broadcast. Do any Members want to make a declaration of interest?
Matthew Pennycook (Greenwich and Woolwich) (Lab)
My wife is the joint chief executive of the Law Commission, and we are hearing evidence from it.
Examination of Witness
Mr Martin Boyd gave evidence.
The Chair
We will now hear oral evidence from Martin Boyd, chair of the Leasehold Advisory Service. Before I call the first Member to ask a question, I remind all Members that questions should be limited to matters within the scope of the Bill. We must stick to the timings in the programme order that the Committee has agreed. For this panel, we have until 9.50 am. Perhaps the witness could introduce himself briefly.
Mr Martin Boyd: Good morning, everyone. My name is Martin Boyd. I am the newly appointed chair of the Government’s Leasehold Advisory Service. I am also chair of the charity the Leasehold Knowledge Partnership, and I am chair of the resident management company in the place where I have a flat.
The Chair
I think perhaps the Opposition spokesperson wants to start off with the questions.
Matthew Pennycook
Q
Ms Marie Rimmer (St Helens South and Whiston) (Lab)
Excuse me, Chair. Is the loop system on? No? Can we arrange to have it on, please? [Interruption.] Oh, we cannot; I understand.
Matthew Pennycook
One of the aims of the Bill—certainly in the terms of reference handed to the Law Commission, whose recommendations frame a lot of parts 1 and 2—was to provide a better deal for leaseholders as consumers and increase transparency and fairness. In your view, to what extent does the Bill as a whole do that? Are there any specific clauses or elements of the Bill that we might seek to tighten up to further improve the experience for leaseholders as consumers? I am thinking of the fact that leaseholders are still liable to pay certain non-litigation costs and that right-to-manage companies are still liable when claims cease.
Mr Martin Boyd: As you may recall, when the Law Commission originally looked at this area of the law, it suggested to the Government that a consolidation Bill was warranted. However, there was not the budget at the time, so it was then given the three projects on right to manage, enfranchisement and commonhold to look at. The enfranchisement proposals and some of the right-to-manage proposals, but none of the commonhold proposals, have been brought forward in the Bill. The difficulty with the Bill is that there is an almost endless list of things that could be added. In removing the one-sided costs regime, the Bill does quite a lot to balance the system during the enfranchisement process. It also attempts to address the problem of the costs regime at the property tribunal. In the current system, the landlord is in a win-win position. Even if they lose the case, they are able to pass on some of their legal costs under most leases. The Bill tries to address some of those issues.
We still have a whole set of problems in the way that resident management companies and RTMs operate. They do not have a legitimate means of passing on their company costs within the service charge. There are still sites where they effectively have to cook the books to pass on the legitimate costs to the service charge payers. There are still many more things to add to the Bill. Clearly, we will continue to have problems with multi-block right-to-manage sites as well. They do not operate effectively anymore, and unfortunately the Bill does not address that element of the problem.
Matthew Pennycook
Q
Mr Martin Boyd: Yes. There are several things that could be added.
Matthew Pennycook
Q
Mr Martin Boyd: The RoPA—regulation of property agents—report, which the Government undertook some years ago under Lord Best and which proposed statutory regulation of managing agents in this sector and within the estate agency world, has unfortunately not moved forward. There are proposals in the Bill to bring estate agents within codes of practice, but nothing in particular changes on property management. We have a slightly strange position at the moment. In the social sector, there is now an obligation for a property manager to have a proper level of competencies to look after high-rise buildings, or high-risk buildings, as they are still called. In the private sector, though, we have nothing. There are no requirements to have any qualifications to look after and manage the highest of our high-rise buildings in this country. That is simply wrong, so I would support fully a move to the statutory regulation of agents.
Mike Amesbury (Weaver Vale) (Lab)
Q
Mr Martin Boyd: Yes, there are risks. Currently, we do not have a viable commonhold system. Even if the Government were to come forward with the full Law Commission proposals, those had not reached the point where they created all the systems necessary to allow the conversion of leasehold flats to commonhold flats. I see no technical reason at the moment why we should not move quite quickly to commonhold on new build for extant stock. I think it will take longer—and, at the end of the day, conversion will be a consequence of consumer demand. People would want to do it. On my side, I would not want us to convert to commonhold, because I could not yet be sure that it would help to add to the value of the properties. It would make our management of the site a lot easier, but I could not guarantee to anyone living there that it would add to the value of their property—and that is what people want to know, before they convert.
Richard Fuller (North East Bedfordshire) (Con)
Q
Mr Martin Boyd: I do not think the Leasehold Advisory Service would have a specific preferred path. At least two of those are important. I will add a fourth, actually. It is illogical that we do not have a requirement for professional qualifications for those managing particularly complex buildings.
Richard Fuller
Q
Mr Martin Boyd: I will be cautious, so that I am not rude in answering that. There are a set of skills that you would expect to acquire as an MP, and a certain set of skills that you need to acquire as a property manager. Buildings are complex entities, particularly large buildings. They have a lot of plant and a lot of complex systems. There is quite a complex interaction with the people who live in those buildings. There are voluntary qualifications that we have in the sector. The Secretary of State decided recently that there should be a mandatory level of qualification in the social sector. I do not see there being a logic in saying that we need one or the other.
In terms of regulation of managing agents, there is a problem. The ex-chair of the managing agents’ trade body said that it is perfectly legal to set up a property management company in your back bedroom in the morning and be collecting a large amount of money in the afternoon, without any regulation. I think that is a problem. One of the issues not considered in the Bill—perhaps it would not be relevant, although the Government need to consider it at some point soon—is that there is still no proper control of leaseholders’ funds. It is very likely that the two largest managing agents in this country hold between them somewhere between £1 billion and £2 billion. There is no Financial Conduct Authority regulation of how that money is held.
Richard Fuller
Q
“to champion the rights of leaseholders and park homeowners.”
I have a number of park home owners in my constituency, as I am sure many colleagues do. Are there any provisions in the Bill, or is there anything that could be added to it, that would improve the lot of park home owners?
Mr Martin Boyd: Yes, there is, but again that goes on to the long list of things that could be added to the Bill. Park homes have been a difficult area for many years. It is a relatively small part of LEASE’s work, but it is work that will be expanding as we move forward. I am more than happy to talk to you about some of the provisions on park homes that could be added.
Richard Fuller
There is nothing that leaps out at this stage.
Mr Martin Boyd: Nothing leaps out.
Barry Gardiner (Brent North) (Lab)
Q
Mr Martin Boyd: There were proposals in sections 152 to 156 of the 2002 Act to help to improve protection for leaseholders’ funds. Currently, we are left with a set of voluntary codes. One is applied by the Association of Residential Managing Agents—the Property Institute, as it is now called—and sets out that managing agents should hold separate bank accounts for each of the sites that they manage. The Royal Institution of Chartered Surveyors’ code does not require that. I am aware from experience of my and other sites that, in the recent period of higher inflation, some managing agents used consolidation accounts, accrued the interest in the service charge funds to themselves and passed very little on to the leaseholders. So yes, I think it would be very helpful if we had greater transparency and protection.
Barry Gardiner
Q
Mr Martin Boyd: I can tell you why it did not move forward. One of the reasons it did not move forward is that, when there was a consultation, the organisation that I now chair argued very strongly against the implementation of that section. That was one of the things that annoyed me when I found out about it over a decade ago. It is not something that we would argue for now.
Barry Gardiner
Q
Mr Martin Boyd: It was a very good provision, yes.
Rachel Maclean (Redditch) (Con)
Q
Mr Martin Boyd: I am proud to say that it was LKP that restarted the whole commonhold project in 2014. At the time, we were told, “The market doesn’t want commonhold.” The market very clearly told us that it did want commonhold; it was just that the legislation had problems in 2002. One of our trustees, who is now unfortunately no longer with us, was part of a very big commonhold project in Milton Keynes that had to be converted back to leasehold when they found problems with the law.
I think the Government have been making it very clear for several years that they accept that leasehold’s time is really over. I do not see any reason why we cannot move to a mandatory commonhold system quite quickly. What the developers had always said to us—I think they are possibly right—is that they worry that the Government might get the legislation wrong again, and they would therefore want a bedding-in period where they could test the market to ensure that commonhold was working, and they would agree to a sunset clause. They had fundamentally opposed that in 2002, and we managed to get them in 2014 to agree that, if commonhold could be shown to work, they would agree to a sunset clause that would say, “You cannot build leasehold properties after x date in the future.” I think that that is a viable system.
Ms Rimmer
Q
Mr Martin Boyd: As some of you may know, I have been very critical in the past of the organisation that I now chair, because I thought that it was doing the wrong thing. The Government took what some might see as a brave decision in asking me to take on the role as chair. LEASE is going to become a much more proactive part of the system, and, as far as I see it, we now have several roles rather than one. While we are predominantly there to help advise consumers about the legislation and how to use it—and hopefully when not to use it—we will also have a role in helping to press Governments to make sure that they improve the legislation. That was not a remit that we had, but it will be very much part of our remit going forward.
Ms Rimmer
Q
Mr Martin Boyd: As I said to the all-party parliamentary group yesterday, the organisation does not currently have the budget. The Government have said that they will give us the relevant budget. If they do not give us the budget, I will not be staying, so I am very hopeful that we do get the budget.
Some aspects of the Bill do quite a lot to reduce the amount of time that leaseholders would need to spend asking for help. If the enfranchisement process goes through and we get to an online calculator system, where you simply feed in your data and it produces the answer, that will make that whole system much easier. That will reduce not only the amount of work that comes to us, but the amount of work that goes to various solicitors and surveyors in that field.
The Chair
That is the end of our allotted time for this session; I think we got everybody in who wanted to ask questions. Thank you for coming to talk to us today.
Examination of Witnesses
Sebastian O’Kelly and Liam Spender gave evidence.
9.50 am
The Chair
Q
Sebastian O’Kelly: I am Sebastian O’Kelly, director of the Leasehold Knowledge Partnership. I am not a leaseholder; I am a commonhold owner in another jurisdiction, not in the UK.
Liam Spender: I am Liam Spender, senior associate at Velitor Law. I am a leaseholder in London. I am also a trustee of the Leasehold Knowledge Partnership.
Matthew Pennycook
Q
Various provisions in the Bill touch on ground rents. You will know, for example, that schedule 2 imposes a 0.1% cap on their treatment in valuation. Clause 21 and schedule 7 deal with existing ground rents and how we will treat those. What are your views on the fact that those provisions provide leaseholders with the enfranchisement right to buy out their ground rent under a very long residential lease, but we also have the consultation ongoing with five options? How do those provisions interact? Why have the Government specified an option in clause 21 for a particular type of very long residential lease, while we also have this consultation ongoing and, in theory, a commitment to bring forward further measures that apply to all existing ground rents? Does clause 21 in the Bill as drafted make sense to you?
Sebastian O’Kelly: Not especially. We are eager to hear the result of the consultation on ground rents. We very much support the peppercorn ground rent option and are delighted that the chairs of the all-party parliamentary group also support that. It would be a game-changing measure if that did come about—frankly, stripping out the one legitimate income stream in this ghastly system—but I can see that, as a precautionary measure, you might have that 0.1% provision in the Bill for dealing with enfranchisement. It will assist with some of the enfranchisements where you have very onerous ground rents.
Liam Spender: I agree; it is not clear why the 150-year threshold has been chosen. As far as I understand it, the Law Commission did not consider that in its work. That might be something that could be fruitfully explored in this Committee’s more detailed work.
Matthew Pennycook
Q
On the right to manage, only eight of the 101 Law Commission recommendations on right to manage have found their way into the Bill. We face the issue that Mr Boyd referred to—we could add in many more provisions to the Bill. Are there any specific RTM recommendations from the Law Commission that it would be really worthwhile to try to incorporate into the Bill?
Sebastian O’Kelly: In relation to leasehold houses, it is a bit of an embarrassing omission that the proposal is not there. The spreading of leasehold houses around the country simply to extract more cash from the unwitting consumers who had purchased houses from our plc house builders was a national scandal, actually, and it was frankly a try-on too far and caused a huge amount of kerfuffle. There will be times when you would have to build a leasehold house—when the builder does not actually own the land—but they are very isolated cases, and largely this scam has self-corrected through the adverse publicity.
On the right to manage, one of the most egregious issues is where groups of leaseholders have attempted to get a right to manage and have been hit for extortionate legal costs, where their petition for right to manage has been resisted by the landlord. There are certain landlords out there who always, always, unfailingly take this through the legal steps. They rack up legal costs, but of course they can get that back through the service charge. That is an issue that I urge is the worst deterrent to right to manage.
Liam Spender: The lack of right to manage for fleecehold estates—for estates subject to management schemes—is one of the most obvious omissions in the Bill. The Law Commission did an awful lot of work on how to improve the process for multi-block sites, particularly following the Supreme Court decision two years ago on Settlers Court. I think that is another missed opportunity.
Rachel Maclean
Q
Sebastian O’Kelly: This is for Liam really, because I am not a leaseholder at all; it is Liam’s court case.
Rachel Maclean
Sorry, I was looking at Mr Spender and I misspoke.
Liam Spender: I quite understand anyone being distracted by Mr O’Kelly. Thank you for the question. In our case to date, the freeholder has put £54,000 of its legal costs through the service charge. It did so in breach of a section 20C order, which is the current restriction that is supposed to prevent landlords from doing so. We complained and got most of that money back, but they have served something called a section 20B notice: they intend to recover the costs in the future if they prevail on appeal, by which point we could be looking at a substantial six-figure sum. This is all to do with us fighting to get back unreasonable service charges.
We are currently owed about £450,000—to give a round number—pending appeal. There is an appeal in April and I am carrying the burden of doing all that work myself. I quite understand why leaseholders without legal training give up and things will fall by the wayside. The system is very much stacked in landlords’ favour.
The cost provisions in the Bill are welcome. As you probably know, they changed the default so that the landlord has to ask for their costs. The issue is what has been created as a just and equitable jurisdiction; the tribunal can do what it thinks is fair in the circumstances. I believe—I think many people who have much more knowledge of this than I do would agree—that what that will mean in practice is probably that the tribunal will be inclined to give landlords their costs if they have won the case, so it will not change anything.
The other problem is that the first-tier tribunal considers itself a no-cost jurisdiction, and that is a generational way of thinking, so that has to be overcome and it has to get into the mindset of awarding costs to leaseholders and against landlords. Provisions could be included in the Bill that would make that that process easier—for example, prescribing a regime of fixed costs as applied to other low-value civil litigation. It is not a magic bullet, but I think that would be better than the current provisions in the Bill.
Mike Amesbury
Q
Sebastian O’Kelly: We would like to see a commitment to mandatory commonhold for new builds, frankly. How many more times are we going to try to reform the leasehold system? How many goes have we had at this since the 1960s? If you keep having to reform leasehold, is the answer not that it does not work? Why do you want this third-party investor—now, invariably, somebody offshore—hitching a ride on the value of somebody else’s home? It is a nonsense. One Duke of Westminster we can accept—the political continuity of our country maybe allows a freehold such as that—but we will create 1,000 of them with this. It is a nonsense. Bring it to an end and bring us in touch with the rest of the world—that is my statement.
Andy Carter (Warrington South) (Con)
Q
Liam Spender: Yes, happily. The main items in dispute are our intercom, car park gates and barriers. Our satellite TV dishes are rented in perpetuity; they were costing £240,000 a year, which is somewhere between 10 and 20 times what they should cost. The reason for that is that the developer chose to enter into a long-term rental and maintenance contract. That contract has never actually been—the technical term is “novated”—transferred to the current landlord, so there is no legal obligation on the current landlord to pay those costs at all. However, the landlord has dug in, so we are more than two and a half years into a service charge dispute. We prevailed in the first instance—that was the largest single item we won—and we must fight an appeal in April, and potentially another one after that, depending on what the landlord chooses to do.
Andy Carter
Q
Liam Spender: I knew the general amount of service charges. I was not aware that there was a perpetual maintenance contract, because it was not disclosed in the searches.
Barry Gardiner
Q
Liam Spender: I agree; you have summarised it very well. To borrow a loose analogy from company law, there is something called a tag-along right. If someone comes along and buys a certain proportion of shares in a company, the other shareholders can exercise the right to tag along to join the purchase. That could be adapted to those who do not participate in an initial enfranchisement to address exactly the issue that you raise.
Barry Gardiner
Q
Liam Spender: I think the provisions introduce a degree of complexity into buildings because, exactly as you say, you are creating a new class of landlord. That could be solved by—
Barry Gardiner
Q
Liam Spender: That is right: there is no statutory mechanism to transfer to the newly enfranchised freeholders.
Barry Gardiner
Q
Liam Spender: The Bill creates a lot of new areas of complexity, and that is certainly one that would merit detailed attention.
The Chair
Well, gentlemen, I think that is it. Thank you very much.
Examination of Witnesses
Katie Kendrick, Jo Derbyshire and Cath Williams gave evidence.
The Chair
Q
Katie Kendrick: I am Katie Kendrick. I am the founder of the National Leasehold Campaign, which has been running for seven years. I am also a trustee of LKP.
Jo Derbyshire: I am Jo Derbyshire. I am one of the co-founders of the National Leasehold Campaign and a trustee of LKP. I am not a leaseholder; I enfranchised and bought the freehold on my home. I had one of the now-infamous 10-year doubling ground rents on my house.
Cath Williams: I am Cath Williams. I am one of the co-founders of the National Leasehold Campaign. I am no longer a leaseholder, but I did buy a leasehold house.
Matthew Pennycook
Q
Katie Kendrick: The Bill is very much welcomed and long overdue. As we all know, the Law Commission reports were fantastic and very detailed. The Bill is lacking significantly on the detail of the Law Commission recommendations. The headline was that the Bill would ban leasehold houses, and obviously the Bill as it stands does not do that. I am confident that it will, in the end, ban leasehold houses, but currently that has not been achieved.
The Bill improves the transparency of service charges, but just being able to see the fact that leaseholders are being ripped off more does not actually fix the root cause of the problem. As we all know, the root cause of the problem is the leasehold system per se. I am concerned that the Bill sticks more plasters on a system that we all agree is immensely outdated and needs to go. There is no mention anywhere in the Bill of our long-term vision of achieving commonhold. That is our vision, and it is the elephant in the room. The Bill does not even mention commonhold and how we can move towards it.
A peppercorn ground rent would massively change the playing field and help us to move towards our vision of commonhold, so we need to get a peppercorn ground rent for existing leaseholders in there. With the Leasehold Reform (Ground Rent) Act 2022, which means new builds do not have a ground rent, we have created a two-tier system. The Bill really does need to look at existing leaseholders and what can be done to help to put them in a similar position to new leaseholders. If ground rents are wrong for the future, they were wrong in the past and we therefore need to be bold enough to go back and fix that. Peppercorn ground rent has to be the solution. This is an amazing opportunity and I hope that will be the outcome of the consultation.
Cath Williams: On peppercorn ground rent, we have noted a new definition of a long-term lease being 150 years, which we have never come across before. Many members in our group—there are over 27,000 members in the National Leasehold Campaign—have modern leases with ground rents at significantly less than 150 years, at around 99 or 125 years. That means that the provisions in the Bill do not give them the opportunity to revert to a peppercorn ground rent. If we have read it correctly—we are not legally trained—they would be excluded as having a non-qualifying lease. That is our understanding: that they would be excluded. That could be a significant number of leaseholders who will not benefit from the peppercorn ground rent opportunity in the Bill.
Rachel Maclean
Q
Jo Derbyshire: I had a ground rent that doubled every 10 years. It meant that my ground rent would be £9,440 after 50 years. It certainly is not a trivial issue in my experience. A ground rent is a charge for no service. That is the big thing for me. Some warped genius at some point in the mid-2000s decided to create an asset class on our homes. It is just wrong.
Rachel Maclean
Q
Jo Derbyshire: I think that is project fear. I work in pensions. I work in administration, not investments, but I sit on a lot of pension committees where we talk about the assets that pension schemes hold. They have investment strategies and they protect themselves from over-investing in one asset class. The amount of ground rents held by pension funds in this country would pale into insignificance compared with, for example, the impact of the mini-Budget and what happened with equities shortly after that. This is deliberate scaremongering.
Mike Amesbury
Q
Katie Kendrick: You cannot just ban leasehold houses and not flats—70% of leaseholders live in flats, so you are not tackling the problem. You are cherry-picking the easy things, and banning leasehold houses is easy. It is more tricky with flats, but that does not mean it is not achievable. As you have said, it has been achieved everywhere else in the world. We do not need to continue to mask that leasehold system. It is deeply flawed and it ultimately needs to be abolished.
We do understand that there is no magic wand and this is not going to happen tomorrow, but there have been a lot of campaigners, well before us, who have highlighted the issues of leasehold, and yet here we are, still, again, trying to make it a little bit fairer. It does not need to be a little bit fairer—it needs to go. That needs to be the ultimate aim. Everybody needs to work on this. There is something better out there, despite what the other lobbying groups will tell you.
Richard Fuller
Q
Jo Derbyshire: It is long overdue; bring it on.
Richard Fuller
Q
Jo Derbyshire: If I think of my estate, there was no reason whatsoever to create leasehold houses other than to make money from the people who had bought them. That is partly why, going back to an earlier question, it is taking so long to dismantle the system in this country: it is because there is so much money for nothing in it. That is why it is so hard to dismantle it.
Richard Fuller
Q
Jo Derbyshire: I work in a pension fund.
Richard Fuller
Q
Jo Derbyshire: From my perspective, it is just about how all investment carries risk. This is no different. This is about rebalancing the scales in terms of leaseholders and freeholders. For me, it is about fairness for leaseholders. That is what the Law Commission was tasked with a few years ago, it is what we have been fighting for over the last however many years and that is what this does.
Barry Gardiner
Q
Ms Kendrick, you said that there were things that the Law Commission report had talked about that have not been included in the Bill. One of those is in relation to shared services. Often, in a mixed development, if there is a commercial element to the block of flats, with flats above, you will find that there is a common plant room or a common car park. I welcome the provisions in the Bill that say that you can go from 25% commercial to 50%; that is a good move. However, the Law Commission actually said something specific about whether you should be allowed, if there are shared services such as the car park or the plant room, to be able to take over control, because the flats—the leaseholders—would only have control over the plant room as it related to their block. Is that a provision that you think should be introduced? Otherwise, it makes a mockery, to a certain extent, of increasing from 25% to 50% if you are still going to be precluded from gaining control of your block because of the plant room or shared services.
Katie Kendrick: Yes, there are clever ways in which they exclude people from being able to do that. We welcome the increase to 50%, but they are very creative when they design these buildings, with the underground car parks and stuff, as to what they can do to exclude the leaseholders from taking back control of their blocks. It is all about trying to have control over people’s homes. We should be able to control our homes—what is spent. No one is saying that you should not have to pay service charges, but it is about being in control of who provides those services. At the moment, leaseholders have no control. They just pay the bills.
Barry Gardiner
Q
Katie Kendrick: Absolutely, yes.
Barry Gardiner
Q
Katie Kendrick: Absolutely.
Barry Gardiner
Q
Katie Kendrick: Absolutely. If they are saying that commonhold is not ready to rock and roll, to have a share of freehold to mandate, a share of freehold for new flats moving forward would be a good step closer.
Andy Carter
Q
Katie Kendrick: All three of us have now successfully bought our freehold. Yes, we are still here.
Jo Derbyshire: There are a number of things. The first is that most leaseholders do not understand the difference between the informal way and the statutory way to do that. The more unscrupulous freeholders will write to leaseholders with a “Get it while it’s hot” type of offer, which can be quite poor value for money. So, there is understanding the process in the first place. Then, regardless of which way you go—if you go the statutory way, currently you pay your own fees and the freeholder’s fees. There is an element of gamesmanship that goes on at the moment, which is why the online calculator is so important. Your valuer and the freeholder’s valuer will argue about the rate used to calculate the amount and then you will try and have some kind of an agreement. It is not a straightforward process at all. Cath will tell you what happened with her transfer, because they leave things in the transfer documents.
Cath Williams: Yes, they did. In my case, it took 15 months and £15,000 to get my freehold.
Andy Carter
Q
Cath Williams: Yes, £15,000 on a house. It took that long because I found—this is one of the problems that leaseholders have—that I knew more than the alleged leasehold-specialist solicitor who was dealing with my case at the time. That was very early in the campaign, so a lot of education needs to go on for everybody: leaseholders, conveyancers and solicitors. Because I had done some research and tried to get my head round leasehold clauses and what were fee-paying clauses, shall we say, in the TP1, which is a transfer document, they tried to carry across all the fee-paying clauses. Essentially, it would be freehold but fleecehold, because I would still have to pay to the freehold investors.
It took that long because I kept redacting my own TP1, putting a red line through it and sending it back, saying, “I am not doing that, that or that.” Eventually, we got rid of them. The problem now is that we still have a lot of conveyancers who do not do that for the leaseholders. If the leaseholder does not understand the system or the lease terminology, that is always a big barrier. The way that leases are written—all their legalese—means the general public generally cannot understand; so, it is difficult.
Andy Carter
Q
Cath Williams: No, there was nothing on the site or in the paperwork to say that it was leasehold.
Andy Carter
Q
Cath Williams: I found out on the day that I paid my deposit and went in to look at the extras list, which you tick to say, “I’m going to have carpets, curtains” and so on. The sales person said, “There’s something I need to add”, took a pencil and wrote “leasehold” along the bottom. [Interruption.] It is a true story. I said, “What’s this?”, because I had bought so many houses that were newbuild. I said, “I don’t understand why you are writing ‘leasehold’.” They said, “Did we not tell you?” I got a story about how it was local council land and had to be leasehold, which turned out to be completely untrue.
Andy Carter
Q
Cath Williams: Yes, I paid the deposit, and I had sold my other property. We were very late on in the process, so I believe that I was mis-sold and misled, as were many members of the National Leasehold Campaign. We hear very similar stories.
Andy Carter
Q
Cath Williams: That is right. You are committed, and you are at a point where if you do not continue, you will lose even more money. You have an emotional connection to the property that you want to buy and lots of other pressures as well—people might be moving jobs or trying to increase the size of their home.
Jo Derbyshire: I knew, but the salesperson told me that we could buy the freehold at any point for about £5,000. What they did not tell me was that the business model was to sell it on and what the implications of that would be. They sold it on less than two years after I bought the house, and the price went from the £5,000 they asked for to £50,000.
Andy Carter
Q
Jo Derbyshire: No.
Katie Kendrick: No, because legally it is unlike in flats, where when they sell the freehold on they should offer the people in the flat the right of first refusal. That does not apply to houses, so the land was literally sold from beneath us and they told us afterwards. Because we were not entitled to buy the freehold for two years—you must live there to qualify to enfranchise—they sold the freeholds on before the two-year point, so the freeholder was no longer the developer that we originally bought from; it was an offshore investment company that then increased the price significantly. We were never told that that would happen.
Andy Carter
Q
Jo Derbyshire: That was the market value for a 10-year doubling lease.
Matthew Pennycook
Q
Katie Kendrick: It is a big concern, because leaseholders are trapped. They are in limbo, so they do not know whether to enfranchise now or to wait for the Bill to go through. The Bill says that it will make it easier, cheaper and quicker, but the devil is in the detail, and we do not know what the prescribed rates will be. We are being promised that it will be cheaper, but will it? It all depends on who programmes the calculator. Ultimately, will it actually be cheaper? The Bill says that it will abolish marriage value, which is hugely welcomed by leaseholders, so those people with a short lease approaching the golden 80-year mark are waiting. Do they go now?
Matthew Pennycook
Q
Katie Kendrick: No, some people do not have a choice. People’s lives are literally on hold, and have been for many years, waiting for the outcome of the legislation. If we need further legislation to enact the Bill, people cannot sell. Housing and flat sales are falling through every single day because of the lease terms and service charges. It is horrendous. It will grind the buying and selling process to a halt.
Barry Gardiner
Q
Under the Building Safety Act, the provision is to appoint a designated person—an agent—to deal with the safety of the building. Often it will be the developer who is responsible for the remediation of a building that has fire safety defects and so on, which the Government are quite rightly trying to address, but they will argue that it is not possible to do that unless they have control over the management of the block as a whole. Therefore, there is a conflict between the Building Safety Act and the provisions in this Bill to help leaseholders gain the right to manage.
You might have just enfranchised and got the right to manage your own block, yet there is now an appointed person who will be told by the court that they have the right to manage the block. Very often, it will be the person you have just liberated yourself from. You will have just enfranchised yourself from that freeholder, only to find that they are now back in control. Do you feel there is a way in which the Committee should try to remediate and address that problem when it is looking at the Bill, and do you have any ideas as to how we should go about it?
Cath Williams: First of all, the situation that flat leaseholders are in at the moment, where they have building safety issues and leasehold issues, is so complex. It is horrendous. We hear daily in the National Leasehold Campaign about these poor leaseholders. It is really heartbreaking.
Barry Gardiner
People have committed suicide, have they not?
Cath Williams: People have committed suicide, yes. That is worth noting.
They ask for advice. We have never been flat leaseholders; that is the first thing, but there is a lot of support in the group to try to help people navigate their way through the Building Safety Act first of all, and now we have this Bill as well. In principle, I think they would really welcome some sort of cohesion between the two. I don’t know what that would be; it is really hard.
Katie Kendrick: It is really difficult because we are encouraging people to take control, but by doing that they are liable for more of the building’s safety. The two Bills have to work together.
Barry Gardiner
Q
Katie Kendrick: There is.
Barry Gardiner
Q
Cath Williams: Yes.
Jo Derbyshire: The Leasehold Reform (Ground Rent) Act 2022 has essentially created a two-tier system where you have new builds without ground rent. As Cath mentioned, we are concerned that clause 21 and schedule 7 of the Bill seem to say a qualifying lease for buying out to a peppercorn rent must have a term of 150 years. We have seen lots of examples in the National Leasehold Campaign of new build properties—flats in particular—where the lease is 99, 125 or 150 years from the start, so a whole swathe of properties would be automatically excluded.
However, for us, because ground rent is a charge for no service, peppercorn is the answer. We also fear that, in terms of the timetable for legislation and getting this through, the sector will fight intensively and try to tie this up in the courts for years. It has nothing to lose; why wouldn’t it?
Andy Carter
Q
Katie Kendrick: Because an escalating ground rent worries mortgage lenders and buyers are unable to get mortgages because of an escalating ground rent. Where that is because of the £250 assured shorthold tenancy issue, my understanding is that that will be sorted through the Renters (Reform) Bill, so that will close that loophole, but lenders do not like—for most leases now, the doubling has half-heartedly been addressed and a lot of leases are now on RPI—the retail price index.
However, with RPI being the way that it is—it has been really high in the last couple of years—some of those ground rents are coming up to their review periods and are actually doubling. Therefore, RPI, as Jo said many years ago, is not the answer. Converting to RPI is not the answer because an escalating ground rent is still unmortgageable, and it takes it over the 0.1% of property value, which, again, mortgage lenders will not lend on.
Therefore, a lot of mortgage lenders are asking leaseholders to go to the freeholder and ask them to do a cap on ground rent, which is then costing the leaseholder more money to get a deed of variation from their freeholder. That is if the freeholder agrees at all, because the freeholder does not have to agree to do a deed of variation to cap the ground rent. That is coming at a massive cost if someone wants to sell, but without that people are losing three, four or five sales, and people have given up because their properties are literally unsellable.
Cath Williams: There is a house on my estate where sales have fallen through twice already. It is a townhouse; it is worth about £220,000. The ground rent currently—it is on an RPI lease—is £400, which takes it over the 0.1% of property value. Two sets of buyers have had problems getting a lender to lend in that situation.
Andy Carter
Q
Katie Kendrick: Absolutely. When I watched the programme, I was shouting out loud. The parallels—the similarities—are astounding. The system there was a computer system; the system here is leasehold. People have been ripped off for so many years and paid unnecessary fees, and lots of leaseholders are thousands of pounds out of pocket. And that is because the system—the leasehold system—has allowed that to happen, and it is a scandal of the same magnitude, as far as I am concerned. People have, unfortunately, lost their lives. I have become a bit of an agony aunt for people; my phone never stops because people contact me in tears, and I have stopped people from taking their own lives because of leasehold. It is horrendous—absolutely horrendous—when you are living it and you feel completely trapped. It is when they feel that there is no way out that people look at taking another way out, and it is horrendous.
Cath Williams: And we were both told, weren’t we, by the CEOs of the developers that we bought our houses from, that there was no leasehold scandal?
Katie Kendrick: Yes.
Mike Amesbury
Q
Katie Kendrick: Our campaign coined the term fleecehold, and it has been used as a bit of an umbrella to describe all of the different ways that we can be ripped off through our homes. It first began because, when we were enfranchising and buying our freeholds, the freeholder was trying to retain all the same permission fees—such as permission to put on a conservatory or to paint the front door—in the transfer document. Ultimately, you could be a freeholder but still have to pay permission fees to the original freeholder.
That is where fleecehold came from, but fleecehold is now used as a much broader phrase because we have estate management charges. The new build estates all have estate management charges attached to them. They have replaced one income stream—leasehold—by creating another asset in the open green spaces. We all have lovely big open spaces and lovely parks, but it is the residents who pay for that. Again, it is a private management company that manages them. You have no transparency over what they are spending.
I can remember somebody ringing me up and saying, “Katie, I have a breakdown of my estate management charges and they are charging me such-and-such for a park, so I rang up and said, ‘You’re charging me.’ ‘Yes, Mr Such-and-Such. You have to pay for the upkeep of your park.’” And he went, “I understand that, but I haven’t got a park.” It is outrageous. It is great that they are going to give people more right to challenge the costs, which they do not currently have with their freeholders. They have fewer rights than leaseholders to challenge at tribunal. But ultimately why have we gone to a private estate model? Why are people paying double council tax? They are paying full council tax the same as anybody else is, yet they now have to pay thousands of pounds in estate management charges. It is a ticking timebomb.
The estates look very nice now, but in the future when the pavements are falling to pieces—I spoke to a police officer and things are not enforceable because they are classed as private. Speeding restrictions? You could have a boy racer running through the estate, but the police cannot enforce anything. The same with double yellow lines and things like that. It is a ticking timebomb, because new build estates are popping up all over the place with private management companies.
Jo Derbyshire: There are some things in the Bill that try to stop things. Typically on fleecehold estates there might be freehold houses, but the estate management charge is secured legally by something called a rent charge. What most people do not understand is that if they withhold their estate management fees, the property can be converted from freehold to leasehold. Again, that cannot be right.
Rachel Maclean
Q
Rachel Maclean
You mentioned that in the new Bill leaseholders will have to pay to get their ground rent to zero. Can you set out what that provision is? Where is that in the Bill?
Cath Williams: I don’t think we know. That was one of our questions. There is a process in the Bill about how a leaseholder can acquire the peppercorn ground rent, but who pays for that is not clear. I think that was raised before. I do not think leaseholders should pay, because it should not have been there in the first place.
Katie Kendrick: Or there should be a prescribed cost—“apply for your peppercorn now”—with a simple process. Otherwise it will be exploited, and lawyer will charge different amounts to convert. You can see what will happen, so it needs to be streamlined. Whatever we go for, it needs to be streamlined.
Cath Williams: And we need an online system that cuts out everybody in the middle, so that there is no confusion or discussion about what it should cost.
Alistair Strathern (Mid Bedfordshire) (Lab)
Q
There are many estates in my patch where you can literally see where it becomes private because the condition of the road is shocking compared to 2 feet away, or the condition of the public space completely deteriorates. What measures would you like to see added to the Bill to help address that? Would you agree that ultimately we need mechanisms to ensure that a stated object can happen in a way that everyone can have confidence in?
Katie Kendrick: In an ideal world, the local authorities would be adopting these areas. I do not think there should be a private management at all. Local authorities used to, and they can charge the builders more for the land at the start.
Cath Williams: I agree.
Katie Kendrick: Adopt the lot.
Ms Rimmer
Q
We have to tie it down and not let the situation become like the one we have seen with the post offices. It is an obstacle course. People have committed suicide. Managers have broken down. Homes have been lost. Jobs have been lost. The management charges are unbelievable, and I do not think people understand that. I have not seen it anywhere, but a leaseholder has to write if they want to change the carpet; they then get charged a couple of hundred pounds for that, they get charged for the answer, and they get charged when somebody comes to have a look at it. That is how it goes on. The management charges are as big a fear as the lease, because leaseholders do not know where they are going.
The Government simply have to step in. It is the biggest money-making racket in this country now—and it is a racket. It is said that people have sat down and designed this system, and we should not leave these people to do the fighting on their own. I genuinely believe that there is desire to do so from both the Minister and our shadow Minister. Please come forward with your thoughts; do not give up. I do not believe for one minute you will give up.
Katie Kendrick: I believe there is political will to do this from across the House; there is unanimous agreement and there is no dispute. If there is no dispute, we just need to get it done.
The Chair
Right, that is probably it then—[Laughter.] Thank you.
Examination of Witness
Amanda Gourlay gave evidence.
The Chair
Good morning. Would our last witness like to introduce herself?
Amanda Gourlay: I am Amanda Gourlay. I am a barrister at Lazarev Cleaver LLP and I am an associate member of Tanfield Chambers. I have been in practice for nearly 20 years—I think it is 18.
Matthew Pennycook
Q
Amanda Gourlay: I would like start by quickly saying that while the Bill is welcome—as far as I am aware, we have been working towards leasehold reform for about six years now, from a service charge perspective—in an ideal world, although I appreciate that we are not starting with an ideal world, the best starting point would be to repeal everything we have so far so that we can codify and consolidate everything. I say that in relation to service charges, which apply only to leasehold properties, but also to bring all the charges relating to services and works that homeowners, occupiers and residents might pay within one regime, so that we are not looking at a separate regime for estate management charges or for estate management schemes, which are different from estate management charges, but we bring everything into one place. If I receive a demand for payment of maintenance of a park on my estate, it matters not to me whether I am a leaseholder or a freeholder—the money that I pay is exactly the same.
I wanted to set that out as my starting point, if I had a blank piece of paper and endless parliamentary time and patience. Having said that, we are where we are. I have made notes and, with your permission, I will run through them as quickly as I can, while still providing some degree of detail. I am a lawyer—I am one of those people whose living is derived from working with leasehold. I am one of the people who is often criticised in this arena.
I have had a good look at the clauses of the Bill. There are good things: there are time limits and an enforcement provision, and we are undoubtedly attempting to achieve some transparency. I wanted to put that out there as the good news to start off with.
From an improvement perspective, I want to start with clause 28, which deals with the provision of the written statement of account and the report the landlord will be required to provide. I have very little to say about clauses 26 and 27. Clause 26 brings the fixed service charge into the service charge regime. Clause 27, as you say, relates to the service charge demand. We do not know what the regulations are going to say. We do have an existing framework—a relatively limited one—for service charge demands, so there is something there, but we will need to see what the regulations do. What we would really benefit from is consistency in the regulations, so that across the board, as a leaseholder moves from one flat or property to another, they can expect to see the same charges set out in the same way, broadly speaking—so that they know what to look for when they go from one place to another.
The clause I have had quite a look at, with the benefit of some accounting input, is clause 28. It will insert two new sections into the Landlord and Tenant Act 1985, which is the framework we are looking at when looking at the Bill from the perspective of these clauses. It is good that we have a time limit for the provision of service charge accounts. I have come across many cases where leaseholders are repeatedly asked to pay on-account service charges and they never receive a reconciliation at the end of the year, so there is no real knowledge of what is being spent.
We could do with looking at a template for the provision of service charge accounts. That may be a matter for regulation, rather than the Bill, but I want to explain to you why I say that is important. When the service charge accounts come over, they have often been prepared by the managing agent, who has then instructed an accountant to review them in some shape or form. Often, the accountant will simply say, “I have agreed a set of procedures that I am going to follow in relation to the service charge accounts. I am going to check that the numbers have been properly extracted and check a small sample of the invoices to make sure that what is said has been invoiced has found its way into the accounts.” What we do not find for leaseholders, unless the lease requires something like an audit, is a proper review of service charge accounts with a balance sheet, an income and expenditure report, and notes to the accounts.
The first thing I must say as I am explaining this is that I am not an accountant—far be it. If I may make a suggestion, it would be extremely helpful for the Committee to engage with either a firm of accountants or, in fact, the Institute of Chartered Accountants in England and Wales; the Committee could then ask how they would go about formulating a proper system—probably in conjunction with the Royal Institution of Chartered Surveyors, under the fourth edition of the code, hopefully—in order to bring service charge accounting into the arena that it is currently in in the commercial code, or the professional statement that the commercial environment has in it.
Accounts is a big area, and it would be immensely helpful to have more involvement all round from accountants. I will not say accountants are the elephant in the room, as that would be a discourteous metaphor. They are the people who are never seen in tribunals. They are the people who do not speak loudly to Committees such as these. Yet, service charges are as much about the money as they are about the services. A balance sheet will give completeness. Income and expenditure will tell you what has come in and what has gone out. It makes sense.
While we are there, might I also invite the Committee to consider trying to bring together the differing understandings of “incurred” in the 1985 Act, as against what an accountant will understand. An accountant will understand a cost being incurred when that service is effectively provided. When I consume electricity, I incur a cost from an accountant’s perspective. From a lawyer’s perspective, I do not incur that cost until either, as a landlord, I receive the invoice, or I pay that invoice. So, they are very different dates and times. Some consistency between those professions would be helpful.
We would very much benefit from cost classifications that would support the provision of service charge accounting. It would also support the tribunal in understanding where to look for certain costs in relation to service charges. Cost classification would simply be some headings, some detail beyond that and then detail of the service that has actually been provided.
I am stepping entirely outside my area of comfort, but I confess I am married to a chartered accountant who specialises in commercial service charges. I have some wonderful Sunday morning conversations with him over breakfast. Those are points that, between us, we have come up with—looking at the way that service charge accounts have been prepared.
Further, in clause 28, there is a word I have not seen before in relation to service charges. That is that there is an obligation to provide leaseholders information about variable service charges “arising”. I am not sure what that means, and it would benefit from some explanation. That is the sort of word that will find its way into tribunals, I would expect. If “incurred” did, and found its way to the Court of Appeal, “arising” could do with some explanation.
The report, which is the second element in clause 28, which a landlord is required to—
The Chair
The point is not to make a long speech. The purpose is to answer questions. You might want to draw your remarks to a conclusion, so that my colleagues can ask you questions.
Amanda Gourlay: Certainly. I was asked a question and the only way I could answer was by taking you through the detail, because general comments are not going to help the Committee in formulating its way forward.
The Chair
I am a lawyer, too; I know that we manage to speak quite a lot.
Amanda Gourlay: I am grateful, thank you very much.
Dehenna Davison (Bishop Auckland) (Con)
Q
Amanda Gourlay: I am going to try not to go too far. I have been described as enthusiastic and I find I have to pull back slightly.
Dehenna Davison
Q
What did you make of that? Clearly, the Bill contains a number of provisions, particularly on consumer rights. From my perspective, the most interesting is around transparency. Do you think the Bill goes far enough? You have already given examples on service charge accounts, but are there other ways that the Bill could go further to improve that?
Amanda Gourlay: What I would say, to start with, is that my area of expertise is service charges. I know the Committee will hear from Philip Freedman KC (Hon) and Philip Rainey KC on Thursday. I would defer to them on all matters on enfranchisement. That is my preface to your question. Transparency is going to come from consistent information being provided in the service charge arena. Thinking specifically about the sale of properties—the assignment of leases and the sale of leases—one issue that comes up quite regularly is the provision of information on the position on service charges, including questions like, “Has the leaseholder paid all the service charges?”, “Are there any works proposed for the future?” and those sorts of general questions that we all want to know the answers to if we are going to buy a property. There is no regulation of that whatsoever at the moment, and it is quite a sticking point.
I have had one or two cases where I have been involved in those sorts of issues—where a leaseholder has wanted to sell on their lease and has simply not been able to obtain the information from whoever it is who should be providing it and to whom the request has been made. That information is really something that we need to see pushed forward.
The Bill does provide two clauses about the provision of information. Provided that it is understood that those provisions extend not only to the leaseholder—“Please tell me about my service charges”—but also to the packs that conveyancers will ask for when flats are being sold on, it would be a good thing to move that forward, because it has been a real struggle to impose an obligation or to find a way of obtaining that information in a reasonable time and at a proper price from the managing agent. That would be my answer in terms of sales.
Dehenna Davison
Q
Amanda Gourlay: Twenty-four hours would be great, but that would probably sow total panic at the receiving end—I know that it would if I received that and I was doing something else. It will depend very much on the nature of the property. There are some very complex developments over in the east end of London. On the other hand, there are Victorian houses that are only two or three flats, and that should be much more straightforward.
I am aware that people have been able to pay for, say, a seven-day or five-day service, and there has been an uplift in the price for that. I am not the best person to ask about what the price should be. What I would say is that if a managing agent to whom this request would normally go is keeping their records up to date, one would hope that with the progress we have in software nowadays, that should very much just be the pressing of a button.
On work that is going to be carried out in the future, I have heard talk about, for example, mandatory planned maintenance plans. I have not seen those in the Bill. If a building or property is being well managed, one would expect there to be a plan for the next five or 10 years—what is needed to be done in terms of decorating, lift replacement and so on. Again, if that is in place, I would anticipate that it should be relatively straightforward to produce the information. I cannot give a specific answer; what I would say is that if we are all keeping our records up to date, that should be a relatively speedy process.
Barry Gardiner
Q
Amanda Gourlay: That is correct—yes. Forgive me; I was involved in Canary Riverside between 2016 and 2017. My involvement finished in June 2017.
Barry Gardiner
Q
Amanda Gourlay: I am not sure that I am—no.
Barry Gardiner
Q
Amanda Gourlay: No, I was not involved in that element of it.
Barry Gardiner
Q
In relation to that case, and on the accountable person provisions and section 24 amendments in the Building Safety Act—this relates to a question I asked earlier—the tribunal decided in the Canary Riverside case that the section 24 manager cannot be the accountable person, and that risks the section 24 management order failing, and the failed freeholder coming back to take control of the leaseholders and their service charge moneys. The implications of that decision really are quite dramatic. It means that the lifeline of the section 24 court-appointed manager provision from the Landlord and Tenant Act 1987 has been removed from leaseholders, particularly those who cannot afford to buy their freehold or do not qualify for the right to manage. How should we address that problem in the structure of the Bill?
Amanda Gourlay: I do not think you need to do that in the structure of the Bill. Casting my mind back to the Building Safety Act, which is now in second place to the Leasehold and Freehold Reform Bill in my mind, my understanding is that there is provision for a special measures manager in that Act. If that were brought into force, one would have a recourse. I am very happy to open my computer and look at the Act, but I do seem to recall that there is provision for a special measures manager to take over the building safety or the accountable person role in a manner of speaking. I say that in the loosest terms, without having checked the law.
Barry Gardiner
Q
Amanda Gourlay: There is always a concern looking forward as to how things might play out. I will deal your question on “arising” first, then come to your other point. Clause 28(2) inserts proposed new section 21D, “Service charge accounts”. Subsection (2)(a)(i) talks about the variable service charges “arising in the period”.
Barry Gardiner
Ah, “arising in the period”. Gotcha.
Amanda Gourlay: Turning to the second part of your question, one of the very big difficulties with the reform of leasehold is that good and bad—to put it in very binary terms—do not sit on one side or the other. While it seems to me that in an appropriate situation it would be entirely reasonable for a leaseholder to be able to withhold their service charges, there may equally be leaseholders who consider that this is an opportunity not to pay, for different reasons. There is always that risk. If one does not pay one’s service charge and is obliged to do so—for example, by going to tribunal and the tribunal says that actually £2,000 is payable—one is at risk of legal costs, which I am sure we will come on to in relation to the risk of forfeiture.
Barry Gardiner
Q
Amanda Gourlay: Yes, and I understood your question that way. I think my concern is that if there is a minor breach, is that simply a situation where we withhold service charges entirely? The question is the nature of the breach and whether it is or is not a breach. In principle, I would agree that it would be a sensible form of enforcement, because it is the absolute. It is the most draconian form of enforcement. One should always bear in mind, however, that if a third-party management company—a residents management company—is obliged to insure a building and has absolutely no wherewithal to insure it, there is that risk. Things may need to be done that simply cannot wait but, in principle, I see no reason why that should not be a remedy for failure to follow the process.
Barry Gardiner
Q
Amanda Gourlay: Do you mean generally, or in relation to insurance?
Barry Gardiner
In relation to insurance—because it will no longer be possible to charge commission, but it will be possible to charge a fee.
Amanda Gourlay: That is always a risk. In fact, that is a risk across the whole Bill where more obligations are imposed on a landlord. If the costs of those obligations are recoverable under the terms of the lease as part of the management, it is almost inevitable that charges will go up. They will have to: I am going to have to do more work, so I would like to be paid more.” The only control of those that we have at the moment is under section 19 of the Leasehold Reform Act 1967, which is whether the costs are reasonable in amount for the standard of work that is provided. One would hope that there would be degrees of transparency, but of course there is no obligation to account necessarily for the fees, save for the limitation of administration charges and the obligation to publish a schedule of fees of administration charges.
Again, however—I am sorry that I am providing such long answers—where it comes to publishing a schedule of administration charges, that is quite straightforward for most cases, but clearly if someone wants to carry out a significant change to a flat on the 15th floor of a building, the costs will be difficult to quantify in advance. There is still wriggle room, I think, in the administration charge limitations for costs to be higher.
Barry Gardiner
Finally, proposed new section 21E of the 1985 Act talks about annual reports, while proposed new section 21D sets out the basis of the accounts and when they must be presented. What is your understanding of the difference between the report—as set out,
“before the report date for an accounting period, provide the tenant with a report”—
and the accounts, which have to be presented at the end of the sixth month after the period? Is there any requirement in the Bill as drafted to ensure that the information available in the accounts is greater or more detailed—indeed, in any way different—from the report?
Amanda Gourlay: That is a question with which I have battled for a number of hours. The conclusion I reached was that proposed new section 21D very plainly envisages the involvement of a chartered accountant—a qualified accountant; proposed new section 21E is different because it would appear to be more narrative, a more general description of the information that has to be provided.
If you look at the Bill, subsection 21E(3), which entitles the appropriate authority to make provision about information to be contained in the report, is extremely broad. It refers only to
“matters which…are likely to be of interest to a tenant”.
That is a very wide scope. The information in effect has to be provided within a month of the service charge year-end, whereas the service charge accounts must be provided within six months.
While I am on that point, proposed new section 21E is enforceable under the enforcement provision, which I think is clause 30; rather peculiarly, however, proposed new section 21D is not. I invite the Committee to consider whether that new section 21D should be brought within the scope of clause 30.
Matthew Pennycook
Q
In some senses, many of the new requirements in this section are covered by the enforcement measures in clause 30. Is proposed new section 21D the only example, or are there other examples, of where that power in the 2002 Act might be considered necessary for a leaseholder to use, because the enforcement provisions do not cover the full gamut, if you like? I suppose that I am trying to get to where the enforcement clause is lacking. Is Mr Gardiner correct in specifying that there are circumstances in which you would want to withhold because the non-payable enforcement clauses do not bite in the relevant way?
Amanda Gourlay: I am instinctively nervous about withholding, even if it is simply a question of process.
Matthew Pennycook
Q
Amanda Gourlay: It seemed to me that when I was reading through the clauses in the Bill that it was really section 25D that stood out as the measure that was not covered by clause 30. Clause 30 very clearly enumerates that we have section 21C(1) which is about the demand for a payment; 21E, which is about the reports—obviously, between C and E there is D, which is not in there—and then we also have 21E covered. You can literally trace those measures through. D was the one that stood out for me as being a necessity.
It might be said that that is because the provision of those accounts is outside the control of the landlord, because the accountant is the person who is preparing the accounts and they may—you will understand that I am trying to argue both against myself and for myself. There is that possible argument that may be proposed as a counter-argument to mine.
Richard Fuller
Q
You talked also about the provision of information and how important it is that people have access to annual reports and so on. In clause 49, there is a provision whereby the failure to provide things such as annual reports will carry a charge, with a maximum charge of up to £5,000. Then in clause 51, which addresses other aspects of what should be provided—in this case, charge schedules; you said how important they were—there is a maximum charge of £1,000. Does that sound like a sufficiently large sling from which a shot may be fired, or is it just a cost of doing business?
Amanda Gourlay: Again, we come back to the fact that for some landlords, particularly those that might be management companies with no other assets, £1,000 would be crippling; effectively, that might put them into insolvency unless they can recover those moneys from other leaseholders. For other landlords, even £5,000 will be next to nothing. It is a shot across the bows; it is clear that such failure is regarded with disapproval.
What I would like to do is to take those figures back, because they appear in part 3 as well as in relation to the estate management charges. The way in which they are formulated is that they are damages that can be awarded to a tenant if they make an application, certainly on the leasehold side of things—
Richard Fuller
Q
Amanda Gourlay: Not in that section.
If it is effectively a civil fine, there needs to be a sliding scale. In the tenancy deposit scheme, the way that things work is that, as you may know, if the landlord has not protected the deposit, they have to pay back an amount that is between one and three times that deposit. Some form of sliding scale would seem to be appropriate. I am not the right person to ask about sums and amounts; that is a policy question, really.
Richard Fuller
Q
Amanda Gourlay: I think it should be assessed on a sliding scale, to take account of the differences of interest—
Richard Fuller
Q
Amanda Gourlay: I would not anticipate that the first-tier tribunal would be overwhelmed. At the moment, I find that my hearings go through within a reasonable period of time. That is the best I can say.
Mike Amesbury
Q
Amanda Gourlay: In the first few years, it would make it more complex, because I would have to learn about it. I have read the Law Commission’s report, and any new scheme is going to involve some bedding down. From what I read and hear about commonhold, it should make matters less litigious. That is what I hear. I have no experience of commonhold directly, however.
Andy Carter
Q
Amanda Gourlay: The difficulty always comes back to what information people are given when they purchase a property, or when they take on the lease of a flat or a house. On the whole, those in the conveyancing industry who behave ethically do their best to inform people. I have very little conveyancing experience, so I am going to hold my fire on that a little. Clearly, if something is important, it should be drawn to a purchaser’s attention. Recurring charges are something I would have anticipated. Anecdotally, I have heard that people will say, “I don’t understand why I am paying a service charge—I own my flat.” “Education” always sounds slightly high-handed, but more information being made available or accessible would be useful.
Andy Carter
Q
The Chair
We have just three minutes left, as we are bound by the programme motion. We will hear questions from Rachel Maclean and then Barry Gardiner, and we will finish by 11.25, as per the programme motion.
Rachel Maclean
Q
Amanda Gourlay: I believe I have acted for freeholders against leaseholders on occasion.
Barry Gardiner
Q
Amanda Gourlay: That would make sense, but damages are not an appropriate remedy in this particular situation. It is very rare that a leaseholder will suffer financial loss. It is more about encouraging good behaviour.
Barry Gardiner
Q
Amanda Gourlay: I will, yes. I had no intention of making a speech, and I am sorry if I trespassed on people’s patience.
The Chair
That is fine. Do not worry.
Ordered, That further consideration be now adjourned.—(Mr Mohindra.)
Leasehold and Freehold Reform Bill (Second sitting)
Tuesday 16th January 2024
(11 months ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 January 2024 - (16 Jan 2024)
The Chair
Q
Professor Hopkins: I am Professor Nick Hopkins. I am the law commissioner for property, family and trust law. I have led the Law Commission’s work on enfranchisement and commonhold since our work began in 2017. Since 2020, I have also led our work on the right to manage.
The Chair
Will Members please indicate whether they would like to ask a question of the witness? We will start with Matthew Pennycook.
Matthew Pennycook (Greenwich and Woolwich) (Lab)
Q
Professor Hopkins, thank you for coming to give evidence to us. I have two questions, perhaps three if we have time. My first relates to those clauses that implement options or recommendations made by Law Commission reports. Parts 1 and 2 of the Bill implement not all but a subset of those recommendations. I expect that the Law Commission will have had a dialogue with Government about what the clauses look like, but ultimately what goes into the Bill is a political choice for the Government. With a view to strengthening the Bill, I will be grateful if we can get a sense from you whether any of the clauses that draw on those options and recommendations is in any way problematic? Do they contain flaws? Are there omissions that mean they will not work in the way that the Law Commission intended them to?
My second question is related to the Law Commission’s reports as a whole. My understanding is that they were meant to work as a complete package. In drawing on only a subset of recommendations, is there a risk that some of the underlying rationales for the options and recommendations that you made will be blunted or limited by the fact that others have not been included?
Professor Hopkins: To answer your first question, I am confident that the clauses of the Bill that implement the Law Commission recommendations achieve their desired intent. I know from my team that there will be a number of technical amendments. I do not think that that is necessarily unusual, given the complexity of the legislation, and it reflects the continuous process of examining iterations of clauses to ensure that robust scrutiny is applied.
I should explain the Law Commission’s involvement in the clauses. We have worked in much the same way that we would in producing any Bill: Law Commission staff have written instructions to parliamentary counsel, scrutinised drafts and iterations of the clauses, and commented back to parliamentary counsel. We have provided our usual role in the development of draft clauses.
As for the robustness of the clauses, as you said, our reports—in particular on enfranchisement—gave recommendations that would have wiped away the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993, to provide an entirely new and unified scheme for houses and flats. In the process of instructing counsel, the Government have made decisions on what to implement. We have had to think about how to carry over that policy in the context of legislation that performs keyhole surgery on existing legislation, rather than starting with a blank sheet. With that constraint in mind, however, I am confident that the clauses achieve their desired purpose.
Matthew Pennycook
Q
Professor Hopkins: There will be some technical amendments to come that refine the operation of the clauses.
Matthew Pennycook
Q
Professor Hopkins: On the package as a whole, the Bill implements key recommendations that would be most impactful to leaseholders, in providing them with much greater security and control over their homes and in putting the financial value of the home in the leaseholder’s hands rather than in the landlord’s hands. It will also enable leaseholders to take control of the management of their block through the right to manage, enabling more leaseholders to do that than can do so at the moment. In particular, it extends the non-commercial threshold from 25% to 50%, which is a doubling, and it also enables more leaseholders to own their block through meeting that threshold.
What is there in the Bill will have a considerable impact for leaseholders exercising enfranchisement rights, whether individually or collectively, and for leaseholders who are exercising the right to manage. There are other things in our schemes that are not there, and other benefits that will not be obtained. For example, sweeping away the ’67 and ’93 Acts, and providing a unified scheme, would bring with it the ability to remove some procedural traps that can arise. So there are other things in our scheme as a whole that are not in the Bill, but what is there will have considerable impact and a very positive impact for leaseholders.
Matthew Pennycook
Q
Professor Hopkins: During Second Reading, the Secretary of State said that he thinks commonhold is preferable to leasehold, and I concur with that. We concluded that commonhold is a preferable tenure to leasehold. It gives the benefits of freehold ownership to owners of flats—the benefits that owners of houses already enjoy.
Commonhold does of course have a history. It was introduced in the Commonhold and Leasehold Reform Act 2002 and has not taken off. Our recommendations as a whole were designed to provide a legal scheme that would enable commonhold to work more flexibly and in all contexts—to work for complex, mixed-use developments. With commonhold having failed once, there is a risk of partial implementation, meaning that commonhold has a second false start, which would probably be fatal to it. I think that the legal regime for commonhold needs to be looked at as a whole, to ensure that it works properly for the unit owners, developers and lenders who lend mortgages over commonhold. We need the legal regime that works. We need to remove any other blocks on commonhold.
Mike Amesbury (Weaver Vale) (Lab)
Q
Professor Hopkins: It is our job at the Law Commission to make recommendations for Government reform and of course we would like to see those recommendations implemented, but ultimately what goes in the Bill is a matter for the Government to decide, not the Law Commission. There is a lot in this Bill that is very positive for leaseholders, albeit the commonhold recommendations are not there.
Mike Amesbury
Q
Professor Hopkins: Since we published our reports in 2020, we have been supporting the Government as they work through the reports and develop their legislative plans, but I cannot speak for what decisions they have made and what has led them to make those decisions on what is and is not in the Bill.
Ms Marie Rimmer (St Helens South and Whiston) (Lab)
Q
Professor Hopkins: Yes, they certainly will, and I will draw attention to a number of provisions. First, those that deal with the price that leaseholders will pay will ensure that it is cheaper. For the first time, how that price is calculated is mandated, and it is designed to identify the value of the asset that the leaseholder is receiving. At the moment, the focus is on compensating the freeholder for the asset they are losing. The price will consist of two elements. There will be a sum of money representing the terms and buying out the ground rent, but that will be capped so that onerous ground rents are not taken into account in calculating that sum, and a price representing the reversion, which would be the value today of either a freehold or a 990-year lease that will come into effect at the end of the current lease. In calculating those elements of the price, the deferment and capitalisation rates will be prescribed, so that will remove the current disputes.
The price is mandated and the price is cheaper, and there are other things in the Bill that will help, such as the ability of leaseholders to require the landlord to take leasebacks of property when they are exercising a collective enfranchisement so that, for example, they do not have to pay for the expense of commercial units that they do not want responsibility for. There is a lot in there. There is reducing price and also reducing the ability for disputes to arise.
I will also refer to the provisions on costs that will generally ensure that parties pay their own costs in relation to a claim. Leaseholders will not be paying the costs of freeholders.
Rachel Maclean (Redditch) (Con)
Q
Professor Hopkins: Across enfranchisement, right to manage, and commonhold, we made around 350 recommendations.
Rachel Maclean
Q
Professor Hopkins: I think we made around 120.
Rachel Maclean
Q
Professor Hopkins: We began it as a package of work that was being conducted in parallel. We began in 2017 as part of the 13th programme that we published in December of that year. We published three consultation papers on enfranchisement, right to manage, and commonhold. We ran public consultations from September 2018 to January 2019. We received around 1,800 responses across those papers, and around 1,600 responses to leasehold surveys that we undertook for enfranchisement and right to manage. Then, in 2020, on the basis of all the evidence we had, we published four reports: a report setting out options relating to valuation to reduce the price payable, and then a report on each of enfranchisement, the right to manage, and commonhold in July of that year.
Rachel Maclean
Q
Professor Hopkins: We have to separate the two issues. Our work on commonhold was designed to provide the legal fixes needed so that commonhold can work. In our report we concluded that commonhold is the preferred alternative to leasehold. The question of whether commonhold becomes a default or whether it is mandated was not a matter on which we were asked to provide advice to the Government. You need the legal fixes to be in place, though, and then the decision must be made about what is done in order to ensure that commonhold is given a fair chance.
Rachel Maclean
Q
Professor Hopkins: The risk at the moment is that the legal regime that governs commonhold is too rigid. It does not apply effectively in larger, mixed-use developments, because they were not envisaged at the time. The risk is that you mandate a legal regime that does not work. You need a legal regime that works, which could then be mandated if that is what the Government chose to do.
Barry Gardiner (Brent North) (Lab)
Q
Professor Hopkins: I do not think I would like to comment on whether specific amendments or recommendations could be introduced. They would have to be seen in the light of what they would do to the scheme that is in the Bill and how the provisions interrelate. That basic uplift from 25% to 50% is significant and will enable many more leaseholders to exercise their rights. There are perhaps things around the edges, but what is there is beneficial.
Barry Gardiner
Q
Professor Hopkins: Yes, although you have to look at what impact that would have in terms of what is in the Bill as it stands.
Barry Gardiner
Q
Professor Hopkins: It is certainly the case that it is easier to do things with new builds than it is for existing leasehold blocks. Our report includes recommendations on the conversion of existing blocks, which is undeniably more complex than building a commonhold block from the start.
We concluded in our report that commonhold was the preferred tenure because it gives the advantages of freehold; leasehold is really performing a job it was never designed to do. When I gave evidence to the Select Committee on the Ministry of Housing, Communities and Local Government, as it then was, I said that if commonhold works, you do not need leasehold. But whether you then mandate commonhold is not just a legal question; there is a political question there.
Barry Gardiner
Q
Professor Hopkins: Again, all these things are Law Commission recommendations, and I am always going to say that the Law Commission would like to see our recommendations implemented—
Barry Gardiner
I am delighted; that is what I wanted you to say.
Professor Hopkins: But I cannot say whether they are the right things or the most impactful things to add to the Bill. What is there is great and is going to be hugely beneficial. There are lots of other things in our recommendations that would benefit leaseholders—
Barry Gardiner
Q
Professor Hopkins: No, that is absolutely not my view. Whatever happens with commonhold, leasehold is going to be with us for a long time. There are people who own 999-year leases. The system has to work. When we published our reports, we published a summary of what they were seeking to do. We identified them as having two distinct aims. One is to make leasehold work, and work better, for those who now own the leasehold and who will own it in future. Secondly, it is to pave the way for commonhold to be available so that everyone can enjoy the benefit of freehold ownership in future. But we always saw those as two entirely legitimate aims that legislation would need to pursue.
Barry Gardiner
Q
Professor Hopkins: Yes. Conversion is always going to be more difficult than building from the start. We have recommendations that would enable conversion and enable more people to convert than can at the moment, where unanimity is required, but leasehold is going to be with us for a very long time.
Barry Gardiner
Well, it has been with us for a very long time, hasn’t it?
Professor Hopkins: Yes. So the system has to work, and that is what the Bill achieves in relation to leasehold.
Richard Fuller (North East Bedfordshire) (Con)
Q
Professor Hopkins: The Bill ensures that those rates will be prescribed by the Secretary of State. At the moment, on every enfranchisement claim—whether it is the lease extension or the purchase of the freehold—the rate used to capitalise a ground rent and to determine the price paid for the reversion has to be agreed for the individual transaction. That is a significant source of dispute, and it is a dispute where there is a real inequality of arms.
The leaseholder is only interested in what they have to pay for their home and the landlords have an eye not only to that particular property, but also to what it would mean for their portfolio of investments—so they agree a particular rate on one flat in a block, for example. The Bill ensures that those rates are fixed by the Secretary of State and mandated, so there is then no argument about what rate applies in an individual case. It takes away that whole dispute and ensures that the same rates are applied in all claims.
Richard Fuller
Q
Professor Hopkins: The politician will be fixing the rate through advice that they receive.
Richard Fuller
Q
Professor Hopkins: In our report on valuation, we set out a number of options for reform to reduce the price payable. In relation to the fixing of rates, we identified two separate options: they could be fixed at market rate; and they could be fixed at below market rate to reduce the price leaseholders pay to a greater extent. We put the decision on how to fix the rates as a matter for the Government to consider, and now the power is given to the Secretary of State.
Richard Fuller
Q
Professor Hopkins: The impact assessment is not a Law Commission impact assessment. We have provided technical input to the Government in preparing that assessment. I am not sure that I can give a definitive reason why so much more was in one pot than the other. It is probably because the Bill removes marriage value from the premium, which adds a significant sum to premiums now for leaseholders who have 80 years or less, so I think a lot of that sum is the saving.
Richard Fuller
Q
Professor Hopkins: The terms of reference that we agreed with Government for the project in relation to premium were that we would provide options to reduce the price payable while providing sufficient compensation to landlords, recognising their legitimate property interests.
The Chair
Mindful of the fact that we will be drawing this to a close at half-past, I call Matthew Pennycook.
Matthew Pennycook
May I press you a bit further on valuation? This is a phenomenally complex area to understand, and the standard valuation method in schedule 2 is extremely technical. The Law Commission set out options—it did not make recommendations—but the Government have chosen to allow the Secretary of State to prescribe the applicable deferment rate.
In all your work, did you wrestle at all with the fact that there may be some leaseholders who do not benefit from a fixed rate, in the sense they could have negotiated higher and more favourable rates in certain circumstances? Is that potentially a risk? Related to that, will it be the case that the Government need to set multiple rates to account for regional variations? Is a single fixed rate going to be an issue?
Professor Hopkins: In answer to both questions, I cannot sit here and say that every leaseholder will pay less. I can identify the fact that leaseholders with 80 years or less on their lease will pay less, because they will not pay marriage value, and that leaseholders with onerous rents will pay less, because of the cap on those taken into account.
Overall across the system, having the prescribed rates will be a considerable saving for leaseholders on the whole, because that takes out the legal and valuation costs in negotiating a rate and a price. It takes out that entire source of dispute, which will be beneficial—
The Chair
Order. I apologise for interrupting you. I am afraid that brings us to the end of the time allotted for the Committee to ask you questions. I thank our witness very much on behalf of the Committee.
Examination of Witness
Matt Brewis gave evidence.
The Chair
We will now hear from Matt Brewis, director of insurance at the Financial Conduct Authority. We have until 3 pm for this next session. Will the witness please introduce himself for the record?
Matt Brewis: Hi. I am Matthew Brewis. I am director of insurance at the FCA, so I am responsible for regulation of all brokers and insurers that operate in the UK.
Matthew Pennycook
Thank you for coming to give us evidence, Mr Brewis. The FCA published a report in September 2022 on insurance for multi-occupancy buildings. In a general sense, on the basis of the recommendations and potential remedies you outlined, to what degree do clauses 31 and 32 faithfully enact those recommendations? Furthermore, it would be useful to know whether the FCA might have any ongoing role in the arrangements that those clauses will introduce. Finally, in that report, the FCA made a recommendation about a pooled risk insurance scheme. Could that be introduced into the Bill as an additional means of providing leaseholders with protection?
Matt Brewis: I will set out what the FCA is responsible for and what it is not, because that is the context for this and probably the questions to follow. Insurers write a policy and brokers sell it to a freeholder or property management agent who is the customer. They pass on charges to the leaseholder, who is partly a beneficiary of the product, but the primary beneficiary is the freeholder. The FCA is responsible for the insurer and the broker, the creation and selling of the product. That is where its role ends.
Traditionally, the customer has been the freeholder, who has been the beneficiary, but our review found that there was no benefit in freeholders shopping around to get the best price, because they simply pass on the cost to the leaseholder, often with significant add-on charges and other functions. We found that the risk price that insurers charged between 2016 and 2021 pretty much doubled. The brokerage charge by brokers increased by more than three times, or 260%-ish. The service charges added on increased by about 160%, so they more than doubled.
In our report, we recommended a number of pieces, including that leaseholders should be partially party to the contract, in that they should be provided with a copy of the documentation—previously, they have not been—and that insurers and brokers, when creating and selling products, should consider the needs of leaseholders, the people who are paying, in a way that insurers and brokers have previously not been required to.
We also made a number of recommendations about the parts that were not relevant to FCA regulation but were part of the chain and to do with freeholders and property management agents. That is where the clauses that you mention, 31 and 32, come into effect—where there is a restriction on the commission that can be charged by the brokers or by the property management agents to the leaseholders. I think that how much impact these clauses will have will depend on how broadly or tightly the secondary legislation around these points is drafted. Of course, I and my colleagues will work closely with the Department as that gets put together.
In terms of your second question, “Should a pooling scheme be included as part of the legislation?”, we believe, based on how parts of the market currently work, that pooling does work. By putting together buildings under one roof, as it were, for an insurance contract, you spread the risk; that reduces the cost of insurance. We see that as how it operates at the moment. We recommended that the Association of British Insurers work with the market in order to put together a pooling arrangement, which they have been working on—
Matthew Pennycook
Q
Matt Brewis: For a very long time. Unfortunately, I do not have the power to force anybody to write business that they do not want to. But the ABI has been working closely with a number of firms, and progress is being made. I believe that pooling remains the best option to reduce the cost to leaseholders. In terms of how that could be achieved, I think it is appropriate that the market try to do that. It is always possible for the Government to step behind that, albeit that would be at a significant cost—
Matthew Pennycook
Q
Matt Brewis: It does not require primary legislation for the market to do it itself, as it is seeking to do at the moment, working with us, working with the brokers and working with colleagues at DLUHC.
Rachel Maclean
Q
Matt Brewis: If I understand your question correctly, you are saying, “Is there pressure on freeholders to charge more to make increased returns to pension funds?” I cannot answer that question, I am afraid; it was not part of our review to date. Sorry, I cannot tell you—
Rachel Maclean
Q
Matt Brewis: I understand. What we have found in the past is that actually, for the insurance part, it is not necessarily a panacea for leaseholders to take over the freehold, because, as I was just explaining, when you have a pooled number of properties, that can reduce the cost. We have found, for leaseholders who have tried to insure their building on their own, that it has proved more costly when they have done so. That is more to do with market dynamics and trying to insure one building as opposed to a portfolio of buildings. It does not necessarily follow that it is cheaper for leaseholders who have taken over the freehold to—
Rachel Maclean
Q
Matt Brewis: I do not believe that the size of the insurance part of the market is significant enough to destabilise any firms. I have not heard that claim before, but I do not think that this part of the market, in the types of firms that we are talking about, is of a size that would cause structural issues.
Mike Amesbury
Q
“Insurance firms must now act in leaseholders’ best interests and ensure that their policies provide fair value.”
Now I will give you a live case, which happens to be in a neighbouring constituency to mine. It is called The Decks. They have a remediation day and Taylor Wimpey has accepted responsibility, yet insurance premiums are going up again—poor value and high cost, as I think was cited in the review. New year was going to be a new broom to intervene and shape the market, yet you have got insurance companies like this, and many more up and down the country, laughing at people in this room—key stakeholders such as yourselves. What are you going to do? What powers have you got to intervene? Also, we have discussed insurance. Are clauses 31 to 33 in part 3 sufficient to deal with the issue?
Matt Brewis: Our new rules around ensuring that these products are fair value came into force on 31 December last year. The cost of insurance of multiple-occupancy buildings has increased, and our report of 2022 found that this was not an area where insurers were making significant profits, or super-profits, of any form because of a number of different parts—around fire safety risks, but more to do with some of the structural issues around the quality of the buildings and how they had been constructed. Escape of water was something that was causing significant losses in these buildings.
We found some of the biggest issues around the brokerage charges, which were increasing, and the payaways—payments that insurance brokers were making to property managing agents for services that they were apparently providing for them. So our new rules require them to be very clear what value they are providing and how they are doing that as brokers, as managing agents, and for that to be made clear to the leaseholders. We are undertaking reviews of those with a number of firms. This will provide leaseholders with more information so that they can challenge their freeholders, so that they can challenge the insurers and the brokers at a tribunal if necessary.
Where this Bill goes one step further is that although, as I have explained, we are not responsible for the managing agents or the freeholders, by effectively banning those payments of any commissions, as the Bill does in the clauses that you mention, it will go significantly further than I can with the powers that the FCA has to restrict the payments to other parties and therefore to reduce the cost to leaseholders. In my view, this is in line with the recommendations that we made in that report and results in a better product—a cheaper product—for leaseholders.
Andy Carter (Warrington South) (Con)
Q
Matt Brewis: In terms of the provision of information, yes. And it goes alongside the rules that we have introduced that require brokers and insurers to pass information to the freeholder to pass on to the leaseholder. This further tightens up that. It allows for leaseholders to take their freeholders to tribunal to reclaim costs, as necessary, that have been incurred. So this does go further, and I welcome that.
Andy Carter
Q
Matt Brewis: Yes.
Andy Carter
Is that suitably addressed in this legislation?
Matt Brewis: We have talked with the Department for Levelling Up, Housing and Communities about how to do that. The tribunal is a mechanism, but from talking to leaseholders, we recognise that taking a firm to court is a big step for anyone. There are a number of routes that strengthen that in this Bill, and we welcome that, albeit—
Andy Carter
Q
Matt Brewis: There are other mechanisms—an alternative dispute resolution mechanism—that we have seen used in some parts of financial services. The Financial Ombudsman scheme is one, where it is not a legal test; it is more of a fairness test about how you are treated as a consumer. But the tribunal is another mechanism—the insurance part is a very narrow part of a much wider piece, and I am not equipped to talk more broadly about the leasehold ownership structure.
Barry Gardiner
Q
Matt Brewis: I cannot talk about individual cases. However—
Barry Gardiner
Q
Matt Brewis: Yes.
Barry Gardiner
Q
Matt Brewis: The value assessments I talked about require firms to approve what value they are providing, for there to be transparency to a leaseholder around—
Barry Gardiner
Q
Matt Brewis: Under our new rules, which came into force at the start of this year, that needs to be provided.
Barry Gardiner
Q
Matt Brewis: The new Financial Conduct Authority rules around this do provide that, in a way that was not the case previously.
Barry Gardiner
Q
Matt Brewis: I believe that would be duplication of a clause that is already in the new rules from the regulator, which require a broker to provide that information.
Barry Gardiner
Q
Matt Brewis: In the event that the freeholder is not forthcoming with the contract, it is incumbent on the insurer to provide a copy of the contract to the leaseholder directly. It is in our rules that the leaseholder has the option of going directly to the insurer now, in order to get a copy of that contract, in a way that was not previously possible.
Barry Gardiner
Q
Matt Brewis: Yes, and they will be in breach of the FCA rules if they do not provide it.
Barry Gardiner
Q
Matt Brewis: Which insurer it is?
Barry Gardiner
Q
Matt Brewis: If you follow that chain of events, when they do not know who the broker is and they do not know who the insurer is, and the landlord refuses to provide the documentation—
Barry Gardiner
Q
Matt Brewis: One would hope—expect—that it is a very low-likelihood situation, but that would be the case.
Barry Gardiner
Q
Matt Brewis: For some buildings that have material issues around fire safety or other issues, it can be very difficult to place insurance. It is about time and cost. There is value in the services that brokers provide, and sometimes some of that work is outsourced to property-managing agents. Assuming that is done appropriately—itemised and billed—I have no issue with the payment of commission or brokerage, where it is for services that have been rendered effectively. Where it is a blanket case, in the way that you described—
Barry Gardiner
Q
“not attributable to a permitted insurance payment”,
but not that they have to be costs that are reasonable. There is a difference between a permitted insurance payment and a reasonable permitted insurance payment, is there not?
Matt Brewis: My understanding is that the secondary legislation that will follow will set out what those are.
Barry Gardiner
Q
Matt Brewis: One would still need to define reasonable.
Barry Gardiner
I think the law has done a pretty good job of that over the years.
Matthew Pennycook
Q
Matt Brewis: It is quite a significant list. The question effectively is: what are the reasonable costs of writing an insurance policy, and then the appropriate checks to be carried out to ensure that that policy is enforceable? From my perspective, that is focused on providing the information to the insurer or the broker that allows them to appropriately price the insurance—to understand the risk factors of that building, to determine the likelihood of escape of water, the quality of its fire defences and other things, all of which in sum add up to whatever the risk price is. There are different methods for determining what is an appropriate brokerage fee. We have seen some firms come out to suggest that it should be a maximum of, say, 10% of the cost. Others take a time-and-costs-incurred approach, based on how much work they have done. Being clear about things that are directly relevant to the pricing of the insurance is the best starting point for what should be allowed to be charged.
Matthew Pennycook
Q
Matt Brewis: Yes.
The Chair
Thank you. If there are no further questions from Members, I thank the witness. We will now move on to the next panel.
Examination of Witnesses
Harry Scoffin, Karolina Zoltaniecka, Cathy Priestley and Halima Ali gave evidence.
The Chair
We are now going to hear from our seventh panel, which is Harry Scoffin, founder of Free Leaseholders; Karolina Zoltaniecka, founding director of Commonhold Now; and Cathy Priestley and Halima Ali, co-ordinators of the Home Owners Rights Network. We have until 3.40 pm for this session. You are all welcome. Would you please introduce yourselves for the record?
Harry Scoffin: Hi there. I am Harry Scoffin, founder of Free Leaseholders. I am also deputy chair of One West India Quay residents’ association—a block on the Isle of Dogs, east London.
Karolina Zoltaniecka: Hello. I am Karolina, founder and director of Commonhold Now. I am a right-to-manage director, leaseholder and commonhold owner in Australia under what is called strata. I have been a director over there for 30 years, and I am also a forensic analyst who does audits on service charges.
Halima Ali: Hi. I am Halima Ali. I am a joint campaign co-ordinator for the Home Owners Rights Network. We campaign for regulation and, ultimately, for adoption and for management on private estates.
Cathy Priestley: Hi. I work with Halima. We have worked together since 2016—a little longer than the National Leasehold Campaign has existed, in fact. We both reached the same stage in our journey of horrors at about that time. We were put together by Paula Higgins at the HomeOwners Alliance. We decided that there would be other people out there who had discovered the same situation and who felt entrapped and angry about where they were—they were tied into paying estate charges, and most were unaware at the point of purchase that that was the liability they were taking on. So we set up a website, social media and so on, and we are 11,000. We have continued our journey of exploration and learned a lot during the last eight years, and I hope we can help you.
The Chair
We are very grateful that you are here, Cathy. Thank you very much. I call Matthew Pennycook to start us off.
Matthew Pennycook
Q
Harry and Karolina, we heard earlier from Professor Hopkins from the Law Commission, which had 121 recommendations on commonhold. It is clearly not feasible to add all those to the limited Bill we have in front of us at Committee stage. Professor Hopkins says there is a risk of partial commonhold legislation that might create unintended consequences. Are there any of those recommendations that we can reasonably add in that might make things easier in the future and pave the way for commonhold? That is my question to both of you.
Cathy and Halima, clause 59 in part 4 of the Bill seeks to amend the Law of Property Act 1925. Would you agree that section 121 of that Act needs to be done away with? Are we attempting to, if you like, ameliorate an historic law that should really just be freehold forfeiture and should be done away with? On part 4 generally, we have sought to introduce by amendment an RTM regime for private estates. Are there any other tweaks to part 4 that we could reasonably look to make?
Harry Scoffin: In terms of the commonhold point, obviously, attitudinally, I have accepted that it will be seen as out of scope of the Bill. But we also have to remind ourselves that England and Wales are the only two jurisdictions in the world that persist with this fundamentally unfair system. The Law Commission—we heard from Nick Hopkins earlier—gave a big endorsement of commonhold in 2020. They flew officials out to Australia and Singapore, where I grew up and where we lived under strata title, a form of commonhold where residents are in control. But there is no point crying over spilt milk.
There is a good alternative, interim measure before second-generation commonhold eventually comes through. Bear in mind that I have been campaigning now for six years—that is six years of my life that I have wasted trying to abolish leasehold. The fact is that the time to have brought in commonhold was now. We did not even necessarily have a guarantee that this Bill would be here. After the Queen’s Speech in 2022, it was dropped at the last minute because of pressure from No. 10. So I am not going to hold my breath for commonhold.
However, one thing we can do, which is a pragmatic halfway-house compromise, is to say that all new leasehold flats come with a share of the freehold. That still persists with the leasehold system, but residents have control from day one. They are like Alan Sugar on “The Apprentice”: if they are being ripped off, they say, “You’re fired,” and they get a better company in—that is capitalism, that is choice and that is the right way forward for now if we are not doing commonhold, which is obviously too meaty.
Secondly, all new leases must be 990 years. At the moment, shared ownership leases under the new model lease through Homes England and the Greater London Authority must be 990 years. I think it is obscene that, after this Bill comes in, people can buy a brand-new flat from one of these developers and be hit with a 99 or 125-year lease. They need to be able to get a 990-year lease from the beginning, given that Parliament has already got rid of ground rents—two years ago, it got rid of ground rents—and our argument is that the value in the freehold is now valueless.
Ground rents have gone, so why do you not just require developers to hand over a freehold with a resident management company? I understand that Matthew Pennycook is halfway there with an amendment to bring in resident management companies; we just need the freehold. If we do not have the freehold, we will allow the expensive middleman, the rip-off freeholder, to have some form of control going forward. I know of developments with an RMC, where you might think, “Bob’s your uncle, they’ve got control,” yet they are still being ripped off on things like insurance, even though they appoint the managing agent.
From that point of view, let us not let perfect be the enemy of the good, but leasehold must stop and, with leasehold, we must get rid of its toxic forms so that everyone has a share of the freehold from day one. As we heard from Nick Hopkins, it would be much easier for those guys to convert to commonhold later, but we should give people the ability to have the freehold to begin with.
It is not just me who says that; in 2006, an academic who is on the Commonhold Council—this is in my written submission—expressed the view that, if people have super-long leases of 990 years and zero ground rent, it is asking nothing of developers to hand over the freehold, because the freehold is valueless. They might as well give the freehold, as opposed to expecting leaseholders to go through the rigmarole, stress and cost of buying it later. Also—we might get on to this later—getting 50% of a large block is impossible, so doing that is absolutely the right thing.
Another point is that the market for leasehold flats has collapsed, so the gap between the average price of a house and that of a flat is at its widest in England in 30 years. The fact is that buyers have woken up to the toxicity of leasehold, particularly after Grenfell and the cladding situation. They have worked out that this is a hideously one-sided deal. It is like the sub-postmasters, this idea that, every way you turn, people say, “You signed the contract. You’re responsible for the shortfalls. That’s the law, that’s the contract,” but it is so hideously one-sided.
If you can do only one thing to the Bill, even though it will not directly help existing leaseholders, it should be to say that all new flats must be share of freehold with a resident management company. Give us control of our homes, our lives and our money, please. It is 22 years since the last Act. Let’s do this.
Matthew Pennycook
Q
Karolina Zoltaniecka: The Bill is very welcome. It does remove a few of the barriers to commonhold, but I feel that a few more things could be done, through amendments, to take steps towards commonhold and to make it easier to convert once we enfranchise and buy the freehold. We could lower the agreement rate from 100% to 75%. They have that in Australia already; you only need that amount to have a special resolution. There is already a trial for 20 blocks in the country. We cannot say it is not working, because it is working.
There is a lot of miscommunication around commonhold in the industry. There could be an education and awareness campaign. The Bill could also be amended to introduce a sunset clause for existing flats. There could be some sort of agreement between the commercial and the leasehold residential blocks to pave the way for how this will be defined when we get to commonhold and people can convert. That would prepare people and get them ready, in practical terms, for how to run and maintain their blocks. There could be long-term maintenance plans and we could give people real, practical skills in how to do that.
Commonhold is so much easier. Having a strata, I know that. You do not have complex laws. You talk to each other and work problems and disputes out. You have meetings. Laws are prescribed, so it is easy for people to know what to do each step of the way. I do believe that there are things that could be done with commonhold in the Bill to pave the way and say that we have a future with commonhold and it will happen en masse.
Matthew Pennycook
Q
Halima Ali: Overall, I want to say that the model of maintenance that has been implemented is a scam, and all this Bill is really doing is legitimising the scam. Homeowners are being fleeced. This needs to be brought under control. In terms of the Law of Property Act, this is a positive step, but I would argue as a homeowner that a management company should not have its foot on my neck. This is my property. It is my hard-earned future for my family and kids, and no management company should have any rights over it. I feel that the model should be abolished altogether. There are two different tiers—fixed rent charges and variable rent charges—that are being allowed to continue in the private estate model. This needs to be abolished altogether.
Cathy Priestley: I do not really have anything to add except to say, would all the measures in the Bill really be necessary if the fundamental, underlying problem of private estate management was addressed? The estates we are talking about are not gated; they are not private. They contain public facilities, public open space, play parks and community centres. They might have private sewage systems and pumping stations. They almost always have sustainable urban drainage systems, because that is the way that flooding is mitigated these days. In the past, all these areas would have been adopted by the local authorities, but they are not being. If they were, there would not be any need for regulating managing agents or for the abolition of section 121.
Matthew Pennycook
Q
Cathy Priestley: It would be helpful for those who are on truly private estates and who do have private management, but we do not see any reason why homebuyers on estates should suddenly become estate managers for their local community.
Halima Ali: It is exactly as Cathy said: normal homebuyers are not qualified to manage estates. If we are given the right to manage, if we are looking at a development of over 100 homes, it is really hard to get in touch with 100 people who will agree and be on the same page. It is not workable. The Government are insisting on regulating, but realistically the Bill is not doing anything for us. Literally all it is doing is maintaining a scam.
The Chair
I am mindful of the fact that we will have to bring this session to a conclusion at 3.40 pm and five more Members have indicated that they would like to speak, so you can time yourselves accordingly. I will start with Andy Carter.
Andy Carter
Q
Halima Ali: I am the perfect example. I have living on a fleecehold estate for 13 years.
Andy Carter
Q
Halima Ali: There is no management happening at all.
Andy Carter
Q
Halima Ali: The management company should respond in a timely manner, do the work and communicate with the residents. The situation is horrendous. On our estate alone, we are paying £30,000 to maintain a field that is half the size of a football pitch. That makes no logical sense.
Andy Carter
Q
Halima Ali: They are cutting it, but at a substandard level. On top of that, the grounds that they are maintaining have not even been built to a standard for local councils to adopt.
Andy Carter
Q
Halima Ali: I have had meetings with the head of planning. I have raised so many complaints.
Andy Carter
Q
Halima Ali: They just do not want to know, literally, because they are not regulated and it is not their concern. They just will not do anything.
Andy Carter
Q
Halima Ali: It has to be central Government. They need to regulate that councils need to start adopting all new build estates going forward and in the situation that we are stuck in.
Barry Gardiner
Q
I have one estate in my constituency where they were charging residents for the management of land that they did not even own. It took us months to get the documentation to prove that they did not own that land. The fence that they had mended had actually been mended by the council. Other things like that are going on, but if that restriction were put in place in the first place, they would not be able to do it, would they?
Cathy Priestley: Our understanding is that the land belongs to the developer. It is not public until it is made public through section 106 agreements with the council.
Barry Gardiner
Q
Cathy Priestley: Well, yes, you would not want more and more privatisation, would you? I do not think any policy is in place that is pushing for privatisation of the management of public open spaces, is there?
Barry Gardiner
Q
Harry Scoffin: There are a number of quick wins. One is to get rid of forfeiture, because that allows these freeholder overlords to extort money from ordinary people. It is not like mortgage foreclosure, where if you cannot keep up with the mortgage payments you get the difference back less the debt; with forfeiture, in theory, a freeholder could take back a £500,000 flat on a £5,000 bill. Now, what the freeholder lobby will say when they come on later is, “There are only about 80 to 90 cases a year.” That is potentially 80 to 90 homeless families a year. More important, in a way, is that it is the threat of forfeiture that gets leaseholders to go, “Oh my God, I’m going to pay that bill.”
My mum is on £33,000 a year, for a three-bed with no swimming pool, no gym and no garden. The freeholder is one of Britain’s richest men, sheltering in a tax haven in Monaco—a billionaire. Everyone who is not a leaseholder says, “Why would you pay that? That’s more than someone’s salary.” She says, “If I don’t pay it, I’ll lose the property.” So get rid of forfeiture.
Barry Gardiner
Q
Harry Scoffin: Yes. They draw it out. There is a process now in the courts, where you can go, “Oh, I forgot to pay it” or “Here’s the money.” The point is that it does not give leaseholders the confidence to challenge unreasonable bills. They have the sword of Damocles hanging over their heads—they are being treated almost like criminals. The Law Commission recommended in 1985, in 1994 and more recently in 2006 getting rid of this iniquitous element, arguably the most feudal element of leasehold. It has not been done. The Government recently asked the Law Commission to update its 2006 report, so we know work has been done, but it is not in this Bill.
I think you spoke earlier today about this section 24 business. That is a really important issue that many Members may not be aware of. Since the Building Safety Act came in, there has been a very interesting regime about the accountable person, trying to make developers and freeholders take responsibility for their buildings. This was heard in tribunal in December—I was there—and I understand that Michael Gove has taken a personal interest in this, but there is again no guarantee that we can get the fix.
The problem is that, at the moment, any building over 18 metres cannot have a court-appointed manager, because the court-appointed manager cannot be the accountable person. It is like an aeroplane being flown with two pilots flying in completely different directions. The freeholder, who has been stripped of his management rights—because, basically, he has defrauded leaseholders or been absentee, is not doing remediation works in a timely manner, or is not giving information—will now be the accountable person. But the manager cannot manage the building, because you will have two managers for one property.
The tribunal for Canary Riverside—I add a disclaimer that this is my sister estate; we have the same freeholder, so I was there at the tribunal—said that, as much as we would like to help the leaseholders at Canary Riverside, Parliament has made it very clear that, while a non-freehold owning right to manage company or a non-freehold owning resident management company can be the accountable person, a court-appointed manager specially vetted by the tribunal is no longer allowed to be one.
What is happening at Canary Riverside is that the freeholder—the same one that we have—is looking at getting back a building that he was removed from controlling in 2016. There was even a letter from the Secretary of State to the leaseholders, which they cleverly submitted to the tribunal, saying that he was the man who passed this Act and he genuinely, honourably, had no idea that that was the implication. That is another thing, because many blocks are not going to be able to buy the freehold or be able to get right to manage. They are in a monopolistic position with these freeholders. If there is no ability to buy the freehold, you are trapped.
In our building, we cannot sell the flats. We cannot even give them away at auction. It needs to be allowed that a manager appointed under the Landlord and Tenant Act 1987 can be the principal accountable person where a tribunal deems it appropriate.
There is one other major point. At the moment, many people may stand to benefit from getting the right to manage or buying the freehold, with the 25% rule going up to 50%. I know that because I have campaigned for it for the last six years. Nick Hopkins at the Law Commission used to have a joke that he would probably have to take out a restraining order against me, because I really pushed on this issue. The problem is that there are so many people who would benefit from that, but if they have that plant room or that underground car park, they still will never be free. They will never be able to get the freehold or right to manage. That is something that the Law Commission already recommended. We can get that into the Bill.
Another point to note is that if you cannot participate, for whatever reason, in buying the freehold—you do not have the money to join your neighbours—in perpetuity, you will never be able to buy that share of the freehold ever again. If you cannot get the money together, you are out. That needs to be sorted. The right to participate was very popular with the Law Commission consultees. That absolutely needs to happen.
There is one last thing. Nickie Aiken MP and other MPs, such as Stephen Timms, have been pushing on this point. At the moment, to buy the freehold or get right to manage, you have to get 50%. In our building, which is 20 years old, we are very lucky that we have managed to get 82% of the leaseholders. Do you know how much work that has involved? It is cornering people in lifts, paying the £3 to the Land Registry, doing some weird investigations. It is Herculean. You have to go back to 1931 in this country to find a political party that has won a general election with 50% of the vote, so why is it fair for residents who are being ripped off to be told, “You need to get 50%”? That should come down, because most big blocks, particularly the newer ones, will never hit 50%, and given that the Government are talking about a long-term housing plan and about building up in the cities, we have to make flat living work. We have the second lowest proportion of flats of any country in Europe, after Ireland—
Barry Gardiner
Q
Harry Scoffin: Some leaseholder advocates say, “We do not touch the 50%,” and I do not understand them for it, but the fact is that they just say, “Give leaseholders more information.” I have to be honest: even once you have got in touch with guys from Singapore, Hong Kong, the middle east and all the rest of it, when you try to explain what leasehold is, it goes over their head; when you say “right to manage”, it goes over their head. They say, “Well, I’ve bought the flat. I don’t need to get involved.” And then you say, “It’s £2,000 or £3,000. We all need to do it—each—to club together.” These guys are mean—some of them—and they are not going to get involved. So the fact is that at least on right to manage, where you are not compulsorily acquiring the freehold interest, it should at least come down to 35%, in line with the suggestion from Philip Rainey KC, whom you will be hearing from on Thursday. The London housing and planning committee also said that 50% is very, very difficult in large developments, particularly in London. So that does need to be thought about at least—it coming down on right to manage.
Barry Gardiner
Ms Ali wants to come in.
Halima Ali: I just want to make this specific point. It is clear that rules and regulations regarding leasehold and RTM are not working. It is very—what is the word, Cathy?
Barry Gardiner
Q
Halima Ali: It is very unfair and inadequate, and it makes no logical sense for freeholders on a private estate to be given the same rules and regulations when it is not working for leaseholders.
Rachel Maclean
Q
Harry Scoffin: There are not specific provisions to improve the position on forfeiture. I would love it to be abolished, but if we have to have some form of mechanism that is still going to be called “forfeiture”, at least say that if it happens, the equity is returned to the departing leaseholder when the flat is sold and it is just the debt that the freeholder gets back. The idea that he gets a windfall is obscene. That has to go. At the moment, forfeiture can kick in at £350, so what some law firms are doing is, for a breach of lease, a 350-quid charge, so forfeiture already kicks in there. So bring that up. Some people have suggested £5,000. I would go even higher—£5,000 is the figure for personal bankruptcy proceedings—and bring it up to £10,000.
There will be these freeloading freeholders that will come before you today or on Thursday and say, “Well, if these leaseholders are not paying, the whole building is going to fall to rack and ruin. It’ll be like this country in the 1970s where the bins weren’t getting collected and bodies were piling up. You’ve got to keep the lights on in a block of flats.” What you say to them is, “Sue for a money judgment.”
Rachel Maclean
Do not worry: I know what to say to them. That is fine.
Harry Scoffin: Yes, you know. Okay, good. The point is that we do not need forfeiture, but if you cannot abolish it, at least get rid of the windfall.
Rachel Maclean
Q
Harry Scoffin: It is for mixed-use buildings that would otherwise benefit from the 25% non-residential premises limit going up to 50%. Let us say that you have an underground car park, a plant room or maybe, more recently, a heat network. Basically, because you are now linked, almost like Siamese twins, with a hotel, for example, or some shops, under the current 2002 Act for right to manage and even the 1993 Act for buying your freehold, you are out. So even though the Law Commission and the Government mean well, saying, “We’re going to liberate mixed-use leaseholders,” for many of those mixed-use leaseholders, where they are completely linked with the commercial, it is game over; you will never be able to qualify. That definitely needs to be revisited because the Government will not get any political benefit from moving, rightly, from 25% up to 50% and even to mandatory leasebacks for when you buy the commercial.
The quick argument—the Law Commission understood it—is that at the moment, the plant room will normally be managed, yes, by the hotel, but the freeholder for the flats will appoint a managing agent who will also have access to the plant room. We are not changing that position. The only difference is that the managing agent that the freeholder appointed, who has access to the plant room, would now be working directly for people like my mum. So it is not disrupting—we are not going to become hoteliers. We are not going to become shop owners. If we rely on a service and are paying for it—53%, mind—we should have access to it, but the key thing is that we need the right to manage. Without right to manage, or without buying the freehold, you are, literally, perpetually in this abusive relationship with a freeholder who has your cheque book and is spending it how he likes, whether that is reasonable or not. That is a fact.
On the point about section 24, that needs to be revisited so that the manager, where a tribunal deems it appropriate, can be the accountable person. In our building, we have mobilised—ironically, it is over 50% of the leaseholders. We now face going back to them—with their cash, by the way—and saying, “We can’t now get one because of this unintended consequence of the Building Safety Act”. That is a quick bit of drafting— I have spoken to lawyers about it. It would be very easy for you guys and that would help, particularly on cladding developments, where the cladding is not getting done because the freeholders are sitting on their hands. You need an officer of the court who is going to turn around the development and be accountable.
Karolina Zoltaniecka: Can I say something about the right to manage? At the moment, the process is so complex. There are three notices that need to be served. I believe there needs to be only one, to say to the freeholder, “We are taking over the right to manage and this is the date we are going to do it on”, and that is it. There are solicitors who specialise in analysing notices to pick holes in them to prolong the process, so that leaseholders give up, and costs just go up and up. And I completely agree with the forfeiture point from Harry. It is unnecessary and a breach of lease, and especially, arrears can be taken to the county court to recover if the arrears are real.
Mike Amesbury
Q
Harry Scoffin: No, it is a tenancy scam. You do not own anything. You own the right to sell on a bit of space in a flat you occupy. You do not own, even though you may have paid a freehold price and you thought you owned it—you do not.
Mike Amesbury
Q
Harry Scoffin: Completely, because—
Mike Amesbury
In England and Wales?
Harry Scoffin: Yes, because people are coining it in and they want to keep it that way. I understand that a political decision was made by No. 10 not to have commonhold in the Bill and not to say even “a share of freehold”. Let us do that. Let us work with the Government to get share of freehold in. That is maybe an English fudge, but at least it gets us halfway to the ideal of commonhold, whenever it comes. I am not going to hold my breath for commonhold, sadly, because we have wasted the last seven years talking about it.
Mike Amesbury
Keep going.
Karolina Zoltaniecka: I would not give up on it; it is well worth waiting for.
Harry Scoffin: We need share of freehold in the meantime, at least.
Richard Fuller
Q
Halima Ali: I do not agree that it is. All it is doing is creating a two-tier system where a set of homeowners, like myself, living on a private estate are dealing with this situation, whereas other homeowners are not. I do not see how regulating it is helping, because overall, the management company still get to set the fee.
Richard Fuller
Q
Halima Ali: Oh right, sorry—
Richard Fuller
I was not being very clear, I am sorry—it is my job to be clear, not yours. I think what you were saying is that this is trying to fix the problem, but the root of the problem is that councils are permitting this to go ahead.
Halima Ali: Yes, absolutely.
Richard Fuller
Q
Cathy Priestley: Yes. There are other detrimental effects on estates, other than those on the homebuyers, because non-adopted areas are not built up to adoption standard, so there is a quality issue. There is also a community cohesion issue, if you have one lot of people paying for everybody else’s open space.
Richard Fuller
Q
Halima Ali: That is correct. I will make a specific point; I am sure this is the situation nationwide as well. When I purchased my property, the council tax for band C was around £1,000. Currently, it is at £2,000. If you look at that and the average family income, there is a big disparity. How are we able to afford all this? Ultimately, we are paying council tax twice. It is unfair on us. It is unfair on vulnerable people who generally do not understand all these arbitrary rules and regulations and who are coming to us for support.
Cathy Priestley: Most of the people in our group were unaware of what they were getting into. They are unaware of the unlimited liability, because this cannot be capped. It is what it is, and it costs what it costs.
Richard Fuller
Q
Cathy Priestley: I do not know what councils would think about that. About 50% of the estate charges are just administrative fees. Councils could do it much cheaper. I do not think it would be acceptable to councils, but it would be great for us, yes.
Richard Fuller
It would make them adopt them quicker though, wouldn’t it?
Cathy Priestley: It certainly would, yes.
Ms Rimmer
We need to be careful on this. Councils are constantly picking up bills from other people, and these costs are the costs of poor developers. There are different ways of dealing with different aspects of this. One is safety development. To take a leaf out of the Health and Safety at Work etc. Act 1974, you design, you develop, you construct—for use, maintenance and everything. Why not do the same for future housing developments, so that we do not have estates built without roads or pavements or these nice park features that would be lovely for children to play out on?
Nobody’s going to maintain them and they end up like a rubbish tip. People tip there, because nobody cleans it up. And what happens? More people tip there. No developer should be allowed to develop things that cannot be put right. They should pick up the costs on development, so people know what they have got. Then you have the old properties—I call them asset-rich and purse-poor. The properties are worth a fortune. They are beautiful big old houses—you would give your right arm for one of them—but when it comes to maintaining all this and their paths, the older people cannot do it. To bring that up to standard is a cost. It is not a cost for the council to pick up.
The Chair
Order. I am afraid that brings us to the end of the allotted time to ask this panel questions. Apologies, Marie. On behalf of the Committee. I thank all our witnesses for coming in.
Examination of Witnesses
Mr Andrew Bulmer and Angus Fanshawe gave evidence.
The Chair
We will now hear from Andrew Bulmer, CEO of The Property Institute, and Angus Fanshawe, specialist in leasehold enfranchisement. We have until 4.15 pm for this session. Will the witnesses please introduce yourselves for this session, starting with you, Andrew?
Mr Andrew Bulmer: I am Andrew Bulmer, chief exec of The Property Institute. There was supposed to be a third chair here today, in that an organisation called ARMA—the Association of Residential Managing Agents—was invited to attend as well. For the benefit of the Committee, if I may clarify, The Property Institute is the merged organisation made up of the former Institute of Residential Property Management, which was 6,000 individuals with qualifications to manage buildings, and ARMA, which used to be a trade body for the managing agent firms, with approximately 350 managing agents. Between them, they manage about 1.5 million leaseholds.
Angus Fanshawe: Good afternoon. I am a valuer specialising in leasehold enfranchisement, specialising in helping people to extend leases on their flats and to buy their freeholds. I am a member of the Royal Institution of Chartered Surveyors, or RICS, and of the Association of Leasehold Enfranchisement Practitioners, or ALEP. I am based in central London, and all my work is in central London. I probably act about 50:50 for leaseholders and for freeholders. My first case was in 1994, so this year is 30 years since I did my first extension case—in Belgravia, I think it was. Acting for both leaseholders and freeholders, I hope that I can bring a balanced view to the Committee today.
Mr Andrew Bulmer: Apologies, Chair, I should declare that I am on the Commonhold Council.
Matthew Pennycook
Q
Angus, we have exchanged correspondence on valuation, and I know that you take the view that the deferment rate should not be fixed by the Secretary of State. I wanted to explore that a bit further, in the sense that the 2007 Cadogan v. Sportelli judgment, which has broadly set deferment rates, was made in the context of 0.5% interest rates. I have heard it put to me by people in other parts of the country that it may work in London, but it is very out of kilter with what works in different regions. If the Government are minded to remain of the view that the Secretary of State should fix the deferment rates, how best should the Secretary of State do that? What would need to be taken into account? Is there a need to set multiple rates for different parts of the country to deal with the variations? I want to explore the prescribed rates a bit more and how they can function most effectively if schedule 2 is to remain.
Mr Andrew Bulmer: Thank you for the question. On the regulation of managing agents, I should also declare that I was on Lord Best’s working group. There were three components to Lord Best’s recommendations: first, there should be a regulator; secondly, the regulator should have a code of practice through which to hold the industry to account; and, thirdly, there should be mandatory competency standards. That applies to sales and lettings as well as to block, or leasehold block management. He made a distinction with block: because of the large sums of money and the high risks involved, block should be qualified to a higher standard—indeed, minimum level 4.
There is a compelling reason why regulation is required. The way to think of it is the apocryphal tale of “The Ambulance Down in the Valley”, a famous poem. There is a large cliff, and people fall off it. Should there be a fence at the top of the cliff or an ambulance down in the valley? Redress and the first-tier tribunal, as well as the ombudsman, are the ambulance down in the valley, but it would be better to prevent harm occurring in the first place. Minimum competency standards and a regulated sector are the fence at the top of the cliff.
Lord Best made his recommendations four or five years ago now and I wholeheartedly support them—we support them. If we take Lord Best’s basket of reasons, put it on the table in front of us and acknowledge that, we will then have to consider where the industry has moved. Since that time, we have had the Building Safety Act, which was supposed to introduce a building safety manager. That was abandoned and the building safety manager is now in effect the property manager. The property manager now has to learn half of a new profession. The responsibilities and the technical knowledge that go with that are considerable.
For leaseholders who are RMC directors, the Building Safety Act also makes the RMC the principal accountable person, and to whom do they turn? The first port of call is the building manager. The Building Safety Act has the unfortunate consequence of inevitably driving leaseholders, who may be very intelligent individuals—such as the lead violinist of the London Philharmonic Orchestra, a brilliant individual but not an expert in building safety management—to their building manager. That means the Act is now driving lay consumers into the hands of an unregulated sector. That is another basket of reasons, in addition to Lord Best’s basket, on why the sector should be regulated.
Then we come to this Bill, which we warmly welcome and very much support. We can go into the details of it, but let us be very clear that we think it is a Bill that is going in the right direction. One of the Bill’s effects is going to be empowering leaseholders to look after their own affairs, and that is a good thing. But, again, we have the leaseholder, who is not daft—they could be a brilliant surgeon, or a lead violinist—but are none the less not property experts, so, again, the move towards self-determination and self-control means that they are being driven into the hands of an agency sector that is entirely unregulated. If Lord Best’s basket of reasons were not enough, if we add to it the Building Safety Act, then we add to it the inexorable drive towards leaseholder control of their own homes and their own affairs, it is surely now time that the sector was regulated.
If there is no appetite to regulate in this Bill, with its limited time going through Parliament, at the very least we should introduce minimum competency standards. It has been done already, swiftly and elegantly, following the death of poor Awaab Ishak, where mandatory qualifications were brought in in the social sector.
Many buildings are mixed use. A building manager will be walking down a corridor, qualified to manage the units on the left-hand side but not the units—or homes, I should say—on the right-hand side. That is inequitable and it makes no sense. Further, it also assumes that those in the private sector are not vulnerable. Vulnerable people live in the private sector too. The argument for, at the very least, having a code of practice and mandatory qualifications for building managers is, in my view, all-compelling.
Angus Fanshawe: On fixing rates and the deferment rate, before the Cadogan v. Sportelli case, which you mentioned, the deferment rate was always a contentious point. In my years of practising, that case has probably been the most important; really, it removed the deferment rate as something that was in dispute. Since that case, I cannot recall that I have ever had a disagreement on a deferment rate or a problem with agreeing the deferment rate.
Cadogan v. Sportelli set the rate at 4.75% for houses and 5% for flats. There are a couple of exceptions—well, maybe one or two more than that, but there are two significant exceptions where you can depart from 4.75% or 5%. My concern is that if we fix the rate, we will remove the opportunity, as is the case now, for leaseholders to agree a higher rate than 4.75% or 5%.
As I say, there are two cases where there are significant exceptions. The first is that if you have an intermediate leasehold—so, you have a head leaseholder who has a reversionary period—then commonly you would agree that at something higher than 5%, normally 5.5%, to the benefit of the leaseholder. Also, with some buildings there is an element of obsolescence—so, will the building actually be there at the expiry of the lease in, say, 80 years’ time? With a building built in the 1960s or 1970s, which perhaps has a life expectancy of 50 or 60 years, is there certainty that it will be there at the end of the term? In those circumstances, you can agree—I do not think with too much controversy—a slightly higher rate than 5%, again to the benefit of the leaseholder. If you are going to fix the rates, that will bring an unfairness, either to the leaseholder or the freeholder, depending on what rate you are going to fix.
It also ties in with capitalisation rates, if you are going to fix the capitalisation of the ground rent. There was a case on capitalisation rates—Nicholson v. Goff in 2007—that set out very clearly how the capitalisation rate should be assessed: so, the length of the lease term, security of the recovery, the size of the ground rent and the rent review provisions, if any.
Every ground rent is different; every circumstance is different. Again, if you are going to fix the capitalisation rate in the same way that you are going to fix the deferment rate, that could certainly bring about unfairness. It could be unfair to freeholds, it could be unfair to leaseholders, but the problem with fixing the rate is that it does bring unfairness.
Matthew Pennycook
Q
Angus Fanshawe: Yes, you are right. The case was about a flat in Cadogan Gardens—so, London SW3, prime central London. However, it was very clear. It set out how the deferment rate should be assessed. If the rate is to be assessed, I think the Cadogan v. Sportelli case sets out very clearly how it should be assessed. That would be the starting point: if the Government decide to do that, that is the starting point.
Ms Rimmer
Q
Mr Andrew Bulmer: Sorry—yes. I am afraid that I do not have a voice that projects, but I will do my best.
We warmly welcome regulation of managed estates; it is an anomaly that the management of those estates is unregulated. I was in the room earlier and I heard some eloquent discourse around the fact that some of these estates exist at all as managed areas and that those common areas are not adopted. I have personal experience of managing estates where there are two grass strips, a couple of gullies and a little piece of road, for which you need to set up a limited company, find directors, get them insured, do a health and safety risk assessment and a whole load of other stuff—a whole load of on-costs—for what amounts to, as I say, two strips of grass and a couple of gullies. Clearly, for that kind of small estate, that is utterly disproportionate and I strongly recommend that those areas are adopted by the council. There has to be a way through it, through planning legislation, section 106 agreements, commuted sums and so forth. I would strongly make that point.
On the regulation of those estates that either exist and cannot be adopted or alternatively perhaps are part of a much more complicated scheme and it is therefore inevitable that they will be managed areas, then, yes, absolutely bring them in. I would recommend that you align the regulations and the processes for reporting and service charge accounts, or charge accounts, as closely as you possibly can to the reformed leasehold regime so that there is consistency.
Barry Gardiner
Q
Mr Andrew Bulmer: Would it be easier? I am not entirely sure. A substantive point was well made earlier. At the very minimum, there was a call for the equity that is left in a forfeited property to be returned to the leaseholder.
Barry Gardiner
Q
Mr Andrew Bulmer: As I understand it, that is absolutely correct. Yes, the freeholder takes a lot.
Just to be clear, it might just be worth saying that we represent only managing agents. We do not have freeholders as members and we do not represent freeholders. That is sometimes misunderstood and, while I am clarifying, probably 50% or thereabouts of the estates that my members manage are RMC controlled. We also have members in Scotland who are freehold entirely, so we are very comfortable with freehold, commonhold and resident control.
Barry Gardiner
Q
Mr Andrew Bulmer: We do a mental health survey of our members. We have done it now for, I think, three years. I am sad to report that the answers of property managers to the question of “Is your life worthwhile?” are in the bottom 17% of the UK population, which is certainly a cause for concern. We ask for the sources of stress, and they include the cost of living and things external to their work, but it is roughly equally balanced between freeholders and leaseholders.
Barry Gardiner
Q
Mr Andrew Bulmer: I think it rightly places property managers roughly in the middle of all this. Shall we say that?
Barry Gardiner
Q
Mr Andrew Bulmer: I would go further than that and say that we have been calling for a standardised chart of accounts for quite some time and that standardised chart of accounts would be able to separate out and highlight the various funds. It is important that each individual leaseholders’ funds can be readily identifiable in terms of their own account.
Barry Gardiner
Q
Mr Andrew Bulmer: Yes. The Property Institute standard, the old ARMA standard for member firms, requires separate accounts for each development and for those to be trust accounts—it is leaseholders’ money held on trust.
Barry Gardiner
Q
Mr Andrew Bulmer: First of all, it still does have that code of conduct. We are in the middle of rebranding from ARMA to TPI. Just to be clear, the legal entity is The Property Institute, but we are still running on the ARMA and IRPM brands for the next few weeks, when the branding will finally change. I am not quite sure what the phrase, “What went wrong?”—
Barry Gardiner
Q
Mr Andrew Bulmer: There is a plethora of codes. I am good with this: when I was residential director at RICS, I project managed the delivery of the third edition of the RICS code. There is a fourth edition of the code, which I think sits with the Department for Levelling Up, Housing and Communities at the moment. Separately from that, Baroness Hayter’s overarching code of practice, inspired by RoPA, is in draft form and goes across all agents. There is then the ARMA standard. There is a plethora of codes. It is the RICS code that the Secretary of State adopted, so again I would love to answer your question, but I do not quite understand it yet. How can I help you?
Barry Gardiner
Q
Mr Andrew Bulmer: We are not a regulator. For firms to join us, they volunteer to do so. It is to their credit that they do so, but there is a limit to what we are able to enforce. We can embrace standards, and our job is to raise standards by pulling—
Barry Gardiner
Q
Mr Andrew Bulmer: And we have done so. We can raise standards by pulling firms and members along. We can have adventurous conversations, we can set standards and, in extremis, we can remove agents from the institute. We have done that for both individuals and firms. But, ultimately, we are not a regulator, and if you are truly to drive standards you need both pull and push. The role of the regulator would be to push.
Barry Gardiner
I think you have given a very eloquent explanation of why, try as you might, we need to ensure that within the primary legislation we have the adequate safeguards, because they cannot be done by voluntary effort outside in a complete and effective way. Thank you.
The Chair
Are there any further questions from Members? No? Okay, in which case I thank the witnesses for attending today. We will move on to the next panel.
Examination of Witnesses
Kate Faulkner OBE and Beth Rudolf gave evidence.
The Chair
Q
Beth Rudolf: I am Beth Rudolf. As you say, I am the director of delivery at the Conveyancing Association. I started my working life as an estate agent, became a licensed conveyancer and now work with the Conveyancing Association to improve the home-moving process for the consumer.
Kate Faulkner: Hi, my name is Kate Faulkner. I am chair of the Home Buying and Selling Group. If you are not familiar with it, it is a massive volunteer group. Our steering group has more than 30 different organisations, because that is how complicated it is to buy and sell a home in this country, be it leasehold or not. We have participants who are practitioners, as well as all the trade bodies, regulators and redress schemes. Our aim to improve the home buying and selling process, to prevent the one third of fall-throughs when a sale has been agreed after the offer stage and to reduce the length of time, which impacts on people’s uncertainty of life when they are buying a home. I have worked in all property sectors, from part-exchange to helping people who need to move into a retirement home and working with agents. Most of my work involves trying to communicate to consumers from an industry or Government perspective.
Matthew Pennycook
Q
Kate Faulkner: There are various issues. I heard one of the best descriptions of this recently, which was that, if I ask you to bake a cake with 20 ingredients but I only give you five of them, it is a bit difficult to do. Once you have made the offer and the legal companies have had a look at it and at the agreements, in a couple of months’ time you might get up to 10 of those ingredients. Eventually, four or five months later, you might have all 20 and you can then buy and sell that property. That is the biggest problem we have.
One of the massive opportunities with the Bill is to mandate the information required for people to understand what they are purchasing with a leasehold property. A key thing that we do not have in the property sector that other areas have—I have worked in the health, beauty, food and drink sectors—is an awful lot of natural education on how to buy things. We have nothing; there is no natural education of the public in our sector, apart from in the media, where any property story is particularly negative.
The work we are doing now has been fantastic. It has improved consumers’ education so that they really understand what they are buying into and that leasehold is very different from freehold, but they have now got the impression that leasehold is a bad thing. When leasehold works, it is not a bad thing.
From my perspective, and certainly from all the work we do with our participants on the Home Buying and Selling Group, it is essential that information be provided up front. Fantastic work has been done by the group that worked with trading standards, who now require up-front information, but it is not mandated. Although agents are supposed to understand all the property rules and regulations, from the discussion you had earlier, apparently nobody thinks that they should be qualified, and there is no regulation, so one problem is that agents have no idea about the trading standards up-front information that is coming through. A lot of good work is being done; the issue is that it is not working on the ground.
On leasehold specifically, people have to get hold of leasehold packs. There is a cost associated with them, and the time it takes can be excruciating. Anything that can be done to cap those costs would be welcome, but we need to make sure that quality is still required. The danger of the cost being too low is that we do not get quality leasehold packs, and they are essential due to the complexity of leasehold. The time it takes is also essential. Mandating up-front information specifically for leasehold would help us to reduce fall-throughs and reduce the time it takes, but most importantly, it would mean that people could get on with their lives more quickly than they currently can.
Beth Rudolf: I am the co-ordinator of the leasehold property enquiry form and the freehold management enquiry form, which are supported by TPI, RICS, the Law Society, the Conveyancing Association and right across the sector. The intention of the forms was to create a standard template for the information required. It is noticeable that, of the questions raised, only five are time-sensitive, such as failings to pay ground rent or the current budget—the kinds of things that change over time. Most of the information is standardised across the whole of that estate; nothing is going to change. Certainly, when we were looking at the regulation of property agents with Lord Best, it was clear that some of the bigger managing agents already have templated tenant portals where people can go to get that information. That needs to be put across the whole of the leasehold sector, the rent charges and the managed freehold estates, because we are seeing charges of up to £800 for the information.
We are also seeing the duplication of those charges. We will go to the landlord and they will say, “We only answer the ground rent ones, but we still want £400 to answer those. You will need to go to the managing agent to get the information about the service charges.” The managing agent says, “Right, well, we charge £400 for that, but you will need to go to the Tenants Association to get information about disputes and consents,” and so it goes on.
The timescale to getting the information having paid for it is about 57 days. For the consumer, it is an absolute nightmare. As Kate says, guidance from National Trading Standards came out on 30 November 2023 which sets out the material information—the information that would be relevant to the average consumer. It is not all the information. What we need mandated is what information and what data should be reviewed to identify what the relevant material information is, because without that how do we know if somebody has the information from the leasehold property inquiries or from the seller’s or the estate agent’s guesswork? Certainly, without the regulation of property agents, there is nothing to say, if they do just make it up, that anybody can take anything against them. We absolutely need that to be incorporated. It was promised and there was an announcement, I think, in 2018 that the leasehold property inquiry information should be made available at a cost of £200, with a refreshment fee for those time-sensitive elements of £50, and that that information should be made available within 10 working days. We have still not seen that and there is nothing in the Bill that identifies that.
Rachel Maclean
Q
Kate Faulkner: I do not think we have ever asked that question, so it is very difficult to answer. Also, the issue with property is that people change a lot. As a result, you could have a block that works brilliantly because we have a wonderful violinist or—my grandma used to own a little place at The Poplars in West Bridgford in Nottingham and, through complications, the family still owns a garage where my grandma used to live. The two guys who run that estate—the guy who does the accounts and the guy who does the overall management—are absolutely fantastic. They are a pleasure to deal with, and it is an extraordinarily well-run block. Now, if either of those were to move on, who knows whether there is anybody to replace them?
If we take another situation—I must say that this was quite a shock for me and I was a bit green in those days—I owned a flat and I thought it was safe to buy because it was owned by a housing association. Thirty per cent of those flats were owned privately. We were treated abominably by that housing association, and I would go as far as to say that they really did not like private leaseholders. I understood; they were social homes originally and they did not want us to own them. I felt we were treated as if we were an ATM machine. The original agreement that we signed up for with the housing association was a good one, but we found that they were changing that agreement over time and changing it so fast with so much paperwork that by the time the roof needed to be replaced, all the reasons we had bought that property, which we thought was safe, had been taken away from us. I know what I am doing and I asked all the right questions, but we still ended up with a situation where we had no control whatsoever over what was happening.
You have two cases there. In one, you have a wonderfully-run estate, but that could change overnight if different people take over, and in the other, you have a situation where I thought I would be safe with the housing association, only to find all the rules were changed.
To give you some idea, I think it is the complexity of this that is so scary. However good anybody is, the missing qualifications are just horrendous. That just has to be sorted. The best way I could describe it to you is that when I moved, I had a bag. Do you remember those big Asda bags? Not the ones that they do now, because they seem to have got smaller, like everything else. I had a big Asda bag, and after owning this flat with the housing association for 10 years, I had three lever-arch files full of paperwork.
When we brought the complaint against the housing association about how they had dealt with the roof renovations, it took a year to take that to a complaint situation. When I suggested that I take it to a first-tier tribunal, I was told—this is one of the good things—that if I drove my other leaseholders into taking them to a first-tier tribunal, it would cost more than £30,000. I was asked whether I wanted that responsibility on my shoulders. Taking that cost off is one of the good things, but my worry is that however good we do, until you give the leaseholders parity with the legals—the surveying and the accounting expertise of the freeholder or agent or whoever it might be—we will still never dig ourselves out of the situation we have. That parity service has to be free, or every leaseholder puts in a hundred quid a year or something to provide them with some sort of service.
Rachel Maclean
Q
Kate Faulkner: Absolutely. That is in one of my notes. If we make sure all houses are freehold, but we keep flats as leasehold, is that a problem? Well, actually, we can make leasehold work. We spend so much time looking at how to solve the bad bit, but what we do not do in this industry—which I have always done in others—is learn how it goes right, and how we can pull everybody up to that standard. We spend so much time looking at what happens when it goes wrong.
Rachel Maclean
Q
Beth, it is often presented that your industry and your members are perhaps part of some of the problems we see, because conveyancing is not done to high standards. We have heard so many times that people do not know what they are buying. Surely, that should be the role of conveyancers? Is it your view that there are some poor people practising in your industry? How much of this leasehold problem would have been avoided if we had had decent conveyancing right from the beginning?
Beth Rudolf: We have to go back to the understanding that, as Kate said, if you only have a few of the ingredients up front, then you are going to give misinformation. For example, let us think that without any information going to the buyer, they have decided to buy that property. Now, their intended use and enjoyment of the property is then what the conveyancer needs to do the due diligence on, to ensure that the buyer gets the information and understands what it means to them.
The issue we have with the current conveyancing process is that because of the dematerialisation of deeds, there is no need to keep deeds packets in fireproof safes any more. Consequently, they are just returned to the property purchaser, who loses them without realising their use, or they keep them really safe and then take them with them to the next property. All of that information goes missing, which means that every time the property is sold, the information and archive of the data has to be reconstructed. If I, as a conveyancer, was selling a property back in 1990, I would just get out the deeds packet and send through the contract pack on the day that a buyer was found. Within that, I could put old local searches, planning and documentation, warranties and guarantees, and insurances.
Now, when I get instructed, I have to start from scratch. I have to go to the lease administrator and planning authority and get all the information. That takes time. The trouble is that, as a buyer’s conveyancer, I am trying to report to the client on the information as it comes in. I hopefully get in the material information that the estate agent gets when they put the property on the market, but then I have to do the transaction form that the Law Society requires, which duplicates what has already been provided, but is slightly different, so you do not get the right information there.
On top of that, I get the search results in, but I probably do not order those until I get the mortgage instructions in. But the mortgage instructions are based on a valuation done by a valuer who did not know what information was available on the lease, so I then have to go back to the valuer and say, “No, you’ve got the wrong information.” By the time I have reported to my client on each thing, I have had to change my story each and every time. So conveyancing transactions take about 20 weeks before you can even exchange contracts, because each time you are trying to recreate the information about the property.
What we need is for the property data to be digitised and stored in property log books at the end of the transaction so that it can then be used when the seller wishes to instruct an estate agent to sell their property. To advertise it, they can then pull down the property pack, get the relevant material and information out of it, and ensure that when the buyer puts their offer in, they know what they are buying, and that the valuer for their mortgage company knows the details about the valuation. Where that happens—in Norway, Denmark and Australia—we see binding offers with cooling-off periods, and the only stress is trying to work out what you are going to move and what stuff you are going to give to charity.
Kate Faulkner: You have to bear in mind that when people are moving, they are also having a baby, getting divorced or getting married—or somebody has died, or they are in debt. Maybe they are trying to get in for a school time. As much as I wear a consumer hat, they are not in the most rational mode.
One of the difficulties that the conveyancer, the agent or anybody else has is actually getting people to sit down and understand the paperwork and what they are doing. We have a huge problem: consumers do not really understand, and do not always take the time to, either, because they just need to get into the property. We have a real education issue. One of the things I would do is work with companies to help them to educate consumers. I have to say that, in all my jobs, getting them to understand from a property perspective is the toughest thing.
That is why we have to bring everything up front. If we wait until they have made an offer and had it accepted, we have lost them—they are interested in what colour the walls are and what the sofa is, and if anybody, such as a surveyor, gets in their way and says, “You shouldn’t buy this property”, they are almost cross with them. The mindset of a consumer during the buying and selling process with property is very different from any other consumer mindset I have ever worked with.
[Chloe Smith in the Chair]
The Chair
By way of explanation, for the next 10 minutes I am Caroline Dinenage.
Kate Faulkner: Many congratulations!
The Chair
Otherwise, my name is Chloe Smith. I am temporarily chairing the session to allow for a very short break.
Andy Carter
Q
Beth Rudolf: What you have in there is the energy performance certificate; the title to the property, including a plan and any documents referred to in the title, such as a lease or a conveyance containing covenants; the searches—the local authority search, the drainage and water search and environmental data, which will tell you whether the property is impacted by coastal erosion or flooding; and the BASPI, or the buying and selling property information, which is completed by the seller and provides information about their understanding and ownership of the property.
You verify the identity of the seller digitally to ensure that they are the person registered as the proprietor to avoid seller impersonation fraud, through which people have lost £1.3 million. Those are the things that you need available. For a shared amenity property with a leasehold or managed freehold estate rent charge, you also need that shared amenity information—the LPE1, or the leasehold property enquiries form, and the FME1, or the freehold management enquiries form.
[Dame Caroline Dinenage in the Chair]
Andy Carter
Q
Beth Rudolf: It is about building safety. Is remediation required? What will be the impact on you? How much will you have to contribute? Are you a qualifying leaseholder? How the hell do we know?
Andy Carter
Q
Beth Rudolf: For any house, yes, absolutely. It needs to whack up the material information under the Consumer Protection from Unfair Trading Regulations 2008, which impact estate agents by saying, “These are the prescribed documents.” The home report in Scotland shows that that is pretty much what they have done. They have 60% fewer fall-throughs than we have and their transaction time is much faster. If we can go that way, it will absolutely deliver. When estate agents and conveyancers have worked together to deliver this already, it has knocked transaction times from 22 weeks to 10 weeks and fall-through rates have plummeted.
Kate Faulkner: Obviously, I work right across the property industry, from self-build to the leasehold side, and a lot of the work that has been done, including the rent reform and the work that has been done here, focuses on what happens after. For me, there is a problem with property from a consumer perspective, because there is a shortage of properties and owning a property is such a complex thing. You cannot compare it to buying a toaster—it often is, but please let us get rid of that.
For property to work for consumers who are moving, buying property or selling after deaths, divorce and so on, you have to make sure we have no bad freeholders, no bad landlords and no bad or poorly qualified agents. The good thing about the leasehold Bill is that you are doing some of those things. The Renters (Reform) Bill is not doing those things; most of it is after the event, but that is too late because consumers have to put a roof over their head and get their kids into school, so they will compromise on their rights. They will compromise when they are told, “You need to understand this information from your conveyancer, which means you should pull out of this deal.” We therefore have to put the protection in first. We must regulate agents and make sure the bad elements cannot be there. There is such a massive scale, ranging from the brilliant people I work with right through to the criminal, and we have to move everybody up.
Beth Rudolf: Just to catch you there, because we are short on time, the regulation of qualifications is a key point.
Andy Carter
Q
Beth Rudolf: No. It is wonderful that you are opening up the jurisdiction of the tribunal, but it still does not cover administration charges—I have talked about how ridiculously expensive they are—and their duplication. The point is that, as Kate says, the consumer is not educated, and nor is the estate agent. The material information guidance has come out, but none of the estate agents knows about it. When conveyancers ask them whether they can help them prepare the summary of the material information, the estate agents say, “Well, why? What are you talking about?” They have no idea.
The point is, as Andrew says, that we want to put a fence at the top of the cliff, not an ambulance at the bottom. The tribunal is the ambulance at the bottom; regulation of property agents is the fence at the top. That will ensure all people are educated, including the consumer, the estate agent and the property manager, and we also need to include the landlords and the developers in that. They need to be regulated too, because otherwise it is all going to slip through the net. The enterprise reform regulations do not incorporate anything where you are not instructed to work on behalf of somebody else, so your landlord is not going to be regulated, and they already do not have to be part of a redress scheme. Bringing these things in will help with education, so that they know what they are supposed to do and they will not make these mistakes that cause people to have a nightmare in their own homes.
Andy Carter
Q
Beth Rudolf: No, I have so much to tell you about this. In Worcester, the county authority has a £35 million overspend on adult social care. Because of that, it is not putting any money into the adoption of public open spaces. It is not putting any money into supporting those. It will absolutely look for developers that will take on those open spaces, create these estate rent charges and make a bit of wonga by collecting all that money.
Andy Carter
Q
Beth Rudolf: It is council resources, as much as anything. Then, on top of that, developers see it as being a financial asset, because they continue to have an economic interest in that land by gathering the referral fees, the commissions on the insurance and things like that.
Andy Carter
Q
Beth Rudolf: All I can tell you is that currently the council that I am aware of will not adopt anything. The dowry that it used to receive for adopting is no longer enough to cover the cost of bringing it up to an adoptable standard and, as was mentioned before, if the developers leave before bringing it up to an adoptable standard, you are completely stuffed: there is no resourcing and no money available to fund this.
Andy Carter
Q
Beth Rudolf: Bring in commonhold. Enable commonhold on managed estates, because then people will at least have their control. With commonhold, you immediately get people saying, “You don’t have professional property managers running it.” Well, require that, when the commonhold association takes over, it has in place a professional, regulated property manager with a limited contract, so that the association can tender for a replacement if it turns out that that estate manager is not good. That means that you are starting to drive it on the basis of customer satisfaction: if you do not do it fairly, well and reasonably, the commonhold association is going to replace it. We did a survey of the commonholders—
Andy Carter
I am conscious of the time. Others may want to—
Beth Rudolf: I know, but I was going to say that the commonholders did not complain about being commonholders. Some of them had been leaseholders, and they said that they would prefer to be commonholders.
Kate Faulkner: One of the things from the developers’ side—and I was not clear about this—has to do with where this leaves people with shared ownership, because you cannot have two-tiered systems. The housing associations and shared ownership should be as protected with these rules and regulations, because, unfortunately, not all housing associations do a good job.
Beth Rudolf: One more thing: the ground rent capping referenced in the Bill requires the lease to be a qualifying lease, so it will not impact leases under 150 years. But the majority of the mis-sold leases with onerous terms and escalating ground rents were well under 150 years. They will not be touched by this, so that needs to change.
The Chair
Thank you very much. I do not think there are any further questions, so I thank you both very much for attending today.
Examination of Witness
Professor Tim Leunig gave evidence.
The Chair
We will now hear from Professor Tim Leunig, who is the director of Public First. We have until 5.15 for this session. Can the witness please introduce himself for the record?
Professor Leunig: I can. I am indeed Professor Tim Leunig. I was an employee of the Department that is currently known as the Department for Levelling Up, Housing and Communities, where I served as economic adviser on housing supply to three Secretaries of State—Clark, Javid and Gove respectively—and any number of Housing Ministers, to be honest, one of whom is here. I served almost all of them between Brandon Lewis and Rachel Maclean.
I am now the director of economics at Public First consulting and am chief economist at the think-tank Onward. I am employed by University College London Consultants to train Treasury civil servants. I run a Substack and I am a visiting professor at the London School of Economics school of public policy.
Rachel Maclean
Q
Professor Leunig: I think that is a question that people often ask medics: “Why do I have this?” Who cares? The question is, “Am I going to get any better?” I have not got the faintest idea about the origin of leasehold, but I contend to you that that does not matter; all that matters is whether this is an effective system and, if it is not, what we could do either to improve or replace the current system. Those two questions I can answer, but I am afraid that I get an E grade for my answer to the question that you actually asked.
Rachel Maclean
Q
We have a Bill in front of us. What is your view on the Bill? Does it address the problems that we have all heard and are familiar with?
Professor Leunig: It is a step forward; there is no doubt about that. I do not suppose that any person has appeared in front of you today and said, “Oh, this is a terrible step.” I do not suppose anyone has argued that we should keep leasehold for houses or that we should have 99-year leases or 49-year leases or anything like that.
Rachel Maclean
No.
Professor Leunig: In that sense, it is obviously a step forward. I have not been here all day, but I am guessing that you have had a consensus on that throughout your evidence sessions. I am part of that consensus. I think that it is very good that leaseholders have increased rights to information and that we are eliminating ground rent for longer leases, although I agree with the person who was sitting here before me—whose name, I think, was Beth Rudolf—that 150 years is a rather long thing before you get rid of ground rent. The case for ground rent seems to me to be extraordinarily weak. I think that it would be better to move to commonhold.
First of all, I should say that I am not a lawyer. Indeed, once, when I made a remark about the law in a meeting with one of your predecessors as Housing Minister, said Minister remarked that, as an analyst, I should know better than anyone else that the first four letters of analyst stand for, “am not a lawyer”, which, I have to say, was wittier than most Housing Ministers.
I am not a lawyer. I am an economist, but I can say that leasehold is a peculiarly economically inefficient construct, because it usually constrains a person, for whom the largest single thing they will ever invest in is a leasehold—their house—from doing all sorts of things. It constrains improvements, for example. It also holds them open to the risk of forfeiture, and the risk of forfeiture is particularly bizarre: for a very small amount of service fee, you can lose the entire value of your flat or, occasionally, your house. That is disproportionate to any sense of economic, moral or any other kind of fair play, and it acts as a disincentive to people.
In that sense, leasehold is a fundamentally economically inefficient construct, as well as having dubious morality. For sure, if you do not pay your service charge, there needs to be some way of enforcing, whether it is commonhold or leasehold, but that is why we have things like the small claims court. Ultimately, we have bailiffs if you do not pay a bill. You do not lose your entire property because you failed to pay your telly licence or something like that, and nor should you for a service charge. In that sense, I think that leasehold should be killed off.
I also think that leasehold is, on occasion, an absolute magnet for sharks and other wretched creatures who disgrace our society and the good name of capitalism. I think it was Edward du Cann who made a remark—before I was born and before at least some of you were born—about the “unacceptable face of capitalism” when companies behave very badly. We see that happening in leasehold with the companies who had doubling ground rents until a property was worthless and the companies who pursue forfeiture over tiny bills. Bluntly, if I am allowed unparliamentary language—I think I am but you are not—there are bastards out there, and your job is to construct the law to constrain those people who have bastard tendencies. Leasehold does not do that; commonhold does. That is why I think that commonhold is a much safer construct for people who are currently leaseholders. It should be the norm and the requirement for all future building, whether that is flats or houses, and we should be looking to move leaseholds to commonholds over time.
Rachel Maclean
Q
Professor Leunig: The final point is factually incorrect, because of course the nurses pension scheme is unfunded, so there are no assets behind—
Rachel Maclean
That is probably a bad example.
Professor Leunig: It is, but people always put forward nurses and policemen when they want an “Oh, woe is us” story. Well, the NHS pension scheme is unfunded; it is underwritten by us as taxpayers and is thus completely and utterly secure.
Although I accept that there are some people who have these in their pension funds, any good pension fund is diversified. No sensible pension fund has more than a trivial amount of its money invested in this class. Of course, if you have a self-invested pension plan and you decided to put it all in this, that is a risk that you took when you decided to invest all your money in it.
Changing to commonhold will make not a jot of difference to the number of houses that are built over the next year, or the number of flats. The number of houses and flats built is determined entirely by whether the builder believes that they can make a profit. This is a for-profit sector, and that is right and proper, as is the manufacture of pens, mobile phones, bits of paper, quasi-plastic cups and everything else. It depends on whether the buyers have enough confidence to buy, on whether they think their job is secure and on whether they can get a mortgage at a rate that seems acceptable and is competitive with renting. That is what matters. It also matters whether the builder thinks the market will be radically better in the following year, in which case they will quite understandably delay building for a bit.
Frankly, the difference between the value you will get for a leasehold and what you will get for a commonhold is at best slight; in so far as it exists, it is based on confusing and bamboozling buyers. Sometimes the builders of a leasehold flat say, “Ah, but we can sell them for less, because we make some money by selling off the right to the ground rent.” If that is true, the buyer is not better off, because they have got it for less, but they have to pay ground rent. The buyer would be perfectly able to pay a little more, because their monthly or annual outgoings would be exactly the same.
The only way in which the builder is able to do better is if the buyer does not realise that they have to pay ground rent and is unable to do a net present value calculation in their head, which I grant you is more than likely—I challenge any of you to tell me on the spot what the net present value of £250 a year discounted by 3.5% a year is, over any number of years you like that is greater than five. Does anybody want to do that off the top of their head? No? I even typed into Google last night, “What is the net present value of £250 discounted at 3.5% over 10 years?” Google did not give me a number as an answer. It is not the sort of thing that we have to hand.
Yes, some people might be bamboozled into this, but a good economy never says, “Great: we can build some more houses by tricking people into being poorer later.” That is not the way to have a well-functioning market—and a well-functioning market is the best guarantee that we will get the houses we need built where we need them and when we need them.
Richard Fuller
That’s all right, Dame Caroline. Let’s stick with net present values, shall we, Professor?
Professor Leunig: Go for it—I’ll get out the calculator.
Richard Fuller
Q
Professor Leunig: Indeed, yes. It’s a very long one, by the look of it.
Richard Fuller
Q
Professor Leunig: Yes.
Richard Fuller
Q
Professor Leunig: Oh, yes, absolutely. That is not necessarily reprehensible, because sometimes you just cannot have a clue.
I am often asked to forecast the future. I say, “Why did economists get the last four years wrong? Because we didn’t predict that Vladimir Putin would invade Ukraine.” Making predictions about the future as a social scientist is, by and large, a mug’s game. All you can do is stand up from first principles and say, “When do market economies work well? They work well when contracts are simple and plain and everybody understands them.” That is much truer of commonhold than of leasehold, which is why I support commonhold rather than leasehold.
Richard Fuller
Q
Professor Leunig: Does it have a range?
Richard Fuller
Q
Professor Leunig: I have not seen the impact assessment.
Richard Fuller
Q
Professor Leunig: I would want to read it before giving a definitive answer, but the information that you have given me tells me that this Bill is above all a redistributive Bill. However, both of those are static estimates. The main change in property rights is usually dynamic; for example, what does it do to the incentives for people to improve their own homes? I would be surprised if that were captured in those benefits. If it is captured, I would be interested in seeing over how many years it is captured, and so on and so forth. Of course, a lot of this Bill, as I understand it—assuming that it is like every other Bill—leaves all the important stuff to secondary legislation and regulations. I imagine that those figures, in particular the figure of £2.8 billion under “transfers”, are heavily dependent on exactly how the secondary legislation is written.
Richard Fuller
Q
Professor Leunig: Yes.
Richard Fuller
Q
Professor Leunig: The biggest winners and losers will be in the south-east and in London, because that is where the marriage values are greatest because that is where property prices are highest. If you own a flat in Peterlee, one of the lowest value housing markets in Britain, the marriage value will be trivial at the moment, so changing the rules on marriage values will have a very small effect.
Richard Fuller
Q
Professor Leunig: That will be the biggest—
Richard Fuller
Q
Professor Leunig: No. Not every leaseholder in London is rich, by any means. If you are buying a flat for £300,000 in London, that will make you rich by the standards of someone in Peterlee, but I do not think a young couple buying a flat for £300,000 would meet The Daily Telegraph’s definition of “the rich”.
Richard Fuller
Q
Professor Leunig: Yes.
Richard Fuller
Q
Professor Leunig: Redistribution is ultimately a political issue; it is about who you think should have the money. Government engages in redistribution all the time. Sometimes it does so explicitly through the tax system— I am looking forward any day to my tax cheque coming back from HMRC for the money I overpaid last year—and in other ways it does so implicitly.
For example, as somebody who has been employed in universities for most of my academic career, my income was constrained by the fact that Government limits university fees. I teach at the London School of Economics. The fee that we charge for a master’s suggests that we could charge much higher than £9,250 to undergraduates, but the Government do not let us. That is a legitimate decision by the Government. It makes me directly poorer. That is a transfer away from someone like me—broadly speaking, on the richer end of the spectrum—to people who are currently not very well off but who later on will be rich.
That is just the right of a Government to define property rights in such a way that some people are winners and some are losers. The right to borrow Jeffrey Archer’s books from the library, for which he gets virtually no compensation, is exactly the sort of political decision that you are entitled to make by dint of having a democratic mandate. Apart from agreeing with you that there is redistribution, I do not think that there is a great deal that any of us at this straight table can say to those of you around the horseshoe. It is your right, privilege and responsibility to make that decision.
Richard Fuller
That is very helpful. I will stop there, but I want to come back on discount rates later if I have time.
Professor Leunig: Excellent.
Barry Gardiner
Thank you. I make it 296.91, actually, but please correct me if Google thinks I am wrong.
Professor Leunig: May I ask whether you used a calculator to work that out?
Barry Gardiner
Of course.
Professor Leunig: Phew! I was once involved in setting a question for Carol Vorderman on “Who Do You Think You Are?”. They wanted her to work out something like that, and I said, “You’ve got to give her a calculator.” They said, “No, she’s Carol Vorderman.” No one can work out 1.02794 in their head, not even Carol Vorderman. They finally agreed to put a calculator to hand, which she used, I believe.
Barry Gardiner
So she didn’t do it in her head.
Professor Leunig: Even Carol Vorderman cannot do that in her head. If you had said that you had done it in your head, I would have put you above Carol Vorderman.
Barry Gardiner
Q
Back to the Bill. There is an argument put forward for ground rent—the Government’s proposal is to take it down to a peppercorn or indeed abolish it entirely—that these are inalienable property rights, so there must be compensation and there must be proportionality. Could you elaborate for the Committee on whether the same argument was used when we compensated slave owners for the loss of their property, and whether you think that there is an analogy there?
Professor Leunig: Property rights are never sacred in the sense of being inviolable, because a property right is over and above the right to be compensated for the loss of property, so a properly inviolable property right would ban the emancipation of slaves, ban compulsory purchase and so forth.
But the Government often take actions that, de facto, end someone’s business. One of the saddest things I did in Government when I was economic adviser to the Chancellor was meeting a group of people affected by Brexit. One of them was a seed potato exporter. Under EU law, seed potatoes cannot be imported into the EU, so on the day that we left, this person’s business was completely kaput. He asked for compensation, but it was not granted. We can argue the rights and wrongs of that, and we can argue the rights and wrongs of Brexit, but it seems to me that the fundamental sovereign right of Parliament is to make decisions that some people like and some people do not like. If people are really unhappy, they can judicially review it. A lot of rich people own ground rents, and they may well be judicially reviewed. Sometimes almost anything is reviewed, certainly in the world of property.
I am not a lawyer, but it seems to me that there is a plausible case for Parliament to stand up and say, “We believe there are social advantages to doing this, and we have therefore done it.” That is the standard defence in law, and we did this at the end of covid. I was involved in the compulsory arbitration for a commercial rent scheme; indeed, it was one of the things I came up with as an idea in my time as a civil servant. At the end of covid, just about every restaurant had a huge accumulated rent debt. The standard commercial clause says that on any day you are behind with your rent, the landlord can go in, occupy the property and seize everything that is in it. We put that into abeyance for covid, without compensation, because we had a public policy reason for wanting restaurants shut.
Barry Gardiner
Q
Professor Leunig: There we are.
Barry Gardiner
Q
Professor Leunig: Correct, and that was what we decided at the end of covid, when restaurants, particularly those that served fine wine, came to us to say, “As soon as we restock our cellar, the landlord will turn up, reoccupy the property, seize all the wine and sell it for the back debt.” They said, “We are literally not willing to bring wine on to the premises.” It was clear that that was an inefficient outcome that risked undermining the high street, risked undermining the future of hospitality and risked undermining a sector that is the biggest employer of young people. We therefore created a compulsory arbitration scheme to prevent that from happening. Nobody judicially reviewed that, even though there were some unhappy landlords, because they understood that we had a public policy purpose for doing so. The weight of evidence that you have heard today suggests that there is a public policy purpose here but, as I say, I am no lawyer.
Barry Gardiner
Q
Professor Leunig: Let us be clear: land for housing is of higher value and agricultural land is of slightly higher value, but industrial land is often not.
Barry Gardiner
Q
Professor Leunig: Gobsmackingly. The field with three horses next to Heathrow airport that I go past if I ever go to Heathrow is a tragedy. It is a really dreadful little bit of land. It is used for nothing other than three horses, but its value is constrained, because it is zoned for agriculture. I think the answer is: very little. Most of the large developers are not in this in order to make a fast buck out of ground rent and so on. Indeed, from memory, I think I can put on record that Taylor Wimpey behaved very honourably, having inadvertently had doubling rents in the north-west—
Barry Gardiner
Q
Professor Leunig: Hang on; I will exercise my right to finish the sentence. It actually bought them back from the people to whom it had sold them, and it had not sold them at a particularly high price. It was just a local convention in the north-west that houses were sold on leasehold. The national companies hired solicitors, who did the normal thing in their area. Just as there is in government, there is often a lot more cock-up than conspiracy in the private sector. I am much more worried about the people who buy the leases later on with a view to finding the loopholes and exploiting them, just as people buy up medicines that are not quite out of patent to force the prices up. That is why I think it is good to set up a legal system that prevents the sharks from sharking, or whatever the verb is, but I would not want to tar all developers with that brush. In terms of property prices, I should say that I think it is overwhelmingly the planning system—we can see that if you look at somewhere like Manchester, which has lots of flats where land prices are not that high. Land prices are high in London and the south-east because we do not release enough land for housing.
Barry Gardiner
I will exercise my right to interrupt.
Professor Leunig: Absolutely.
Barry Gardiner
Q
Professor Leunig: It could do for sure, yes. If you can extract more money for the product that you are able to sell, you are willing to pay more for the constituent parts. However, I would not want anybody here to think that if we move from leasehold to commonhold, houses will suddenly become affordable in the south-east. That would not be a credible economic prediction.
Barry Gardiner
Thank you.
Professor Leunig: For that, you need to build more houses.
The Minister for Housing, Planning and Building Safety (Lee Rowley)
Q
Professor Leunig: First of all, I repeat what I said earlier, namely that it seems to me that a lot of it is up to the secondary legislation. In particular, I think that issues of compensation are entirely in secondary legislation and regulation. As I say, I am not a lawyer; I find it very hard to read a Bill. It is not my skillset at all. I would not like to have your job.
I think that the biggest effect is the dynamic effect of creating a much cleaner and clearer property market. We have a rather ossified property market in Britain; it has become more ossified over time. There are all sort of reasons for that, including the fact that far more people are now under stamp duty, as well as the effect of financial regulations that mean someone needs a relatively large deposit to get on the housing market. There is a bunch of other costs that we really could simplify and get rid of. Take searches, for example. You can buy a house that is two years old and you have to do a completely clean set of searches. Why? When did we last find a mine in central London? We know this stuff pretty well.
I think this is part of clearing up the housing market and if we do so it can have quite big dynamic effects—for example, facilitating the better movement of people in response to opportunity. Such opportunities may be economic. I do not want to sound too Norman Tebbit and say, “Get on your bike.” However, there can be opportunities to go and live next to an aged parent who has suddenly fallen ill, in order to provide better care for them, or opportunities to move nearer to better schooling. Whatever the opportunity is, a more flexible housing market allows people to move to a house that is better suited to their needs.
All those things are good dynamic effects that in the medium term are strongly pro-growth and I see this Bill being part of it, but it is a small step forward. A move to commonhold would be a better step forward to a nice, clean system, where everybody knows exactly what they are buying and nobody is left wondering, “What sort of freeholder is this? Are they an exploitative one? Are they a reasonable one?” Many freeholders are perfectly reasonable.
Lee Rowley
Q
Professor Leunig: I see no risks in anything that you plan to do; I really do not think that there are any meaningful risks in moving to 999-year leases over 99-year leases. I certainly do not see any risk in ending leasehold for houses.
However, you might have people coming back with very specific cases of supported housing, for example—you always want to check with specialist groups about things like that—but I see no meaningful risks in this Bill as far as it goes. If you had gone much further, there would have been no meaningful risks either. The fact that commonhold and similar things work in places like Australia shows that it is a perfectly possible and viable system.
The time when you want to be really worried is when you are the first person in the world doing something. Of course, that does not mean you are wrong—right? When we privatised the first utilities, or when we privatised British Telecom, that was not a wrong decision, but there were definitely grounds for caution. However, when you are doing something that is already done in many countries—of all the things you lot have to worry about, I would not worry about that one. Sleep well tonight.
Lee Rowley
Q
Professor Leunig: The only prioritisation meeting I had was with the current Secretary of State for Levelling Up on the LURB—the Levelling Up and Regeneration Bill —because the first draft of the Bill had twice as many clauses as could get through Parliament. We had a meeting for about two hours with the Secretary of State and each part was read out, including what its intention was and how many clauses it required. That is the cost-benefit analysis.
If I say to you, for example, “The lady before said 150 is too big”, I would agree with her; I imagine that is a very sensible change to make. By contrast, I am sure that other people have said, “Go for commonhold for everything in future”. That strikes me as requiring a lot more clauses than the number that would be required to change the 150 figure to 99, or 75, or something.
What I urge you to do is to ask the lawyers—the people drafting the legislation—how many clauses would each change that has been proposed cost. Then you think, “Okay, we can probably manage another 24 clauses”, or whatever it is, “or we can change 24 clauses. Which ones do best in that cost-benefit analysis?” I do not think that it would be sensible for me to give you an answer without knowing that legislative cost.
Andy Carter
Q
Professor Leunig: Yes.
Andy Carter
He should?
Professor Leunig: Yes, and it is increasingly important as more and more of us live in flats. Unless we are going to make London look like Houston and stretch all the way from the white cliffs of Dover to Oxford, more people are going to have to live in flats in London. They are going to have to live in terraced houses and flats; that is just a simple, basic sense of physics and geography.
So yes, flats are going to be more important over time. I can see no reason why new flats should not be built on commonhold for anything where planning permission has not already been granted. That gives builders amply long enough. At that point, they cannot turn around and say, “Oh, but our economics were predicated on this.” You have not put in for planning permission. Do it on commonhold. Get on with it. Adjust to the new world order.
The Chair
I think we had a couple of follow-up questions, first from Rachel and then Richard.
Rachel Maclean
I am sorry, Dame Caroline. When you told me that there was not time, the question went out of my head. I apologise.
The Chair
In that case, we will go to Richard and it might pop back in again.
Professor Leunig: Oh no, he is going to test me on net present value.
Richard Fuller
Q
Professor Leunig: The default rate chooses 3.5% because that is the rate in the Green Book. Again, it is fundamentally a political decision, because you put the rate one way and the value goes up. You put the rate the other way and the value goes down. It is just a political decision. I really do not think that there is a right or wrong answer to that.
The only thing to say is that I would be very cautious in using the current Bank of England base rate because it is so volatile. The idea that if we had made the calculation two years ago we would have used a discount rate of 0.25%, but today we would use 5.25%, is absurd. You need one number that you stick with through thick and thin, and the default rate, I think, is the Green Book discount rate of 3.5%. I am happy to believe that if we were in the Department and I was employed, you could sway my belief that 3.5% is the right answer, but that is where I would start.
Richard Fuller
Q
Professor Leunig: Because this is a one-off decision. For example, we saw Paul Johnson mention this week that the cost of student loans has gone up dramatically because of the rise in interest rates. We do not suddenly cut the number of people who can go to university and then increase it when interest rates are low, because we accept that most people de facto get one shot at university when they are 18 or 19. Over the 25 years of your mortgage, you will re-mortgage a number of times so it averages out, whereas this is a one-shot thing. We do not really want people acting strategically on which day to do it. That is why we would prefer to have a single number over time.
It is not a stand-up case; I grant you. You have a case. It is the classic thing of marking to market, right? When you retire, if you have a defined contribution pension scheme, you are to some extent at the whim of the market on the day you retire and in the five years before, as you move out of equities and into bonds. If you are a defined benefit pension holder, de facto we use the scape rate, which is a long-run average. I argue, in effect, for something similar to the scape rate for something like this.
Richard Fuller
Q
Professor Leunig: As I say, my main advice would be to make a political decision and pick an interest rate, rather than to make a political decision without realising you have made a political decision and go for Bank rate, or Bank rate plus two or minus one, and to have complete randomness over the following years.
The Chair
If there are no further questions from Members, I thank the witness very much. We will move on now to the final panel.
Professor Leunig: May I say well done? You have had a very long day.
Examination of Witness
Dr Douglas Maxwell gave evidence.
The Chair
Apologies, Douglas, I have one eye on the screen, where the Minister is now on his feet in the Chamber—we do not want to keep you waiting while we do lots of voting. Douglas Maxwell of Henderson Chambers, will you introduce yourself quickly for the record, please?
Dr Maxwell: Good afternoon. My name is Douglas Maxwell. I am a barrister in private practice at Henderson Chambers in London.
Matthew Pennycook
Q
On the existing ground rents, to what extent do you think that any of those courses of action in the five options will be compatible with the provisions of A1P1? On compensation, how credible do you find the figure in the Government’s impact assessment? They cite the figure of £27.3 billion as the estimated change in asset value from calculating the loss of ground rent income on the relevant leases. Do you find that a credible figure, or is it subject to a heavy amount of caveats, assumptions and so on?
Dr Maxwell: To deal with your first question, I think it is important to start by looking at how the European Court of Human Rights, the Strasbourg Court, considers applications under article 1 of the first protocol. The Court has said consistently that where a deprivation of property occurs—article 7 interprets that effectively as when your entire right to property is extinguished and all economic value is lost—there is what is called a presumption of compensation. I am not entirely sure, because we do not have the proposals set out in statute—we simply have the consultation document—
Matthew Pennycook
Q
Dr Maxwell: In most instances, it would appear that that would fall within control of use: the freeholder’s right to property is not entirely extinguished, because they retain the ability to use, sell or whatever that property, and they retain the ability to make money through other means such as enfranchisement fees or lease extension fees. I discussed this yesterday with Professor Bright at the APPG, which I know some of you were present at, but there might be instances where it falls within the category of a deprivation, or certainly gets close to that category, where the entirety of the income is derived from ground rent and the removal of that would effectively remove the value.
Absent sight of those sorts of leases and the relevant facts, we are dealing only in hypotheticals here, so that brings us to another question, which is to look at the macro picture of the options as a whole and the micro application of that to certain facts. It might be that on the macro approach, looking at the totality, we are dealing with a control of use, which means that there is no presumption of compensation, but it could be that if we looked at the micro analysis, certain individual circumstances do fall into that. Again, absent the relevant facts, it is only possible to speculate. It is a very broad market and there are lots of different leases.
Matthew Pennycook
Q
Dr Maxwell: I am not an economist. I have skimmed the impact assessment figures and noted the figures that seemed to be quite substantial. I noted for option 1— correct me if I am wrong, but I do not have a copy in front of me—I think it said that in the first 10 years, the loss of ground rent might be £5 billion, and then a loss of value of about £27 billion. I am not an economist, so I cannot really comment on whether that figure is remotely correct or reflective at all.
Matthew Pennycook
Q
Dr Maxwell: If any of the options are implemented, it will result in a significant loss in value of freeholds. As a result, there is a prospect of challenges being brought. I cannot comment on where those challenges will come from, but it would be slightly naive to say that any of those options are completely safe from challenge. However, the prospect of a challenge being brought is very different from the finding of a violation; seeking to bring or threatening judicial review is very different from the actual court finding that a violation has occurred. Obviously, the risk register—if you want to call it that—of the finding of a breach is effectively reduced if you go down the relevant options to the final one of freezing ground rent, and there are other questions about the proposals as set out in there.
This was discussed last night with the APPG, but it is important to recognise that there is Strasbourg case authority concerning cases from Norway that went to Strasbourg on the capping of ground rent. Obviously, ground rent in Norway is not exactly the same as it is in England and Wales, but there are some similarities. There was an initial case called Lindheim where the Strasbourg Court said that a cap of 0.2% in Norway breached the right to property of article 1 of the first protocol. That was because, effectively, the value was completely lost.
The Norwegian Government engaged in a process like this—a very considered discussion and consideration within the political sphere of the best way forward—and they effectively set a cap, which was the equivalent of about £600 a decare—I had to look that up—which is 0.2 acres. They set a cap, which again was challenged in a case called The Karibu Foundation, and that was when the ground rent related to about 0.6% of the land’s value. In that case, the European Court of Human Rights said, “No, there is not a violation here, because the Norwegian Parliament have clearly considered this and they have what the Strasbourg Court calls a ‘broad margin of appreciation’. These sorts of questions are for Parliament”—they are for you. The EHCR said that it had been adequately considered, they have retained the property, and that is reflected. Therefore, there cannot be seen to be what the Strasbourg Court usually refers to as an “individual and excessive burden” on this foundation, and it said that a breach had not occurred.
The principle is that a cap or a limit on ground rent is not necessarily a violation, but you have to apply it to the certain facts and see whether it falls within causing an “individual and excessive burden.” But we are absent from facts and again dealing in hypotheticals here. We have to look at the macroanalysis.
Rachel Maclean
Q
Dr Maxwell: There is a book, but it is probably not on your Christmas list.
Rachel Maclean
You are presuming what is on my Christmas list! Anyway, are you able to express a view on whether this Bill and what we are proposing is a proportionate interference in property rights?
Dr Maxwell: That is an exceedingly broad question. There are 65 clauses in this Bill, and there is a consultation with five potential options. We do not have time to go through every single clause, but in terms of the risk register and potentially successful challenges being brought, I would focus on option 1 of the consultation, on reducing ground rent to a peppercorn.
There are various other people who have looked at this. For example, Giles Peaker, who is a very respected solicitor and has appeared before these Committees previously, has recently written that it would quite obviously, in his view, be a violation and it is important not to give people false hope. There is an undeniable risk of a violation being found in the relevant options. I suspect, but I do not know, that the prospect of a challenge being brought is very high, but again that depends on the relevant facts. It would be my understanding that it cannot be brought in a macro sense against the Bill as a whole, and it would depend on the relevant facts.
For example, the Supreme Court found a breach of the right to property in a case called Mott, which concerned limits on an individual’s right to fish on the Severn estuary. The Environment Agency’s policy of fishing as a whole—limiting fishing for the benefits to the environment—was considered okay. But for Mr Mott, it resulted in a complete loss of his income—fishing represented 95% of Mr Mott’s entire income—and it therefore did cause a breach to Mr Mott in particular. That is why I am slightly apprehensive about giving broad conclusions about consultations and clauses when we do not have the ability to analyse the impact on an individual or entity.
Rachel Maclean
Q
Dr Maxwell: Yes, so in the case I referred to earlier—The Karibu Foundation v. Norway—one of the factors that the Strasbourg Court gave a lot of weight to was that the Norwegian Parliament had sat down with the Council of Europe, because it was following a breach in the Lindheim case, and considered all the relevant options. It was properly aired and debated and they got in experts from various fields. That is clearly a consideration. It shows that the democratic institutions—Parliament—have properly considered it, rather than it being, say, a last-minute amendment without justification.
The Chair
I am quite keen to wrap this up before the Minister concludes speaking in the Chamber, because otherwise we will have to keep the witness for at least an hour during votes, and I do not really want to inconvenience him that much. Can we have very quick questions and swift answers if possible, please?
Barry Gardiner
Q
Dr Maxwell: In relation to your first point on the Norwegian case, yes, as I said, it was different. It is about agricultural land value. The value was equivalent to several thousand euros. As for what happened with the adoption of, say, strata title in Australia and so on, that is not within my knowledge. What I know or have studied in detail is—
Barry Gardiner
Q
Dr Maxwell: The very short answer to that is that we are dealing with article 1 of the first protocol to the European convention on human rights. Countries such as Australia, and particularly places such as Hong Kong now, are not signatories to the convention, nor do they have a domestic law-giving effect to it. That is why we are dealing with article 1 of the first protocol, and that is why we are dealing with case law from other jurisdictions that is, perhaps, not directly analogous.
As for the sorts of cases, or whether any cases were brought in those jurisdictions when that system was adopted, that is not something I am aware of or can comment on, unfortunately.
Andy Carter
Q
Dr Maxwell: I am not a solicitor; I am a barrister. I am not able to really comment on the main implications of the Bill for solicitors, unfortunately. That is a nice, succinct response.
The Chair
Thank you—I do apologise for that. Thank you very much on behalf of the Committee. That brings us to the end of this afternoon’s sitting. The Committee will meet again on Thursday to hear further oral evidence on the Bill.
Ordered, That further consideration be now adjourned. —(Mr Mohindra.)
Leasehold and Freehold Reform Bill (Third sitting)
Thursday 18th January 2024
(11 months ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 18 January 2024 - (18 Jan 2024)
The Chair
Before we start hearing from the witnesses, do any Members wish to make declarations of interest in connection with this Bill?
Matthew Pennycook (Greenwich and Woolwich) (Lab)
My wife is the joint chief executive of the Law Commission, whose work on leasehold reform we have regularly touched upon.
Mike Amesbury (Weaver Vale) (Lab)
I am a member of the all-party parliamentary group on leasehold and commonhold reform.
Andy Carter (Warrington South) (Con)
On that basis, I am also a Member of the all-party parliamentary group.
The Chair
I think you have to declare only APPG officer posts, not just membership of them. But thank you anyway; it is best to be safe.
Examination of Witnesses
Ms Paula Higgins, Bob Smytherman and Sue Phillips gave evidence.
The Chair
Q
Before calling the first Member to ask a question, I remind all Members that questions should be limited to matters within the scope of the Bill, and that we must stick to the timings on the programme motion agreed by the Committee. For this panel, we have until 12.10 pm, and that will be a sharp cut-off—a sharp guillotine. Would the witnesses like to introduce themselves for the record, please? Thank you, and welcome.
Ms Paula Higgins: Thank you. My name is Paula Higgins; I am the founder and CEO of HomeOwners Alliance, which was set up 12 years ago to support and campaign on behalf of homeowners and those who aspire to own. And that includes leaseholders, of course.
Sue Phillips: My name is Sue Phillips. I am a leaseholder. I am a former shared owner, and I set up Shared Ownership Resources in 2021 to campaign for the best interests of shared owners and people considering shared ownership.
Bob Smytherman: My name is Bob Smytherman. I am chairman of the Federation of Private Residents’ Associations. I have been a leaseholder in my own block for more than 30 years, and I have been a director of my self-managing block for 25 years. Thank you for the opportunity to put the case for resident management companies across England and Wales for this exciting piece of legislation.
Matthew Pennycook
Q
First, the Bill makes provision for the treatment of intermediate leases in a number of areas, but it does not contain, as far as I can read, any measures to directly resolve many of the challenges that shared owners face. Could you give us your general views on the Bill from a shared-ownership perspective? What is missing? What might we look to include if we could?
Secondly, the Government tabled more than 80 pages of complex amendments to their own Bill yesterday. Among those were amendments that would exclude certain shared-ownership leases from enfranchisement and make the new valuation method for calculating the premium payable for shared owners non-mandatory. If you have had a chance to look at those—you may not have—could you give us your views on those specific amendments? We know that enfranchisement for shared owners is expensive—it is challenging—but, none the less, is it a regret, from your point of view, that these amendments have been tabled?
Sue Phillips: I will start with yesterday’s amendments. I have had a look at them and I have called around legal experts, and, of course, it is far too short notice for a legal expert to comment, let alone a lay person like me. Therefore, I will concentrate in my evidence on what I would like to see in the Bill; I cannot comment on the degree to which those amendments will achieve those things, so I just want to make it clear that I cannot comment specifically on the amendments.
In terms of the Bill generally, obviously it is aimed at leaseholders. Shared owners are a very specific subset of leaseholders. They generally face additional problems over and above the problems faced by leaseholders. They have fewer rights and protections under law. They face additional burdens. They also have fewer protections under consumer protection, including new build codes. Therefore, they are generally disadvantaged. As it stands, the Bill does not represent a better deal for shared owners. That is partly because of the issue you referenced. Shared owners are sometimes, not always, in very complex ownership arrangements. There are problems for leaseholders generally, but there you have the additional party of a housing association in the mix. I could talk for half an hour on this; I will try to be very concise.
I will just pick out one example, which relates to the fact that shared owners do not have a statutory right to lease extension. If they did, they would have a right to a 90-year extension. In the absence of that right, some shared owners are in complex arrangements where their landlord is a sub-lessee with only a short interest in the lease themselves, so is actually incapable of offering the equivalent to the benefit that a leaseholder would get under the statutory route. That is unless you go through a process of extending all the leases, and all those costs are passed on to the shared owner. There is a real problem there that is not addressed in the Bill as it stands, in my understanding.
Matthew Pennycook
Q
Sue Phillips: The problem with looking for quick fixes is that shared ownership is so complex, you run a risk of creating unanticipated consequences. Those particular questions are better directed at a lawyer or a legal expert, which I hope you will do this afternoon, when you have legal experts presenting their views on this Bill.
The Chair
Does anyone have anything to add? Do not feel that you have to; I am not putting you on the spot.
Ms Paula Higgins: There is one thing I would add. I am so pleased that Sue is here; she has done amazing work on shared ownership. I am not a legal expert, but I wonder whether you will be hearing from people from the retirement housing sector as well. That is a very complicated form of tenure, with exit fees and whatnot. Can they actually have the same rights to challenge fees and things like that? I am not sure if that is covered in some of your evidence sessions, but retirement housing is notoriously known for quite scandalous fees and charges.
Bob Smytherman: Certainly, we have seen a massive increase in shared ownership memberships coming to us for membership of residents’ associations. Obviously, we are helping them through that. In terms of quick wins, I really hope the Government will finally implement an independent statutory regulator for property managers. That would be a really quick win to help leaseholders. It is very disappointing that we have not got there yet, so I really hope there will be an independent regulator for these management companies that hold large amounts of leaseholders’ money.
Barry Gardiner (Brent North) (Lab)
Q
Sue Phillips: One of the things I would want from this Bill is for shared owners to have all the rights that other leaseholders have. Of course, as your question flags up, they face problems over and beyond the problems faced by leaseholders. The problem for shared owners is that if they—I will not speak to the specific technicalities of this—fall behind with payments, they are liable to possession with no reimbursement of the equity they have invested in their property. This is because they sit more as a tenant than as a homeowner. I would certainly like to see that addressed.
Barry Gardiner
Q
Sue Phillips: It is. Housing associations will say that they will do their utmost to prevent this scenario playing out, and that numbers are low. While that may be true, I do not think it is an argument against shared owners having the same protections in law as other leaseholders.
Barry Gardiner
Q
Sue Phillips: Shared owners should have the same right as other leaseholders and they should not be liable to lose their investment in their home due to a relatively small debt—absolutely.
I would add that it is a hugely important issue, but it is probably an issue that affects a fairly small minority of people at the moment and that there are other issues arising from this reform process that affect a great many more shared owners or all shared owners. It is an important issue, but I would not like for it to take up a disproportionate amount of time in this session.
Barry Gardiner
Q
Sue Phillips: My expertise does not lie so much with right-to-manage claims; what I would reiterate is that they should have the same rights as any other leaseholder.
What is more important—what is specific to shared owners—is that they are liable for 100% of the costs of repair and maintenance, and I think there are two separate issues within that. One is the issue relating to the model. In previous sessions—
Barry Gardiner
Sorry, I couldn’t hear what you said there.
Sue Phillips: Sorry. One is to do with the model and one is to do with the transparency around the model. On the model itself, in the previous sessions on Tuesday people talked about the unfairness of generating income streams from leaseholders after the profit made on the sale of the initial share, and I think that the 100% liability for service charges that shared owners have falls within those kinds of questions. It should certainly be looked at to see whether it is proportionate for shared owners to pay 100% of charges. Again, there is a great deal more that I could say, but I am aware of the limits on time.
The second issue is transparency. In evidence submitted to the Levelling Up, Housing and Communities Committee inquiry into shared ownership, one of the themes that has come out of the published responses from shared owners is that people do not seem to be aware at the point of sale of their liabilities in this respect. Therefore, if we cannot tackle that 100% liability in this Bill, given time constraints, at the very least regulators should pay more attention to the nature of marketing and whether it is fair, transparent and compliant with consumer protection regulations.
You asked me earlier for a quick fix. I certainly have a quick fix around transparency and it is that the relevant regulators should look more closely at transparency about the model as it stands, up until we have meaningful reform of the areas that are problematic.
Barry Gardiner
Q
Sue Phillips: I think it is essential, and this relates to the marketing that I have talked about. Shared owners come into shared ownership believing that they are a leaseholder like any other leaseholder; they have no reason to think differently. Often, there is a caveat emptor attitude and I think that is reprehensible, to be honest, when you are talking about provision of social housing to households that by definition are financially vulnerable compared with people who can afford to buy outright. It is not a failure of their due diligence; it is a failure of the Government, the housing sector and their agencies to spell out the difference between assured tenancy and leasehold.
There is a moral compass argument that they should have the statutory right to lease extension, because of the manner in which they have been sold those short leases. I think there are separate debates to be had about whether 99-year leases were mis-sold. A recent ruling by the Advertising Standards Authority outlined that it is likely to be misleading not to provide material information about the costs of lease extension. That suggests that there certainly is an argument that those short leases have been mis-sold.
We cannot change that. Most of those shared owners will be outside any scope of limitations for redress. The least we can do is ensure that lease extension is available not only to future buyers, but current shared owners, who have been left with a lease that does not actually give this right. Can they afford to take up the right? They should have a right to lease extension, but that right should be made affordable. If you are sitting there with a 50, 60 or 70-year lease, even if you have got that right to statutory lease extension, it might not be affordable to take up that right. So there is a basketful of issues to look at here, and I encourage collaboration with other regulators and with the Levelling Up, Housing and Communities Committee to resolve those other issues.
The Chair
Just one last question, Barry, because I want to get other people in. I might have the time to come back to you if you have more, but—
Andy Carter
Q
Ms Paula Higgins: I feel strongly about that. This is really going to be a missed opportunity. These types of Bills will come once every 20 years, so you must finish the job that you start. We saw that in the Commonhold and Leasehold Reform Act 2002, where we had the commonhold and it did not happen. If we cannot get commonhold sorted, why do we not have all flats being built having to be share of freehold—having to be sold share of freehold within five years—and have a sunset clause saying that there will be no new leasehold flats after a certain time? If you do not do it now, the next opportunity is not going to arise. I feel very strongly. We have lots of people who are waiting. We have people coming to us every day saying, “I am waiting for my lease extension. The Government are going to do something about it.” We have been waiting for years; we put out our report in 2017 showing that 43% of leaseholders did not even know how much time was left on their lease. They are not expected to be experts in this; they are buying a flat to live in. So it is a real missed opportunity if we do not do something on this and it will come back to bite us.
Andy Carter
Bob, is there anything you want to say on that?
Bob Smytherman: I would just completely echo that. For us as an organisation, in 2002 we were really hoping that the Government would ban new leaseholds in the 2002 Act, and the sector would be in a very different place had we done that. This Bill is a really good step, and I hope that we can get it as a first step and then build on it from there. I would hate to think that we try to make it perfect and we end up with something less perfect. From our organisation’s point of view, this is a really good starting point. I think it is the beginning of this, as Paula said, but it is a really good opportunity to get it right. But, yes, 2002 was a bit of a missed opportunity to ban leaseholds for blocks of flats.
Andy Carter
Q
Bob Smytherman: Thank you for that opportunity. Our organisation is called the Federation of Private Residents’ Associations. To be clear, we are talking about groups of leaseholders who come together democratically within their blocks of flats; we are not talking about neighbourhood watch groups and those sorts of residents associations.
Very different sorts of residents associations come to us for membership. We have those more informal groups that do not meet the 51% threshold to be a recognised tenants association; we have that group of RTAs that are formally recognised by their landlords; and then we have the residents management companies, which are probably the majority of our members. We have RMCs such as mine, which has a tripartite lease, which I am sure Members will understand, where you have an external freeholder and then a landlord who has responsibilities, which enables people such as me in my block to basically act as a commonholder. We are a limited company, limited by share. I am a shareholder in my block. I am elected every year as a director and we manage our own block. Of course, we also have those RMCs that may have a different arrangement with their freeholder, and that is where the Leasehold Reform (Ground Rent) Act 2022 has been very helpful in coming into law, because there are sections, which we do not need to rehearse today, to deal with a doubling and tripling of ground rents and things like that.
So there are different sorts of residents associations, but I would argue on behalf of all of those, certainly our members across England and Wales, that this Bill is a really good starting point for all of them. I encourage leaseholders to come together in their buildings and take control of their buildings democratically, working with their neighbours.
Andy Carter
Q
Bob Smytherman: At the moment, I would like to see this over the line, in all honesty. There is the conversation to be had—I think Paula mentioned it—about commonhold, which I think can come later on. But in terms of blocks like mine, where we have those controls already, there is absolutely no advantage to us in banning leasehold, because we have all the controls we need.
As the directors, elected democratically by the shareholders of a limited company, we are the landlords, so we have the ability to manage that estate democratically. We hold an annual general meeting and we comply with the company law, like any company. Hopefully this legislation will encourage more volunteers. I am a volunteer, I don’t get paid for what I do in my block, but I am really passionate about working together with my neighbours to make my estate better. Members of this Committee are very welcome to come to Worthing, down on the south coast, to see how we manage our own block, because I am very passionate about working together to make a real difference for our neighbours and friends where we live.
Andy Carter
Q
Bob Smytherman: I think all new developments should be commonhold. It is a shame we did not do that in 2002, but I think—as Paula said—there is an opportunity to do that now. But I wouldn’t want to throw everything else out at this point to die in a ditch over that, because actually I think there is some really good stuff in the Bill.
The Chair
I am sure I will have time to come back to you, but I just want to get the first batch of questions in.
Mike Amesbury
Q
Ms Paula Higgins: I think that was a statement put out at the time of the King’s Speech, when it was not clear. It sounded like the Government were going to consult on the ground rents, which is what they are doing now; it closed yesterday and we welcome that. I think at that time I was concerned that the King’s Speech said the Government were going to consult on how to limit ground rents. At the moment, there is no justification to have a ground rent payment for nothing; any payments should be as part of the service charge.
I welcome the Bill, and I fully support the ground rent being a peppercorn, if you cannot have the legal challenge. If you cannot have it as a peppercorn, then having it as a set amount makes it clean and clear. What we want is that when people are doing lease extensions, there is a calculator so they do not need to get valuers and have lots of negotiation; there is a lot of cost in that. You want to make it a process that is as simple as possible for people to extend their lease and get rid of their ground rent.
Mike Amesbury
That is great. Bob and Sue, do you have anything to add to that?
Sue Phillips: I just want to flag that one of the distinctions between shared owners and leaseholders is that shared owners cannot eliminate a ground rent via statutory lease extension, and that is a huge problem. My understanding is that there may have previously been an expectation in Homes England guidance—although it was not mandated—that shared owners would not be subject to ground rent. There is massive inconsistency in the shared ownership sector on all kinds of aspects, but it includes the imposition of ground rent, the nature of that ground rent, and whether you encounter it at the point it is staircasing to 100%. Ultimately, the key point is that shared owners do not have that resort to lease extension to eliminate ground rent at present.
The Chair
If anyone has not asked a question and wants to come in, please just indicate. Matt, Barry and Andy want to come back, so I come to you, Matt.
Matthew Pennycook
Q
My second question is on the service charge provisions—clauses 26 to 30. In principle they might work very well; there is lots of detail to come through regulations. However, are there any specific ways in which you would like to see those service charge clauses tightened?
Ms Paula Higgins: We really welcome standardisation and having standard forms. That is what we, as the HomeOwners Alliance, when we get more than 4 million people coming to our website, can present and say, “These are the questions you can ask.” I really welcome that and having everything aligned so that it is similar. I am sure that we will go on to estate charges and people on freehold estates. Sorry—what was the first question?
Matthew Pennycook
Q
Ms Paula Higgins: Even though estate agents are supposed to provide basic up-front information, when we did our report on leasehold, half of the estate agents on things we were looking at were not even providing the information that the property was leasehold or freehold. We know that work is going on, and that estate agents are supposed to provide up-front information—we understand that there is the BASPI form—but the reality is that it is not happening. They are not regulated; they don’t know what their obligations are.
This is the other piece, particularly with managing agents, as you mentioned before. We need to have better regulation of managing agents, developers, and of housing associations that are promoting shared ownership, to ensure that they are giving the right up-front information and to ensure that in blocks—as you said you did, Bob—you do the LP form right away. We know that there is lots of delay there. That is one of the reasons why buying and selling leasehold properties takes so much longer. So we really welcomed having that up-front information. That is through the BASPI form, and it is probably through the regulation and management—having regulation of estate agents and managing agents, which is another piece of the pie that I think would be really welcomed in the Bill. I would welcome it if it were put in the Bill.
Matthew Pennycook
Q
Ms Paula Higgins: On service charges, I think it is about being transparent. Some of the provisions in the Bill are about having proper annual accounts, so a lot of it is about trying to get that information. I have not looked at the detail of all the clauses there, but it is about people being able to get that information. That is why you need to have regulation of managing agents—to be able to provide that information properly.
The Chair
Q
Sue Phillips: Yes, on information at the point of sale. That is a little bit more complicated for shared owners. They are often directed towards the lease, but the lease is of course silent on the issue of 100% liability for service charges, so there is an issue there. They are often directed towards the key information document. I welcome the changes to the key information document in recent times, but I think they really do not go far enough. I would direct you to a report that I wrote last year about the 2016 to 2021 key information document, which goes into detail on improvements that I think should be made.
It is important to flag up that we need to look at not just content, but understandability in format. I have previously suggested that I think it would be useful to benchmark with other sectors, such as the pensions sector, on the understandability of issues relating to risk as well as benefit, and how to ensure that that content is communicated in a way that people do actually understand.
I will make a final point: a lot of shared ownership marketing presents itself as education about the model, which I think can be problematic, particularly because housing associations and their marketing teams are very up front about the idea that their marketing promotes the benefits. But it is important that people understand the risks and hazards as well as the benefits. So we need to look very closely at exactly where shared owners get their information at the point of sale, and where improvements could be made across all those areas.
Bob Smytherman: I think we would certainly welcome improvements in the conveyancing process. One of the things that our members certainly see is that they can get the information from a very specialist leasehold lawyer, which is obviously really helpful, but as in all sectors there are conveyancers out there where people google “conveyance” and think, “Oh, that is just a standard lease.” Of course, we all know that there is no such thing as a standard lease—their contracts are all very different. I know that about four or five years ago the Leasehold Advisory Service did some work around standardisation of information, so anything that we can do to prescribe that would be really helpful.
On the issue of service charges, there is absolutely one word, isn’t there—“transparency”? All the disputes that we see around service charges are where managing agents hide things because there is no statutory regulator, or where landlords kick accounts into the long grass because they don’t have to produce them. Having a prescribed way to be completely transparent about service charges is really important.
The Chair
We have just over 10 minutes left. I will bring in Richard Fuller and then we will try to get back to Barry and Andy.
Richard Fuller (North East Bedfordshire) (Con)
Q
I am interested in your thoughts when it comes to property managers and managing agents, about where you think the interaction is between simplification and regulation, and whether regulation is a matter of regulating the process—“You must provide this set of information by this date”—or of regulating the people—“Thou must have this qualification in order to do x”—or whether it is about the process of redress: being able to get some compensation at the end; because we are going to be wrestling with all those things here. They all have a role to play, to a greater or lesser extent. But we run the risk of just vomiting out a whole new set of what we think is going to be the solution. As you said, Ms Higgins, we have a once-in-20-years chance. I said this to Mr Gardiner on the way in—he goes back to 1993 thinking about this, and he is an MP now.
What are your thoughts? Give us some guidance on simplification and standardisation versus regulation, and then regulation of people, regulation of process and the provision of redress.
Bob Smytherman: I would not reinvent the wheel. I don’t know whether you have had The Property Institute in yet, and Andrew Bulmer from the Association of Residential Managing Agents. They fill the gap as the main membership organisation for managing agents. Andrew will give you the figures, but I believe they represent about 50% of all property managers of leasehold property. That means that 50% of people are not members of ARMA and are not part of their regime, along with the Institute of Residential Property Management—obviously, ARMA and the IRPM have now merged to form The Property Institute.
They have done amazing work to fill the void, where there has been a lack of an independent regulator, and I think working with Andrew and with them would be a really good starting point for the Government to create a regulatory regime. Certainly we would stand ready as an organisation to help with that. I just think that giving leaseholders the confidence that there is an independent body that they can go to when they have disputes with their property manager or their landlord is really important—as people do with Ofwat or Ofgem or other regulators. Having that independent regulator is really, really important.
Ms Paula Higgins: You make a really interesting point, but there are things that I would not want to see happening. We also work in the new homes area. We have legislated for a New Homes Ombudsman—fantastic—but we have not enacted it yet, and we now have a more confusing landscape for people who are buying new homes, who are probably also leaseholders and probably also shared owners; they have another competing code. It is incredibly confusing. That is not what I want to see happening.
Regulation means enforcement. There are a lot of things that estate agents have to do now, and we know from our research that they are not doing what they should be doing. The problem is that people do not have the right of redress if something happens. We have heard about the managing agents, but it is the estate agents, the developers and the housing associations who are selling these dreams. You have seen lots of people on Tuesday who feel they have been mis-sold, and others will continue to be mis-sold. These estate agents are the first port of call for the people going into the process, and we have to remember that people are buying a home, and they have not done it before. They might have bought a couch or something like that, but this is the first time they are doing this, and they can get it so wrong. People need to be protected. The estate agent is the only part of the professional world of property that is not regulated. The estate agent is that person there who is alongside the person trying to get their dream, which could go massively wrong.
Richard Fuller
Q
Ms Paula Higgins: That is a really good point. I know the RoPA stuff—the regulation of property agents working group; in fact, we gave evidence to it. A tick box is probably not the right thing. Perhaps it is more about a proper single place for redress, but as I think Andrew Bulmer mentioned, that is the ambulance at the bottom, and what matters is what is at the top.
What we don’t want is people doing online qualifications and getting a tick, and then they can jump up as an estate agent and come back down again. So I appreciate the complexities and I look forward to seeing what your deliberations will be.
Sue Phillips: I do not have the expertise to speak directly to the regulation of property management, but I would like to pick up on a couple of related issues from a shared-ownership perspective. The first is that the evidence submitted to the Advertising Standards Authority’s inquiry into Black Friday marketing highlighted the fact that industry sector standards for the marketing of shared ownership are lower than other standards that are out there. For example, shared ownership is currently excluded from the New Homes Quality Board’s code of practice. That simultaneously reflects the complexity of shared ownership but also the fact that shared owners do not have access to the same level of protections as other homebuyers in relation to new build codes. That is slightly off to one side.
I also wanted to pick up on the matter of transparency of service charges. Transparency is clearly essential: people should know what they are paying for. However, shared owners and other leaseholders should not have to effectively take on an audit function where it falls upon them to scrutinise accounts. They should be able to place some degree of reliance on the accuracy and proportionality of the accounts that they receive. I cannot speak to how that will be achieved, but I think that the onus should be on the providers of services and service charge accounts to be better, rather than leaseholders and shared owners having more and more obligations to scrutinise and take whatever action is required if problems are identified in those accounts.
Barry Gardiner
Q
Ms Paula Higgins: I fully agree with that. It is a bit like the situation where, if you are getting building work done in your home and the building work is not completed or whatever, you withhold money. That happens in all of the construction industry. The stuff in relation to the forfeiture is very disproportionate, is it not?
Barry Gardiner
Indeed, yes.
Ms Paula Higgins: I fully support something like that.
Barry Gardiner
Q
In so far as new apartments are going to have a share of freehold, Mr Smytherman, you indicated that you felt that you had got the best of both worlds as a director of a freehold franchise company.
Bob Smytherman: Yes. Ours is a tripartite lease. A ground freeholder owns the land and there is a separate middle lease, which is the limited company—limited by shares—of which we are shareholders.
Barry Gardiner
Q
The Chair
A one-word answer, please, because I have to get to the end.
Bob Smytherman: That is difficult. It depends. If you have a difficult freeholder, then that would clearly be an advantageous thing to do. Then there is a scenario like ours, where you have a democratic limited company with shareholders.
Sorry, I cannot do a one-word answer.
Andy Carter
Q
Ms Paula Higgins: There is another thing that I feel very passionately about. People come to us—
The Chair
Less.
Ms Paula Higgins: The other things that I feel very passionately about are estate charges and right to manage. We need right to manage and we need to make it so that all new-build estates are adopted by the local council.
Sue Phillips: I agree. The problems with estate charges can be overlooked in looking at service charges, rent charges and estate charges. The other thing I would flag up is for you to please look at the resale of shared-ownership homes. There are issues there.
Bob Smytherman: Simplify the process of bringing leaseholders together to form a residents association, so that they can speak to their landlord and the management with one voice.
The Chair
Perfect, bang on. I am afraid that that brings this question session to an end. Thank you for coming in and giving evidence to us.
Examination of Witnesses
Professor Andrew Steven and Professor Christopher Hodges OBE gave evidence.
The Chair
Right, that is a surprise: we have sound and vision. Excellent. We were not expecting vision, so that is all the better. We will now hear oral evidence from Professor Andrew Steven, professor of property law at the University of Edinburgh, via Zoom, and from Professor Christopher Hodges, emeritus professor of justice systems at the Centre for Socio-Legal Studies at the University of Oxford. We have until 12.40 pm for this session. Could the witnesses please introduce themselves for the record? We will start with Professor Hodges.
Professor Hodges: Good morning. Thank you for the invitation. I am not an expert at all in property law, but I am an expert in regulation, which picks up the point that Mr Fuller was just asking, so I hope to be able to help you on that. I am also an expert in dispute resolution systems—questions of ombudsmen and tribunals—which are fairly peripheral for today but are relevant to the broader regulatory systems. The interest I have is that I chair the housing and property redress group, which is an ad-hoc committee of the president of the property tribunal, the various three ombudsmen and the property and redress scheme.
The Chair
Members have a profile of our witnesses, so let us get to the questions. Thank you for that. Would our other guest introduce himself?
Professor Steven: Hello. I am Andrew Steven, professor of property law at Edinburgh University. I was a Scottish law commissioner from 2011 to 2019, and I am a member of the Scottish Government’s cladding remediation taskforce. I can hear you but I cannot see you.
The Chair
We can see you, so if you want to come in on any question, gesticulate and you will hopefully catch my eye. That goes for both of you.
Matthew Pennycook
Q
The first question is on commonhold. Professor Steven, you have published extensively on the Scottish experience of commonhold legislation; Professor Hodges, I believe that you are a member of the Commonhold Council. On Tuesday, we heard from Professor Hopkins of the Law Commission that there are risks associated with a partial implementation of the Law Commission’s recommendations on commonhold. Do you agree with that, and if you do, are there any sensible steps we might take via amendments to the Bill to pave the way for commonhold in the future—for example, share of freehold in flats?
Professor Hodges: I think that was for Professor Steven.
Professor Steven: I am reluctant to answer that in any detail, because I am really not an expert on English land law. May I say something briefly about the Scottish perspective? The difference goes all the way back to 1290, when Edward I, in England, said, “You cannot have feudal grants of property.” Leasehold therefore had to be used, particularly for flats, because of the desire to impose obligations in relation to maintenance and contributions to maintenance. In Scotland, feudal grants were not banned until 2004, which means that flats and other properties were sold that way. We do not have leasehold in the way that you do. Existing feudal holdings were converted into outright ownership in 2004. We also had legislation on long leases that took effect in 2015, which also converted into ownership. The context is quite different.
Matthew Pennycook
Q
Professor Steven: Absolutely, and I can see you now.
Professor Hodges: I am very supportive of all the work that the Law Commission has done on commonhold, and we discussed it two or three years ago. I would do it, and this is part of a wider discussion that I expect we will get on to shortly. It is about change management. At the moment, it is rather like the point mentioned by the three previous witnesses. Property law moves terribly slowly—for heaven’s sake, just get on with it. We have the agents, the tenants and the landlords. What we are doing is saying, “Well, do this. Then do that. Then do that. Then do that.” We know where we need to get to, and that would be a very good system if we can get there. They need to train and do all sorts of things. You want to take out repetition or unnecessary cost in doing several things at once. It really is a change management point. We know where we want to get to—just do it basically.
Matthew Pennycook
Q
Professor Hodges: It is the obvious thing to do, isn’t it? But I would go further.
Matthew Pennycook
Q
Professor Hodges: Quite possibly, and this is a generic point about access to justice and simplifying dispute resolution. I think the answer to that is to move towards an integrated system, which actually the tribunal and several of the ombudsmen have been working on in the past year in relation to service charges. There are too many places where disputes can go. If we simplify that to an integrated system that supports decision making—part of the answer is clarity and transparency in regulation—but if you support that, things move much more quickly. It has always been the case that, for example, courts are slow. They are a very careful process and therefore you need experts and lawyers, and it takes money—it costs. Whereas, with tribunals and improvement, ombudsmen are free and they move quickly. Getting a modernisation of that system is the answer to this basically. That is not there yet, but it is absolutely within sight and achievable.
Matthew Pennycook
If you do not have anything to add Professor Stephen, I will move on to my third question.
Professor Steven: Please move on.
Matthew Pennycook
Q
Professor Hodges: I think that it is outside my competence to know the background. My answer would be: just move to commonhold.
The Chair
Q
Professor Steven: No, I agree with my colleague. From a Scottish perspective, I would be more in favour of commonhold.
Barry Gardiner
Professor Steven, my question is to you. Last week, in the House of Lords, the Government indicated that they were looking at the Scottish system of tenements. Could you perhaps explain that to the Committee? My understanding is that the Scottish Law Commission has been looking to review tenement structure and actually make it more like commonhold. Is it correct that there is a lack of standardisation and no ability to ensure those share costs are split proportionately under the tenement structure, and therefore that would not be a quick cut-and-paste for the Government if they are considering what to move forward to?
Professor Steven: Yes, I absolutely agree. The legislation in Scotland is the Tenements (Scotland) Act 2004, which is 20 years old and is fairly basic. It does not have owners associations, for example, so it is less sophisticated than the commonhold proposals that the Law Commission for England and Wales made. But we have problems in Scotland too. There are always problems, no matter what the law says.
There are two particular problems. The first is where money comes from to make repairs to flatted properties—we typically call them tenements in Scotland. The second, sadly, is apathy. I was watching the earlier session, and I saw how engaged your witness in Worthing was, but sadly in other cases the owners are not so engaged. Even if you have an owners association regime, which the Scottish Law Commission is now looking at, it still depends on people being engaged. There are no easy solutions. I favour commonhold, but it will not be a magic wand.
Barry Gardiner
Q
Professor Steven: As a former law commissioner in Scotland, I am reluctant to disagree with the Law Commission for England and Wales, given the amount of work it has done on this. It is clearly very complicated.
You said that we got rid of our feudal system in one fell swoop in 2004. That is broadly true, but in 1974—50 years ago—we banned new feudal payments, which are like ground rents. There was a system whereby the existing feudal payments had to be paid off when the property was sold, so by 2004 there was not much left. My impression is that in England there is quite a lot left, in terms of ground rents. Because there was not so much left in Scotland, the compensation issues and the European convention on human rights issues that Dr Maxwell spoke about on Tuesday were not so prominent. Although we had the feudal system till 2004, it was a shell of what it originally was. In a certain way, it would be much simpler just to change leasehold into commonhold, but I fear that it would lead to all sorts of unforeseen consequences.
Barry Gardiner
Q
Professor Hodges: Very briefly: modernise, because we are still living in the past; simplify, because we can easily do that on a comprehensive basis; and get it done so that people can plan, retrain and know what they have to do. You then get good behaviour throughout the system. I am very tempted to repeat facetiously the “Get it done” slogan, which crops up a lot.
Richard Fuller
Q
Professor Hodges: As far as the detail of the Bill is concerned, looking technically at what is in there without expressing a view as whether it is a good or a bad idea substantively, it seems to me to be fine. You asked a wider regulatory question earlier on—
Richard Fuller
I will come to that in a minute. But just in here, on this Bill, is there anything that we should look out for?
Professor Hodges: As far as the detail is concerned, there is nothing that stands out to me, as a regulatory expert, that says, “This is a problem”.
Richard Fuller
Okay, so more generally then, on regulators—Ofgem on energy prices and Ofwat on sewage and water—that approach seems not to provide the outcomes that perhaps were originally indicated when the legislation was passed. What are your thoughts about the political use of regulation? Is there anything from those general principles that you think might apply here?
Professor Hodges: I sat on Lord Best’s RoPA—regulation of property agents—working group, and there was strong consensus around the room that you need regulation of agents. Since then, how we do regulation has evolved. Regulation, in the broadest sense, is an all-encompassing idea, and looking at the problems with Ofgem, Ofwat and so on, there are two aspects that strike me. First, one historically gave specific regulatory bodies certain remits that turned out to be not wide enough, and there were not enough people involved in the conversation; they were not regulated or contributing to good behaviour.
Secondly, the traditional way within which regulation is thought of, in the way that Parliament works, is that you make a number of requirements, rules and procedures. You then identify breaches of those rules and requirements and you then enforce. You can do that through traditionally public or private ways. Public ways in the property sector would be through trading standards authorities or environmental health locally, not a national regulator, as such. The private ways would be through the courts, but that has evolved in relation to the alternative dispute resolution ombudsmen being the best model at the moment and an integration between the tribunal and ombudsman, which is on the cards and may well occur. However, that is not enough because enforcement does not affect behaviour as such. We like to think that it does, but it is a myth, and there is an enormous amount of psychology and evidence published showing that it is not enough.
Therefore, if one stands back and says, “How do we get an effective regulatory system?”, it is about how one does it. That involves getting all the stakeholders together —again, that goes back to the first point about how it is not just a regulator telling people what to do, like an Ofgem or Ofcom—and saying, “How are we going to behave and how are we going to do it?” You need the rules, but you also need codes and systems involving data and support.
Richard Fuller
Rules, codes, systems, data, penalties, redress, different organisations—this is your answer as a better solution to caveat emptor?
Professor Hodges: Yes, absolutely. Now, let me give you one example only—
Richard Fuller
In all circumstances or specifically on this Bill? Well, we ought to stick to the Bill. I just want to be clear: you have just outlined the solution—this Bill is going part of the way to that—but the old way was, “I have personal responsibility,” “I am responsible for the decision I make,” “This is a very big decision about what I buy,” and so on. I just want to make sure that we are not trying to put too much faith—one of the last witnesses made some very good points on shared ownership and the fact that people may not have the encompassing knowledge—but I just want to make sure, from your expertise on regulation, that, in this field, you cannot see any damaging consequences for the principles of caveat emptor and personal responsibility by this regulatory structure that you have outlined?
Professor Hodges: Not at all. The most striking example—
The Chair
Please answer briefly if you can, because I want to get some more people in.
Professor Hodges: There are various regulatory systems in this country that are now modernising. In many ways, the most outstanding example, which has been there for several decades, is aviation safety. Everyone works together, and they call it an “open and just culture”. They are actually collaborating. They have lots of rules, but you have almost no enforcement, because the Civil Aviation Authority does not need to do it—everyone is doing something.
There are various sectors where you do need public enforcement, and where I would say you need a national system regulator. But you can do a lot through ombudsmen, codes and support. That is now emerging in, say, information and data protection, food standards and various other areas. It is absolutely ideal for property and housing.
The Chair
Thank you very much. We have 10 minutes left. Mike Amesbury wants to come in, and then I will call Matt and Barry.
Mike Amesbury
Q
Professor Hodges: I do not really think that is a question I can answer, because it is a policy question within which economics and other factors are relevant. Technically, as a regulatory system, I do not see anything wrong with it.
The Chair
Professor Steven, do you have anything to add to that?
Professor Steven: I do not.
Matthew Pennycook
Q
Professor Hodges: I think there is an enormous missed opportunity for simplifying across social housing, private and so on. In particular, I would introduce the regulation of property agents working group reforms immediately. Almost everyone wants them, as far as I can see, and it would be easy to do, because you would just cut and paste the relevant regulatory bits from the recently enacted Building Safety Act 2022 and put them in for private managing agents.
As I said in the paper that I sent to you—I gather that Andrew Bulmer was talking about this two days ago here—there are three very good reasons why you need the regulation of property agents, each of which stands up on its own. There are obvious risks if you do not put that building block in place, because things are going to go wrong and there will be detriment to tenants and landlords.
Matthew Pennycook
Q
Professor Hodges: Everyone should be in and under the same regime—absolutely everyone in the system.
Professor Steven: I do not have a strong view on this.
Barry Gardiner
Q
“any financial gain for the landlord”—
or freeholder—
“will be at the expense of the leaseholder…Their interests are diametrically opposed, and consensus will be impossible to achieve.”
Professor Hodges: In any consumer or property—certainly social housing—dispute system, there is an obvious imbalance of power. People do not have the money to do things. I have chaired the Post Office Horizon compensation board advising Ministers in the past few weeks. The whole reason why Parliament needs to step in is to correct a massive imbalance of power. Private litigation did not work, or it only half worked. There have been many stories about people being traumatised, and not just unable to enforce their rights. That is why we have invented things like legal aid, Citizens Advice and an ombudsman, and we are still moving—we are still improving that one—because of the ongoing imbalance of power between the little people and larger organisations.
Barry Gardiner
Q
I want to ask you about introducing insurance commission. I do not know whether you heard what the witnesses said on Tuesday, but you may know of the Canary Riverside case, in which £1.6 million in commission was given to a freeholder by the insurer—in a kickback—which was deemed to be inadmissible, and that is what the tribunal, mercifully, found. Although the Bill is outlawing commission, it is introducing fees for insurance services. In the Canary Riverside case, that is precisely what that £1.6 million was called. Do you fear that the Bill appears to dispense with commission, but actually reintroduces it by the back door?
Professor Hodges: Possibly, but that is why you need regulation. That is an obvious example of an imbalance of power and lack of transparency, for which you need external people to get involved. Exactly what the final result ought to be, I would leave to a regulator—for them to say that so much commission is either allowable or not allowable, or indeed not at all. It depends on the circumstances.
The Chair
Can I just interject and ask whether Professor Steven has anything to add to what you have asked so far?
Professor Steven: Very briefly, insurance law is UK-wide, but in Scotland insurance of blocks would normally be handled by managing agents because we do not have the freeholder. Since 2011, we have had legislation in Scotland that regulates managing agents. I know that that is being considered in England as well, but that might be of interest.
Barry Gardiner
Q
Turning to the value of the building and property rights, we heard from an eminent lawyer on Tuesday about property rights in relation to ground rent. Looking at enfranchisement, I think it was the Residential Freehold Association, which is charged with guarding the property rights of freeholders, that said that their share in the value of the building was only 2.5%. The corollary of that, of course, is that the leaseholders’ share in the value of the building is 97.5%. Do you feel that the way in which the costs of enfranchisement look at the total value of the building is therefore unjust?
The Chair
We have less than a minute left.
Professor Hodges: I would need to know an awful lot more to be able to answer that question, as a non-property expert. It is a very interesting question, and my answer would be that it is one for Parliament and the regulatory system to engage with.
Barry Gardiner
Thank you very much. Professor Steven?
Professor Steven: I have nothing to add.
The Chair
I thank the two witnesses for taking the time to give evidence to us today. Thank you for beaming in, Professor Steven, and thank you for attending, Professor Hodges. We will now move to our next witness—Paul Broadhead, come on down.
Examination of Witness
Paul Broadhead gave evidence.
The Chair
Q
Paul Broadhead: Good afternoon. I am Paul Broadhead, the head of mortgages and housing at the Building Societies Association, which represents all UK building societies and seven of the larger credit unions.
Matthew Pennycook
Q
Paul Broadhead: Yes, on the RPI, we have seen an increasing trend. I think that started when mortgage lenders changed their policies in terms of the escalating of ground rents—the doubling every five, 10 or 20 years, or whatever it might be. Mortgage lenders have started looking much more closely at the trends in ground rents to make sure that you can predict the affordability and fairness of those rents. You are absolutely right: the RPI change has followed on from many mortgage lenders moving to prevent the doubling of ground rents. We need to make sure we keep an eye on that and to make sure that they are fair and just.
Matthew Pennycook
They can be far more punitive.
Paul Broadhead: They can be, absolutely, with where RPI is. It is really difficult to predict. Some ground rents can grow very rapidly, which puts people in financial difficulty. From the lenders’ perspective, when underwriting a mortgage, they need to consider whether the mortgage is affordable on the face of it not only today, but in the future, and to take account of any foreseeable increases in expenditure. That is one of the areas they will take into account.
In terms of the peppercorn ground rent, yes, I do believe that that will resolve this going forward. The important thing to consider is that there is still a separate consultation, which just closed yesterday, on capping ground rent for existing leaseholders. It is really important that that is brought forward to prevent this two-tier system from developing.
Barry Gardiner
Q
Paul Broadhead: You are absolutely right. We have been advocating for the reform of leasehold since 1984. As you kindly point out, it was not me that made that comment at the time.
Barry Gardiner
That elegant comment.
Paul Broadhead: Absolutely—I wish I could be as elegant, and I will try to be throughout this questioning. Our position is that leasehold does require reform. If you were going to design the property tenure today, it is not what you would come up with. However, there are 4 million-plus leasehold properties in this country. Undoing that and replacing it overnight with a new, perhaps more just, system will take time.
The first thing we need to concentrate on is reform, to make the system fair, predictable and equitable, so that people have the security of owner-occupation. In a sense, yes, they do not own the land on which their home sits, but they have the security of tenure that they would not have in other sectors. But it is important that we ensure that that is fair.
Barry Gardiner
Q
Paul Broadhead: Are you talking particularly about shared equity or shared ownership?
Barry Gardiner
Sorry, shared ownership—where you have shared ownership in the property.
Paul Broadhead: I have not got those figures to hand, but we can certainly send those through to the Committee. From speaking to our membership, I think it is fairly comparable. Our sector punches above its weight in shared ownership because it is very keen on affordable housing, and we have some big shared-ownership lenders. One thing I would say about shared ownership is that underwriting and managing those cases are slightly different from managing a traditional mortgage, because you have the housing association interest and some potential staircasing—although, of course, many do not. The arrears levels tend to be higher, but the default levels, I think, are comparable. We can confirm that in writing.
Barry Gardiner
Q
Paul Broadhead: There are two things. One is the housing association rent aspect. Affordability tends to be more stretched by people owning shared ownership properties in any event, as most people land in shared ownership as an intermediate tenure because they are not able to buy their whole home. That, therefore, means their incomes are often less predictable. They do not necessarily always understand—
Barry Gardiner
Or that property prices are too high, of course.
Paul Broadhead: Well, property prices are too high irrespective of tenure, even if you are buying as a freeholder.
Barry Gardiner
Their income may be stable and reasonable—being in shared ownership does not mean that your income is unstable in any way.
Paul Broadhead: No, not at all.
Andy Carter
Q
Paul Broadhead: Certainly. The first thing to remember is that mortgage lenders are experts in mortgage lending, not in property law—it is down to the conveyancer to advise the borrower of the requirements of the lease and the purchase of the property they are buying. The way I would describe it is that the conveyancer and the surveyor, to an extent, are the lender’s eyes and ears on the ground to ensure all of that is clear to the borrower, and that they are entering into that transaction with their eyes open.
What we have seen from a mortgage lender’s perspective, particularly when the escalating ground rent issue started to come to a head, was lenders taking a much more proactive approach on new developments to understand the terms of some of those leases, and actually refusing to lend on those new developments. Of course, there are a whole range of mortgage lenders that will lend on a new development, but the fact is that a new development without some of those large lenders—because they will not lend against that leasehold—drives change. That is what we have seen. We have seen the effect of that with the escalating ground rent—with the reduction of that.
Andy Carter
Q
Paul Broadhead: They will tell them that it is a leasehold property. It may not be known when the customer comes in to apply for the mortgage, because that will come out through the conveyancing process, and often when the property is advertised it does not make clear whether it is a leasehold or a freehold property. But that will be dealt with and it will be made very clear in the terms and conditions of the mortgage what that tenure is.
What we have seen is that some of our members have turned down mortgages because they have come across onerous lease conditions, and the consumer, the prospective purchaser, has then complained to say, “I can afford this mortgage. Why have you turned me down?” When the lender has explained to them what they know—there is this asymmetry of information—the consumer, with what they then know about the terms of the lease, has pulled out of the transaction because they did not realise that before. I think the most important thing with leasehold is not necessarily more information, because you need experts to look at that information, and too much information is often as bad as too little information; it is more about making sure that the right information is given to the right person at the right time.
Andy Carter
Q
Paul Broadhead: Yes, we believe that managing agents should be regulated. We think the fees—where the service charges money is spent—should be made clear to the borrower. I think that, at the very minimum, short of regulation, they should be forced to be a member of an alternative dispute resolution scheme.
Mike Amesbury
Q
Paul Broadhead: There have been well-documented issues about building safety post the Grenfell tragedy. We did see some real difficulty about people being able to get mortgages where there was cladding on the building. Progress has been made there. I think that now, in most cases—particularly above 11 metres, as you suggest—the market is open, because it is clear that there is recourse to either the developer or the Government scheme to fund the work. Our starting position, when this came out with the amended Government guidance note in 2020, was that no leaseholders should be responsible for making good the combustible cladding, if it was now inappropriate, because they have gone into this, they have been advised by their legal advisers, and they should not be forced to put their hand in their pocket.
We are not there yet on properties below 11 metres, because the Government have chosen to exclude them from the support scheme. I have had a number of meetings with consumer groups, looking at cladding and at leasehold, and I think we are on the same page here. We are trying to find a solution from a mortgage-lending perspective, because we want that market to open up, but what seems to be more and more frequently coming out is that the cladding issues and other building safety issues are being conflated. It is really difficult then from a mortgage lender’s perspective, because if the cladding itself does not need replacing because it is safe, but there are other defects in there, there may still be some comeback that leaves leaseholders with quite a large unexpected bill that is at the moment unquantified and would affect the affordability of that borrower, going forward. We continue to meet with these groups and with Government to seek a solution, but it certainly is not operating perfectly.
Mike Amesbury
Q
Paul Broadhead: Yes. Anything that makes it clearer and gives lenders confidence and consumers confidence that their building is safe and they are not going to face an unexpected bill has to be welcome.
Eddie Hughes (Walsall North) (Con)
Q
Paul Broadhead: Well, often the advert will say that a property is leasehold but that that will be confirmed by the conveyancer, so you do not know 100% whether it is leasehold or what the terms of the lease are.
Eddie Hughes
Q
Paul Broadhead: Not to my knowledge, no. I do not think there is.
Eddie Hughes
Q
Paul Broadhead: In terms of the peppercorn rate, it is a really difficult question, because it is almost, “How long is a piece of string?”
Eddie Hughes
Q
Paul Broadhead: I still think it would take decades to unwind everything to a peppercorn rate, because you need the group of leaseholders together to agree to enfranchise, which is quite difficult. I will give you one example we have come across, which was following the escalating ground rents. Housebuilders had written out to leaseholders and said, “We will convert your property to leasehold for free. We are going back on what we’ve done; we think we did the wrong thing.” The number of people coming forward and taking that up was negligible. You need to engage consumers. It is not just about putting the building blocks in place to make this better; it is enabling—
Eddie Hughes
Q
Paul Broadhead: Absolutely, and you still need to engage the public and the legal profession that is taking people through, to make sure they understand what the benefits are and the cost of that. That individual value equation will change from leaseholder to leaseholder.
The Chair
We have five minutes left. I will turn to Lee Rowley but please bear in mind that I want to bring in Barry as well.
The Minister for Housing, Planning and Building Safety (Lee Rowley)
Q
Paul Broadhead: That is absolutely an accepted position. The point I think you are getting to is that sometimes there is still an EWS1 form requested on sub-11 metre buildings. As I mentioned earlier, the lender is the expert in mortgage lending, not in building safety, and the surveyor on the ground will have their own gangs from the Royal Institution of Chartered Surveyors that they follow. If they come back and report that it needs further investigation, the lender has to take that at face value, because that is their expert.
Lee Rowley
I am not sure that I would accept that, but I will take that up with you and your members separately.
Barry Gardiner
Q
Paul Broadhead: Parliamentary privilege notwithstanding, no, we do not have individual organisations I could point to. I certainly do not get reports from my members.
Barry Gardiner
Q
Paul Broadhead: In terms of coming back to me as an association, that is a level of detail that is about individual organisations. It is not really part of my role to represent that. That does not mean they ignore that, just to be clear.
Barry Gardiner
Q
Paul Broadhead: Our members will not advise; they will refuse that mortgage, because it does not meet with their policy. In terms of other service charges, they all have a panel of conveyancers that they approve to act for them, and that is for the consumer purchasing that property. The terms of those panels change as some of these practices have come to light, and they will be nipped in the bud at that point.
The Chair
Order. I am afraid that brings us to the end of the time allotted for the Committee to ask questions and, indeed, for this morning’s sitting. I thank all our witnesses on behalf of the Committee for their evidence. The Committee will meet again at 2 pm this afternoon here in the Boothroyd Room to continue taking oral evidence.
Leasehold and Freehold Reform Bill (Fourth sitting)
Thursday 18th January 2024
(11 months ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 18 January 2024 - (18 Jan 2024)
The Chair
We will now hear oral evidence from our fourth panel. The witnesses are George Lusty, senior director for consumer protection, and Simon Jones, director of leasehold investigation at the Competition and Markets Authority. We have until 2.20 pm for this panel. Will the witnesses please introduce themselves for the record?
George Lusty: Good afternoon. I am George Lusty. I am the senior director for consumer protection at the Competition and Markets Authority.
Simon Jones: Afternoon. I am Simon Jones. I am a project director at the CMA and I was responsible for our leasehold investigation.
Matthew Pennycook (Greenwich and Woolwich) (Lab)
Q
Gentlemen, thank you for coming in to give evidence to us. I have two questions. First, in the 2020 update report on leasehold housing that the CMA published, you recommended reforms to
“the system of redress for leaseholders, to make it simpler and less costly for them to contest permission fees and service charges they think are unreasonable or excessive”.
What are your views on whether you think the Bill achieves that? If not, what needs to be incorporated to ensure that it does?
My second question is on the recommendations you also made on measures to address the assured tenancy trap, whereby leaseholders who pay ground rents in excess of £1,000 in London and £250 across the rest of the country
“risk having their home repossessed for non-payment”.
Again, does the Bill address that? If not, how specifically should we seek to improve it in that respect?
Simon Jones: I will deal with the second one first. Yes, we think that the proposals in the Bill at the moment will make a big difference. We thought that there were a number of ways to go about helping people: you could have created a duration threshold for leases, as in the current proposal—that works. You could have raised the threshold for rent. That, too, would work, although we would have been less in favour of it, because over time it would be less effective. Or you could have completely removed the provisions from the Housing Act. The approach that the Department has taken seems sensible.
Matthew Pennycook
Q
Simon Jones: That is on the second point. There are a number of ways to do it, but the problem was that there was no minimum length of lease that was not subject to the assured tenancy provisions. That just looked like an oversight, frankly, but that is going to be fixed. That seems like a positive step forward to us.
On redress, the problem that everybody told us about is that you can give leaseholders all the rights that you can, but that does not really help them if they cannot exercise them quickly, cheaply and efficiently. One of the problems—as you know, a big complaint people had—was that leases often had provisions that enabled landlords to recover the costs of litigation from the tenant, regardless of whether the landlord won or lost. That was a big problem, but that has been fixed.
Matthew Pennycook
Q
Simon Jones: I think that the proposal in the Bill is a positive change, but is it really all the change that could be made? This is quite difficult. The tribunal system exists to help leaseholders, but it is still complicated and expensive, and it is not local. Many of the disputes that we have are about costs.
For example, let us say you are a tenant and you have a service charge, but you think it is expensive. You will incur time and expense in trying to challenge it. What you want is probably something that is local, where the panel understands the costs in that area—for painting a stairwell or changing lights, that kind of thing. What we had in mind when we wrote the report was perhaps finding a way to use more local courts to provide more summary-type justice for people, through people who probably know more about what it costs in the local area to do something.
The other problem for consumers is that they do not understand what evidence is required to bring a challenge. I think that came through quite strongly for us. You cannot fix that with legislation, but it is another important point to bear in mind when thinking about how to help consumers help themselves.
Matthew Pennycook
Q
Simon Jones: If the purpose of all this is that the incentive for managing agents or landlords—whoever is responsible—is not to overcharge, then cost rules that encourage them to be more careful with the charges that they make ought to be advantageous.
The Chair
I remind the Committee that we have only another 10 minutes or so left on this session.
Andy Carter (Warrington South) (Con)
Q
George Lusty: I will take this one. As you say, we have used our consumer law enforcement powers directly. Ultimately, we are prepared to take developers, and in some cases the freehold investors, to court if these problems have not been fixed. Doing that has secured direct outcomes for the affected people we acted on behalf of, including getting those unfair doubling terms taken out of their contracts and giving financial support to make sure that that is reflected in the paperwork.
We need to look at a number of things together. It is about not just what is in this Bill but what the Leasehold Reform (Ground Rent) Act 2022 did in terms of setting the leases for future properties at a peppercorn ground rent, and the proposed ban on leasehold houses. In particular, that takes away a number of the things that were liable to mislead.
There is the separate consultation that closed yesterday on proposals to cap existing ground rents. That is another thing that we are very keen to support, because our action benefited the 20,000 or so householders on whose behalf we took cases, but ultimately we said that only a legislative solution could fix the problem for people with existing leases with problematic ground rent increase mechanisms.
Andy Carter
Q
George Lusty: Ultimately, we were not able to pursue every case that was brought to us. We brought a separate action in which we secured redress from Persimmon in particular, allowing people to buy their freeholds for an agreed amount. Our case decisions ultimately turn on the evidence and whether we think we can successfully achieve an outcome and as broad an impact as we can on the big issue.
Something went badly wrong with the sale of leasehold homes, particularly with the modern concept of leasehold that started in the early noughties. One of the biggest aspects of that was the selling of houses as leasehold when there was no real, legitimate reason to do so. The proposal to include in this legislation a ban on leasehold houses tackles one of the worst instances of mis-selling, and the problem that people were told that leasehold was as good as or effectively freehold when it was not.
Andy Carter
Or they were not told at all. That seems to be more the problem: people were not told at all.
George Lusty: Yes.
Simon Jones: May I add to George’s observation? One thing that we recommended—Lord Greenhalgh picked this up and worked on it with trading standards—was that there should be greater transparency around tenure and the annual cost of owning a property whenever a property is marketed, so that when you look at it, read the spec and see what the purchase price is, you also see what it will cost you every year to own it. In the end, that is what people are trying to figure out whether they can afford. Lord Greenhalgh picked that up, and work has been done with trading standards to move that forward, but momentum needs to be maintained behind it.
Think about the disadvantages that people have with leasehold. You have to pay rent and ground rent; if the Government cap that, that is probably fixed for your constituents. If there is greater transparency around service charges and a system of redress that probably conditions the ability of people to overcharge, that is a big step forward. More generally, there needs to be greater transparency right at the start of the sales process about what you are buying and how much it will cost you. Those things would make a big difference if they all were to happen to your constituents.
Mike Amesbury (Weaver Vale) (Lab)
Q
George Lusty: In parallel to this piece of work on leasehold property, the CMA is conducting a market study looking at the house building sector more generally. As part of that, we have looked at the issue of estate charges, the increasing tendency for roads and other facilities not to be adopted, and the framework of consumer protections around charging for those sorts of services and what individual homeowners then need to pick up not being as good as it should.
We published a working paper on that in November. In particular, we called more broadly for greater adoption of those facilities by local authorities and enhanced consumer protection frameworks. That market study will complete its report in February, when we will issue our findings and recommendations across the piece. Neither Simon nor I is directly working on that, but it is connected because leaseholders face similar issues with the service charges that they have to pay in their properties, particularly in leasehold flat blocks.
Mike Amesbury
Q
Simon Jones: Only the transparency obligations that I mentioned. The initial transparency obligations about the annual cost of owning a home ought to include, in relation to freehold homes, things such as rent charges. An awful lot of people we spoke to had no idea that there could be annual charges connected to a freehold ownership.
Richard Fuller
Q
I know that you are going to get to your final report in February. This Bill, helpfully in some ways, seeks to plug some of those gaps in the protection of people who own homes, but would it not be better for us to ban the lack of adoption right at the start? Should we not go to the source and find a solution as to why councils and housing estate developers are ripping off my constituents, and I am sure many others, who own their own homes? What can be done about that in this Bill?
George Lusty: Again, in our November working paper, we pointed to that very issue of there not being enough adoption by local authorities of those facilities. We put forward possible ways for that to be fixed, either through more mandatory adoption of those amenities or through some common adoptable standards that could be followed to inform the types of amenity that were suitable for adoption more broadly. As I say, we have not issued our final recommendations, but we have already said something about the options that might be available if there was a desire to try to tackle that now.
Richard Fuller
Q
George Lusty indicated assent.
The Chair
Thank you. A very quick question with a very quick answer, please. Barry Gardiner.
Barry Gardiner (Brent North) (Lab)
Q
“It is a real concern that homeowners who have entered into a lease are captive consumers with very little influence over the costs incurred by landlords or their managing agents that will in due course be passed on to them.”
Do you believe that the Bill will give them control or simply greater transparency and access to understand their own exploitation, and has the CMA come across any comparable part of the economy where those paying the bills have no control over the bill or the standard of service?
George Lusty: It is worth saying at the outset that we approached our leasehold investigation primarily from the framework of consumer protection law, looking at instances of mis-selling and unfair contract terms. We cannot use consumer law—
Barry Gardiner
Q
Simon Jones: You are absolutely right. We think the captive consumer problem is a real problem. We spoke to a lot of people about what the solution might be. There was not an obvious solution, but we did think that if there were better redress mechanisms, that would at least help.
Barry Gardiner
Q
Simon Jones: You have choice about the property you buy, but if you buy a leasehold property—
The Chair
Order. I do apologise, but that brings us to the end of the time allotted for the Committee to ask questions. I thank our witnesses very much on behalf of the Committee.
Examination of Witness
James Vitali gave evidence.
The Chair
We will hear oral evidence from James Vitali, head of political economy at Policy Exchange. For this session, we have until 2.40 pm. Could you please introduce yourself for the record?
James Vitali: Thank you very much for inviting me to give evidence. My name is James Vitali. I am head of political economy at the think-tank Policy Exchange. I work on a number of areas, including economics, housing and regulatory reform. By way of quick background, I recently authored a paper entitled “The Property Owning Democracy” in which I argue for the value socially and economically of property ownership, both for democracy and capitalism. I specifically address leasehold reform in that as part of the broader question. My main interest in the Bill is the enfranchisement process.
Andy Carter
Q
James Vitali: Yes. The first point to make is that I think leasehold is effectively a simulation of ownership. Imagine that ownership comes as a sort of package of rights and responsibilities; leaseholders lack many of those rights and responsibilities. The Bill will make meaningful improvements to the situation of leaseholders, but there are some practical improvements that could be made to the Bill to give practical effect to its intent.
Andy Carter
Could you expand on that?
James Vitali: Of course. There are a couple of things in particular. One has been raised already by Mr Gardiner in the evidence sessions and concerns mixed-use buildings. I think it is great that the threshold is being increased to 50%. That will bring a lot of leaseholders into the scope of potential enfranchisement. But as it stands, there is a provision in the Leasehold Reform, Housing and Urban Development Act 1993 concerning structural dependency rules—shared plant rooms and things like that.
Effectively, as it stands, the provisions in that Act disqualify people who get to the threshold but share service and plant rooms with a commercial unit in the building. That section in the 1993 Act should just be removed. There is already a framework for co-operation between commercial units and residential units in mixed buildings when it comes to services. It should be relatively straightforward to create a framework for co-operation with the Bill.
Barry Gardiner
Q
James Vitali: Yes, I quite agree. One of the cases I make in the paper I mentioned is that not only is ownership becoming more concentrated in a narrow stratum of society, but the type of ownership we are offering the aspirant is being thinned out. You were just listening to the suggestion that leasehold is almost mis-sold to consumers. I think aspirant property owners are being mis-sold when it comes to leasehold. They think they are buying into a genuine form of property ownership, but in many ways, as I said at the start, they lack the rights and responsibilities that should come with an ownership tenure, so I completely agree.
Barry Gardiner
Q
James Vitali: Yes, charges should be connected to the provision of a service, so I think ground rents should be reduced to a peppercorn. Charges should be made through this new and very sensible regime that is being proposed in the Bill for how charges are requested and demanded.
Barry Gardiner
Q
James Vitali: I think the key here is whether the leaseholder has a choice in who is providing the service and what service they are providing. Any functioning free market is based on strong property rights and competition. The key here is giving existing leaseholders greater choice over who is managing their building and how it is being maintained, and increasingly giving them the chance to take on those responsibilities themselves.
Barry Gardiner
Thank you very much. In order to preserve both our reputations, I will not say that you agreed with me and I trust that you will not say that I agreed with you.
Richard Fuller
Q
James Vitali: I think a lot of the reforms proposed in this Bill are an attempt to reflect better the fact that when the leaseholder purchases the leasehold, they are acquiring the majority value of the asset. In market terms, sure, I suppose marriage value is significant and substantive, but as it stands it seems to me that a leaseholder acquires the majority of the value of an asset when they acquire the leasehold, and that is slowly eroded. I think that is the thing that is wrong in the process.
Richard Fuller
Q
James Vitali: Tricky question. If you were to acquire some property that you have genuine rights and responsibilities for the management of, the ability to benefit from in the future and the ability to control, then that form of property would be greater than if you were subject to charges and ground rent. On the point about the £1.9 billion transfer value from freeholders to leaseholders, I did take a cursory look at the impact assessment. I do think that is a legitimate decision for you as parliamentarians to make about 10-year property rights in the UK. I think it is justified.
Richard Fuller
Q
James Vitali: I think that is where the dividing line lies between you and Mr Gardiner, and perhaps you and I and Mr Gardiner.
Richard Fuller
Oh, it is much wider than that.
James Vitali: Indeed. I think a balancing act needs to be struck in this Bill between spreading genuine property rights more widely and compensating those existing freeholders. If you seek to diffuse property ownership, but in the process undermine or dilute property rights, you are undermining the thing that you are trying to spread more evenly. That is a technical question for the way that you finesse this Bill, but I do not think it is a substantive issue with the desire to give leaseholders greater control and rights over their property.
Barry Gardiner
Q
James Vitali indicated assent.
Barry Gardiner
Q
James Vitali: I will deflect and answer a slightly different question. It is interesting that the leaseholder enfranchisement process is kind of redolent of and similar to right to buy, in that it is a no-fault compulsory purchase of an asset. The difference with right to buy is that compensating the state is a different consideration from private citizens who have property rights. All I would say is I think it is important that the compensation mechanisms in the Bill are such that it does not feel like the things we are trying to spread more equitably—property rights—are being diluted by the state.
Andy Carter
Q
James Vitali: Delighted to. That is probably the thing that I have been thinking about the most in terms of the implications of the Bill. I understand that there is an intention for a ban on leasehold houses to come forward on Report. One thing that I am really worried about is that what will effectively be created is a two-tier system of housing or tenure types in this country, between the countryside and our cities. It is very possible, if we deal with houses and not the tenures for flats, that we will create secure, authentic property rights outside of our urban areas and create in our urban areas a slightly more precarious, maybe outdated type of tenure.
As it stands, that has not been given enough consideration, because it also does not conform with the Government’s wider strategy on housing, which, broadly speaking, is to densify our urban areas and increase housing supply in our cities. There are political considerations around why they are doing that—it is a lot more deliverable to focus on the densification of cities—but there are very good economic reasons for that too: the agglomeration effects of building housing supply in a city are greater than elsewhere. We need to incentivise people living in flats in dense cities, and if we deal with leasehold as it pertains to houses, not flats, it will work against the Government’s quite legitimate and justified broader housing strategy.
Andy Carter
So your solution is to deal with houses and flats.
James Vitali: It seems to me that commonhold is broadly out of the scope of the Bill now. It would be my gentle encouragement that some incentives be included in the Bill for the take-up of commonhold. The Law Commission individual who came on Tuesday said that it is very complicated and there are lots of unintended consequences that need to be taken into account, but I think some small incentives—for example, on mixed use and the threshold for conversion—could be introduced, which might incentivise the take-up of commonhold. But before that I think it should be considered whether new leaseholds come with a share of the freehold. That would be a sensible, deliverable addition to the Bill, and it would deal with the problem that I outlined of a two-tier housing market.
Barry Gardiner
Q
James Vitali: I have not given that too much thought, I must say; 50% seems absolutely reasonable. I think there are some practical issues in getting to that 50% threshold in itself. I have heard stories about the process by which leaseholders whip around the building trying to get together enough—
Barry Gardiner
Q
James Vitali: I must say that I have not given that a lot of thought. I think increasing it to 50% will have a significant effect itself, but you may wish to go further.
The Chair
Order. I am afraid that brings us to the end of the time allotted for the Committee to ask questions. I thank the witness very much on the Committee’s behalf.
Examination of Witnesses
Philip Freedman CBE KC (Hon) and Philip Rainey KC gave evidence.
The Chair
Q
Philip Rainey: I am Philip Rainey KC. I am a barrister in private practice at Tanfield Chambers and, among other things, I have specialised in leasehold enfranchisement and service charges and so forth for probably 20 or 25 years.
The Chair
It is not very helpful when you are both called Philip—Philip Freedman.
Philip Freedman: I am Philip Freedman. I am a solicitor and therefore only an honorary KC. I am a member of the Law Society’s conveyancing and land law committee. I am a member of the Commonhold Council. I am a consultant at Mishcon de Reya, and was a senior property partner there for many years. We act for both landlords and tenants, investors, pension funds, right-to-manage people and all sorts of people who have a vested interest in the different sides of these issues.
My wife and I live in a flat. We are leaseholders. It is a block that was enfranchised under the right of first refusal under the Landlord and Tenant Act 1987, when the developer wanted to sell the building. I am one of about five people out of about 75 people who are actually interested in participating in the running of the block. We have about 52 flats, and if you take everybody, including husbands and wives, there are about 72 people who could potentially be directors participating in the landlord company, and only about five of us are interested in doing so.
The Chair
Thank you.
Philip Freedman: May I add one thing? You may have received a briefing on the Bill from the Law Society. I have been asked to tell you about a small correction to it. May I do that?
The Chair
You may.
Philip Freedman: The parliamentary briefing from the Law Society refers in the summary to the issue of new leasehold houses and urges that the Law Commission’s proposals for land obligations should be enacted—it says to enable “flats” to be sold as freehold. That should be “houses”. The law about positive obligations under leases, as distinct from under freeholds, indicates that leases are much better in relation to enforcement than freeholds at the moment, and it would very much help if freehold law was upgraded so that the obligations on positive matters such as performing services and paying for services could be brought into line, so that freehold is as least as effective as leasehold. This is a case where freehold is not as effective as leasehold.
The Chair
Thank you. I remind the Committee that we have until 3.10 pm for this session.
Matthew Pennycook
Q
The Law Society has expressed concern that the provisions in clause 12 designed to protect most but not all leaseholders from non-litigation costs that landlords may incur when responding to an enfranchisement or lease extension claim may cause issues, because under the proposed new valuation method, the price payable may be below full open market value. Could you clarify why you believe that to be the case? The standard valuation method in schedule 5 provides for a market value element. Why does the Law Society believe that it does not represent full open market values?
Philip Freedman: This started with the Law Society’s recommendation to the Law Commission that one thing that might save costs for leaseholders was if they did not have to pay the landlord’s costs on a collective enfranchisement or lease extension. We put forward the view that if the enfranchisement price is market value, then each side should bear its own costs. If you were to buy a house, you would not pay the seller’s costs; each party would pay their own costs. That is what happens in the market. We said that in the context of enfranchisement being at market value. The Law Commission took that on board, and its report very clearly says that its recommendation that each side should pay some costs and tenants should not have to pay the landlord’s costs—
Matthew Pennycook
Q
Philip Freedman: Because the suggested notional capping of ground rent at 0.1%, in many cases, where it applies, will reduce the purchase price below what it is in the open market at the moment. At the moment, in the open market, the ground rent stated in the lease is payable. We are aware that there are proposals for retrospective legislation, as one might call it, to interfere with existing leases and to say that the ground rent should be capped at a certain amount, but at the moment those rents are lawful, and those rents are therefore reflected in the price that someone would pay to buy the flow of ground rent. Therefore, if you assessed the purchase price for the enfranchisement as if the ground rent were capped and would not be as much as it actually would, then you would be reducing the purchase price to below the market price.
Matthew Pennycook
Q
I have a second question, relating to clause 59, which concerns regulation of remedies for arrears of rentcharges. Do you agree with my view that the Government are trying to fix a historical law that is essentially beyond repair? Should we be looking to abolish section 121 of the Law of Property Act 1925?
Philip Freedman: I think yes. I had to draft some rentcharge provisions many years ago, when we were acting for clients who were selling some industrial buildings on a new estate. They wanted to sell them freehold. There was no commonhold at that time and the issue of enforcing positive covenants was difficult. We came up with the suggestion that the rentcharges legislation should be used to allow an estate company to collect service charges, maintain drainage systems and so forth. It was agreed that the Law of Property Act gave excessive remedies to landlords for non-payment. I am all in favour of limiting the remedies so that, if someone does not pay for something, they can be sued for it, just as with the amendment in relation to forfeiture. It seems to me—this is my personal view—that limiting forfeiture, as you have proposed doing through your amendment, is the right thing to do, although I do have three points to make on that.
Matthew Pennycook
Q
Philip Rainey: I agree that forfeiture for non-payment of a rentcharge on an estate, which is usually a relatively small sum of money, is a sledgehammer to crack a nut. I would be in favour of replacing section 121 rather than repealing it, so that there is a coherent and measured set of remedies for rentcharges. That is bearing in mind, as Philip just said, that a lot of the estate rentcharges covered by that legislation have nothing to do with residential; they are quite common on industrial estates. That is one of the unintended consequences that might occur if you were simply to repeal section 121.
Matthew Pennycook
Q
I have one quick final question on the abolition of forfeiture. Would you agree that we should do away with forfeiture entirely—it sounds like you do—on the grounds that it is a wholly disproportionate response to the breach of a lease? If so, what should we replace it with? Is suing for a debt—as happens with any other debt—and an injunction if the breach relates to conduct a sufficient response or, if we abolish forfeiture, should we be looking to replace it with some other system of recompense?
Philip Freedman: My view is that there are three aspects of the proposed abolition of forfeiture for leasehold dwellings that we should look at. One is that it should apply to individual leases of single dwellings, rather like the ground rent abolition; it should not apply to leases of multiple dwellings, such as a lease of 50 flats to some lettings company, which is a commercial enterprise, effectively. It should apply to leases of individual dwellings granted at a premium.
The other thing is that the threat of forfeiture is over the top in relation to financial debt—arrears of rent, service charges or whatever. You can sue for those. There may be refinements in relation to suing, but basically you can sue for them. But if a tenant has knocked down walls that they should not have, caused a nuisance or annoyance to other tenants in the building, or used the property for some unlawful purpose, then the remedy would be to threaten an injunction, as you have indicated. An injunction is a difficult remedy to enforce: it is very costly and it is at the discretion of the court—there are all sort of hurdles about injunctions. If, in the residential sector, the first-tier tribunal was given the power and jurisdiction to order parties to a lease to comply with the terms of the lease, free from the constraints of existing law in relation to injunctions, then one could avoid the need for forfeiture. Removing forfeiture for financial payments and damages is fine, but for other breaches it presents a problem.
The only other point is that we need to look at section 153 of the 1925 Act, which is the right for tenants, if they have a very long lease, do not pay any ground rent—it is a peppercorn—and are not susceptible to forfeiture, to enlarge into the freehold. That is a whole area of unclear law. It is not clear what the effect would be if you had one tenant in a block who declares that he now owns the freehold; it would be very unclear whether the management of the block would be affected. I think these things need to be addressed if one is going along that line with regard to forfeiture.
Philip Rainey: Because I appreciate that we have limited time to answer, the only thing I would add is that forfeiture is arguably, again, a sledgehammer to crack a nut, but so can be an injunction: the remedy for breach of an injunction is essentially committal to prison. The prospect of not being able to forfeit and instead there being rafts of committal applications to fill up the jails with people who are, for whatever reason, refusing to comply with some kind of covenant—that is very annoying, but ultimately they should not be in prison—is also unattractive.
Ultimately, there needs to be some sort of measured method of removing a problem tenant from a block. We very much concentrate on the position of landlords against tenants, but one very difficult tenant in a block can ruin life for everybody else. The Law Commission proposed a replacement scheme, and I suggest that that should be dusted off and looked at. A lot of the objections to it come from the commercial sector, so bring it into force for residential leasehold first.
Richard Fuller
Q
Philip Rainey: In a sense, that is a conceptual question.
Richard Fuller
You are a lawyer.
Philip Rainey: Yes, and one tends to avoid the philosophical points. Clearly, from a legal perspective the Bill interferes in an extremely significant way with property rights. Whether that is the right thing to do is a value judgment.
One thing that is sometimes overlooked—I am not defending the leasehold system; I am on record as being in favour of commonhold, which is inherently a more satisfactory system for holding flats—is that a lot of people will be disappointed when commonhold comes in. They will still find that they are not allowed to remove the supporting walls in their flat or to have a noisy party on a Friday night, because their neighbours do not want that. A lot of the things you find in leases and the restrictions when living in flats are because, if you live communally in a block of flats, you owe duties to your neighbours. There are responsibilities, in communal living, that do not apply if you live in a small house in a field, 500 yards from your neighbours. The restrictions in the leasehold system are not as unique to leasehold as you might think; I would suggest otherwise. To go back to your basic point, clearly the Bill alters property rights. It is a value judgment as to whether that is the right thing to do.
Philip Freedman: I have heard a number of cases where the property industry is concerned about the transfer of value that will be effected by capping ground rents, removing marriage value and so on, in relation not just to the benefit to leaseholders but to the burden on those landlords that are pension funds and other organisations that will find that they are deprived of rental income that they have banked on and have thought will be reliable income over many years. They bought leases that were perfectly lawful, were not, so far as one can tell, entered into under any mis-selling, and the provisions for the ground rent are not necessarily unconscionable; the ground rents were invested in in good faith.
We must not lose sight of the fact that if there are winners, there are always losers. Some provisions of the Bill, which are fine, are to say that if the tenants are enfranchising, they do not have to buy the commercial bits of the building. Those can be left with the landlord under a leaseback, and therefore the value remains with the landlord. Both parties win: the landlord keeps the value and the tenants do not have to pay as much money. But where you are transferring value, there is always a loser, and there are lots of investors who appear to have bought in good faith and were not expecting retrospective legislation. Lawyers always do not like retrospective legislation. It is up to Parliament to decide whether the social benefit is sufficient to outweigh the concern about pension funds, and so on, that have invested in ground rents. The Law Society does not take sides between landlords and tenants, or different types of clients. We just want to make sure that Parliament focuses on the issue and makes the decision in the public interest.
Barry Gardiner
Q
Philip Rainey: Yes. In a sense, that is the downside. It is possible to create what you might call commonhold-lite. It is a leasehold system—it is so encrusted with restrictions and requirements, although you own the freehold, that it is very similar. It would be only a staging post, because one of the problems with the current system is that it creates a “them and us” situation. You see it even when tenants own the freehold. Somehow they still think, “Well, it’s ‘my’ lease and it’s ‘them’”, which is them under another hat as the freeholder. Commonhold should eliminate that.
Barry Gardiner
Q
Philip Rainey: If you go to Australia and look at the websites, you find “I hate my strata” websites. Neighbours will be neighbours.
Barry Gardiner
Unfortunately, legislation cannot make your neighbours more considerate. I often wish it could.
Philip Rainey: I think I would be inclined to agree that it would be a reasonable step forward to say that there should be a share of freehold with—
Barry Gardiner
Any new build.
Philip Rainey: With new build. You would have to have rules.
Barry Gardiner
Q
That is something that I hope we very much want to protect, because these leaseholders really require the protection of a court-appointed manager. However, the Building Safety Act 2022 bars the court-appointed manager from being an accountable person and from taking full responsibility for the necessary safety remediation works. That responsibility under the BSA ’22 regulations is now being given, in effect, to the one person whose track record shows that they are incapable and not to be trusted to perform the obligations of managing that building—namely, the freeholder who let it go to rack and ruin in the first place. The leaseholders, whom the courts sort to protect, will have that former, negligent freeholder back in charge. I do not know, but I am looking to you to tell us, how one might draft an amendment to the Bill to preserve the protection for leaseholders who find themselves in an incredibly invidious position.
Philip Rainey: The first thing to say is that—as you may know—there is an ongoing piece of litigation, in which I am involved, where that question of whether a manager can be an accountable person is yet to be finally decided. The current position is that the first-tier tribunal has decided that the manager cannot be an accountable person. I therefore cannot comment on that outcome.
Barry Gardiner
I was aware that you were involved in the case, but I did not want to drag you into the specific—I wanted to keep you at the general.
Philip Rainey: If, hypothetically speaking, the law is that a manager cannot be an accountable person; if, hypothetically speaking, that restricts what a manager can do; and if you, as Parliament, wished to alter that position, then you would amend the definition of a relevant repairing obligation in section 72 of the Building Safety Act 2022. That amendment would make it clear that a relevant repairing obligation includes an obligation under a manager order under section 24 of the Landlord and Tenant Act 1987.
Barry Gardiner
Q
Philip Rainey: The obvious answer is that you are Parliament—you can change any law.
Barry Gardiner
Q
Philip Rainey: I could, if asked. As I say, you can amend section 72 to change a particular definition. Arguably at least, subject to the regulations, it is not actually necessary for Parliament to do it, because section 72 has a power for the Secretary of State to amend it—it is a Henry VIII clause, which I am not very much in favour of, but that probably could be done by secondary legislation.
Barry Gardiner
I have no doubt that the Secretary of State could do that, but I always feel more comfortable if things are on the face of the Bill.
Philip Rainey: I respectfully agree.
Barry Gardiner
Q
Philip Rainey: The just and convenient test is effectively an equitable test. It is a very flexible test intended to allow the first-tier tribunal to take into account all of the circumstances and, in layman’s terms, to decide whether something is just, fair, convenient and going to work—the rights and wrongs and the practicalities of it. Because of the ongoing case, I do not think I can answer the second part of the question, as to how the Building Safety Act 2022 might have affected that.
Barry Gardiner
I am sure hon. Members can ponder on your words and work it out from there. Thank you; that is really helpful.
Eddie Hughes (Walsall North) (Con)
Q
Philip Freedman: I am afraid that I cannot give you the answer to that. because I am not directly acting for those particular clients. I am afraid I know no more—
Eddie Hughes
You do not have a view. We will not take your professional—
Philip Freedman: I can completely understand that pension funds have invested in part in long-term income that they believed to be secure when they did it—that is, income for 90 years, 990 years or whatever it was going to be. I am told that a number of pension funds and other types of investment entity have invested cautiously, not necessarily buying portfolios where there are hugely escalating ground rents, but either fixed ground rents or modestly increasing ground rents that people would not say were egregious. However, they are still concerned because, in many parts of the country, particularly in the north-east, for example, property prices are so low that even 0.1%—even 1,000th of the price of a flat—would reduce the ground rent. The ground rent might be £100 a year or something, but the cap would result in it being £50 a year or something like that. Obviously, the impact would be great for those portfolios that have hundreds or thousands of these.
Mike Amesbury
Q
Philip Freedman: The Law Society has been participating in various working groups following Lord Best’s report, trying to help with the preparation of codes of practice that were intended to sit underneath the regulatory framework for property agents of different types, whether selling agents, managing agents or whatever. We feel that, because tenants often do not know what their rights are, and if they did know what their rights were, they may not want to spend the time or money getting someone to help them enforce their rights, you come back to the people actually doing the management. They need to be proactively willing to be transparent, and to realise that they have duties to the tenants as well as to the landlord. It needs a mindset change in the people who are doing the management. You do not want to rely on tenants having to try and find out what their rights are and then enforcing them. We feel, therefore, that a lot of the changes in the Bill, and other changes that have been talked about, will be better achieved if property managers are regulated, and that the right people with the right tuition being told what their duties are would be improved by regulation.
The Minister for Housing, Planning and Building Safety (Lee Rowley)
Q
Philip Freedman: It was one of the two partners in the firm I had been speaking to. Also, I have heard that various other bodies, like the British Property Federation, have been looking into these issues, and there has been a certain amount of it in the property press. It is only general awareness; I do not know any specifics.
The Chair
Thank you very much. That brings us to the end of this panel. May I thank the witnesses very much for their evidence? We will now move on to the next panel.
Examination of Witness
Jack Spearman gave evidence.
The Chair
We will now hear oral evidence from our seventh panel. Jack Spearman is chair of leasehold reform at the Residential Freehold Association. For this session, we have until 3.30 pm. Could the witness please introduce himself for the record?
Jack Spearman: Good afternoon. My name is Jack Spearman. I am from the Residential Freehold Association. We are a representative organisation for the UK’s largest professional freeholders. Our members represent, or have management over, about 1 million leasehold properties in England and Wales. I chair the British Property Federation’s committee on leasehold reform. I am also a director at Long Harbour, which is a regulated investment manager, and we have invested in residential freeholds.
Matthew Pennycook
Q
Jack Spearman: Each lease will set out the terms of what can and cannot happen under that lease, so when people talk about changing terms, you have to be quite careful about what you are actually saying. The rent is set as a rent and a review is set as a review, so you cannot just change rent arbitrarily—the same as for service charge and many other things. I think what you are talking about is some of the aspects that are frustrating, whether it enfranchisement or lease extensions. It will probably surprise a number of you that our members do support a large number of the measures in the Bill, including a number of the amendments that you have put forward in Committee.
Matthew Pennycook
Q
“not consistent with driving fair value to the customer”.
It also found that the mean absolute value of commissions more than doubled between 2016 and 2021 for managing agents and freeholders of buildings with fire safety defects. Is it not fair to say that, again, many, if not all, of your members have benefited hugely from soaring buildings insurance premiums over recent years, so do you think the Government are entirely justified in seeking by means of clause 31 to limit their ability to charge insurance costs?
Jack Spearman: In terms of insurance premiums, they have generally all risen, for a number of reasons that you will be aware of, whether that is cost inflation, inflation generally or insurance premium tax. Let us not forget that the Government benefit from a lot of these things, and they are all rising at the same time.
What I would say is that there is merit in making sure that people who are actually providing services to administer the insurance work have some form of compensation for what they are doing. If the insurance premium was to double because there is an issue with cladding, why should someone take the benefit of that? The same could be said for remediation projects, for example, where VAT is paid. But, yes, I agree that a measured form of that would be helpful. The problem with the Bill currently is that it leaves all of that to secondary legislation, as you know. It would be helpful to see the primary legislation set out how that might work, and that is one of our recommendations.
Clearly, our members do a lot of work on insurance, whether that is administering claims, dealing with inquiries or sending out invoices to collect the insurance premium over hundreds of people—it is a job that someone has to do. It could be risk management, so telling the insurer what is on the building. You would be amazed to see how many insurers that our members deal with offer to insure a building without knowing what is on it. When we tell them what is on it and what is in it, a very different type of cover can be offered. So there is value, contrary to what people will say, although I do accept, clearly, that, like in any system, there are bad practices.
Matthew Pennycook
Q
Jack Spearman: Again, our members have always been of the view that the insurance is for the benefit of leaseholders. They provide the cover, and they provide the certificates; it is something that we have all been doing for a large number of years. So, yes, we do, and those that do not will obviously have to anyway under the FCA regulations.
Andy Carter
Q
Jack Spearman: One of the key and largest impacts of this Bill has not even been considered yet, because it has not been introduced. Some form of restriction on ground rent is going to be introduced at some point as an amendment. You are being asked to scrutinise a piece of primary legislation that does not have a number of impacts in it—for example, setting capitalisation rates, deferment rates and dealing with ground itself. So you are scrutinising something that is incomplete, and the impact of which none of us here know.
Going to the taxpayer point, the Government say that no compensation will be paid, but unfortunately they also know that that is probably not going to be compliant with the European convention on human rights. Compensation is going to have to be paid, and it is either paid by the taxpayer or the leaseholder. That is what we mean by that.
Andy Carter
Q
Jack Spearman: One hundred per cent. We actually wrote to the then Secretary of State in 2018 and asked for a voluntary code of practice, which was in the leaseholders pledge in 2019.
Andy Carter
Q
Jack Spearman: Sorry, this is back in 2018 and 2019, when we were trying to get the Government to engage and we thought that the idea of some form of regulation was better than none. We fully support the introduction of the regulation of property agents working group, and Mr Pennycook’s amendments would see measures within 24 months. I think that is a good start. But, yes, broadly, like everyone else, we are saying, “Regulate the sector.” We are all tarred by the poor actors, ultimately.
Andy Carter
Q
Jack Spearman: It is hard not to get the wrong message when the Government have said that they—
Andy Carter
Is this not the right thing to do? When you look at the practice that has been going on and the evidence that is there—the mis-selling and appalling behaviour—
Jack Spearman: I think there are two things. Where ground rents are onerous and egregious, it is hard to say that there is not an argument for legislating to deal with them. When it comes to ground rents that are not doubling more frequently than 20 years, I think that is slightly harder.
The point about investments is that, in the same week the Government announced £29 billion of investment from pension funds into UK plc, they announced a consultation that could see a value transfer of £29 billion away from UK pension funds through the ground rent consultation. The general living sector, and building houses in this country, needs capital, and that needs to come from somewhere. There were reports over the weekend from Savills, for example, that £250 billion are required to meet housing demand in this country. Where is that going to come from? It is going to come from pension funds.
So this is, unfortunately, sending the wrong signal, and I think the Government are aware of that—we have certainly made those representations directly and to other Departments.
Barry Gardiner
Q
Jack Spearman: Yes, I know where that came from.
Barry Gardiner
Well, it came from the Pensions and Lifetime Savings Association.
Jack Spearman: I would advise you to go and ask them again, because the pension funds we are talking about have made representations directly to the Government.
Barry Gardiner
Q
“We do not think it is fair that many leaseholders face unregulated ground rents for no guaranteed service in return.”
So the idea that you seemed to put out—“My goodness, the housing market was going to collapse because pension funds were not going to invest in property any more because they weren’t going to be able to extract the ground rents”—is a nonsense, is it not? You talked about £100 ground rent, but you know what is being done here. Your members are not limiting to £25 or £100 ground rents or peppercorn rents. Over the past 15 years, they have created a rentier structure wherein they can extract revenues from the ground rent that are exorbitant—in some cases, £8,000 a year for no service. Is that not true?
Jack Spearman: You make a couple of points there. First, you seem to be suggesting that it is okay to steal the chocolate bar from the shop because it is only 1% or 2% of the stock—it is still not okay. The second thing I would say is that—
Barry Gardiner
Q
Jack Spearman: I can come on to the service provided. Ground rent is a consideration as part of the lease and the premium. You are right to say that, technically—legally—the ground rent does not afford service. But we would say that, through our members, a huge amount of work gets done as a result of that ground rent and as a result of pension funds having invested in it. Take the Building Safety Act 2022, for example—remediation, fire safety audits and building safety audits are all undertaken at no cost.
Barry Gardiner
Q
Jack Spearman: I disagree with that.
Barry Gardiner
Q
Richard Fuller
On a point of order, Dame Caroline. I am wondering whether my colleague, Mr Gardiner, is getting to a question rather than just expressing a view.
The Chair
We do have very limited time, Barry, and other people want to ask questions, so can you bring it to a question swiftly?
Barry Gardiner
Indeed. Mr Spearman, you have misled people in the polling surveys and the conclusions you have drawn from them, have you not? Your own members—Consensus Business, Long Harbour and Wallace Estates—did surveying in which they found that 67% of residential leaseholders said that they would wish to take control of their building and get out from under you, but you suppressed that, did you not?
Jack Spearman: We have never said that people are incapable of managing their building—absolutely not. The desire to do so diminishes with the complexity of the building. I am sure you have seen the Government’s own survey on living in shared buildings. You heard from Professor Steven this morning in Scotland about the issues with the system in Scotland—
Barry Gardiner
A manager who works for a freeholder can be no different from a manager who works for an enfranchised set of leaseholders, can it? So the idea that the complexity is beyond the leaseholders is simply not a fair comparison.
The Chair
Order. We have time for only one more question, Barry. Can I move on to Richard Fuller, please?
Richard Fuller
Q
Jack Spearman: This is a bit of an issue we have with the way the impact assessments have worked, because the impact assessment for the leasehold and freehold Bill did not take consideration of the consultation impact assessment that came out on ground rent. They are not working together. That is part of the issue of you not being able to scrutinise the impact assessment within the ground rent consultation, where the Secretary of State is on record as saying he wants a peppercorn ground rent; in that it says the impact would be £27.7 billion. If you add that to the £3.2 billion in the Leasehold and Freehold Reform Bill impact assessment, that is where you get to.
Richard Fuller
Q
Jack Spearman: I think it is a bit more, actually. Is it not £3.17 billion in this one?
Richard Fuller
Exactly—you have added them all up. I just did the first section.
Jack Spearman: Indeed.
Richard Fuller
But a bit like an iceberg, the transfer of wealth from group A to group B is somewhere else; it is not here in the impact assessment.
Jack Spearman: Agreed. Also, in terms of the people it is being transferred to and from, remember that while a lot of leaseholders are homeowners, there are also a lot of buy-to-let investors in that group—over 50% in our membership, of leaseholders are buy-to-let investors. That is a transfer from business to business being overseen by this Bill.
Richard Fuller
Very good. Does anyone else want to come in? I had another question, unless we have no more time.
Richard Fuller
Q
Jack Spearman: Yes. It is very important that, at the very least, the primary legislation sets out what reference the Minister should look to—something dynamic would be helpful, so that you don’t have these ridiculously long periods of time where one party is out or in. I think people have talked about looking at some long-term ideas, whether that is the National Loans Fund rate or the longest Treasury gilt. You obviously don’t want to make it too dynamic, so that it is always shifting around, but I think it should clearly reflect market value. It should be done on a no-act principle. It should be enabled to be dynamic so that, as I said, you do not have this problem of the Secretary of State having to arbitrarily change it—it should be able to move with the market. It should be something that is available for reference.
The Chair
Thank you. That brings us to the end of that session. I thank our witness on behalf of the Committee.
Examination of Witness
Giles Grover gave evidence.
The Chair
We will now hear oral evidence from Giles Grover from End Our Cladding Scandal. He is coming to us via Zoom. For this session we have until 3.50 pm. If the witness can hear me, can he please introduce himself for the record?
Giles Grover: My name is Giles Grover from the End Our Cladding Scandal campaign, which represents leaseholders in unsafe buildings across the country. I will tell you about the background if you don’t mind. In early 2019 we formed a coalition of leaseholder resident groups across the country. I represent leaseholders in close to around 2,000 buildings. Personally, I have been a leaseholder since 2008. I became a director of the residential management company in my building in 2010. I was first told my home was unsafe in August 2017 and I have been heavily involved in the cladding and building safety scandal since then, where it has particularly been clear that the nature of leasehold law has played an intrinsic part in the delays to our homes being made safe.
Mike Amesbury
Q
Giles Grover: There are some good things for leaseholders in general. There seem to be some better things than there were. Part of the problem is that we still do not have full clarity in terms of what the legislation will look like in its final form, and supporting legislation, so it is quite difficult to comment.
On building safety amendments, I am afraid to say I don’t really know what is in there. I have seen that the Opposition have tabled a couple of amendments—new clauses 27 and 28—as a starting point. However, we have been lobbying the Government, meeting the Government, speaking constantly almost on a daily basis, and having regular meetings pushing for further protective measures to make the Building Safety Act operate as intended; but I cannot really see anything there. I have seen a press release saying, “We will apportion leases,” which is something we raised with the Secretary of State a long time ago. I am talking about enfranchised buildings as well. But as it stands, I am still waiting for the Government to bring forward some building safety amendments that will mean that the homes that are unsafe, many of them unsafe for six and a half years, will be finally fixed at pace—at the pace we need and the pace we deserve.
Mike Amesbury
Q
Giles Grover: Not yet. Again, I had a look at the 140-page Bill and it did not say anything about developers. It talks a lot about the freeholders, but I cannot see anything that will mean that those freeholders will now crack on with making our buildings safe at pace. I cannot see anything that says what the mechanisms will be to oversee that. I fear that the reality on the ground is that the freeholders are still focused on mitigating their own liabilities. Historically they have taken years, for example, to sign grant funding agreements. They have delayed work starting on site. We are seeing those same things happen with developers now.
On a wider point, the Building Safety Act came into play on 28 June 2022. We are now looking at amendments that will make it operate as intended. So I think there needs to be a raft of amendments from the Government. Some of the stuff we have been talking about in terms of their ongoing policy thinking, but ultimately one of the simple things is that we still have too many leaseholders ruled out of protection. We still have too much uncertainty on the ground. So in the King’s Speech, the paragraph that talks about making it operate as intended has a heck of a lot of heavy lifting to do. I need to see the detail before I can say whether it will work or not. I fear, based on my experience, that it is unlikely to be the case.
Mike Amesbury
Q
Giles Grover: As I said, the new clauses that have been tabled would go some way toward ensuring that those non-qualifying leaseholds for more than three properties are treated the same as qualifying leaseholders. The buildings that the Government currently deem irrelevant because they are under 11 metres would be made relevant.
It is worth just setting the scene. I gave evidence to the Public Bill Committee on the Building Safety Bill in September 2021, and there was a lot of talk of, “We’ll do this, and we’ll do that. We’ll definitely protect you.” We then saw a raft of legislation come out from 14 February 2022. The problem is that it is all very high level and complicated. Some people might get some protection and some people might not. We are all the innocent victims of this scandal. It shocks me that despite the Secretary of State saying on 10 January 2022 that we are shouldering a desperately unfair burden and that industry will pay, two years later I am still talking to Public Bill Committees about what more needs to be done. It is all too slow.
Andy Carter
Q
Giles Grover: There are quite a few things missing. The first thing to say is that what you should really do is say that there are no more non-qualifying leaseholders or people who are being arbitrarily ruled out of help. You could do that as an amendment to the Bill. From some of the ongoing campaigning and lobbying that we have done, particularly with the Levelling-Up and Regeneration Act 2023, we fully recognise that the Government do not necessarily want to protect everyone. The problem is that they have spent far too long apportioning liability and talking in theoretical terms. There are still too many ordinary people that are not protected.
Going into the specifics, if there is not the willingness to say, “Okay, we will protect all the victims of this scandal”—which you really should be doing—what we need to do is say, “How can we better protect the ordinary people who still aren’t protected but who the Government say that they want to protect and should protect?”. That goes back to the conversations being had with the Department and the amendments that have been tabled about extending property protection to the first three properties of all leaseholders, because that would mean that everyone is treated fairly, and about apportioning ownership, which the Government have said they will do in this Bill, to make sure that the marriage penalty, as it is known, will be done away with.
There is one other point about the distinction of where it is in perpetuity for non-qualifying leaseholders. It is very worrying. For the non-qualifying leaseholders we speak to, it is literally hanging over their necks for the rest of their lives. Even if the building gets remediated and even if it is assessed as safe, they are still treated as non-qualifying leaseholders. One element I forgot to mention is that there is a potential portfolio-size amendment that was tabled to the Levelling-Up and Regeneration Act that we hope the Department is looking at closely.
Again, all leaseholders should be protected. If there is not the will for that, which there really should be, we need to do more to make sure that the protections as they are protect more people. I could go into a lot more detail, but I do not know how much you want.
Andy Carter
Q
Giles Grover: I have a lot of views on that area. Part of the issue was that under the Building Safety Act there were building safety managers in place with certain duties. At the last minute, that legislation was moved away from, but those duties still exist. A lot of the high-rise buildings that have registered with the Building Safety Regulator are facing enormous costs of compliance, and there are real fears about the work that will need to be done. We are seeing bills land on our doorstep all over again. I got one—thankfully, I am a residential management company director and can challenge it more—with an estimate of £500 a year extra per leaseholder to comply with the Building Safety Regulator if we had not moved away from some of the strange costs that were in there.
I have seen that for other buildings: leaseholders who have just got the freehold have suddenly got a demand saying, “You are also going to have to pay for compliance with building safety.” It is very worrying and strange that the innocent leaseholders we are meant to be protecting are now going to have to pay, but just in a slightly different way, to ensure the safety of the buildings that should have been made safe and should be maintained. Fire doors are another example that I could really get into, but I only have 20 minutes so I will hand back to you.
Matthew Pennycook
Q
Mike and I tabled new clauses 27 and 28 to address some of the “in principle” issues we have been pushing for a long time on—qualifying and non-qualifying leaseholders and building height. Specifically, in terms of what the Government might feasibly bring forward, what is your experience from cases across the country of the operational elements of the Building Safety Act that are not working effectively? I am just trying to get from you a more realistic sense of what you might expect the Government to bring forward, in terms of extending this Bill to ensure the Building Safety Act operates as intended. What tweaks to the Building Safety Act are required, in as much detail as you can in the time you have?
Giles Grover: One of the major tweaks is on an issue we were first made aware of in November 2022 due to the residents of a building in Greater Manchester being forced to pay for interim measures. The council is now paying for those interim measures but it has been told that it cannot recover them through the Building Safety Act because the legislation is not in place. That is a simple one that could help.
You could ensure that resident management companies and right to manage companies can raise the legal costs where they might be needed in respect of building safety and relevant defects. There are some wider elements that are already in the Bill, in terms of stopping freeholders re-charging their legal fees. Our concern is whether that will protect non-qualifying leaseholders who are still being forced to pay fees.
This is where I can get into the specifics. I am no lawyer as such—you have had a lot of very intelligent people on before me—but I say this from the campaigning aspect of it. We need to see a fair bit more detail about exactly what happens when a freeholder is avoiding their liabilities and not giving a landlord certificate within the stated time period. The Government may tell us, “Oh, don’t worry. That means they can’t pass the costs on,” but theoretically I cannot sell my flat without that certificate because the conveyancer is asking for it, so why not have an express duty for them to provide it? To be completely frank, the whole landlord certificate/leaseholder certificate process is an absolute quagmire and a nightmare on the ground. I would personally prefer it if the Government did away with that.
There are lots of issues like that. There are points about court-appointed managers, which cannot be the accountable person, which seems quite strange to me. We have been told that there is another route through the Building Safety Regulator, but that would require the special measures manager legislation to be enforced. There are issues with shared owners in complex tenures where you have a housing association as the head leaseholder. Will they be protected from all costs? Will they have the same rights as all leaseholders?
Philosophically, the simplistic approach should be that you have the full protection. New clauses 27 and 28 would be a massive relief. It is then a case of whether legislation is needed or whether you can use the current measures. With the developer scheme, where it is for over 11-metre buildings—could that be extended to under 11-metre buildings? The cladding safety scheme is now for mid-rise buildings; could that be extended for low-rise buildings? Could the cladding safety scheme be extended to become a building safety scheme?
For a lot of this the pushback will be, “There is not enough money,” but there is money out there. There is money that can be got from industry. There are further parties, such as construction product manufacturers and providers, and the Secretary of State said they would make them pay two years ago; they have not paid yet. There are a lot more parties that could be brought into the pool. So operationally there is more they could do by saying, “We’ve got seven different funding schemes;” —or however many it is—“where is the oversight of all of them? Who is talking to each other? Are these regulators? How does DLUHC talk to the recovery strategy unit? Are they talking to the Building Safety Regulator? Is Homes England involved? The local regulators now have new money to take action; are they taking action?”
So, arguably, a lot of it is already in place; but what is needed is the comprehensive oversight and the proper grip to say, “Right: all these buildings—10,000 of them—are going to get fixed. This is how—this is where the money is coming from. Cladding costs are here. Non-cladding costs will come from there.” What you really need to do is put the money up front, recover it. The Government say that their leaseholder protections mean that the majority of leaseholders won’t have to pay. If they have got the confidence in their legislation then they can take over the burden from leaseholders.
Barry Gardiner
Q
You raised the issue, in response to Matthew Pennycook’s questions, of section 24 of the Landlord and Tenant Act 1987 and applying for an officer of the court to be installed to do the works and turn around a building. Clearly, it would be something much to be wished, for many people who found themselves involved a building safety issue, if they were able to do that. Related to that, I know you are aware of the Building Safety Act 2022 ban on section 24 managers being the accountable person.
This is a matter we have discussed with a number of witnesses such as yourself. Are you aware that at one development, the management control regarding safety and remediation was given back to a freeholder who was the one who took, the tribunal found, £1.6 million in insurance commissions unreasonably? They will now be handed £20 million because of that BSA anomaly, by the Government. So the very people who could not be trusted with money are now being given £20 million to remedy the defects that they were responsible for in that building.
Giles Grover: I am very aware of it. I have watched some of the sessions, and I was made aware of it last year by one of the leaseholders at that building. I have looked into this. I have had various conversations with various lawyers. It still just seems bizarre that the manager who has been appointed by the court cannot be the accountable person. I am just a simple man: I do not understand why that cannot happen—why the Government, or the judge, based upon the legislation that is out there, think it is a reasonable or positive outcome for that money to go back to that rogue landlord, shall we say. I do not get it, to be honest.
Barry Gardiner
Q
Giles Grover: Yes. I only have 20 minutes, so I will try to be brief. I could spend all day talking about that. I have had personal experience of that in my building. Our developer sold the freehold out from under us to an offshore freeholder who, one year before the building safety crisis took effect, said they did not want to sell the freehold because they were long-term investors. A year or so later they said, “Okay. We are transferring it to another company. Do you want to buy the freehold off us?” Because they saw—
The Chair
Order. I am afraid that brings us to the end of the allotted time for the Committee to ask questions, and indeed for this afternoon’s sitting. I do apologise to the witness, but I thank him very much on behalf of the Committee. The Committee will meet again on Tuesday to begin line-by-line scrutiny of the Bill.
Ordered, That further consideration be now adjourned. —(Mr Mohindra.)
Leasehold and Freehold Reform Bill (Fifth sitting)
Tuesday 23rd January 2024
(10 months, 4 weeks ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 23 January 2024 - (23 Jan 2024)
The Committee divided: - Ayes: 7 / Noes: 10 - Question accordingly negatived.
The Chair
Before we begin, I have a few preliminary reminders for the Committee. Please switch electronic devices to silent. No food or drink is permitted during sittings of the Committee, except for the water provided. Hansard colleagues would be grateful if Members could email their speaking notes to hansardnotes@parliament.uk or, alternatively, pass their written speaking notes to the Hansard colleague in the room.
We will 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. Amendments grouped together are generally on the same or 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. Decisions on new clauses will be taken once we have completed consideration of the Bill’s existing clauses. Members wishing to press a grouped amendment or new clause to a Division should indicate when speaking to it that they wish to do so.
Clause 1
Removal of qualifying period before enfranchisement and extension claims
Question proposed, That the clause stand part of the Bill.
The Minister for Housing, Planning and Building Safety (Lee Rowley)
It is a pleasure to serve under your chairmanship, Mr Efford. Today, we begin our line-by-line consideration. I first want to note and put on record my thanks to all the witnesses who gave evidence to the Committee last week. It was hugely useful to hear their insights, which will improve the Bill over the coming days and weeks ahead.
I am delighted to bring the Bill to Committee, and I look forward to the debate that will follow. Before we proceed, I quickly draw the Committee’s attention to a minor issue regarding the Bill’s explanatory notes. Paragraph 18 refers incorrectly to the right
“for an intermediate landlord to reduce (‘commute’) the rents that they pay”
following statutory lease extensions and ground rent buy-out claims. That is a drafting error as the clauses were not in the Bill when introduced. I have since tabled an amendment to introduce those clauses on intermediate leases, which we will debate shortly. I apologise for that minor drafting error and reassure the Committee that the explanatory notes will be updated to reflect the latest clauses before the Bill enters the other place.
I also want to make a small point in relation to legal language that I will use throughout the session. In existing legislation, leaseholders are referred to as “tenants”, which legally, they are. In everyday language, however, we often use the term “leaseholders” to differentiate long leaseholders from tenants holding shorter tenancies or those with less security of tenure. For simplicity, I will use the term “leaseholders”. Likewise, I will use the term “landlord” to mean both landlords and freeholders. In many cases, the landlord will be the freeholder, although that is not always the case. Where the provisions concern freeholders, I will use that term rather than “landlord”.
I now turn to part 1, which deals with leasehold enfranchisement and lease extension. When people buy a leasehold property, they will want to ensure that they have the long-term security and control they need to make it a home. They may have a short lease and wish to extend it, or they may have concerns about their landlord and wish to buy them out to have full ownership and control of that home.
The current requirement, where a homebuyer has to wait for two years before they can extend their lease or buy their freehold, is an obstacle for leaseholders and results in higher costs, as the price for enfranchising increases year on year. Furthermore, many investors take advantage of a loophole to avoid that requirement, while ordinary homeowners, who may be less familiar with the process, can find themselves in difficulties. There are also inconsistencies in the current law where, in certain circumstances, people can rely on a previous owner’s period of ownership to satisfy the requirement whereas others are unable to do so.
Clause 1 seeks to remove that barrier to leaseholders who wish to exercise their enfranchisement rights. It removes the requirement to have owned the lease of a house for at least two years before qualifying to buy their freehold or extend their lease. It also removes the requirement to own the lease of a flat for two years before extending the lease. This gives leaseholders the flexibility to make a claim immediately upon buying a leasehold property, and it will reduce their costs. It also resolves inconsistencies in the current law. The measures will remove an unnecessary restriction for leaseholders. I commend the clause to the Committee.
Matthew Pennycook (Greenwich and Woolwich) (Lab)
I thank the Minister for his explanation of clause 1. I add the Opposition’s thanks to the witnesses who gave evidence to us last week. It was extremely useful. Before I begin, I would like to declare an interest. My wife is joint chief executive of the Law Commission, whose work we will be debating extensively in the days to come.
It is a pleasure to start line-by-line consideration with you in the Chair, Mr Efford. It is a genuine privilege to serve on a Public Bill Committee comprised of hon. Members who have not only a real interest in the subject matter, but real expertise. It is my sincere wish that we draw on all of it in the days ahead to improve this legislation and, as much as the Government Whip may discourage it, that hon. Members on the Government Benches, including the hon. Members for Walsall North and for Redditch, as former Housing Ministers, take the opportunity to participate actively in our deliberations.
Having not had a suitable chance to put it on the record, I would like to take this opportunity to formally welcome the hon. Member for North East Derbyshire back to his place. He and I disagree politically, often viscerally, when it comes to many, many issues, but he is a hard-working, diligent and thoughtful Minister. I look forward to the robust and, on the whole, constructive debates we will have over the coming sessions.
Before I turn to the detail of clause 1, I want to put some brief general remarks on the record to frame what is to follow. As we made clear on Second Reading, we are fully in support of the principle of the Bill and the intent behind its provisions. The range of measures that the Committee will consider will, without question, provide a degree of relief to leasehold and freehold homeowners in England and Wales, by giving them greater rights, powers and protections over their homes. That is obviously to be welcomed. However, during Second Reading we also expressed our deep regret about the Bill’s lack of ambition and bemoaned the implications for leaseholders, who are being routinely gouged by freeholders under the present flawed system.
I want to be as clear as I possibly can with leaseholders who may be following our proceedings as to the Opposition’s approach to the Committee stage. While we welcome in principle the provisions contained in the Bill, we do have concerns about the efficacy of several of them, including clause 1. As such, we will seek to probe and rectify their various defects and deficiencies so as to ensure that they truly deliver for leaseholders. We will also engage constructively with the Government in relation to any significant new measures introduced into the Bill, not least the glaring omission of provisions designed to ban the sale of new build leasehold houses. We will introduce a number of specific targeted measures designed to give leaseholders a little more control over their future and strengthen the foundations on which future, bolder reform will be enacted.
What we do not intend to do is attempt to persuade the Government of the benefits of using this Bill to enact all, or even significantly more, of the hundreds of Law Commission recommendations on enfranchisement, right to manage and commonhold, which the Government have chosen not to include in this Bill. The Government had the opportunity to bring forward ambitious legislation and enact all the Law Commission’s recommendations from its three reports in 2020, thereby delivering on the promises that successive Ministers have made to leaseholders over the past years. They have made the political choice not to do so. Attempting to radically overhaul this piece of legislation by means of hundreds of amendments required to implement all those recommendations would not only be an onerous, perhaps impossible, undertaking, given its limited nature, but would delay the Bill’s passage and, with a general election in the months ahead still a distinct possibility, put it at risk entirely.
We want leaseholders to benefit from the measures in the Bill as soon as possible. We therefore wish to see it, albeit suitably strengthened, out of Committee as quickly as possible to maximise its chances of receiving Royal Assent. Make no mistake, Labour is committed to bringing the current iniquitous leasehold system to an end, overhauling it to the lasting benefit of leaseholders and reinvigorating commonhold to such an extent that it will ultimately become the default and render leasehold obsolete. Leaseholders across the country therefore have our firm commitment to finish the job in due course.
Turning to clause 1 and the rest of part 1, one of the reasons that the Bill can reasonably expect a speedy passage out of Committee is that parts 1 and 2, together with related schedules, implement a subset of Law Commission recommendations that are almost entirely uncontentious. Part 1 of the Bill, as the Minister has said, concerns leasehold enfranchisement and extension.
As I have said, the clauses in this part implement some but not all of the Law Commission’s recommendations designed to make it cheaper and easier for leaseholders in houses and flats to extend their lease or acquire their freehold. They include procedural changes as well as substantive ones that extend tenant rights and empower leaseholders by giving them greater control and value. There is in that respect, and as we touched on during the evidence sessions last week, an explicit and very welcome redistributive intent that underpins the legislation.
As the Law Commission exhaustively detailed in its final 2020 report on leasehold enfranchisement, the case for reforming the present enfranchisement regime is incontrovertible. It is not only incredibly complex but inconsistent. As a result, leaseholders face unnecessary litigation, uncertainty and costs when attempting to exercise their rights under it. The law in this area needs to be overhauled and we therefore welcome the objective that underpins each of the provisions in this part.
We wish to probe the Government further on various issues relating to the precise drafting of those provisions, as well as seeking to address the flaws of a limited number. As the Minister made clear, clause 1 removes the two-year qualifying period before enfranchisement and extension claims can proceed in respect of both houses and flats by amending the relevant sections of the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993, which I will hereafter refer to simply as the 1967 and 1993 Acts.
Clause 1 implements recommendation 29 from the Law Commission’s final 2020 report on leasehold enfranchisement. We welcome the clause. A core objective of the Bill is to increase access to enfranchisement by rendering more leaseholders eligible for such rights. By liberalising this and other qualifying criteria, we are confident it will achieve that objective.
As the Committee is no doubt aware, the current two-year ownership requirement was designed primarily to prevent investors benefiting from enfranchisement rights intended for residential leaseholders. Yet it is patently not achieving that objective given the relatively simple workarounds that sophisticated commercial investors can and do take advantage of. Indeed, the requirement can fairly be said to have created a market designed explicitly to facilitate their doing so—a development entirely at odds with the rationale for the two-year ownership requirement. At the same time, that requirement presents a significant barrier to ordinary leaseholders exercising enfranchisement rights and, importantly, leads to rising premiums for many of them as a result of waiting for two years in which capital values may have increased or lease lengths reduced.
Abolishing the requirement for leaseholders to have owned premises for two years prior to exercising enfranchisement rights, so that they have the right to carry out an enfranchisement claim as soon as they acquire their lease, is an entirely sensible reform. It would also resolve the current inconsistency between the position of trustees in bankruptcy and of personal representatives, and avoid the technical, costly and error-prone workarounds that have been created involving the assignment of a benefit of notice.
Although the clause is entirely uncontentious from our perspective, I do have one question for the Minister: why have the Government chosen to include subsection (2)(c) and, consequential on that reform, subsection (3) in this clause? Subsection (3A) of section 39 of the 1993 Act concerning what happens in the event of the death of a qualifying tenant clearly needs to be overhauled to account for the removal of the two-year qualifying period, but surely the Government wish to ensure that the right of a tenant’s personal representative to exercise enfranchisement rights on their behalf in the event of their death is sustained? Will the Minister confirm whether I am right in believing that that is the Government’s wish?
If so, given that the right would not appear to be sustained as a result of the drafting of clause 1, is it maintained by means of other provisions in the Bill? If not, surely the Government must accept that the decision to simply omit the relevant subsection (3A) needs to be reconsidered to ensure that the right is maintained in future? The omission may affect only a small number of leaseholders going forward, but it is important that we ensure their personal representatives are conferred the rights that they would have enjoyed had they lived. I look forward to the Minister’s response.
Lee Rowley
First, let me echo the remarks of the hon. Member for Greenwich and Woolwich. He said some kind words about me and I would like to say the same about him. He has always been extremely constructive and helpful. We share the aim of trying to improve the legislation and I am grateful to be working with him. I hope we can work in many areas and agree more than we disagree. He was right when he said that this is incredibly complicated. Having tried for the past two months to get into all the details, there may still be areas where I am unable to answer all the questions from hon. and right hon. Members today. I will do my best, but I will write to them if I am unable to answer anything.
I am grateful to the hon. Gentleman for confirming that Labour will support this clause. On his specific point around where leaseholders have sadly passed away and there is a requirement for a personal representative or equivalent, it is not our intention to make that process any more difficult or to change the fundamental ability of people to make decisions about how to dispose or deal with properties that are left in the event of a death. Having spoken to officials and those involved in the drafting of this, my understanding is that the exemptions referred to in subsections (2)(c) and (3) become effectively moot. The removal of the two-year rule preventing a representative from taking action means that at the point they inherit the property—or whatever legal approach is taken to transfer it the estate to a new owner or representative—the problem goes away.
If, for some reason, we have missed something, I would be very happy to take anything from the hon. Member for Greenwich and Woolwich or others, either now or in writing, which I can go away and look at. Our understanding is that this does not need to continue, hence why we have chosen to remove it within the clause.
Matthew Pennycook
I welcome that clarification from the Minister and his indication that it is the Government’s firm intent to ensure that personal representatives can exercise enfranchisement rights on behalf of a leaseholder who has died, because of the removal of the two-year rule. I urge the Minister or his officials to look at the precise wording of this clause, because we are worried that—his comments notwithstanding—it may not do this in practice, and there may be some ambiguity. I do, however, welcome the assurance he has given. On that basis, we will not oppose this clause standing part of the Bill.
Lee Rowley
To confirm, I am happy to double-check this, but I hope what I have just indicated stands.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Removal of restrictions on repeated enfranchisement and extension claims
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Currently, the restrictions placed on leaseholders to make a claim to buy their freehold or extend their lease can be seen as excessively punitive. Leaseholders are prevented from making a claim to buy their freehold or extend their lease for 12 months, when a previous claim has failed even on a minor point. In addition, a claim for a lease extension on a house can be obtained only once, and we seek to remove those unnecessary barriers for leaseholders, which frustrate their ability to buy their freehold or extend their lease.
Clause 2 seeks to address this problem by removing the requirement to wait 12 months to submit a new claim if the previous one has failed. It will also remove the restriction on bringing a further claim where a lease extension has already been obtained for a house. This means that leaseholders will be able to put in a further claim to enfranchise or extend their lease as soon as they have resolved the issues with their failed claim. Leaseholders of houses will not be prevented from making a claim for a lease extension if one has already been obtained, preventing the landlord from being able to regain possession of the property from a leaseholder when the lease eventually comes to an end.
Clause 2 will also remove provisions that give courts powers to prevent new enfranchisement or lease extension claims for five years where a claim has failed, and the leaseholder did not act in good faith or attempted to misrepresent or conceal material facts. These powers are old and surplus to requirements, coming from the 1967 Act, which has been overtaken by developments in the law around civil restraint orders since then. These restraint orders are more flexible, better developed, subject to more rigorous checks, and may be fairer than the existing power. Therefore, the existing law and the Bill can still deal with meritless of abusive enfranchisement claims. The tribunal already has powers to award costs for such unreasonable behaviour. The removal of these should not change that; it is simply a tidying-up exercise, and a recognition that other parts of the law do this better. These measures will remove barriers to leaseholders being able to take up their right to enfranchise or extend their lease without unnecessary delays.
Matthew Pennycook
I welcome that explanation of the clause, which, as the Minister says, removes various restrictions on repeated enfranchisement and extension claims. It is our understanding that they include the provisions in the 1967 Act and the 1993 Act that prevent tenants from starting new enfranchisement or lease-extension claims within 12 months of an earlier claim failing to complete; the provisions of the 1967 Act that give courts the power to order compensation and prevent new enfranchisement or lease extension claims for five years after a claim has failed; and the provisions of the 1967 Act that prevent tenants from bringing a further lease extension claim where a lease extension has already been obtained under the Act.
Lee Rowley
I am grateful to the hon. Gentleman for his comments and, again, for indicating his support for the intent of clause 2. On his question with regard to subsections (1)(c) and (d), I will write to him, given that it is a technical question about the specific description in the legislation. Hopefully, I will be able to provide the comfort he seeks.
As he indicated later in his remarks, we believe there is the ability for vexatious claimants, in whatever sense, to be accommodated by the existing legislation elsewhere, so there is no need to replicate that or to retain something that is very rarely used. That is the reason for removing it.
Finally, on his point about orders from a tribunal and the Law Commission’s recommendation, it goes back to the fact that we believe the process that is in place is already mature and very capable of responding to the legitimate points he highlights. Therefore, there is no need to create an additional process in the Bill, but I will write to him to absolutely clarify that point and make sure that we have everything we need.
Matthew Pennycook
I welcome that clarification from the Minister and look forward to any further detail that he might provide to the Committee via written correspondence.
Rachel Maclean (Redditch) (Con)
May I ask the Minister to confirm that clause 2(2) refers to schedule 7 to the Bill? In our evidence sessions last week, we heard from certain leaseholders who were concerned that they would not benefit from the provisions if their lease was less than a certain number of years. Paragraph 2(2)(a) of schedule 7 states that a lease will not qualify if
“the unexpired term of the lease is less than 150 years”.
There was some debate about that length. Will the Minister address those leaseholders’ concern that the period is too long and that there should not be that restriction? Or will he write to me later to address what considerations went into that provision? If we are excluding people from these welcome provisions, perhaps we should seek to otherwise widen the group of people who can benefit from having their leases converted to a peppercorn lease.
Lee Rowley
We will probably talk in detail about the 150-year decision—the Law Commission proposed 250 years—in relation to quite a number of areas later this morning, so I do not want to pre-empt that now. As I will explain later, the Government’s intention was that, if a lease is coming up in a reasonably short period of time, it is advantageous to align everything together, as opposed to doing just one thing, because there will be the potential for double costs and the like. I am happy to talk about that more when we get further into line-by-line consideration.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
Change of non-residential limit on collective enfranchisement claims
Matthew Pennycook
I beg to move amendment 1, in clause 3, page 2, line 19, at end insert—
“(2) After section 4(5) of the LRHUDA 1993, insert—
‘(6) The Secretary of State or the Welsh Ministers may by regulations amend this section to provide for a different description of premises falling within section 3(1) to which this Chapter does not apply.
(7) Regulations may not be made under subsection (6) unless a draft of the regulations has been laid before, and approved by resolution of—
(a) in the case of regulations made by the Secretary of State, both Houses of Parliament;
(b) in the case of regulations made by the Welsh Ministers, Senedd Cymru.’
(3) In section 100 of the LRHUDA 1993—
(a) in subsection (2), after ‘making’, insert ‘provision under section 4(6) or’;
(b) in subsection (3), after ‘making’, insert ‘provision under section 4(6) or’.”
This amendment would enable the Secretary of State or (in the case of Wales) the Welsh Ministers to change the description of premises which are excluded from collective enfranchisement rights. Such a change would be subject to the affirmative resolution procedure.
Matthew Pennycook
Clause 3 makes changes to the non-residential limit for collective enfranchisement claims. At present, section 4(1) of the 1993 Act excludes from the right to enfranchise buildings in which 25% or more of the internal floor area, excluding common parts, can be occupied or are intended to be occupied for non-residential use. The clause increases the non-residential use percentage to 50%.
We welcome the change, which enacts recommendation 38 of the Law Commission’s final report on leasehold enfranchisement and was suggested by, among others, the National Leasehold Campaign. The purpose of the non-residential limit is to confine enfranchisement to predominantly residential blocks, but as the Law Commission determined, the existing 25% limit
“does not achieve that purpose.”
There is a significant amount of evidence that it instead regularly prevents leaseholders from undertaking collective freehold acquisitions because a sizeable proportion of buildings fall slightly above it. As the Law Commission’s final report puts it,
“the 25% limit provides a significant bar to the ability of leaseholders to undertake a collective freehold acquisition”.
The Law Commission further argued that
“the arbitrary nature of the limit makes the bar to enfranchisement a source of considerable frustration for many leaseholders.”
Deciding where to draw the line in respect of the level of non-residential use permitted in a building before collective enfranchisement rights cease to be available is inherently difficult. There will always be outlying cases that approach or go beyond an increased limit. However, given that one of the explicit purposes of the Bill is to bring as many leaseholders as possible within the enfranchisement regime and, in respect of the non-residential limit, specifically to prevent developers building around it in order to exclude blocks of flats from enfranchisement rights, an incremental increase to 30%, 35% or even 40% does not, instinctively, feel sufficient.
The issue is inherently subjective, and the Law Commission recognised as much, but if enfranchisement rights should be enjoyed by buildings that are primarily residential in nature, a 50% threshold feels appropriate and fair, because it would ensure that the predominant form of ownership in such buildings remains residential. A 50% non-residential limit is likely to mean that the number of genuine cases that are excluded by it will be small, and it will inevitably reduce gaming by developers, because to exceed the 50% limit a building will have to be genuinely commercial in nature. At least, that is the hope.
We very much hope the clause serves to significantly boost enfranchisement rates and in due course to assist more leaseholders of mixed-use buildings to convert to commonhold. However, our reservation about the clause as drafted is that it provides no flexibility to further amend the non-residential limit. We believe it would be sensible to build in a degree of flexibility so that any future changes to the limit for collective enfranchisement rights do not require primary legislation but can instead be enacted through regulations.
One can imagine a number of scenarios that might lead to the effectiveness or reasonableness of the Government’s proposed 50% limit, which the Law Commission accepts is inescapably arbitrary, coming into question. For example, we might find in the years following its implementation that it does not manage to encompass a small but still unacceptable number of leaseholders in buildings that fall slightly above it, and we may wish to quickly take steps to allow them to exercise collective enfranchisement rights. Alternatively, a future Government may decide that they wish to use a criterion other than internal floor area to determine eligibility for such rights—for example, the percentage of the service charge paid by leaseholders. It is our understanding that, in both scenarios, new primary legislation would be required to make changes to the non-residential limit, either to increase the percentage of the internal floor area that can be occupied, or which is intended to be occupied, for non-residential use, or to entirely change the criteria upon which the limit is based. We therefore believe it would be preferable to give the Secretary of State the power, by means of regulations subject to the affirmative procedure, to vary the limit to account for changing circumstances. Amendment 1 would do so.
The amendment would amend clause 3, which itself amends section 4 of the 1993 Act by inserting new subsections into it. It would allow the Secretary of State to amend the whole of section 4 of the 1993 Act in any way they see fit to create a different description of a non-qualifying property. In short, it would hardwire flexibility in respect of the non-residential limit for collective enfranchisement claims into the Bill. We believe it is a sensible and reasonable amendment, and I hope the Minister agrees and makes it clear that the Government are happy to accept it. One lives in hope—I have done more of these Committees than I care to admit, so I know that even if I am right the Minister will not accept the amendment and will bring back a proposal at a later stage, but I hope he accepts the principle.
Before I conclude, I want to raise a separate but related matter to the non-residential limit that this clause makes changes to: how we define a building for the purposes of freehold acquisitions and right to manage claims, which we will debate in due course, and specifically whether buildings need to be structurally detached, with parts vertically divided, in order to be eligible for such rights. As hon. Members will recall, concerns about structural detachment and shared services were raised by several witnesses who gave evidence to the Committee last week. The fear that they highlighted was that the existing rules around structural dependency, particularly for buildings with extensive levels of overhang, such as those that arise when multiple blocks of flats are built over a shared car park, would frustrate many legitimate enfranchisement claims otherwise made possible by clause 3 and other provisions in the Bill that liberalise qualifying criteria and remove obstacles to enfranchisement.
The counter argument would be that rules around structural detachment and their applicability to the non-residential limit are necessary to avoid the creation of so-called flying freeholds and the block management problems that arise in such cases, and that such buildings are eligible for enfranchisement by a single claim if the tenants of the various blocks proceed together. The Law Commission appear to have agreed. It recommended retaining the existing test but making a small tweak that would allow minor deviations from the strict vertical division otherwise required for a part of a building to be separately enfranchisable. Notwithstanding the Law Commission’s reasoning, we believe it is important to properly consider whether the structural detachment rules will limit the opportunities for leaseholders to enfranchise using the liberalised qualifying criteria that clause 3 provides for.
Our amendment does not directly probe that issue because it is concerned with providing future flexibility in respect of legal title rather than physical building exclusions, but it is important that this Committee considers the impact of structural detachment rules as they currently operate, and the extent to which they may frustrate the Bill’s objective to expand access to enfranchisement. I would therefore be grateful if the Minister can tell us whether the Government have considered whether the rules on structural detachment may indeed frustrate leaseholders in that respect and whether they consider that a problem. If not, and they are convinced that there is good reason for the existing tests to remain in place, will the Minister tell us why they chose not to implement recommendation 33 of the Law Commission’s final report on leasehold enfranchisement, which would have provided for a relaxation of the currently strict approach to the 1993 Act’s vertical division condition? I look forward to the Minister’s response.
Barry Gardiner (Brent North) (Lab)
I rise to support amendment 1. My hon. Friend the Member for Greenwich and Woolwich made an excellent speech in favour of it, and he is right to distinguish between this clause, dealing with enfranchisement, and later clauses on which we will look at the issues from the point of view of right to manage. Given the amount of reference to the Secretary of State in the Bill and that so much is left to him to decide afterwards, it is reasonable to ask the Minister why that has not been applied to this clause—otherwise, it looks as if the Government have considered the matter and ruled out any change in this area, which, as my hon. Friend suggests, is reasonable.
Mike Amesbury (Weaver Vale) (Lab)
I, too, rise to support this very generous amendment from my hon. Friend the shadow Minister. It is pragmatic, and it would power up the Secretary of State, whoever that might be, to ensure that leaseholders are able to take control in hopefully larger numbers through extended enfranchisement. I hope the Minister will give the amendment very strong consideration.
Rachel Maclean
May I throw the general issue of collective enfranchisement into the mix? The Minister may wish to come back on it at a later point if it suits him better. Many people in this situation have raised with me the sheer practicalities and difficulties of doing a collective enfranchisement. When people live in a huge block of flats with vast numbers of flats, they do not necessarily know who the other people are and certainly do not have their contact details. That, in and of itself, presents a barrier and an obstacle for some of these claims. We have heard evidence from groups affected by this situation—most notably the Free Leaseholders group, but there are many others—who have made this point repeatedly.
Matthew Pennycook
The hon. Member raises a very pertinent issue. Is she minded to support our new clauses 30 and 31, which deal precisely with it?
Rachel Maclean
The hon. Gentleman is a very persuasive orator in this Committee, as he is in many other fora, and I will definitely listen to those arguments when they are made. We all work in the spirit of improving this Bill. I very much hope that the Government will provide the explanations I have asked for, and specifically on this issue at this point.
Lee Rowley
I thank hon. Members and Friends for their contributions. I will take them in turn. On the amendment, I find myself in the slightly unusual place of arguing against a Henry VIII power, as they are occasionally called and as he referred to them. As indicated, there are a number of Henry VIII powers in the Bill, and I am sure that people will have views on them when we get to them. Our colleagues in the other place often have very strong views on such powers. It is an unusual place to be, but I happily take it up.
I absolutely understand the point that hon. Members have made and the reality of what they are trying to articulate. The fact that we are making a change indicates that there are times when it is proportionate and reasonable to make changes. The reason for the Government’s not taking powers in secondary legislation—which I know, joking aside, that hon. Members would accept—is that there is a continuum for drawing or not drawing lines, and we think that this does not necessarily need to be on the line of taking powers in order to do things in secondary legislation, simply because this is a substantial change. It is being actively debated; Members are debating whether it is sufficient and, as my hon. Friend the Member for Redditch asked, precisely how it will work to improve the situation in practice. I think the Government’s preference is to keep that discussion in primary legislation. We recognise that primary legislation is always more challenging in terms of timelines and space in this place, but it is a sufficiently important change that it should be able to be debated in the way we are doing today.
Eddie Hughes (Walsall North) (Con)
I understand that it is appropriate to future-proof legislation and allow for flexibility, but I agree with the Minister that a substantial change has already been made. Proportionately, we are talking about the number of buildings that have already been constructed, and therefore the people that we are helping. I fully appreciate that the shadow Minister is concerned about future developers gaming the system, but in terms of proportion, it is important that we focus our efforts on the buildings that have been built.
Lee Rowley
I am grateful to my hon. Friend for highlighting that. The shadow Minister expressed hope that the Government would agree with some of his amendments at some point. I am afraid that I will have to dash his hope on this one. We understand its purpose, but on the basis that I have articulated, we would prefer to keep this in primary legislation. I hope that the shadow Minister might consider withdrawing the amendment.
On clause 3, as it stands, we have been clear that we want to improve access to collective enfranchisement so that more leaseholders of flats can enjoy the benefit of freehold ownership. Many leaseholders in mixed-use but predominantly residential buildings are currently prevented from buying their freehold, as hon. Members have indicated. Clause 3 amends the 1993 Act to increase that limit from 25% to 50%. This has been consulted on widely and was recommended by the Law Commission. Where residential leaseholders take up the majority of the floor space in a building, it is our view that they should be able to access the long-term security and control that comes with freehold ownership, if they choose to do so.
We recognise that this change impacts freeholders. If the leaseholders choose to buy their freehold, the freeholder stands to lose ownership of individual buildings, and that may fragment ownership of some areas over a longer timeframe. We believe that impact to be justified not only because of the significant benefit to leaseholders but because freeholders will be compensated for that loss. We do not believe, as a principle, that the single contiguous ownership of space is absolutely necessary for buildings to be managed well.
We have also heard arguments from leaseholders that they will be unable to professionally manage mixed-use buildings. Although I understand their point, through, for example, the delegation of a building’s management to an agent, that should be overcome. I accept the points made and understand the shadow Minister’s point on the difficulty of ensuring that leaseholders can be engaged to the point where they pass the threshold, whatever the number—and all numbers are ultimately arbitrary. As he has indicated, I think the Committee will return to this, but we think the clause, as it stands, is the right approach. Therefore, we resist the amendment and hope that the shadow Minister will withdraw it.
Matthew Pennycook
First, on the Minister’s response, I am slightly reassured but not wholly convinced. I would like the opportunity to go away, look carefully at his remarks and consider whether we need to come back to this, and I reserve that right, Mr Efford.
On amendment 1, I am frankly not convinced by the arguments made by the Minister and the hon. Member for Walsall North. We well understand the concerns that they have both drawn attention to. As I have said, it is an inherently subjective decision as to where that threshold is drawn. We also accept that, when it comes to existing buildings, the number of leaseholders who are potentially excluded will be small in number. But we want to avoid a situation where our constituents are coming to us in buildings with a 51% or 52% rate and saying, “We can’t collectively enfranchise as you intended. We are frustrated by the powers in the Bill.” On the basis of the Minister’s argument, we will have to say to them, “You have to wait a good few years for another leasehold Bill—maybe many years based on the history of leasehold reform—for such a change to come forward.” It is a continuum; this a substantial change, and we are trying to build some flexibility into that change.
Barry Gardiner
Does my hon. Friend agree that this will probably affect the little people a lot more than the big, because of the likelihood of achieving 50% commercial within a leasehold block? Many of our town and city centres have buildings with commercial below and very few flats above. Therefore, it is much more likely that it will be a group of people—yes, a small group—living in that situation, rather than in the Shard, coming to us complaining.
Matthew Pennycook
My hon. Friend makes a good point: it is not just the number but the type of leaseholder who we are potentially excluding. All we are saying, as I argued in great detail, is that Ministers should have flexibility to change, if there is sufficient evidence to suggest that large numbers are being excluded or—I refer to the gaming point—we see developers building with a 51% area just to escape the threshold. We do not propose that the 50% change; we think it is an appropriate and fair starting point, but surely the Government need some flexibility in this area.
I must say to the Minister that this is the first time I have heard a Government Minister say no to Henry VIII powers, but I am afraid that his argument for saying no to them was, from my point of view, entirely expedient and not particularly well justified. I urge the Government to think again. I am minded, purely because of the way in which the Minister has responded, to push the amendment to a vote. If the Government are flatly refusing to look at the issue, we must make clear that we feel strongly about it.
Lee Rowley
Clause 4 introduces schedule 1, which repeals rights that enable landlords to block a lease extension or freehold acquisition claim for a house or flat where the landlord intends to redevelop or reoccupy the property. Where the blockers are used, compensation is only paid to leaseholders in houses, not those in flats. The blockers apply to a minority of leases that have not been extended and are very near to ending.
Although that means that, in practice, rights are rarely used, enfranchising leaseholders should have the opportunity to make their decisions about the need and scope of redevelopment once they own the freehold. Leaseholders with few years remaining on their lease should have the option of extending and securing their tenure. Where a lease is extended, landlords will continue to have statutory break rights that can terminate leases for redevelopment. We will consider break rights in schedule 6 and cover further details about the blockers when we come to consider schedule 1. I commend the clause to the Committee.
Matthew Pennycook
As the Minister has made clear, clause 4 concerns eligibility for enfranchisement and extension in specific cases. It gives effect to schedule 1, which repeals specific limitations on those rights under the 1967 and 1993 Acts. As the Minister has detailed, they include: the right of a landlord to defend a lease extension or collective enfranchisement claim on grounds of redevelopment; the right to defeat a freehold acquisition or lease extension claim for the purposes of retaking possession of the property for personal use; and the limitations that prevent a sublessee from claiming a lease extension if their sub-lease was granted by an intermediate leaseholder out of a lease that had been extended under the relevant Act.
We welcome the clause, which implements, although is not confined to, recommendation 98 of the Law Commission’s final report on leasehold enfranchisement. When considering the case for reform in this area, the Law Commission made clear that its proposal could reduce the value of the leaseholder’s lease as a result of the transfer of some enfranchisement rights from a leaseholder who has previously extended his or her lease pursuant to the legislation to the leaseholder to whom they had subsequently granted a sub-lease. However, the Law Commission ultimately determined that any such loss of value was overstated. Its reasoning was—assuming that I have understood the relevant technical arguments correctly—that there would be no difference in value between the sum that the intermediate leaseholders could expect to obtain if their lease was acquired in a collective freehold acquisition under the present law and the value of the intermediate leaseholder’s interest in the light of its proposal.
Lee Rowley
I am grateful to the hon. Gentleman for his contribution. As he indicates, this is—I think by common consent—a rare issue in the first place, not that that diminishes the importance of ensuring that we get it right. It is very complicated, as he has indicated; different leases will have different elements within them and it is impossible to comment on every single case or every single instance, as has been indicated, because of the complexity. I am not aware that there is an indication that there is a general reduction in the value of leases for the very small number that this will cover. I will write to the Committee if what I have just said is incorrect or needs clarification in any way. I hope that, on that basis, we can make progress.
Matthew Pennycook
I welcome that clarification from the Minister and the offer to provide us with further details should they be needed.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Schedule 1
ELIGIBILITY FOR ENFRANCHISEMENT AND EXTENSION: SPECIFIC CASES
Lee Rowley
I beg to move amendment 57, in schedule 1, page 82, line 16, at end insert—
“Exception to enfranchisement for certified community housing providers
3A (1) The LRA 1967 is amended as follows.
(2) In section 1 (tenants eligible for enfranchisement and extension), after subsection (1B) insert—
‘(1C) This Part of this Act does not confer on a tenant a right to acquire the freehold of a house and premises if the landlord under the existing tenancy is a certified community housing provider (see section 4B).’
(3) After section 4A insert—
‘4B Meaning of “certified community housing provider’
(1) For the purposes of this Part of this Act, a person is a “certified community housing provider” if the appropriate tribunal has issued a community housing certificate in respect of the person.
(2) A community housing certificate is a certificate that the tribunal has determined that the person—
(a) is a community land trust within the meaning of section 2(7A) of the Leasehold Reform (Ground Rent) Act 2022, or
(b) is of a description, or satisfies conditions, specified for this purpose in regulations made by the Secretary of State.
(3) The tribunal may issue a community housing certificate only in respect of a person that has made an application to the tribunal for the certificate.
(4) The tribunal may cancel a community housing certificate—
(a) on the application of the person in respect of which the certificate is issued, or
(b) on the application of a tenant affected by the certificate, if the tribunal considers that—
(i) the person in respect of which the certificate is issued does not fall within subsection (2)(a) or (b), or
(ii) the certificate was obtained by deception or fraud.
For this purpose a tenant is “affected by” a certificate if, by virtue of section 1(1C), the tenant does not have the right to acquire the freehold because the certificate is issued in respect of their landlord.
(5) The effect of the tribunal cancelling the certificate is that the person is not a certified community housing provider unless the tribunal issues a new community housing certificate.
(6) The Secretary of State may by regulations provide for—
(a) the procedure to be followed in connection with an application for a community housing certificate;
(b) the procedure to be followed for the cancellation of a community housing certificate (including in connection with an application for the cancellation);
(c) any matters to which the tribunal must have regard in deciding whether to issue or cancel a community housing certificate.
(7) The Secretary of State may by regulations make provision about the application of this Part in circumstances where—
(a) a landlord’s application for a community housing certificate has not been concluded when a tenant gives notice of their desire to have the freehold of a house and premises under this Part, or
(b) a tenant’s claim to have the freehold of a house and premises under this Part has not been concluded when a landlord’s application for a community housing certificate is made.
(8) Regulations under subsection (7) may in particular provide for—
(a) the claim for the freehold to be paused or to have no effect;
(b) a time period for the purposes of this Part to be extended in connection with the application;
(c) the landlord to compensate a tenant or reversioner in respect of reasonable costs incurred in connection with a claim to acquire the freehold—
(i) if the tenant ceases to have the right to acquire the freehold because of the issue of a certificate under this section, or
(ii) if the costs are incurred as a result of the claim being suspended because of an application for a certificate under this section;
(d) enforcement by the appropriate tribunal of any of the requirements of the regulations;
(e) the appropriate tribunal to make orders that are supplementary to the issue of a community housing certificate.
(9) Regulations under this section—
(a) may make different provision for different purposes;
(b) are to be made by statutory instrument.
(10) A statutory instrument containing regulations under this section (whether alone or with other provision) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.’
3B (1) The LRHUDA 1993 is amended as follows.
(2) In section 5 (qualifying tenants for enfranchisement), after subsection (2)(a) insert—
‘(aa) the immediate landlord under the lease is a certified community housing provider (see section 8B); or’
(3) Before section 9 insert—
‘8B Meaning of “certified community housing provider’
(1) For the purposes of this Chapter, a person is a “certified community housing provider” if the appropriate tribunal has issued a community housing certificate in respect of the person.
(2) A community housing certificate is a certificate that the tribunal has determined that the person—
(a) is a community land trust within the meaning of section 2(7A) of the Leasehold Reform (Ground Rent) Act 2022, or
(b) is of a description, or satisfies conditions, specified for this purpose in regulations made by the Secretary of State.
(3) The tribunal may issue a community housing certificate only in respect of a person that has made an application to the tribunal for the certificate.
(4) The tribunal may cancel a community housing certificate—
(a) on the application of the person in respect of which the certificate is issued, or
(b) on the application of a leaseholder affected by the certificate, if the tribunal considers that—
(i) the person in respect of which the certificate is issued does not fall within subsection (2)(a) or (b), or
(ii) the certificate was obtained by deception or fraud.
For this purpose a leaseholder is “affected by” a certificate if, by virtue of section 5(2)(aa), the leaseholder is not a qualifying tenant because the certificate is issued in respect of their immediate landlord.
(5) The effect of the tribunal cancelling the certificate is that the person is not a certified community housing provider unless the tribunal issues a new community housing certificate.
(6) The Secretary of State may by regulations provide for—
(a) the procedure to be followed in connection with an application for a community housing certificate;
(b) the procedure to be followed for the cancellation of a community housing certificate (including in connection with an application for the cancellation);
(c) any matters to which the tribunal must have regard in deciding whether to issue or cancel a community housing certificate.
(7) The Secretary of State may by regulations make provision about the application of this Chapter in circumstances where—
(a) a landlord’s application for a community housing certificate has not been concluded when a nominee purchaser gives notice under section 13 of a claim to exercise the right to collective enfranchisement, or
(b) a claim to exercise the right to collective enfranchisement has not been concluded when a landlord’s application for a community housing certificate is made.
(8) Regulations under subsection (7) may in particular provide for—
(a) the claim for the freehold to be paused or to have no effect;
(b) a time period for the purposes of this Chapter to be extended in connection with the application;
(c) the landlord to compensate the nominee purchaser, a tenant or a reversioner in respect of reasonable costs incurred in connection with a claim to exercise the right to collective enfranchisement—
(i) if a person ceases to be a participating tenant because of the issue of a certificate under this section (and in this case the compensation may relate to reasonable costs for which the person is liable that are incurred after the person ceases to be a participating tenant),
(ii) if the participating tenants cease to have the right to collective enfranchisement because of the issue of a certificate under this section, or
(iii) if the costs are incurred as a result of the claim being suspended because of an application for a certificate under this section;
(d) enforcement by the appropriate tribunal of any of the requirements of the regulations;
(e) the appropriate tribunal to make orders that are supplementary to the issue of a community housing certificate.’
(4) In section 39(3)(a) (qualifying tenants for extension), before ‘(5)’ insert ‘(2)(aa), ’.
(5) In section 100 (orders and regulations), after subsection (2) insert—
‘(2A) But a statutory instrument containing regulations under section 8B (whether alone or with other provision) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.’”
This amendment would provide for an exception to enfranchisement (but not extension) for tenants of certified community housing providers (persons certified as managing land for the benefit of local communities).
Lee Rowley
As we considered regarding clause 4, schedule 1 repeals blockers to enfranchisement claims. The schedule repeals blockers that enable landlords to block claims for lease extensions and freehold acquisitions where the landlord intends to redevelop a property. The rights apply to cases where leases are very near to ending and, again, are rarely used. Compensation is paid to leaseholders only where the blockers are used in houses, not flats.
The schedule also repeals blockers that apply to niche cases, including: a blocker allowing a landlord or their family to reoccupy a house, which now applies to very few leases, due to its criteria; a public authority development blocker that has fallen from use; and a blocker to sub-lease extensions, where they are granted out of a superior extended lease.
The schedule makes consequential amendments that are necessary because of the repeals that I have just described. Where a lease is extended, landlords continue to have statutory break rights, which we will consider in later deliberations, and they may continue to seek voluntary agreements to end a lease. Public landlords may also have access to compulsory purchase orders. I commend that measure to the Committee.
I will now speak to amendment 57 and the consequential amendments 30 and 32. While we want to encourage many more leaseholders to buy their freeholds, there are good reasons for certain properties to be exempt from freehold ownership. For instance, certain community-led developments, providing affordable housing for local people, wish to be exempt from freehold acquisition—that is not their original purpose and it should not become so—so that the homes can remain affordable for the benefit of the community in perpetuity.
These amendments exempt community land trusts, a form of community-led housing, from freehold acquisition, as that model of housing relies on land being held in single ownership to remain as community-led housing. The amendments also provide a power for the Secretary of State to define in regulations further types of community-led housing, should that be necessary in future.
The exemption will only apply to an organisation once it has obtained a certificate from the tribunal that it satisfies the definition of community-led housing. That ensures that the exemption is properly targeted and not misused. An organisation will cease to benefit from the exemption if the certificate is cancelled by the tribunal. That includes where the organisation no longer satisfies the definition of a community-led housing organisation, or where the organisation asks the tribunal to cancel the certificate.
These amendments will protect the benefits of genuine community-led housing schemes from being lost to future generations. I therefore commend them to the Committee.
Finally, I beg to move amendment 58 in my name.
The Chair
Order. Amendment 58 is in the next group. We are debating Government amendments 57, 30 and 32 to schedule 1.
Lee Rowley
My apologies, Mr Efford. I thought that we were debating these as a group. I will come to amendment 58 when we get to that group.
Matthew Pennycook
I rise briefly to speak to these four Government amendments and to make a wider comment on them and the other 116 amendments that have been tabled in the Minister’s name over recent days.
Having scrutinised these amendments as carefully as we could in the time available, we are as confident as we can be that none is problematic. Indeed, we very much welcomed the exemption provided for community-led housing.
As confirmed to the Committee by Professor Nick Hopkins, 18 of the 120 Government amendments tabled in Committee implement Law Commission policy that was not in the Bill as introduced and on which Law Commission staff have been involved in instructing parliamentary counsel. The vast majority of the other 102 amendments are merely technical in nature. Providing that the Minister sets out clearly their effect and rationale, as he just has in relation to this group of amendments, we do not intend to detain the Committee over the coming sessions by exploring the finer points of each.
However, I feel I must put on record our intense frustration at the fact that so many detailed Government amendments were tabled just days before commencement of line-by-line scrutiny began. The practice of significantly amending Bills as they progress through the House has become common practice for this Government and in our view it is not acceptable. Other Governments have done it, but it has become the norm under this Government. It impedes hon. Members in effectively scrutinising legislation and increases the likelihood that Acts of Parliament contain errors that subsequently need to be remedied, as happened with the Building Safety Act 2022; as the Minister will know, we have had to pass a number of regulations making technical corrections to that Act.
When it comes to this Bill, the Government have had the Law Commission’s recommendations for almost four years and access to Law Commission staff to aid parliamentary counsel with drafting. There really is no excuse for eleventh-hour amendments introducing Law Commission policy or technical amendments designed to clarify, correct mistakes, or ensure consistency across provisions.
Barry Gardiner
Is my hon. Friend as surprised as I was to find that a 133-page Bill has a 102-page amendment paper? As he says, this came late. It is not just Opposition Members who mind; it is hon. Members of all parties who want to adequately scrutinise the Bill. It makes life very difficult to go through detailed amendments, often amending previous legislation—therefore, we have to get that legislation and see what the impact of the changes is—and it impedes the work of Parliament in that respect. The Minister should explain why many of these amendments were tabled so late in the day.
Matthew Pennycook
I completely agree with my hon. Friend. I think I am justified in saying that it is frankly laughable that this has happened. We have an amendment paper that is almost—and may be, in due course—larger than the Bill itself. It reeks of a Government in disarray. Though I know that the Minister has picked up this Bill part-way through its development, I urge him not only to do what he can to ensure that when the Government publish any Bill it is broadly in the format they wish it to proceed in and see passed, but also to table any further amendments to this Bill in good time so that we can give them the level of scrutiny that leaseholders across the country rightfully expect.
Rachel Maclean
I will not detain the Committee for long. In response to those comments from the Opposition, I observe only that when they were last in government— in 2002, if I am correct—they had the opportunity to address the system and rectify the failures that we are now dealing with. It is now left to this Government to do it. On that note, I want to say to my hon. Friend the Minister how important it is that the community-led housing sector is excluded. I would not normally say that about any form of housing, but we have recently strengthened the national planning policy framework to encourage more of that type of housing. We know it is popular and often commands local support, while other types of housing sadly do not, and we need to see more of it built. The sector has had extensive discussions. This is a sensible amendment, which I support.
Lee Rowley
I thank my hon. Friend for confirmation of the importance of community-led housing, which we have spoken about previously. I absolutely agree about its importance.
I will not get into a broader conversation about the processes of government, other than to say that I note the concerns of the hon. Members for Brent North and for Greenwich and Woolwich. The intention is to give the Committee and the House as a whole as much scrutiny as possible. I am sure that the hon. Members will understand that, outside the bounds of the points that they are making, getting proposed legislation ready is often a complicated process—in particular ensuring that it is as correct as it can be. None the less, I have noted their points, but I hope to be grateful for their support for the underlying provision we are debating.
Amendment 57 agreed to.
Lee Rowley
I beg to move amendment 58, in schedule 1, page 82, line 28, at end insert—
“Eligibility of leases of National Trust property for extension
4A For section 32 of the LRA 1967 (saving for National Trust) substitute—
‘32 National Trust property
(1) Property is “inalienable National Trust property” for the purposes of this section if an interest in the property is vested inalienably in the National Trust for Places of Historic Interest or Natural Beauty under section 21 of the National Trust Act 1907.
(2) This Part does not prejudice the operation of section 21 of the National Trust Act 1907, and accordingly a tenant does not have the right under this Part to acquire the freehold of inalienable National Trust property.
(3) The right to an extended lease has effect subject to the following provisions of this section only if and to the extent that the existing tenancy demises inalienable National Trust property.
(4) In a case where the existing tenancy is a post-commencement protected National Trust tenancy, the tenant does not have the right to an extended lease.
(5) In a case where the existing tenancy is a pre-commencement protected National Trust tenancy, this Act is to have effect in relation to the right to an extended lease without the amendments made by the Leasehold and Freehold Reform Act 2024 (but without altering the effect of this subsection).
(6) In any other case, the right to an extended lease has effect subject to subsections (7) and (8).
(7) In determining whether the tenant has the right to an extended lease, the following requirements in section 1 do not apply—
(a) any requirement for the tenancy to be at a low rent;
(b) any requirement in section 1(1)(a)(i) or (ii) for the house and premises or the tenancy to be above a certain value.
(8) If the tenant exercises the right to an extended lease, the new tenancy must contain the buy-back term which is prescribed for this purpose in regulations made by the Secretary of State (the “prescribed buy-back term”).
(9) A “buy-back term” is a term which gives the National Trust the right to buy the whole or part of the extended lease if—
(a) it is proposed to make a disposal of the extended lease that is of a description specified in that term (which may be a disposal of the whole or a part of the property demised), or
(b) the National Trust exercises a prescribed buy-back term that is contained in a lease which is inferior to the extended lease.
(10) The prescribed buy-back term may, in particular, make provision about—
(a) the procedure where it is proposed to make a disposal that is of a description specified in the term;
(b) the procedure for exercising the right to buy;
(c) the price payable;
(d) the payment of costs incurred in connection with the operation of the term (including requirements for one person to pay costs incurred by another person);
(e) the operation of the term if the National Trust is not a party to the extended lease.
(11) If the National Trust is not the landlord under the extended lease, the National Trust may at any time apply to the appropriate tribunal for an order to secure that the extended lease is varied to contain (if or to the extent that it does not already do so) the prescribed buy-back term; and an order made on such an application may appoint a person who is not party to the extended lease to execute a variation of the lease.
32ZA Section 32: supplementary provision
(1) For the purposes of section 32, the existing tenancy is a “protected National Trust tenancy” if the tenancy is prescribed, or is of a description of tenancies prescribed, in regulations made by the Secretary of State.
(2) Regulations may not provide for a tenancy to be a protected National Trust tenancy unless the tenancy is within case A or case B.
(3) Case A: some or all of the property let under the tenancy is—
(a) property to which the general public has access, or
(b) part of property to which the general public has access (whether or not the general public has access to any property let under the tenancy),
whether the arrangements for public access are managed by the National Trust, the tenant or another person.
(4) Case B: the existing tenancy was granted to—
(a) a former owner,
(b) a relative of a former owner, or
(c) the trustees of a trust whose beneficiaries are or include—
(i) a former owner, or
(ii) a relative of a former owner.
(5) Regulations under section 32 or this section—
(a) may make different provision for different purposes;
(b) are to be made by statutory instrument.
(6) A statutory instrument containing regulations under section 32 or this section is subject to annulment in pursuance of a resolution of either House of Parliament.
(7) In section 32 and this section—
“commencement” means the day on which paragraph 4A of Schedule 1 to the Leasehold and Freehold Reform Act 2024 comes into force;
“disposal” , in relation to an extended lease, includes—
(a) the grant of a sub-lease of property demised by the extended lease;
(b) a change in control of a body (whether or not incorporated) which owns the extended lease;
(c) the surrender of the extended lease;
(d) a disposal (of any kind) for no consideration;
“former owner” , in relation to inalienable National Trust property let under a tenancy, means—
(a) a person who transferred the freehold of the property to the National Trust,
(b) a person who owned the freehold of the property immediately before its transfer to the National Trust by, or at the direction of—
(i) the Commissioners for His Majesty’s Revenue and Customs,
(ii) the Commissioners of Inland Revenue, or
(iii) the Treasury,
(c) a person whose executors transferred, or directed the transfer of, the freehold of the property to the National Trust, or
(d) a person who was a beneficiary under a trust whose trustees transferred, or directed the transfer of, the freehold of the property to the National Trust;
“post-commencement protected National Trust tenancy” means a tenancy which—
(a) was granted on or after commencement, unless it was granted under an agreement made before commencement, and
(b) is a protected National Trust tenancy;
“pre-commencement protected National Trust tenancy” means a tenancy which—
(a) was granted—
(i) before commencement, or
(ii) on or after commencement under an agreement made before commencement, and
(b) is a protected National Trust tenancy;
“relative” includes a person who is related by marriage or civil partnership;
“right to an extended lease” means the right under this Part to acquire an extended lease.’
4B For section 95 of the LRHUDA 1993 (saving for National Trust) substitute—
‘95 National Trust property
(1) Property is “inalienable National Trust property” for the purposes of this section if an interest in the property is vested inalienably in the National Trust for Places of Historic Interest or Natural Beauty under section 21 of the National Trust Act 1907.
(2) Chapter 1 does not prejudice the operation of section 21 of the National Trust Act 1907, and accordingly there is no right under Chapter 1 to acquire an interest in inalienable National Trust property.
(3) The right to a new lease has effect subject to the following provisions of this section only if and to the extent that the existing lease demises inalienable National Trust property.
(4) In a case where the existing lease is a protected National Trust tenancy, the tenant does not have the right to a new lease.
(5) If—
(a) the existing lease is not a protected National Trust Tenancy, and
(b) the tenant exercises the right to a new lease,
the new lease must contain the buy-back term which is prescribed in regulations made by the Secretary of State (the “prescribed buy-back term”).
(6) A “buy-back term” is a term which gives the National Trust the right to buy the whole or part of the new lease if—
(a) it is proposed to make a disposal of the new lease that is of a description specified in that term (which may be a disposal of the whole or a part of the property demised), or
(b) the National Trust exercises a prescribed buy-back term that is contained in a lease which is inferior to the extended lease.
(7) The prescribed buy-back term may, in particular, make provision about—
(a) the procedure where it is proposed to make a disposal that is of a description specified in the term;
(b) the procedure for exercising the right to buy;
(c) the price payable;
(d) the payment of costs incurred in connection with the operation of the term (including requirements for one person to pay costs incurred by another person);
(e) the operation of the term if the National Trust is not a party to the new lease.
(8) If the National Trust is not the landlord under the new lease, the National Trust may at any time apply to the appropriate tribunal for an order to secure that the new lease is varied to contain (if or to the extent that it does not already do so) the prescribed buy-back term; and an order made on such an application may appoint a person who is not party to the new lease to execute a variation of the lease.
95A Section 95: supplementary provision
(1) For the purposes of section 95, the existing lease is a “protected National Trust tenancy” if the lease is prescribed, or is of a description of leases prescribed, in regulations made by the Secretary of State.
(2) Regulations may not provide for a lease to be a protected National Trust tenancy unless the lease is within case A or case B.
(3) Case A: some or all of the property let under the lease is—
(a) property to which the general public has access, or
(b) part of property to which the general public has access (whether or not the general public has access to any property let under the lease),
whether the arrangements for public access are managed by the National Trust, the tenant or another person.
(4) Case B: the existing lease was granted to—
(a) a former owner,
(b) a relative of a former owner, or
(c) the trustees of a trust whose beneficiaries are or include—
(i) a former owner, or
(ii) a relative of a former owner.
(5) Regulations under section 95 or this section—
(a) may make different provision for different purposes;
(b) are to be made by statutory instrument.
(6) A statutory instrument containing regulations under section 95 or this section is subject to annulment in pursuance of a resolution of either House of Parliament.
(7) In section 95 and this section—
“disposal” , in relation to a new lease, includes—
(a) the grant of a sub-lease of property demised by the new lease;
(b) a change in control of a body (whether or not incorporated) which owns the new lease;
(c) the surrender of the new lease;
(d) a disposal (of any kind) for no consideration;
“former owner” , in relation to inalienable National Trust property let under a tenancy, means—
(a) a person who transferred the freehold of the property to the National Trust,
(b) a person who owned the freehold of the property immediately before its transfer to the National Trust by, or at the direction of—
(i) the Commissioners for His Majesty’s Revenue and Customs,
(ii) the Commissioners of Inland Revenue, or
(iii) the Treasury,
(c) a person whose executors transferred, or directed the transfer of, the freehold of the property to the National Trust, or
(d) a person who was a beneficiary under a trust whose trustees transferred, or directed the transfer of, the freehold of the property to the National Trust;
“relative” includes a person who is related by marriage or civil partnership;
“right to a new lease” means the right under Chapter 2 to a new lease.’”
This amendment would provide for tenants of National Trust properties to have the right to extension, subject to exceptions, and subject to a requirement to grant the National Trust the right to buy back the property in certain circumstances.
Lee Rowley
My enthusiasm for the amendment was such that I started to speak to it earlier, but I am now moving it in the correct place.
The National Trust play a big role in looking after the heritage of the nation. Inalienable National Trust land is held for the benefit of the nation, forever. In order to ensure that that land remains in national ownership for future generations, freehold acquisition is restricted on National Trust land. None the less, the Government want to see National Trust leaseholders’ rights improved.
The amendment means that National Trust leaseholders will benefit from the new lease extension rights in line with other leaseholders, so that the 990 years will apply in this instance. The new rights will be subject to a narrow exception for a small number of leases of specified visitor attraction properties and donor leases. That will allow the trust to make bespoke lease agreements when a noteworthy property comes into its ownership—for example, where a property could be opened to the public in whole or in part, or where arrangements have been made with family members when a property has been gifted to the state and the trust itself. Those limited exceptions will be set out in regulations made by the Secretary of State in due course. Those leaseholders will retain their existing lease extension rights where they already have them.
The amendment also makes provision for the National Trust to buy back an extended lease at market value, if the existing leaseholder chooses to dispose of their lease. That will allow the National Trust to manage the long-term use of its inalienable land on behalf of the nation. I commend the amendment to the Committee.
Amendment 58 agreed to.
Schedule 1, as amended, agreed.
Clause 5
Acquisition of intermediate interests in collective enfranchisement
Question proposed, That the clause stand part of the Bill.
Lee Rowley
The clause sets out how intermediate leases and leases of common parts are treated in collective enfranchisement claims for flats. In home ownership, intermediate leases are the middle rungs on a ladder between the freeholder at the top, and the leaseholder with rights at the end. Leases of common parts might cover parts of premises such as stairways.
The clause will introduce proposed new schedule A1 to the 1993 Act. The schedule sets out a series of gateways that require leaseholders to acquire certain interests, but also grants them further choices to reduce premiums. Qualifying leaseholders who participate in a claim must acquire all intermediate leases superior to their leases. They can, however, choose to leave in place the part of an intermediate lease superior to those qualifying leaseholders who are not participating. The intention is that this will help to reduce the premium where not all leaseholders wish to participate.
For example, leaseholders could leave the head lease in place above two out of eight flats, where the two are not participating. Where leaseholders acquire only part of a lease, they still need to acquire the relevant parts of leases above it in the chain to prevent a disrupted management structure.
The schedule sets out that leaseholders do not need to acquire a whole lease of common parts where certain legal tests are met, which will help to reduce premiums. The schedule prevents the acquisition of special cases of intermediate leases in collective enfranchisement. That includes qualifying leaseholders who own the immediately superior intermediate lease and landlords with enfranchisement rights over a flat. Those parts of leases can be retained by the owners to preserve their homes or tenure at the property. The schedule sets out various mechanisms for allowing leases to be left in place. That is done via an existing process called severing, and clause 16(6) gives the tribunal new powers to determine the terms of that.
The schedule preserves the necessary elements of the existing law that prevent ill effects arising from collective enfranchisement. Landlords can continue to require leaseholders to acquire interest, for instance where it would be impossible to maintain the premises. An exception that prevents the acquisition of interest held by public sector landlords continues. I commend the clause to the Committee.
Matthew Pennycook
Clause 5 is extremely technical. It concerns the treatment of intermediate leases during a collective enfranchisement. I beg the Committee’s forgiveness for the level of complexity I am about to throw at the Minister; nevertheless, it is important to the leaseholders who stand to be affected. As the Minister said, the clause replaces section 2 of the 1993 Act on to the acquisition of leasehold interest, with a new schedule, A1, that will henceforth govern the acquisition of intermediate interests during a collective enfranchisement process.
New schedule A1 enacts part or all of five recommendations made by the Law Commission in chapter 13 of its 2020 report, and is uncontentious. However, when considering the treatment of intermediate leases and other leasehold interests in that chapter, the Law Commission recommended that a duty be imposed on the landlord dealing with the enfranchisement claim
“to act in good faith and with reasonable skill and care”
toward other landlords involved. Any such landlord should be able to apply for directions from the tribunal about the conduct of the response to the claim. It also recommended corresponding requirements for landlords who are not dealing with the claim to provide all necessary information and assistance to the landlord who is, and to contribute to the non-litigation costs of that landlord.
My reading of schedule A1 is that its effect will be that any settlement reached between a leaseholder and the landlord who is dealing with a claim, and any determination of that claim by the tribunal, will be binding on all other landlords. Assuming that I have interpreted the schedule correctly, can the Minister make clear why it does not appear to implement the duties and requirements that the Law Commission recommended should apply to landlords who are dealing with the claim and landlords who are not, respectively?
Finally, while I appreciate that we will consider the issue of valuation in more detail when we come to consider clauses 9, 10 and 11, I would be grateful if the Minister could also provide some clarification on how the Bill proposes to calculate enfranchisement premiums in instances where there are intermediate leases. Am I right in believing that schedule 2 treats intermediate leases as merged for the purposes of valuation?
On a related matter, the Minister will also be aware that the Law Commission set out the option of generally disregarding the existence of an intermediate lease when determining the premium payable on enfranchisement on the grounds that it would simplify the calculation and create greater fairness between leaseholders and between landlords, as premiums would not differ solely because of the existence or otherwise of one or more intermediate leases. It also recommended that on any individual lease extension claim, the rent payable by an intermediate landlord should be commuted on a pro rata basis.
If I have understood the relevant provisions correctly, neither proposal was incorporated into the Bill as first published. The second of those recommendations appears to be addressed by Government amendments 73 and 95. I would be grateful if the Minister could confirm whether my reading of those amendments is correct in that regard—via correspondence, if he needs to, as I appreciate that these are extremely technical questions. Broadly, we would like the Minister to expand on his remarks and provide some clarity about the treatment of intermediate leases during collective enfranchisement and the extent to which this part of the Bill as a whole reflects the Law Commission’s proposals. I look forward to hearing the Minister’s response.
Lee Rowley
My response is short. I will happily write to the hon. Gentleman and to the Committee in due course on the technicalities to ensure that is correct.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
Right to require leaseback by freeholder after collective enfranchisement
Barry Gardiner
I beg to move amendment 127, in clause 6, page 9, line 42, at end insert—
“(3A) Any lease granted to the freeholder under paragraph 7A must contain a provision that any sub-lease created by the freeholder under their leaseback must contain a provision requiring the sub-lessee to contribute to the service charges reasonably incurred by the managing agent directly or indirectly appointed by the nominee purchaser.
(3B) The provision mentioned in subsection (3A) is implied into all pre-existing subordinate leases to a leaseback granted to a freeholder under paragraph 7A.”
Barry Gardiner
It is helpful to the Committee that we had the evidence session, because Liam Spender, the lawyer from Velitor Law, spoke directly about this matter.
We welcome leaseback because it is an important part of enabling tenants in commercial, or partly commercial, buildings to enfranchise. However, imagine that a person has just newly enfranchised, and some of the residents in that block have not participated in the enfranchisement process. It has been quite an acrimonious job debating and arguing with the landlord to get the enfranchisement to happen, but they finally have it. However, the landlord, or the former landlord, may not be happy about it. His capacity, now as the tenant, to cause problems is enhanced by the existing lease that those who have not enfranchised have with him. The moneys that need to be collected for the new landlord’s service charge do not come directly to them.
The whole point of the clause is to minimise those problems. There should be a condition in the leaseback to make it clear that any sub-lease that the former landlord gives, or retains, must contain a provision to say that the service charge is payable to the new landlord. Otherwise, we have a very torturous process in which those sums, which are required for the servicing of the building, may be delayed by a former landlord who feels aggrieved that he has lost control.
Matthew Pennycook
My hon. Friend raises an interesting point, which has value. However, if he will forgive me, I would like some more time to consider any unintended consequences before I determine whether we could support it. Perhaps we could come back to it at a later stage, but if he is determined to push it I will come up with a position from the Front-Bench team.
Clause 6 inserts into the 1993 Act a new leaseback right for tenants participating in a collective enfranchisement claim, enabling them to require their landlord to take a leaseback of particular flats or units in the building, other than flats let to a participating tenant. We welcome the clause, as my hon. Friend made clear, which implements recommendation 21 of the Law Commission’s final report on leasehold enfranchisement.
At present, leasebacks are mandatory in certain circumstances. A landlord can also require leaseholders to grant them a leaseback of any unit not let to a qualifying tenant, or any flat or unit occupied by them and of which they are the qualifying tenant. However, leaseholders do not enjoy the right to require their landlord to take a leaseback with the effect that, in instances where the landlord refuses a request for a leaseback, perhaps because they are deliberately seeking to frustrate the process entirely, the premium payable in an enfranchisement claim includes the value of that interest.
The new leaseback right introduced by the clause will ensure that premiums that leaseholders would otherwise have to pay will be reduced. Collective freehold acquisition will become a possibility for larger numbers of them because a key funding constraint—namely having to pay for the reversionary value of those flats and units as part of their claim—will have been removed, and in many cases, collective freehold acquisition claims will be made considerably more affordable as a result. It will also increase certainty by ensuring that leaseholders have a far more accurate estimate of the costs of a claim at the outset. Finally, it is essential to ensuring that the increase in the non-residential limit from 25% to 50%, which we debated earlier, is of practical benefit to leaseholders. Without a new leaseback right, many leaseholders who would otherwise be interested in collectively enfranchising would be deterred because the cost of purchasing the whole of a building containing up to 50% commercial space would be prohibitive.
I have two questions for the Minister. The first concerns intermediate leases, which we have just considered under the previous clause. As I believe may have been highlighted by some respondents to the Law Commission consultation, there will be circumstances in which a leaseback of some units to the landlord would not reduce the premium by any significant amount, because the majority of the value in the units in question will be held not by the landlord but by an intermediate interest. This obviously raises again the issue of how the Bill treats the calculation of enfranchisement premiums in instances in which there is an intermediate lease. I would be grateful if the Minister could clarify whether the Bill seeks in any way to address the impact that intermediate leases might have on the benefits that leaseholders could otherwise expect to secure as a result of the new leaseback right.
My second question concerns the terms of the leaseback required under the new right. My understanding is that these will be for a term of 999 years at a peppercorn ground rent, as under the current law, but I would be grateful if the Minister could confirm that that is the case and perhaps provide the Committee with any other important detail about leaseback terms that will apply to them.
Lee Rowley
I will turn first to the amendment from the hon. Member for Brent North. I appreciate the point that he has made, and he articulated it very well. He is rightly concerned that all those who have an interest in a building should need to pay for it. The amendment’s intent is to require any leases granted to include a requirement to make contributions to service charges, as he articulated. Our understanding—I have checked, following the introduction of his amendment—is that the existing law should sufficiently cover this and it should be unlikely that intermediate landlords will not ensure that their sub-lessees contribute to the service charges of a property. But I recognise that the hon. Gentleman has a lot of experience, knowledge and background in this area over many years, so if he wants to write to me separately, with examples of where we potentially have not understood the detail of the point that he is making, I will be happy to look at that in more detail.
Matthew Pennycook
I intervene just briefly so that I can put this on the record. One of my slight concerns about the amendment from my hon. Friend the Member for Brent North is that it could complicate pro rata charges for leaseholders. I just wonder whether the Government have given that any thought. In many ways, the amendment is entirely unproblematic, and we support the intention, but there are a couple of concerns, that being one. Is that part of the Government’s thinking on my hon. Friend’s amendment?
Lee Rowley
I am grateful to the hon. Gentleman for pointing that out. As indicated, this all needs to be considered in the round. Very few things come without trade-offs and without consideration of other implications. One reason why we are not able to support this amendment today is that we do not think that it is necessary. As a result, I hope that the hon. Member for Brent North will not push it to a vote but will withdraw it. If we have missed something, I will be happy to look at that separately. As the hon. Member for Greenwich and Woolwich suggested, this is something that we do not think is necessary in the wider scheme of things, but if there is a thing that we have missed, I will happily take further information on it.
I will now turn to clause 6, which has been discussed already to some extent. The Government want to broaden access to collective enfranchisement, so that more leaseholders can buy their freehold. However, we recognise that increased access will remain theoretical if many leaseholders are unable to afford to buy their freehold. Therefore, this enfranchisement must be cheaper if leaseholders are to gain the benefits of the ownership that is being sought.
Clause 6 introduces a leaseback right for leaseholders that, if they elect to use it as part of a claim, will in some cases significantly reduce the up-front price that they must pay. “Leaseback”, as has been indicated, is the term commonly used to refer to an intermediate lease over part of a building that is granted to the outgoing freeholder as part of an enfranchisement claim. This leaseback covers the value of the unit, which is therefore retained by the outgoing freeholder and reduces the cost for leaseholders of buying the freehold. Currently, the outgoing freeholder can require the leaseholders taking forward a collective enfranchisement to grant the freeholder a leaseback of any non-qualifying units in a building. Clause 6 gives leaseholders an equivalent right to require the outgoing freeholder to take a 999-year leaseback, at a peppercorn rate, of any non-participating units in the building as part of the claim.
In mixed-use buildings, the question of affordability is even more acute, as leaseholders must pay for the freehold interest in non-residential parts of the building, which they have no existing financial interest in, as well as their flats, which they already partly own.
Barry Gardiner
I am grateful to the Minister for his remarks. It is clear that the Government do not feel that the amendment is necessary and that there will not be a problem with the newly enfranchised freeholder being able to obtain the service charge from all the leaseholders. If that is the case, I will be happy to withdraw the amendment.
I would, however, like the Minister to set out in writing to me and the Committee precisely why he believes that there is not a problem. If we still disagree, we can then bring the amendment back on Report and discuss it further. It would be really helpful to be clear about why the Government are confident that problems will not arise. We have made legislation on the basis of optimism before, and unfortunately our experience is that freeholders can often be quite vindictive.
Lee Rowley
I am happy to give the hon. Gentleman that assurance, and I will be happy to write to him.
Barry Gardiner
On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 6 ordered to stand part of the Bill.
Clause 7
Longer lease extensions
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Currently, leaseholders of houses can claim a lease extension of 50 years, and leaseholders of flats can claim an extension of 90 years. Leaseholders of houses can only ever make one lease extension claim; leaseholders of flats will need to claim repeated extensions both within and between generations, with associated costs. Leaseholders often have to worry about the value of their lease falling as the term runs down.
Clause 7 will amend the lease extension term for houses in the 1967 Act, from 50 to 990 years, and for flats in the 1993 Act, from 90 to 990 years. There is no restriction on the number of claims that can be made, although with a 990-year extended term it is envisaged that only one extension will be necessary; 990 years is as long an extension as can be reasonably given while facilitating multiple periods of 90 years to allow for consistency with existing leases and redevelopment breaks.
Increasing to 990 years the term of the statutory lease extension right maximises the benefit to leaseholders and gives leaseholders much greater security in their homes. This is particularly important where leaseholders do not qualify or are not in a position to buy their freehold.
The increase in the extension term will mean that leaseholders do not have to claim repeated extensions, pay associated repeated transaction costs or worry about the value of their property falling as the lease runs down. Leaseholders of flats and houses will be able to obtain a lease extension of 990 years at a peppercorn ground rent, in exchange for a premium determined by the amended valuation scheme set out in clauses 9 to 11.
I turn to clause 8. Currently, a lease extension for a house under the 1967 Act is made without payment of a premium, but in return for a modern ground rent during the period of the extension, where that rent is similar to a market rent. Because we are increasing the extension term to 990 years at a peppercorn rent, landlords will need to be compensated by payment of a premium, as is the case for flats. The clause makes amendments to the 1967 Act to ensure that landlords will be sufficiently compensated when a 990-year lease extension at a peppercorn is granted for a house. A qualifying leaseholder can obtain an extension of 990 years at a peppercorn ground rent in exchange for a premium determined by the amended valuation scheme set out in clauses 9 to 11.
Matthew Pennycook
I will spend some time on the clauses, because they are important.
As the Minister set out, clause 7 changes the lease extension rights given to tenants of houses and tenants of flats by the 1967 and 1993 Acts, respectively, to provide for a 990-year lease extension rather than, as is currently the case, a 50-year extension under the 1967 Act and a 90-year extension under the 1993 Act. Clause 8 works in conjunction with clause 7 to that end, by making consequential amendments to the 1967 Act that are required to set ground rents under such extensions at a peppercorn and ensure that the premium payable is based on the amended valuation scheme set out in clauses 9 to 11, as the Minister made clear.
Taken together, the clauses not only provide for the standard lease extension term to increase to 990 years at a peppercorn rent, but ensure that the rights available to tenants under each of the Acts are made equivalent. This reform, which draws on recommendations 1 and 2 of the Law Commission’s final report on leasehold enfranchisement, is long overdue. The right to extend one’s lease is important for leaseholders who do not qualify for a right of freehold acquisition or who do enjoy such a right but, for whatever reason, either cannot or do not wish to purchase the freehold. It is particularly important for leaseholders who live in blocks of flats, as the vast majority do in constituencies such as mine, because it is the only enfranchisement right they can exercise when acting alone. However, both the 50-year lease extension available to leaseholders of houses under the 1967 Act and the 90-year extension available to leaseholders of flats under the 1993 Act are too short to provide adequate security of tenure.
The principle of a right to an extension of a considerably longer time is therefore the right one. As the Minister argued, it will particularly help to protect those leaseholders with short remaining lease terms at the point at which the extension is secured, and will avoid the need for a second extension to be sought and secured in short order. We also feel that the choice of a standard 990-year lease is the right one. Once the principle of a very long lease extension has been accepted, the case for taking the additional period as close to 999 years is watertight. A more modest extension, which the Law Commission did consider, would provide only temporary relief and would require many leaseholders to make a second claim in relatively quick succession. The proposed 990-year lease extension right will avoid the need for further lease extension claims in the future, will provide leaseholders with a substantially enhanced interest in their homes and will bring leaseholders extremely close to outright freehold ownership.
It is also right that we legislate to introduce a uniform right applicable and available to both leaseholders of houses and leaseholders of flats, so we support the alignment of the lease extension rights for which the clause provides. There is no justification for maintaining the discrepancy in the law as it stands, where the right to a lease extension for a house is considerably less favourable than the equivalent right to a lease extension for a flat. In sum, we fully support leaseholders who qualify for a lease extension under the 1967 or 1993 Act being given the right, on payment of an appropriate premium, to extend their lease and in so doing to secure a peppercorn rent.
I have five questions for the Minister about these important clauses. The first relates to redevelopment. In recommending that an additional period of 990 years should be added to the remaining term of the existing lease in the cases of both houses and flats, the Law Commission also proposed that redevelopment break rights should be maintained. These are rights accorded to a landlord to terminate a lease that has been extended and to regain possession of the property in order to carry out redevelopment work. The Law Commission recommended that they should be maintained during the last 12 months of the term of the original lease or the last five years of each period of 90 years after the commencement of the extended term.
We fully appreciate that many leaseholders will find the very notion of such break rights problematic, and the Law Commission recognises that maintaining rolling break rights, as under the 1967 Act, would create unnecessary uncertainty. However, difficulties relating to the lifespan of buildings are an issue we have to grapple with, not least because they will become more pressing over time when lease extensions become significantly longer by default. As the Law Commission’s recommendation on development break rights has not made it into the Bill, I would be grateful if the Minister explained the Government’s determination to omit it. Some would argue that there is a strong case, in a world in which 990-year lease extensions are the default, for the sensible provision of development break rights.
My second question concerns when the rights provided by clauses 7 and 8 will come into effect. The clauses present leaseholders who have recently obtained a lease extension, or who will be compelled to obtain one—for the purposes of moving home or mortgaging, say—before the commencement date, with a real dilemma, because the only way they will benefit from a 990-year extension and a peppercorn ground rent in instances where that is not already the case is by making a further extension claim in short order. The fact that any such leaseholders will have recently extended their lease with, in all likelihood, a peppercorn ground rent will mean that the premium payable will be low, but there will still be a cost.
I would be grateful if the Minister made it clear whether the Government have given any consideration to how to ensure that the premium in such cases is as low as possible, to avoid some leaseholders facing costs that others will not face, simply as a result of the sharp transition from one set of arrangements to another. Better still, could he outline precisely how commencement will operate in respect of the clauses? Will he tell us whether the Government might consider amending the Bill to ensure that the new rights come into force on, or very soon after, Royal Assent, so that they can be enjoyed by leaseholders confronting the need for an extension as quickly as possible?
My third question relates to ground rents. We will explore the issue in considerable detail when we consider clause 21, but I would be grateful if the Minister told us, in relation specifically to lease extensions, how clauses 7 and 8 will operate if the Government’s response to the consultation “Modern leasehold: restricting ground rent for existing leases”, which closed last week, is, as per the Secretary of State’s declared preference, to table amendments to enact option 1, namely capping ground rent at a peppercorn for all existing leases from a given date.
All we want to know is whether the ground rent provisions in clause 8 would be rendered irrelevant. In other words, are they unnecessary? If so, will the Government have to make further amendments to the clause to ensure that, in conjunction with clause 7, it provides only for a 990-year lease extension and does not make changes to ground rent provisions in any way? Presumably they will need to be abolished by further Government amendments that will potentially abolish ground rents for all existing leases.
My fourth question concerns the technical matter of who the competent landlord is for the purpose of lease extensions under the 1993 Act. The provisions within clauses 7 and 8 will mean that even in circumstances where there is a head lease of 999 years at a peppercorn rent, which is a fairly common occurrence, the owner will be entitled to all of the premium. Nevertheless, it is the freeholder, not the head lessee, who will have to handle the claim. That raises the obvious question of why a freeholder should engage with the process at all, given that it will leave them out of pocket.
Schedule 1 to the 1967 Act includes provisions designed to overcome the problem by providing that a long head lessee is the reversioner. Will the Minister tell us why a similar set of provisions is not being introduced to the 1993 Act to provide that a very long head lessee in a block of flats is to be regarded as the competent landlord, not the freeholder? If there is no justification for that omission, might the Government go away and consider whether it is necessary to overcome that problem?
My fifth and final question concerns the Government’s commitment to use the Bill to legislate for a ban on new leasehold houses. The Government amendments providing for such a ban have still not been tabled, so we cannot engage with the detail. However, given that it is the Government’s stated intention effectively to do away with leasehold houses, I would like to probe the Minister on the reasoning behind providing, by means of clauses 7 and 8, leaseholders in houses with a right to a 990-year lease extension at a peppercorn rent, for which the premium will be the same as if it were a freehold enfranchisement. Is this—I am being generous to the Minister—an example of muddled thinking on the Government’s part that might require review? I look forward to hearing the Minister’s response.
Richard Fuller (North East Bedfordshire) (Con)
I want to speak briefly in support of the third point made by the shadow Minister, the hon. Member for Greenwich and Woolwich, in which he addressed the interaction of the Bill with the Government’s ground rent consultation. If I heard him correctly, he was asking the Government at least to be clear as to how those recommendations will affect the Bill. He was asking the Government to be clear on their position; I will not go as far as that, because I think the Government have the discretion to decide when they want to announce that or not.
However, there is another issue that the Minister could perhaps consider: the impact assessment on the valuation, which we, as Members of Parliament, are being asked to address in this Bill. As we heard in the evidence sessions, the current impact assessment may potentially omit a significant amount of value that will be taken into account as part of the ground rent reform. If it is the Government’s intention to introduce amendments on that, as the shadow spokesman was asking, it would be useful to have clarity from the Minister on that, but we should also ask the Minister whether an updated impact assessment can be presented to incorporate what the value of those recommendations would be.
Rachel Maclean
I rise briefly to add my support for some of the comments and, most importantly, for the ability of leaseholders to extend their leases. As we know, this is one of the most egregious features of the current system: people buy properties that they then find have short leases, after which they are whacked with massive charges coming out of the blue; they do not understand how those charges are calculated, and they end up having to pay them because they have no choice. They are completely over a barrel. I know that leaseholders will massively welcome this change, which is one of the most important parts of the whole Bill.
Having said that, it is vital that we understand when we will see the Government’s response on the ground rent consultation, as my hon. Friend the Member for North East Bedfordshire and the shadow spokesperson, the hon. Member for Greenwich and Woolwich, have said. It will, of course, affect the calculations.
I also want to raise with the Committee the number of people who have sat in front of me and asked, “When will you bring this forward? I don’t know whether to extend my lease now or wait another year or for another consultation”. It is a huge number of people. I want to make this point to everybody: if we get this right, it will affect a lot of people very beneficially.
Barry Gardiner
I am glad that co-operation is breaking out across the aisle. It seems that this change is one of the really big issues of the Bill. Looking through the Bill, yes, there was disappointment that it does not go far enough and there is no commonhold, but this is a real change. It is something that Members on both sides of the Committee have welcomed, and we heard evidence from our witnesses about just how important it is. It is strange, therefore, that we do not now see the meat of it in the Bill. I will not go so far as to say that it is more than strange, as my hon. Friend the Member for Greenwich and Woolwich suggested, but we do need it.
This provision will liberate a whole group of people who fear what we call the ground rent grazers. They are the ones—the freeholders—who have created a rentier structure over the past 15 years. It did not even exist 25 years ago. What people used to do 25 years ago, when the ground rent was payable, was write a cheque to the freeholder, and the freeholder would bin it. Then, three weeks later, the freeholder would send a lawyer’s letter to the tenant, saying that because they had not paid their ground rent on time, they were now being charged £625 for their legal fees in having to chase it, including the £25 ground rent. That is a bad practice that has evolved and the Government need to clamp down on it and get it sorted.
Lee Rowley
I thank hon. Members for their questions and comments, which I will try to address. There is obviously a desire to understand the interaction of the two clauses with the outcome of the consultation that closed last week. We saw to some extent in our deliberations last week, on the first two days in Committee, when we took evidence, that this is a contested area. As a result and notwithstanding the fact that by convention in this place we have the ability to speak freely, I hope the Committee will understand that I will limit my remarks.
I understand the eagerness, enthusiasm and legitimate desire of the Committee to understand the position that we will seek to provide. We will provide that to the Committee, and publicly, as soon as possible. It will not be possible for me to answer all the questions that were asked today. I accept the point made by my hon. Friend the Member for North East Bedfordshire that there is a difference between process and decision, but some elements of the process could be impacted by the decision and it will therefore be difficult to engage in hypotheticals at this stage. However, we will respond to the legitimate points that the Committee has made as soon as we are able to do so.
I agree with the points made by the hon. Member for Greenwich and Woolwich and by my hon. Friend the Member for Redditch about the importance of clarifying how quickly the provisions will come into force. Again, that is a difficult one to answer because we need to get through this process. We have no idea what the other place might or might not do or how quickly the process will go. Although we are all grateful for the confirmation from my Labour colleagues that we are seeking to move this as quickly as possible, it is difficult to be able to answer the question at this stage, but I hope to say more in due course.
On the fourth question posed by the hon. Member for Greenwich and Woolwich, about the competent landlord, my understanding is that we are not changing the law in that regard.
Richard Fuller
I am listening carefully to the Minister and sort of accept what he says, but may I make a couple of points? First, he has talked about how the Bill has to go through the House of Lords, but we are the democratically elected Chamber. The interaction of the two provisions represents substantial transfers in value between different parts of our community—rightly or wrongly. Decisions should correctly be made with the full information by this House. We should not go through a procedure when information is presented in the unelected House, which then comes back to the Commons. With our remit as Back-Bench Members of Parliament, we are very restricted in what we can do to amend that.
Secondly, the Minister talked about how the points about value are hypothetical. That is the case only because the Government have not made a decision. Once they make a decision, those points of value can be forecast. They are no longer hypothetical but judgmental, so it really is within the Minister’s remit to be able to move from hypothetical to his own forecast. Having said that, I fully accept what the Minister has said so far.
Lee Rowley
I am grateful to my hon. Friend for his legitimate points. He is absolutely right that it is important that right hon. and hon. Members have an opportunity to debate at the earliest possible opportunity the complex interaction of what we may or may not choose to do with the consultation. I take his point about hypotheticals. My point was simply that there are a number of different options in the Bill. Some of them are substantially different, as my hon. Friend indicated in some of his questions last week. To go through all the elements of the potential outcomes in all of those different options would be a substantial amount of work and potentially not necessary on the basis that we are likely to choose some rather than all of them. None the less, where I have missed anything out, I will—
Eddie Hughes
The point being made is one of proportion. We are talking about a couple of a billion pounds versus up to £25 billion, £27 billion, which is a significant amount of money for the Government to be considering transferring, as my hon. Friend says, from one party to another. The size of the costs that might be incurred from one party to another makes it important for us to know as soon as possible.
Lee Rowley
I absolutely accept the potential significance of the quantum involved, which is why we all seek to be as clear as we can at the earliest opportunity.
Barry Gardiner
I am conscious that we are talking about the transfer of value as if it were neutral, but leaseholders have been telling us for a long time that this value has been unjustly acquired from them in the first place. The Government seek simply to remediate the position that the law has got itself into. When we consider this, we must understand the injustice that has been perpetrated on people who live in leasehold houses, and have been paying ground rents that have been racked up in an unconscionable way for far too long.
Lee Rowley
The hon. Gentleman is articulating his argument with passion, as he did last week on a similar point in some of the witness sessions. I reconfirm to the Committee that we seek to process the outcome of that consultation as quickly as we are able, and to provide hon. Members and the public with clarity at the earliest opportunity. None the less, while recognising the important interaction of clauses 7 and 8 with the consultation, I hope that underneath there is general consent for clauses 7 and 8. I hope I have covered most of the questions asked. I will write to the Committee in response to the question from the hon. Member for Greenwich and Woolwich about redevelopment, because I need to obtain clarity on that.
Matthew Pennycook
I welcome the Minister’s response. He did not address—perhaps he will find time on another occasion—the Government’s potential inconsistency in, on the one hand, extending lease extension terms at peppercorn for houses, under the 1967 Act, and, on the other, seeking to ban leasehold houses in their entirety. The Government might want to explore that, to ensure the package as whole is consistent and working as intended. He is welcome to write to me on that point, as well as on redevelopment rights.
I take the Minister’s point on the competent landlord. My point was not whether the Bill is fine as drafted; it is the fact that we need to change the 1993Act to account for the set of circumstances I outlined. There is provision in the 1967 Act to cover that problem. As far as we can tell, this Bill does not amend the 1993 Act to account for it. I encourage him to look at that.
On the two substantive issues, there is inherent uncertainty about commencement. Of course, we want the Bill to progress and apply to as many leaseholders as possible. I was trying to stress to the Minister the need to look at the point at which the Bill kicks in. In some Bills, certain provisions come into force at First Reading. We are worried, as the Bill goes through Parliament, about a set of leaseholders being left out of these rights unfairly, given the time we have spent progressing the Law Commission’s recommendations. I encourage him to give some thought to that.
On ground rents, I understand entirely that the matter is commercially sensitive. I am not asking for an opinion from the Minister on the consultation, although we do need an indication of the Government’s thinking as soon as possible. We also need to understand, as I will come to when we debate clause 21, whether the Government intend to enact any recommendations from that consultation, via this Bill.
What I am looking for is clarity, which he should be able to give us at this stage, on this hypothetical point. If any proposals from that consultation are enacted, clauses 7, 8 and 21 are potentially redundant. We simply need to know whether the Government will further overhaul those clauses, if they take forward any of those recommendations. That is hypothetical, but the Minister should be able to answer. The Government have presumably thought, “Yes: if that scenario occurs and we take forward one of the five options, we will or will not have to revise the Bill.” That is the answer that I am simply looking for from the Minister. If he wants to take this opportunity to clarify that, I would welcome it.
Lee Rowley
The hon. Gentleman tempts me to go into hypotheticals. Let me at least dip my toe into that for a moment. Let us take some of the potential outcomes of the consultation discussed today, for example, and the question of whether they potentially will make redundant some of the clauses. In one of the instances, where there is a fear, concern or question, it would still be the case that potentially amendments to clause 8 would need to be introduced, for example, on ground rents, so depending on the scenario it would not make that entirely redundant. I will not go into hypotheticals to their logical and total extent, but I hope that that gives some assurance that consultation has been held and we will bring forward what is appropriate in due course.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mr Mohindra.)
Leasehold and Freehold Reform Bill (Seventh sitting)
Thursday 25th January 2024
(10 months, 3 weeks ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 January 2024 - (25 Jan 2024)
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
Matthew Pennycook (Greenwich and Woolwich) (Lab)
I beg to move amendment 6, in schedule 7, page 119, line 12, leave out sub-sub-paragraph (a).
This amendment would ensure that all leaseholders, not just those with residential leases of 150 years or over, have the right to vary their lease to replace rent with peppercorn rent.
Matthew Pennycook
It is a pleasure to continue our line-by-line consideration of the Bill with you in the Chair, Mr Efford. For the sake of probity, I declare once again that my wife is the joint chief executive of the Law Commission, whose reports on leasehold and commonhold reform I will continue to cite throughout my remarks.
Part 2 of the Bill makes changes to other rights of long leaseholders. Four of its five clauses are concerned with improving the right to manage, but as we touched on briefly at the end of the Committee’s previous sitting, clause 21, which brings schedule 7 to the Bill into effect, makes provision for a new enfranchisement right to buy out the ground rent and vary it permanently to replace the relevant part of the rent with a peppercorn rent, without having to extend the lease.
We welcome the intent of the schedule. The reform will ensure that leaseholders can enjoy reduced premiums and secure nominal ground rent ownership of their properties without the need to go through the challenge and expense of repeated lease extensions. In the Law Commission’s final report on enfranchisement rights, it considered in great detail whether there should be a range of lease extension rights in order to provide greater flexibility than is currently afforded to leaseholders as a result of the provisions in the Leasehold Reform, Housing and Urban Development Act 1993 that require them simultaneously to extend the terms of their lease and to extinguish their ground rent.
The rationale for providing greater flexibility in this area is that in allowing leaseholders to choose either only to extend their lease or only to extinguish their ground rent, leaseholders could avoid paying the landlord the value of the remainder of the original terms and the deferral of the reversion, with the result that premiums would be reduced accordingly.
While taking into account the clear benefits that greater flexibility would provide for in terms of reduced premiums, the Law Commission, in its reports, clearly wrestled with whether it was sensible to recommend a more nuanced approach to lease extension rights. It did so, because of the complexity that the availability of different lease extension options would inevitably create, and the corresponding opportunities that such complexity would present to unscrupulous landlords who might seek to take advantage of those leaseholders unable to access costly professional advice about the best choice to make from the available options.
Without doubt, allowing for choices other than a uniform right to a fixed additional term at a nominal ground rent will make the statutory right to a lease extension more complicated. I will return shortly to the implications of clause 21 and the schedule in that regard. However, on the principle of allowing for greater choice, the Law Commission ultimately decided that despite the increased complexity that it would engender, leaseholders who have a lease with a long remaining term should, on payment of a premium, be entitled to extinguish the ground rent payable under the lease without extending the terms of it.
The commission felt, rightly in our view, that that right is likely to be utilised mainly by those with relatively long leases who are subject to onerous ground rent provisions, or those with relatively long leases and ground rents that are not definitionally onerous but still entail, for a variety of reasons, a significant present or future financial burden. In such cases, even if the premium payable is not significantly reduced, the prescribed capitalisation rates provided for by schedule 2 to the Bill should make valuations simpler and enable the change to be made by means of a simple deed of variation, rather than a deed of surrender and regrant, as required to extend the terms of a lease now.
The schedule implements the Law Commission’s recommendation for that right to extinguish the ground rent only. As I have made clear, we support it. We have, however, moved the amendment, which would delete the Government’s proposed 150-year threshold, to press the Minister on the reason or reasons for which the Government have decided to confer that right only on leaseholders with leases with an unexpired term of more than 150 years.
To be clear, we understand fully the argument made by those who believe that the right to extinguish a ground rent without extending a lease should only be conferred on those with sufficiently long leases—namely, that the premium for the reversion increases significantly as the unexpired period of the lease reduces, and leaseholders with leases below a certain threshold should therefore be, in a sense, compelled to peppercorn their ground rent and to extend at the same time by means of the reduced premiums that clauses 7 and 8 of the Bill should enable.
However, what constitutes a sufficiently long lease for the purposes of conferring this new right is ultimately a matter of judgment. The Law Commission recommended that the threshold should be set at 250 years on the basis that the reversion is of negligible value at that lease length. The Government chose not to accept that recommendation and instead are proposing a threshold of 150 years. The Minister may provide us with a different answer in due course, but we assume the reason they did so is simply that this will make the new right to extinguish a ground rent available to many more leaseholders.
However, if that is the case, it obviously follows that setting a threshold of, say, 125 years or even 100 years would make it available to even more of them. The argument against doing so is that leaseholders with leases below a certain threshold should be, in effect, compelled to extend their lease at the same time as peppercorning their rent because not doing so would, in many cases, disadvantage them.
However, that obviously raises more fundamental questions, such as whether it should be up to leaseholders to navigate the wider range of options that will be made available to them if and when this Bill receives Royal Assent, and whether the fact that some leaseholders with relatively short leases may either advertently or inadvertently disadvantage themselves by extinguishing without extending their lease should mean that everyone below the 150-year threshold is prohibited from enjoying the new right introduced by the schedule.
Even assuming one believes it is the role of Government to set a long-lease threshold, it is not entirely clear to us why the Government have alighted on 150 years given that there could be all sorts of reasons why someone with a lease shorter than such a term might want to only buy out their rent, including simply that they are unable to afford the premium required to secure a 990-year lease. As such, we would like the Minister to justify in some detail, if he could, why the Government alighted on a 150-year threshold as opposed to either the Law Commission’s proposal of 250 years or a lower threshold that would give many more leaseholders the right to extinguish their ground rent. We would like to ask him to consider whether, as we believe on balance, there is a strong case for simply deleting the 150-year threshold entirely, given that the “remaining years” test that applies is inherently arbitrary. I hope the Minister will give amendment 6 serious consideration, and I look forward to his thoughts on it.
While we are considering this schedule, I also want to probe the Minister again on the Government’s intentions in respect of the recently closed consultation on restricting ground rent for all existing leases, and specifically how any proposals arising from that consultation will interact with this schedule given that it provides a right to peppercorn ground rents in existing leases. As I made clear when we briefly considered this matter in relation to clauses 7 and 8, I am obviously not asking the Minister to provide this Committee with an advanced indication of what the Government’s formal response to that consultation will be. However, we remain of the view that this Committee needs to know, if the Government ultimately do choose to enact any of the five options for intervention that were consulted upon, what the implications are for the provisions that are currently in the Bill that we are being asked to approve today.
On Second Reading, the Secretary of State was quite clear that at the conclusion of the consultation, the Government would
“legislate on the basis of that set of responses in order to ensure that ground rents are reduced, and can only be levied in a justifiable way.”—[Official Report, 11 December 2023; Vol. 742, c. 659.]
As members of the Committee will know, he was also open with the Levelling Up, Housing and Communities Committee prior to Second Reading about the fact that his favoured approach would be a peppercorn rent—in other words, option 1 from the consultation. I am conscious that many people across the country who bear leaseholders no ill will whatever have invested, almost uniformly on advice and in good faith, in freehold funds. I have constituents who have invested, for example, in time investments and other such funds that have invested in freehold properties. However, I personally share the Secretary of State’s preference not least because, while ground rents exist even at relatively low levels, they will be a major impediment to the widespread adoption of commonhold.
There is a more fundamental issue with ground rents that we need to grapple with. As we have discussed already, over the past two decades, the consequence of the kind of investment we have seen is a system increasingly focused on generating assets by gouging leaseholders through ground rents that are, in historical terms, high to start with and that escalate over the terms of the lease. Leaseholders who worked hard to purchase their own homes and did so in good faith are being asked to pay ever more money for no clear service in return and many are experiencing considerable financial distress and difficulties selling their property, all to sustain the income streams of third-party investors.
Unregulated ground rents of this nature in existing leases cannot be justified. Although we do not discount the risks involved in any of the five options outlined in the consultation, Labour is clear that the Government must act to protect leaseholders from ground rent exploitation and that they should be courageous in determining which of the consultation proposals should be enacted.
All that said, we obviously cannot pre-empt the consultation in question. What is important for the purposes of considering schedule 7, and clause 21, is that we get a clear answer from the Minister as to what the potential implications of any response would be for leaseholders. Specifically, will the schedule have to be revisited should the Government ultimately choose to enact one of the five options in the consultation? Are we correct in assuming that clause 21 and the schedule will have to be overhauled, if not removed from the Bill entirely, in that scenario? If not, how will the Government ensure that the various measures are aligned? It is a hypothetical question, as I am sure the Minister will indicate, but it is entirely reasonable, given that we are being asked to approve the inclusion of the schedule in the Bill. On our reading of the ground rent consultation, the schedule could entirely change the implications; indeed, it may well have to be removed entirely to ensure that the Bill is consistent. On that basis, I hope the Minister will give us a bit more detail. He gave us some on Tuesday, but we need a little more detail on that point.
The Minister for Housing, Planning and Building Safety (Lee Rowley)
I am grateful for the comments from the hon. Member for Greenwich and Woolwich, and for his amendment. I will say a few words in general before turning to some of his specific questions.
As he indicated, the ground rent buy-out right enables leaseholders with very long leases to buy out their ground rent on payment of a premium, without having to extend their lease. A leaseholder with a very long lease who does not need an extension may want to buy out the ground rent without extending the lease, but others may wish to do it in a different way.
I appreciate the hon. Member’s points about the amendment, and I understand why he is seeking to extend the right to vary one’s lease to as many leaseholders as possible, so I will try to answer some of his questions. Inevitably, as he indicated, there is essentially an arbitrary decision to take on any number, because moving it up or down would change the provision slightly and incrementally each time, so there is an element of having to put a finger on the scale. As he said, the right is an implementation of the Law Commission’s recommendation 3(2), which suggested that it should be available for leaseholders with 250 years remaining, but the Government have indicated that they want to set the term at 150 years. The reason given by the Law Commission for making this right available only to those with very long leases, which the Government support, is to limit it to leaseholders who are unlikely to be interested in, or do not need, a lease extension.
Making the right available to all leaseholders, irrespective of their term remaining, would mean that leaseholders who will need a lease extension at some point might opt first to buy out only the ground rent, but would need to extend their lease in due course. That would potentially disadvantage leaseholders in two ways. First, as the term on the lease runs down, the price on the lease extension accelerates. Secondly, a leaseholder who buys out their ground rent first and later extends the lease will pay two sets of transaction costs. It is entirely legitimate to say, “That is the choice of individuals,” and I have some sympathy with that argument. On balance, however, the Government recognise that there is a series of things within leasehold law that are permissible but not necessarily advantageous for some groups and sectors. By moving further in this regard, we might inadvertently create another one, which future iterations of Ministers and shadow Ministers might debate removing.
I should make it clear—the hon. Member knows this—that it is not the case that leaseholders with fewer than 150 years remaining do not have the right to buy out their ground rent: they buy out their ground rent when they extend their lease or buy the freehold, and that buy-out will also be subject to the cap. However, the right to buy out the ground rent without extending the lease is for leaseholders with 150 years or more remaining, for the reasons I have given.
Turning to some of the hon. Member’s specific points, the ultimate number is a matter of judgment, and we determined that setting the term at 150 years would offer the right to an incrementally larger group of people. We think that is a reasonable place to be. I accept that others may choose a different number, but that is the number we are proposing in the substantive part of the Bill. I also appreciate his point about the outcome of the consultation being the missing piece of the jigsaw puzzle at the moment.
I will not go through my multiple previous caveats around that, because he acknowledged at least one of them. Recognising that I will not be able to answer all of this, it may be that—subject to the outcome of the consultation—changes are needed. I cannot, however, pre-empt that, and we will have to cross that bridge when we came to it. I realise that is not the ideal place to be, but given that we all share the aim of trying to move this as quickly as possible, I hope it is an acceptable position to move forward from. We can return to it in due course should we need to.
The Chair
Oh, I beg your pardon. I did not catch you out of the corner of my eye. I call Rachel Maclean.
Rachel Maclean
I apologise, Mr Efford. I was not quick enough on my feet. Thank you for calling me, and it is a pleasure to serve under your chairmanship.
I thank the Minister for his comprehensive answer to the shadow Minister’s questions. My point is somewhat in the same vein, and I am very much thinking of the witnesses we had from the National Leasehold Campaign, who talked about this point in quite a bit of detail. Their concern was about having to pay to buy out the ground rent. Of course, there are a number of elements, factors and variables dependent and contingent on the outcome of the consultation. There are people who might be watching this thinking, “Well, when will I actually know how much it is going to cost me?” A year can go by and they may tip over that threshold. Can the Minister give a bit of clarification to those leaseholders who have been trapped for so long and want to see some light at the end of the tunnel? What signpost can he give on when this right will apply to them and how much they will have to pay if they want to exercise their individual right to have their ground rent reduced to a peppercorn?
Lee Rowley
I am grateful to my hon. Friend for raising that point. She is absolutely right that this matter is important to a number of people, and that it is important that we provide the greatest transparency at the earliest opportunity. I hope she will forgive me for not being able to answer her very valid question directly. We are dependent on an appropriate and detailed review of the consultation, which is necessary—for some of the reasons we talked about on Tuesday—given its importance to a number of parts of the sector and others. We need to allow that to conclude, hopefully as swiftly as possible, and then we need to get it through this place and our colleagues in the other place, who can often slow us down. Hopefully, that will happen as soon as possible.
Matthew Pennycook
I thank the Minister for his response. Let me just deal initially with the three Government amendments, with which we take no issue. On the ground rent consultation, I will not labour the point, because I get the sense we will not get any further information out of the Minister. It is always easier to say this from the Opposition side of the Committee, but it would have been logical to have had the ground rent consultation well in advance of the Bill, as then we could have had a Bill with all the elements properly integrated. It is not like the Government did not have enough time. I think that the previous Secretary of State, the right hon. Member for Newark (Robert Jenrick), announced the second part of the two-part seminal legislation back in 2019, so the Government have had time—but that is where we are. By the sound of what the Minister is saying, we will have to significantly overhaul many clauses in the Bill if the Government do decide to enact one of the five proposals.
On amendment 6, I do not find the Minister’s argument convincing. The Law Commission recommended a 250-year threshold. The Government have clearly determined that they need not follow that recommendation to the letter, although they have implemented the principle of it. They have chosen to put their finger on the scale, as the Minister said, at a different threshold. I think trying to put one’s finger on the scale on this particular issue is likely to cause more problems than it solves. I hope the Government might think again about cutting the Gordian knot entirely.
The most common forms of lease are 90, 99 and 125 years. Leaseholders with the most common forms of lease will not be able to enjoy this right. The Government are in effect saying to them, “You must buy out under clauses 7 and 8—your lease extension and your ground rent at the same time.” From what the Minister said, it sounds like the Government think that is right because some leaseholders might disadvantage themselves by trying to exercise only the right in schedule 7. There is a case for giving those leaseholders the freedom to exercise their own judgment on that point—I am surprised the Minister has not agreed with it. A lot of leaseholders will be watching our proceedings who have leases of, say, 120 years and simply do not have the funds available to exercise their right to extend the lease and buy up the ground rent under clauses 7 and 8. This will therefore completely lock leaseholders with shorter leases out of extinguishing their ground rent provisions. We think that is inherently unfair.
Barry Gardiner (Brent North) (Lab)
Does my hon. Friend share my view that the Minister is a reasonable gentleman? [Laughter.] I know it may be specific to us and not widely shared. My hon. Friend having made such an eloquent case, the Minister may go away, reconsider this, speak to his officials, and perhaps, once the consultation has concluded, be able to come back with a different answer.
Matthew Pennycook
I thank my hon. Friend for that intervention, which tempts me to give a number of responses. As I am feeling generous this morning, I will say that I do think the Minister is a reasonable individual —far more reasonable in Committee than he is in the main Chamber—and I suspect that he agrees with me about the 150-year threshold. To encourage him to go away and think further, I think we will press amendment 6 to a vote.
Richard Fuller (North East Bedfordshire) (Con)
I want to take up the point the hon. Gentleman made about the timing of the ground rent review and the implications for subsequent change in the Bill. Has the Opposition looked at what the potential legal liability might be if we move forward with this Bill without clarity on what happens on ground rent, particularly as this is retrospective legislation, and whether there is a potential liability for the taxpayer if that co-ordination does not work effectively?
Matthew Pennycook
We have had access to the advice and opinion of a number of organisations and individuals, which have probably been sent to the whole Committee. We have also sought to engage the opinions of many relevant experts in this area. The honest answer is that we do not know. I think the Minister himself would say openly that there is a sliding scale of risk with each of those options. I fully expect any of those options, if they are introduced, to result in litigation against the Government that seeks to take the matter to Strasbourg under the relevant rules. That has to be factored in. The Secretary of State and the Minister will be getting the relevant advice. That is why I encourage the Minister to be courageous in the option they ultimately choose. We want to strike the right balance by addressing the problem as it exists for leaseholders—that is very clear—but ensuring that whatever option comes forward can stick and is defensible. That is a conversation we will have over the coming weeks and months, because this issue is going to rumble on for some time to come.
Question put, That the amendment be made.
Lee Rowley
I beg to move amendment 79, in schedule 7, page 120, line 3, leave out from “to” to end of line 4 and insert
“—
(a) the landlord under the qualifying lease, and
(b) any other party to the qualifying lease.”
This amendment expands the range of persons to whom a rent variation notice must be given to include persons who are party to the lease (but are not a landlord).
The Chair
With this it will be convenient to discuss Government amendments 80 to 88, 99 and 100, 102 to 104, 106, 118 and 120.
Lee Rowley
These amendments mostly simplify and clarify the provisions in schedule 7.
Amendment 79 will expand the range of persons to whom a rent variation notice must be given, which should now include persons who are part of the lease but not landlords. Amendment 80 applies where a tenant is bringing a lease extension or a freehold acquisition claim. It sets out that the tenant cannot bring a ground buy-out claim while the preceding claim is still in play, because they do not need one and their ground rent will be bought out by the other enfranchisement claim.
Amendment 81 provides that a variation notice must specify the proposed premium and any variations to the lease consequential on the rent. Amendment 82 provides, first, that where a leaseholder has a ground rent buy-out claim and sells their lease, they may pass on the claim to the buyer, and secondly that where a ground rent buy-out claim has been brought and a landlord sells the reversion, the claim is binding on the purchasing landlord.
Amendment 83 applies where a rent variation notice and collective enfranchisement notice, where the leaseholder is not participating, are coincident on the same premises, irrespective of which was served first. It provides that the rent variation notice is suspended while the collective enfranchisement notice is current. It also provides that the landlord must inform the leaseholder of its suspension and must likewise inform the leaseholder if that suspension is later lifted because the enfranchisement claim has ceased to have effect. Amendment 84 provides that the landlord must specify an address at which notices can be given.
Amendment 85 makes technical amendments to remove unnecessary wording. Amendment 86 provides that the landlord must respond to the proposed premium and any variation to the lease consequential on the reduction of the rent in a variation notice in the counter-notice.
Amendment 87 makes technical amendments to remove unnecessary wording. Amendment 88 makes provision for the landlord or leaseholder to apply to the tribunal to determine the case where the landlord does not admit the leaseholder’s right to a peppercorn rent or disputes the rent to which it applies, consequential variations or the proposed premium.
Amendments 99, 100, 102 and 103 all make minor clarifications concerning circumstances when a variation notice ceases to have effect. Amendment 104 removes a provision for reviving suspended claims.
Amendment 106 provides for commutation following a ground rent buy-out, and the obligations and rights of superior landlords. It also provides for the sharing of copies of rent variation notices among landlords, and the application of superior landlords to the tribunal. A landlord in receipt of a rent variation notice must share a copy with anyone they believe to be a superior landlord and is liable for damages for any loss suffered by others should they fail to do so. Likewise, a superior landlord in receipt of a copy must share it with anyone else they believe to be a superior landlord, with the same consequences where there may be non-compliance. Amendments 118 and 120 are consequential on amendment 104. I commend the amendments to the Committee.
Amendment 79 agreed to.
Amendments made: 80, in schedule 7, page 120, line 5, leave out from “notice” to end of line 7 and insert
“is of no effect if it is given at a time when—
(a) a lease extension notice,
(b) a lease enfranchisement notice, or
(c) another rent variation notice,
which relates to the qualifying lease has effect.
(2A) Paragraph 3A makes provision about the suspension of a rent variation notice.”
This provides that a rent variation notice may not be given if another such notice is already in effect; and changes the provision dealing with cases where there is a current claim for collective enfranchisement under the LRHUDA 1993.
Amendment 81, in schedule 7, page 120, line 15, at end insert—
“(4A) A rent variation notice must also specify—
(a) the premium which the tenant is proposing to pay for the rent reduction, and
(b) any other variations which need to be made to the lease in consequence of the reduction of the rent in accordance with this Schedule.”
This requires a rent variation notice to specify the tenant’s proposals for the premium payable for the reduction in rent and for consequential changes to the lease (eg. relating to rent reviews in the lease).
Amendment 82, in schedule 7, page 120, line 20, leave out sub-paragraphs (6) to (8) and insert—
“(6) Where a rent variation notice is given, the rights and obligations of the tenant are assignable with, but are not capable of subsisting apart from, the qualifying lease or that lease so far as it demises qualifying property (see paragraph 2(5) and (6)); and, if the qualifying lease or that lease so far as it demises qualifying property is assigned—
(a) with the benefit of the notice, any reference in this Schedule to the tenant is to be construed as a reference to the assignee;
(b) without the benefit of the notice, the notice is to be deemed to have been withdrawn by the tenant as at the date of the assignment.
(7) If a rent variation notice is the subject of a registration or notice of the kind mentioned in sub-paragraph (5), the notice is binding on—
(a) any successor in title to the whole or part of the landlord’s interest under the qualifying lease, and
(b) any person holding any interest granted out of the landlord’s interest;
and any reference in this Schedule to the landlord is to be construed accordingly.”
This deals with the effect on a rent variation notice of an assignment of the lease or the reversion.
Amendment 83, in schedule 7, page 120, line 41, at end insert—
“Suspension of rent variation notices
3A (1) This paragraph applies if conditions A and B are met.
(2) Condition A is met if—
(a) a rent variation notice is current at the time when a collective enfranchisement notice is given, or
(b) a collective enfranchisement notice is current at the time when a rent variation notice is given.
(3) Condition B is met if—
(a) the rent variation notice relates to premises to which the claim for collective enfranchisement relates, and
(b) the tenant under the lease to which the rent variation notice relates is not a participating tenant in relation to the claim for collective enfranchisement.
(4) The operation of the rent variation notice is suspended during the currency of the claim for collective enfranchisement; and so long as it is so suspended no further notice may be given, and no application may be made, under this Schedule with a view to resisting or giving effect to the tenant's claim for a peppercorn rent.
(5) Where the operation of the rent variation notice is suspended by virtue of this paragraph, the landlord must, not later than the end of the relevant response period, give the tenant a notice informing the tenant of—
(a) the suspension, and
(b) the date on which the collective enfranchisement notice was given, and
(c) the name and address of the nominee purchaser for the time being appointed in relation to the claim for collective enfranchisement.
(6) The landlord must give that notice—
(a) as soon as is reasonably practicable, if a rent variation notice is current when a collective enfranchisement notice is given; or
(b) before the end of the period for responding specified in the rent variation notice in accordance with paragraph 4(7), if a collective enfranchisement notice is current when a rent variation notice is given.
(7) Where, as a result of the claim for collective enfranchisement ceasing to be current, the operation of the rent variation notice ceases to be suspended by virtue of this paragraph—
(a) the landlord must, as soon as possible after becoming aware of the circumstances by virtue of which the claim for collective enfranchisement has ceased to be current, give the tenant a notice informing the tenant that the operation of the rent variation notice is no longer suspended as from the date when the claim for collective enfranchisement ceased to be current;
(b) any time period for performing any action under this Schedule (including the response period) which was running when the rent variation was suspended begins to run again, for its full duration, from and including the date when the claim for collective enfranchisement ceased to be current.
(8) In this paragraph—
“claim for collective enfranchisement” means the claim to which the collective enfranchisement notice relates;
“collective enfranchisement notice” means a notice under section 13 of the LRHUDA 1993 (notice of claim to exercise right to collective enfranchisement).”
This provides for a rent variation notice to be suspended at any time when a claim for collective enfranchisement is current, and the tenant is not participating in the collective enfranchisement.
Amendment 84, in schedule 7, page 121, line 9, at end insert
“and which also specifies an address in England and Wales at which notices may be given to the landlord under this Schedule.”
This requires a counter-notice to specify an address for service for the landlord.
Amendment 85, in schedule 7, page 121, line 13, leave out “qualifying”.
This is a technical amendment which removes unnecessary wording.
Amendment 86, in schedule 7, page 121, line 19, at end insert
“and must also give the landlord’s response to the proposed premium, and any other consequential variations to the lease, specified in the rent variation notice in accordance with paragraph 3(4A).”
This requires the landlord to respond to the tenant’s proposals for the premium and consequential changes to the lease (see Amendment 81).
Amendment 87, in schedule 7, page 121, line 29, leave out “qualifying”.
This is a technical amendment which removes unnecessary wording.
Amendment 88, in schedule 7, page 121, line 36, leave out paragraphs 5 and 6 and insert—
“Application to appropriate tribunal where claim or terms not agreed
5 (1) This paragraph applies if the landlord is given a rent variation notice by the tenant.
(2) If the landlord gives the tenant a counter-notice before the end of the response period which disputes—
(a) that the tenant had the right to a peppercorn rent,
(b) that the right applies to the rent in respect of which it is claimed,
(c) the amount of the premium which the tenant is proposing to pay, or
(d) the consequential variations of the lease proposed by the tenant,
the landlord or tenant may apply to the appropriate tribunal to determine the matters in dispute.
(3) Any application under sub-paragraph (2) must be made before the end of the period of 6 months beginning with the day after the day on which the counter-notice is given.
(4) If the landlord does not give the tenant a counter-notice before the end of the response period, the tenant may apply to the appropriate tribunal to determine—
(a) whether the tenant has the right to a peppercorn rent,
(b) what rent that right applies in respect of,
(c) the amount of the premium which the tenant is to pay, or
(d) the variations of the lease that are to be made.
(5) Any application under sub-paragraph (4) must be made before the end of the period of 6 months beginning with the day after the last day of the response period.”—(Lee Rowley.)
This provides for the Tribunal to have jurisdiction where the tenant’s claim for a peppercorn rent or the terms of lease variation are not agreed by the landlord.
Lee Rowley
I beg to move amendment 89, in schedule 7, page 123, line 12, after “tenant” insert
“, and any other party to the qualifying lease,”.
This requires any third parties to a lease to join in variation of the lease to reduce the rent payable.
Lee Rowley
Again, these amendments mostly simplify and clarify the provisions in schedule 7.
Amendment 89 will require the new third parties referred to in amendment 79 to join in any variation of a lease. Amendment 90 removes reference to, and therefore the existence of, a payment period within which the leaseholder must pay the ground rent buy-out premium to the landlord after a rent variation notice has become enforceable.
Amendment 91 provides that a rent variation notice becomes enforceable once all aspects have been agreed or determined by the tribunal. Amendment 92 is consequential on amendment 91 and provides for a better description of the required rent variation.
Lee Rowley
I beg to move amendment 95, in schedule 7, page 123, line 43, at end insert—
“Reduction of rent under intermediate leases
7A (1) This paragraph applies if, at the time when a rent variation notice is given, there are one or more qualifying intermediate leases.
(2) For the purposes of this paragraph a lease is a ‘qualifying intermediate lease’ if—
(a) the lease demises the whole or a part of the property to which the rent variation notice relates,
(b) the lease is immediately superior to—
(i) the lease to which the rent variation notice relates, or
(ii) one or more other leases that are themselves qualifying intermediate leases,
(c) relevant rent is payable under the lease, and
(d) that relevant rent is more than a peppercorn rent.
(3) The landlord or the tenant under a qualifying intermediate lease may, by giving notice to the relevant landlord or landlords before the variation of lease to which the rent variation notice relates, require the rent payable under the qualifying intermediate lease to be reduced in accordance with sub-paragraphs (6) to (8).
(4) If—
(a) under sub-paragraph (3) the rent under a lease is required to be reduced in accordance with this paragraph, and
(b) that lease is superior to one or more other qualifying intermediate leases,
the rent payable under the other qualifying intermediate lease or leases is also to be reduced in accordance with sub-paragraphs (6) to (8).
(5) The landlord and tenant under a qualifying intermediate lease must vary the lease—
(a) to give effect to a reduction of the rent in accordance with sub-paragraphs (6) to (8), and
(b) to remove any terms of the lease which provide for an increase in the rent, or part of the rent, so reduced.
(6) If the whole of the rent under a qualifying intermediate lease is relevant rent, the rent under that lease is to be reduced to a peppercorn rent.
(7) If only part of the rent under a qualifying intermediate lease is relevant rent—
(a) that part of the rent is to be reduced to zero, and
(b) the total rent is to be reduced accordingly.
(8) But the amount of the reduction in a person’s rental liabilities as tenant is limited to the amount of the reduction in the person’s rental income as landlord; and here—
(a) ‘reduction in a person’s rental liabilities as tenant’ means the reduction in accordance with sub-paragraph (6) or (7) of the rent payable by the person as tenant under the qualifying intermediate lease;
(b) ‘reduction in that person’s rental income as landlord’ means the amount (or total amount) of the relevant reduction (or reductions) in rent payable to that person as landlord of one or more other reduced rent leases.
(9) In this paragraph—
‘reduced rent lease’ means—
(a) the lease to which the rent variation notice relates, or
(b) a qualifying intermediate lease;
‘relevant landlord’ means—
(a) the landlord under the qualifying lease, and
(b) any superior landlord who must be given a copy of the rent variation notice in accordance with paragraph 9D or 9E;
‘relevant reduction’ means—
(a) in relation to the lease to which the rent variation notice relates, a reduction resulting from that tenancy being varied in accordance with the other provisions of this Schedule;
(b) in relation to a qualifying intermediate lease, a reduction resulting from this paragraph.
‘relevant rent’ means rent that has been, or would properly be, apportioned to the whole or a part of the property to which the rent variation notice relates.”
This provides for rent to be reduced (commuted) under leases that are superior to the lease in respect of which a rent variation notice is given under Schedule 7 .
Like amendment 106, amendment 95 provides for commutation following a ground rent buy-out, and the obligations and rights of superior landlords. Amendment 95 provides for commutation for ground rent buy-out and the provision is identical to the commutation provision for lease extensions.
As we have discussed, commutation is the process by which a reduction in the rent of the inferior occupational lease—in this case, by a ground rent buy-out—triggers a reduction in the rent of intermediate leases sitting between the most inferior lease and the freehold. The amendment provides that, if commuted, the relevant rent payable by a tenant of an intermediate lease will be reduced to a peppercorn, but the reduction in rent payable by a tenant of such an intermediate lease must not exceed the reduction in the rent they receive as a landlord of an intermediate lease. I commend the amendment to the Committee.
Amendment 95 agreed to.
Lee Rowley
I beg to move amendment 96, in schedule 7, page 124, line 9, at end insert—
“(2A) An order under this paragraph may appoint a person to execute the variation of the lease on behalf of a party to the variation; and a variation executed in consequence of such an order has the same force and effect (for all purposes) as if it had been executed by that party.”
This authorises the Tribunal to appoint a person a execute the variation of a lease on behalf a party (eg. if they are absent or unco-operative).
Lee Rowley
Again, these amendments mostly simplify and clarify the provisions in schedule 7.
Amendment 97 provides that in the event that there is a failure to vary the lease in response to an enforceable variation notice, an application made to the tribunal for enforcement must be made within four months of the date that that notice became enforceable. Amendment 96 provides that the tribunal may appoint a person to vary the lease on the landlord’s behalf.
Amendment 98 provides that where the tribunal is satisfied that the landlord is missing and that the leaseholder has the right to a peppercorn rent, it may make an order to vary the lease and appoint someone to vary the lease on the landlord’s behalf. I commend the amendments to the Committee.
Amendment 96 agreed to.
Amendments made: 97, in schedule 7, page 124, line 11, leave out from first “of” to end of line 12 and insert
“four months beginning with the day on which the rent variation notice becomes enforceable (within the meaning of paragraph 7).”
This changes the period within which an application under paragraph 8 may be made.
Amendment 98, in schedule 7, page 124, line 12, at end insert—
“Missing landlord or third party
8A (1) On an application made by the tenant under a qualifying lease, the appropriate tribunal may make a determination that the landlord under, or another party to, a qualifying lease cannot be found or their identity cannot be ascertained.
(2) The following provisions of this paragraph apply if the appropriate tribunal makes such determination.
(3) The appropriate tribunal may make such order as it thinks fit including—
(a) an order dispensing with the requirement to give notice under paragraph 3 to that landlord or other party, or
(b) an order that such a notice has effect and has been properly served even though it has not been served on that landlord or other party.
(4) If the appropriate tribunal is satisfied that the tenant has the right to a peppercorn rent, the tribunal make such order as it thinks fit with respect to the variation of the qualifying lease to give effect to that right.
(5) An order under sub-paragraph (4) may appoint a person to execute the variation of the lease on behalf of a party to the variation; and a variation executed in consequence of such an order has the same force and effect (for all purposes) as if it had been executed by that party.
(6) Before making a determination or order under this paragraph, the appropriate tribunal may require the tenant to take such further steps by way of advertisement or otherwise as the court thinks proper for the purpose of tracing the person in question.
(7) If, after an application is made under this paragraph and before the lease is varied to give effect to the right to a peppercorn rent, the landlord or other party is traced—
(a) no further proceedings shall be taken with a view to a lease being varied in accordance with this paragraph,
(b) the rights and obligations of all parties shall be determined as if the tenant had, at the date of the application, duly given the rent variation notice, and
(c) the appropriate tribunal may give such directions as it thinks fit as to the steps to be taken for giving effect to the right to a peppercorn rent, including directions modifying or dispensing with any of the requirements of this Schedule or any regulations.”
This enables the Tribunal to deal with the situation where the landlord or third party to a lease cannot be found or identified.
Amendment 99, in schedule 7, page 124, line 15, after “landlord” insert
“, before the lease is varied in pursuance of the rent variation notice,”.
This clarifies that a notice of withdrawal can only be given before the lease is varied.
Amendment 100, in schedule 7, page 124, line 17, leave out from “is” to end of line 17 and insert
“varied in accordance with the notice”.—(Lee Rowley .)
This provides that rent variation notice ceases to have effect when the lease is varied in accordance with the notice.
Lee Rowley
I beg to move amendment 101, in schedule 7, page 124, line 19, leave out paragraph (c) and insert—
“(c) a lease enfranchisement notice or lease extension notice which relates to the qualifying lease is given;”.
This is consequential on Amendment 119.
Lee Rowley
Again, these amendments mostly simplify and clarify the provisions in schedule 7.
Amendment 101 provides that where a leaseholder has made a ground rent buy-out claim but, before the claim is settled, later makes an extension or acquisition claim, the ground rent buy-out claim ceases to have effect. Amendment 117 provides that the regulatory powers given to the Secretary of State by paragraph 12 are subject to the negative procedure.
Amendment 119 will insert a definition of “lease enfranchisement notice” as a notice for a freehold acquisition for a house or collective enfranchisement for a flat, and a definition of “lease extension notice” as a notice for a lease extension for a house or flat. Those definitions support amendments 80, 101 and 83. I commend the amendments to the Committee.
Amendment 101 agreed to .
Amendments made: 102, in schedule 7, page 124, line 21, leave out paragraph (d) and insert—
“(d) any order setting aside the notice is made by the appropriate tribunal or a court;”.
This is a technical amendment to correct the reference to kind of order that would be made.
Amendment 103, in schedule 7, page 124, line 22, at end insert—
“(da) the appropriate tribunal determines on an application under paragraph 5 that the tenant does not have the right to a peppercorn rent;
(db) the period of six months mentioned in paragraph 5(3) or (5) ends, where the application mentioned there could be made, but is not made before the end of that period;
(dc) the period of four months mentioned in paragraph 8(3) ends, where the application mentioned there could be made, but is not made before the end of that period;”.
This sets out additional circumstances in which a rent variation notice ceases to have effect.
Amendment 104, in schedule 7, page 124, line 28, leave out from “effect,” to end of line 16 on page 125 and insert
“except for any obligation arising under any provision of the LRA 1967 or the LRHUDA 1993 that applies by virtue of paragraph 11.”—(Lee Rowley.)
This clarifies which obligations continue after a rent variation notice ceases to have effect.
Lee Rowley
I beg to move amendment 105, in schedule 7, page 125, line 16, at end insert—
“Tenant’s liability for costs
9A (1) A tenant is not liable for any costs incurred by any other person as a result of the tenant’s exercise of the right to a peppercorn rent, except as referred to in—
(a) sub-paragraph (4),
(b) paragraph 9B (liability where claim ceases to have effect), and
(c) paragraph 9C (liability where tenant obtains the variation of the lease).
(2) A former tenant is not liable for any costs incurred by any other person as a result of the former tenant’s claim to the right to a peppercorn rent, except as referred to in sub-paragraphs (4) and (5).
(3) A lease, transfer, contract or other arrangement is accordingly of no effect to the extent it would provide to the contrary.
(4) A tenant or former tenant is liable for costs incurred by another person in connection with proceedings before a court or tribunal if—
(a) the court or tribunal has power under this Schedule or another enactment to order that the tenant or former tenant pay those costs, and
(b) the court or tribunal makes such an order.
(5) A former tenant is liable for costs incurred by a successor in title to the extent agreed between the former tenant and that successor in title.
(6) In this paragraph and paragraphs 9B and 9C—
“claim” includes an invalid claim;
“former tenant” means a person who was a tenant making a claim to the right to a peppercorn rent, but is no longer a tenant.
Liability for costs: failed claims
9B (1) A tenant is liable to the landlord for a prescribed amount in respect of non-litigation costs if the tenant’s claim ceases to have effect by virtue of paragraph 9(1), unless it ceases to have effect by virtue of—
(a) paragraph 9(1)(b), or
(b) paragraph 9(1)(e) because of the application of section 55 of the LRHUDA 1993.
(2) For the purposes of this paragraph—
(a) “prescribed” means prescribed by, or determined in accordance with, regulations made—
(i) in relation to England, by the Secretary of State;
(ii) in relation to Wales, by the Welsh Ministers;
(b) “non-litigation costs” are costs that are or could be incurred by a landlord as a result of a claim under this Schedule other than in connection with proceedings before a court or tribunal;
(c) where a claim ceases to have effect by virtue of a person who was a tenant assigning their lease without assigning the claim under paragraph 3(6), “tenant” includes that person.
(3) A statutory instrument containing regulations under this paragraph is subject to the negative procedure.
Liability for costs: successful claims
9C (1) A tenant is liable to the landlord for the amount referred to in subsection (2) if—
(a) the tenant makes a claim to the right to a peppercorn rent,
(b) the rent is reduced in consequence of the claim,
(c) the premium payable by the tenant for the variation of the lease is less than a prescribed amount,
(d) the landlord incurs costs as a result of the claim,
(e) the costs are incurred other than in connection with proceedings before a court or tribunal,
(f) the costs incurred by the landlord are reasonable, and
(g) the costs are more than the premium payable.
(2) The amount is the difference between—
(a) the premium payable by the tenant, and
(b) the costs incurred by the landlord, or, if those costs exceed a prescribed amount, that prescribed amount.
(3) In this paragraph “prescribed” means prescribed by, or determined in accordance with, regulations made—
(a) in relation to England, by the Secretary of State;
(b) in relation to Wales, by the Welsh Ministers.
(4) A statutory instrument containing regulations under this paragraph is subject to the negative procedure.”
This provides for a tenant’s liability for costs incurred by other persons in connection with a claim for a peppercorn rent .
This amendment applies the reformed cost regime to ground rent buy-out claims. The amendment makes cost provisions for the ground rent buy-out right. These match the cost provisions for lease extensions for houses and flats. There is a general no-costs rule, but a tenant may be liable for fixed costs if their claim fails, and may be liable for a fixed amount of costs, which would be charged by reducing the value of the premium, if the ground rent buy-out claim is a prescribed low-value claim. A tenant cannot be required to give security for costs. I commend the amendment to the Committee.
Amendment 105 agreed to.
Amendment made: 106, in schedule 7, page 125, line 16, at end insert—
“Duty of landlord to give copies of the rent variation notice to superior landlords
9D (1) This paragraph applies if the landlord is given a rent variation notice by the tenant.
(2) The landlord must give a copy of the rent variation notice to any person whom the landlord believes is a superior landlord.
(3) But that duty does not apply if the landlord has been notified under paragraph 9E(5)(b) that a copy of the rent variation notice has been given to that person.
(4) The landlord must comply with that duty as soon as reasonably practicable after—
(a) being given the rent variation notice, or
(b) forming the belief that a person is a superior landlord (if that is after the rent variation notice was given).
(5) If the landlord gives a copy of the rent variation notice to a person under sub-paragraph (2), the landlord must, together with the copy, give that person the names of—
(a) all of the persons to whom the landlord has given a copy of the notice under this paragraph, and
(b) any other persons that the landlord is aware have been given a copy of the notice.
(6) If the landlord fails to comply with a duty in this paragraph, the landlord is liable in damages for any loss suffered by any other person as a result of the failure.
Duty of superior landlord to give copies of the rent variation notice to other superior landlords
9E (1) This paragraph applies if a superior landlord is given a copy of a rent variation notice under paragraph 9D or this paragraph.
(2) The superior landlord (the “forwarding landlord”) must give a copy of the rent variation notice to any person whom the forwarding landlord believes is a superior landlord.
(3) But that duty does not apply if the forwarding landlord has been notified under paragraph 9D or this paragraph that a copy of the rent variation notice has been given to that person.
(4) The forwarding landlord must comply with that duty as soon as reasonably practicable after—
(a) being given the copy of the rent variation notice, or
(b) forming the belief that a person is a superior landlord (if that is after the copy of the rent variation notice was given).
(5) If the forwarding landlord gives a copy of the rent variation notice to a person under sub-paragraph (2), the forwarding landlord—
(a) must, together with the copy, give that person the names of—
(i) all of the persons to whom the forwarding landlord has given a copy of the notice under this paragraph, and
(ii) any other persons that the forwarding landlord is aware have been given a copy of the notice;
(b) must notify the landlord that the forwarding landlord has given the copy to that person.
(6) If the forwarding landlord fails to comply with a duty in this paragraph, the forwarding landlord is liable in damages for any loss suffered by any other person as a result of the failure.”—(Lee Rowley.)
This requires notice of a claim for a peppercorn rent to be given to superior landlords.
Lee Rowley
I beg to move amendment 107, in schedule 7, page 125, line 18, leave out paragraph 10.
This is consequential on Amendment 109.
Lee Rowley
These amendments concern the provisions of the Leasehold Reform, Housing and Urban Development Act 1993 as they apply to the right. Previously, provisions applying to ground rent buy-out claims on houses and flats were in separate paragraphs of the schedule: paragraphs 10 and 11, respectively. Amendment 109 amends paragraph 11 so that the provisions therein apply to claims on both houses and flats. Consequently, amendment 108 will change the title of paragraph 11 accordingly, and amendment 107 will remove paragraph 10. “Schedule 12, paragraph 9 (inaccurate notices)” “Property which the tenant is, or is not, entitled to have demised under a new lease Property in respect of which the tenant has, or does not have, the right to a peppercorn rent under this Schedule The premium payable for the new lease The required premium payable under paragraph 7 of this Schedule A notice under section 42 to claim the right to a new lease A rent variation notice”
Amendments 114 and 116 will amend the provisions of the 1993 Act that apply to the ground rent buy-out right, so that the provisions are properly carried across. Amendments 113 and 112 make a provision in relation to mortgages that applies to lease extensions under the 1993 Act, so that it applies appropriately to ground rent buy-out claims.
Amendment 115 will add a provision for dealing with inaccurate rent variation notices, to the effect that small inaccuracies do not invalidate the claim. Amendment 110 will require the leaseholder to pay off arrears of rent or service charges prior to a ground rent buy-out. Amendment 111 will ensure that the provisions in amendment 110 refer correctly to the ground rent buy-out premium. I commend the amendments to the Committee.
Amendment 107 agreed to .
Amendments made: 108, in schedule 7, page 127, leave out line 1 and insert
“Provisions of the LRHUDA 1993 that apply for the purposes of this Schedule”.
This is consequential on Amendment 109.
Amendment 109, in schedule 7, page 127, line 4, leave out from first “Schedule” to end of line 5 and insert
“(whether in its application to a house or flat)”.
This provides for paragraph 11 to apply to all claims under Schedule 7, not just to claims where the qualifying lease is of a flat (and so it means that paragraph 10 is longer needed).
Amendment 110, in schedule 7, page 127, line 19, first column, leave out “and (4)” and insert “(a) and (c)”.
This alters the provision in section 56 of the LRHUDA 1993 which is applied to Schedule 7.
Amendment 111, in schedule 7, page 127, second column, leave out line 19 and insert
“The reference to any premium and other amounts payable by virtue of Schedule 13 has effect as a reference to the required premium payable under paragraph 7 of this Schedule”.
This modifies the wording of section 56 of the LRHUDA 1993 in its application to Schedule 7.
Amendment 112, in schedule 7, page 127, line 24, first column, leave out
“(1), (2), (5), (6) and (7)”
and insert “, except for subsection (4)”.
This alters the provision in section 58 of the LRHUDA 1993 which is applied to Schedule 7.
Amendment 113, in schedule 7, page 127, line 24, second column, insert
“A reference to the new lease has effect as a reference to the deed of variation of the lease”.
This modifies the wording of section 58 of the LRHUDA 1993 in its application to Schedule 7.
Amendment 114, in schedule 7, page 127, leave out lines 28 to 31.
This removes provision of the LRHUDA 1993 which no longer needs to apply to Schedule 7.
Amendment 115, in schedule 7, page 128, line 10, at end insert—
This adds further provision of the LRHUDA 1993 which is to apply to Schedule 7.
Amendment 116, in schedule 7, page 128, line 21, at end insert—
This provides for the modification of additional terminology used in the LRHUDA 1993 in its application to Schedule 7.
Amendment 117, in schedule 7, page 129, line 13, at end insert—
“(4A) Regulations under this paragraph are subject to the negative procedure.”
This makes regulations under paragraph 12 subject to the negative procedure (see clause 62(4)).
Amendment 118, in schedule 7, page 129, line 18, leave out paragraph (d).
This is consequential on Amendment 104.
Amendment 119, in schedule 7, page 129, leave out lines 29 to 37 and insert—
“‘lease enfranchisement notice’ means a notice under—
(a) section 8 of the LRA 1967 (notice of desire to acquire freehold of house), or
(b) section 13 of the LRHUDA 1993 (notice of claim to exercise right to collective enfranchisement);
and a lease enfranchisement notice under section 13 of the LRHUDA 1993 relates to the qualifying lease if the tenant under the lease is one of the participating tenants in relation to the claim under the notice;
‘lease extension notice’ means a notice under—
(a) section 14 of the LRA 1967 (notice of desire to extend lease of house), or
(b) section 42 of the LRHUDA 1993 (notice of claim to exercise right to acquire new lease of flat);”.
This provides for separate definitions of “lease enfranchisement notice” and “lease extension notice” (instead of a single definition of both terms).
Amendment 120, in schedule 7, page 129, leave out line 39.—(Lee Rowley.)
This is consequential on Amendment 104.
Question proposed, That the schedule, as amended, be the Seventh schedule to the Bill.
Lee Rowley
Schedule 7 will confer on leaseholders a right to buy out their ground rent without extending their lease. As the premium payable will be subject to the 0.1% cap on ground rent, this measure will be especially helpful for leaseholders with high or escalating rents. Paragraph 2 sets out that leaseholders who qualify for a lease extension will have this right as long as their remaining term is at least 150 years. Community housing leases and home finance plan leases are excluded, as they were from the Leasehold Reform (Ground Rent) Act 2022. Leaseholders may not qualify for lease extensions because they have a lease of Crown land, or because they do not satisfy the low rent test in the Leasehold Reform Act 1967. Such leaseholders will qualify for the new buy-out right.
Paragraphs 3 to 7 set out procedural arrangements for leaseholders and their landlords. They provide that the right is exercised by serving a rent variation notice on the landlord, including time limits for responses and arrangements for either party to apply to the tribunal if they so wish. The premium payable is the same as the term portion of the lease extension premium set out in schedule 2, and is subject to the ground rent cap. It is the capitalised value of the rent payable for the remainder of the lease.
Paragraph 8 provides that where the lease is not varied to provide that the future rent is a peppercorn rent, the leaseholder or landlord can apply to the tribunal. The tribunal shall decide whether it should be varied and, if it should, can appoint a person to execute the variation in place of the landlord. Paragraph 9 sets out the circumstances in which a rent variation notice ceases to have effect. A claim can be revived if it ceased to have effect due to a later extension or acquisition claim, where the later claim ceases to have effect.
Paragraph 10 sets out details of how the schedule applies in relation to the lease of a house; paragraph 11 does the same in relation to the lease of a flat. Finally, paragraph 12 gives various enabling powers to the Secretary of State, including giving effect to the rights, making provisions about notices and amending the details of how the schedule applies to the lease of a house or a flat.
Question put and agreed to.
Schedule 7, as amended, accordingly agreed to.
Clause 22
Change of non-residential limit on right to manage claims
Barry Gardiner
I beg to move amendment 129, in clause 22, page 38, line 21, leave out “50%” and insert “75%”.
This amendment would allow leaseholders with a higher proportion of commercial or non-residential space in their building to claim the Right to Manage.
Barry Gardiner
First of all, let me say what this is not about: it is not about enfranchisement. It is quite simply about the right to manage. I say that because a few days ago, a journalist got this entirely wrong. We welcome the change to 50%. The amendment would allow leaseholders with a higher proportion of commercial or non-residential space in their building to claim the right to manage. It is not about shared services or the percentage of the leaseholders who can be contacted; it is about square footage.
I welcome the proposed increase from 25% to 50%, but as we heard in the witness sessions, the Law Commission was originally asked by the Government to remove the 25% rule on the right to manage completely on the basis that leaseholders who are paying a service charge should have control over the areas for which they are being charged. This would leave the management of the commercial premises absolutely unchanged. It was taken out by the Law Commission, which actually wanted to be more restrictive than the Government, who had said that it could be 100%. On its reason for that, it said, “There could be, at the top of the Shard, 30 residential properties. This could have the perverse result of them taking control of a much larger area.” It used that special example to illustrate why it felt that 100% was not appropriate. The Government had suggested that we go a lot further, but the Law Commission said, “There are special cases, so let’s row back on this.” But then the Government came back with 50%.
Let us take the advice of the Law Commission and accept that 100% is not the right figure. I propose that we go to 75% and use that as the basis, because it would avoid that unique case that the Law Commission put forward. It would achieve what I think was the Government’s original intention of allowing more people in that situation the right to manage.
Lee Rowley
I am grateful to the hon. Member for tabling the amendment. He is correct that, as with many of these instances, there are balances to be struck. While I will argue for a different balance from the one he outlined, I accept, understand and acknowledge that a number of different cases can be made in this discussion.
As the hon. Member indicated, the Bill already includes a provision to increase the limit from 25% to 50%, following the Law Commission’s extensive investigation. We believe that the increase to 50% seeks to strike a proportionate balance. He made a valid point about issues in a minority of cases, and we will not use extreme cases as a reason. However, there is the potential—this is why we have landed on 50%—to unfairly prejudice the interests of landlords and commercial tenants, for example, where a minority of leaseholders take over the management of a building that is predominantly commercial.
As I said, I recognise that there is a balance to be struck, but on the basis of the progress that is being made, which I am grateful to the hon. Member for acknowledging, 50% is where the Government would prefer to land, and that is what we are proposing.
Barry Gardiner
If the Minister casts his mind forward to the next two amendments, which seek to give the Secretary of State the authority to determine the limit, and should the Minister indicate that, in the future, the Secretary of State would almost certainly not determine it to be less than 50%—as the Government have already proposed—then I just might be persuaded to withdraw my amendment.
Lee Rowley
I am grateful to the hon. Gentleman for his comments. We are sticking with what we have suggested, but I hope he will consider withdrawing his amendment none the less. I will just say a few words on our reasons for sticking with what propose in clause 22. We have been clear that we want to improve access to right to manage—I think that view is shared across the House—and we accept that the current limit of 25% of floor space is not proportionate. Therefore, through this clause, we are seeking to increase the non-residential limit from 25% to 50%, as has been discussed. That replicates clause 3 on collective enfranchisement, recognising that this is not a debate about collective enfranchisement on a specific clause.
For the reasons that we have outlined, 50% is the place where the Government have landed, and where we feel is most proportionate. We hope that it will mean that more leaseholders in mixed-used buildings can take over the management responsibilities of their properties. I commend the clause to the Committee, and I hope that the hon. Gentleman will consider withdrawing his amendment.
Barry Gardiner
I am grateful to the Minister for his response; he is courteous, as ever. I just point out that the all-party group on leasehold and commonhold reform, co-chaired by the Father of the House, the hon. Member for Worthing West (Sir Peter Bottomley), also made the recommendation that the Government look again at this issue. I am prepared to throw my weight behind amendments 26 and 27, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn .
Matthew Pennycook
I beg to move amendment 26, in clause 22, page 38, line 21, at end insert—
“(b) after paragraph 1(4) insert—
‘(5) The Secretary of State or the Welsh Ministers may by regulations amend this paragraph to provide for a different description of premises falling within section 72(1) to which this Chapter does not apply.’”
This amendment would enable the Secretary of State or (in the case of Wales) the Welsh Ministers to change the description of premises which are excluded from the right to manage. By virtue of Amendment 27, such a change would be subject to the affirmative resolution procedure.
The Chair
With this it will be convenient to discuss amendment 27, in clause 22, page 38, line 21, at end insert—
“(2) In section 178 of the CLRA 2002—
(a) in subsection (4), after ‘171’, insert ‘, paragraph 1(5) of Schedule 6’;
(b) after subsection (5), insert—
‘(6) Regulations shall not be made by the Welsh Ministers under paragraph 1(5) of Schedule 6 unless a draft of the instrument has been laid before and approved by resolution of Senedd Cymru.’”
See explanatory statement to Amendment 26.
Matthew Pennycook
I rise to speak to the amendments in my name and that of my hon. Friend the Member for Weaver Vale. I do so making almost entirely the same argument as that made by my hon. Friend the Member for Brent North. [Interruption.] No, I am hoping for a very different response from the Minister to it.
As was made clear in a previous debate, this clause operates in precisely the way that clause 3 does in relation to collective enfranchisement claims: by making changes to the non-residential limit to the right to manage—and we welcome it. The clause will enact recommendation 7 of the Law Commission’s final report on exercising that right.
Although I take the point made by my hon. Friend the Member for Brent North about the use of extreme outlier cases to undermine an argument, we accept the Law Commission’s broad argument that abolishing the non-residential limit entirely could cause problems in a number of cases for certain landlords and commercial tenants. But as the Law Commission very clearly concluded, the current limit is
“an unwarranted impediment to the RTM, given that it can prevent premises which are mostly residential from qualifying.”
We think it is right that the Bill seeks to increase that limit, and we hope that doing so will bring a greater number and variety—that is important—of premises into the right to manage and therefore help to boost the number of leaseholders who decide to take over the management function of their buildings.
As with the non-residential limit for collective enfran-chisement claims, the threshold is inherently arbitrary, but we feel—here my hon. Friend is absolutely right—that we need to address the fact that 50% will leave large numbers of leaseholders shut out from the right to manage. He made the case for a 75% threshold, and I think that has a lot of merit. We sought to be slightly less prescriptive; instead, much in the way that we argued for powers to be put in the Bill for Ministers to further amend the non-residential limit for collective enfranchisement, we propose to give a degree of flexibility to the non-residential limit on right to manage claims, so that any future changes to increase it—and only to increase it—do not require primary legislation.
We want to be slightly more flexible, or less prescriptive, than my hon. Friend for the following reasons. First, we can imagine a range of scenarios in which we would need to look at the 50% threshold in terms of internal floor space. We also think, as with collective enfran-chisement claims, that a future Government may wish to look at the entire criteria afresh—I am thinking of cases of the right to manage, for example, where we might consider whether there are better metrics for determining the residential nature of a building. It is notable that, although the Law Commission ultimately recommended retaining the use of floor space as the metric, it explored in great detail a comparison between the values of the residential and non-residential parts as a way into this. A future Government may therefore wish to look at the criteria afresh, so we sought to give the Secretary of State that power.
We think that that is entirely sensible, as we did when we argued for earlier amendments. It would be by regulation subject to the affirmative procedure, to give this House the chance to give any change due scrutiny, but we think it is a sensible principle to build some flexibility into the Bill.
I expect the Minister will resist the amendment, for the reasons that he previously resisted a similar amendment on collective enfranchisement. I will therefore probably not press the amendment to a vote. However, I think we will have to come back to the issue later, because on both collective enfranchisement and right to manage, the Government are being somewhat stubborn in saying that the 50% sticks and that future primary legislation, which could be many years away, is the only way to look at it afresh. I hope that the Minister will give the amendment serious thought.
Lee Rowley
I am grateful for the comments and questions from the hon. Members for Greenwich and Woolwich and for Brent North. As they anticipated —I may be becoming too conventional—I will resist the amendment. Again, this is about where primary legislation stops and secondary legislation begins, and the Opposition are right to test us on that. It is perfectly legitimate for people to take different views on where that starts and stops, and we know that our colleagues in the other place caution us, where we can be cautioned, not to take too many Henry VIII powers. We are undertaking a self-denying ordinance to not take an additional Henry VIII power today, on the basis that this is of sufficient magnitude, albeit recognising the challenges that have been outlined, that it should be in the Bill and be clear, and that any appropriate changes should come through similar processes. For that reason, although I understand the rationale for it, and I am always happy to listen to the underlying points, the Government will not support the amendment.
Matthew Pennycook
I will not labour the point, but I put on record that I look forward to the Minister standing up at some future point in what remains of his tenure and arguing for the absolute necessity of a Henry VIII power in one or other respect. It will come, but obviously not on this occasion. As I said, we will have to come back to this matter, but we will reflect on how best to do so. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 22 ordered to stand part of the Bill.
Clause 23
Costs of right to manage claims
Amendment made: 45, in clause 23, page 39, line 30, at end insert—
“(8) See also sections 20CA and 20J of the Landlord and Tenant Act 1985, which prevent costs in connection with a claim under this Chapter being recovered by way of a variable service charge (within the meaning of section 18 of that Act).”.—(Lee Rowley.)
This amendment is consequential on NC7 .
Matthew Pennycook
I beg to move amendment 7, in clause 23, page 39, leave out from line 31 to line 32 on page 40.
This amendment would leave out the proposed new section 87B of the Commonhold and Leasehold Reform Act 2002 and so ensure that RTM companies cannot incur costs in instances where claims cease.
Matthew Pennycook
Clause 23 replaces the existing costs regimes for RTM claims under the Commonhold and Leasehold Reform Act 2002. The new regime is established in proposed new sections 87A and 87B.
Proposed new section 87A sets out the general rule that RTM companies and RTM company members are not liable for the costs incurred by another person because of an RTM claim. Proposed new section 87B allows the tribunal to order an RTM company to pay the reasonable costs of specified people that arise from an RTM claim notice being withdrawn or ceasing to have effect and the RTM company has acted unreasonably.
We welcome the intent behind new section 87A. At present, the RTM company is liable for the reasonable non-litigation costs that are incurred by a landlord in consequence of an RTM claim notice. Safe in the knowledge that the cost of the process is always recoverable from the RTM company, landlords are at present incentivised to conduct an overscrupulous analysis of the claim with a view to finding minor and inconsequential defects, in an attempt to disrupt the claim. That happens on far too many occasions.
If a claim is disputed and the tribunal decides that the RTM company is not entitled to acquire the RTM, the RTM company is liable to pay the landlord’s reasonable costs, but the same rule does not apply if the landlord unsuccessfully challenges the claim. Landlords can therefore dispute claims safe in the knowledge that doing so is a one-way bet.
In instances where a landlord is obliged to pay litigation costs following a successful claim, they can and do frequently recover the moneys from leaseholders either through the service charge or as an administration charge under the leases. It is not that common, but in such shortfall scenarios the leaseholders end up paying, even if they are successful in the tribunal.
Given that RTM companies are almost always undercapitalised, have no assets and cannot collect service charges before the RTM is acquired, these costs, which cannot be limited or predicted and can have significant implications for large or complex developments, are often met by individual leaseholders, with any challenges to their reasonableness entailing all the burden and risk of going to the tribunal. By entailing unknown and potentially significant costs liability for which they are jointly and severally liable, the present costs regimes clearly act as a deterrent to leaseholders pursuing the RTM and participating in an RTM claim.
In our view, landlords can bear these costs, and by providing for a general rule that they do so, the clause will make the RTM procedure simpler, more accessible and less foreboding. It is for that reason that the Law Commission recommended significant changes to the allocation of costs incurred during acquisition of the right to manage, and in relation to disputes. The clause draws upon five of its proposals.
The Law Commission did recommend, however, that an exception ought to be made where an RTM claim has been withdrawn or otherwise ceased early and the RTM company has acted unreasonably in bringing the RTM claim. In such cases, it recommends that the landlord should be able to apply to the tribunal for any reasonable costs that it has incurred in consequence of the RTM claim, down to the time that the claim ceased. They did so
“to address the risk of landlords potentially having to bear the cost of responding to unreasonable or vexatious claims issued by leaseholders which are subsequently withdrawn.”
Proposed new section 87B enacts that proposal. While the Law Commission made clear that it expected that the tribunal would apply the test in question narrowly, we are concerned about its inclusion for two reasons. First, there is a principled argument that leaseholders should not be put at risk of having to pay costs simply for exercising statutory rights—in this case, the right to seek to acquire and exercise rights in relation to the management of premises in which one has a leasehold interest.
The first-tier tribunal already has the power under rule 13(1)(a) to punish unreasonable behaviour by making the parties’ legal or other representative pay to the other party any costs incurred as a result of improper, unreasonable or negligent acts or omissions. As such, we would ask why we need a new statutory provision to create yet further scenarios where leaseholders might have to pay.
Secondly, we are concerned that unscrupulous landlords will use the rights provided for by new section 87B as a means of recovering costs from RTM companies that act reasonably and in good faith, and by implication that it will discourage RTM companies from initiating a claim because of the financial risk it still entails for individual participating leaseholders. Put simply, we fear that new section 87B will incentivise scrupulous landlords to fight claims on the basis that they are defective in the hope of recovering costs by means of it. Amendment 7 leaves out proposed new section 87B of the 2002 Act, thereby ensuring that all leaseholders are protected from costs for RTM claims. I hope the Minister will consider accepting that.
Lee Rowley
I thank the shadow Minister for the amendment. Again, while I understand and acknowledge the underlying intent behind it, and share his inclination to reduce the cost for leaseholders to exercise the rights to form a company and bring a claim, we will not accept the amendment today for reasons that I will explain. It is perfectly clear that, and I think we will all accept this across the Committee, up until now the situation has been balanced in favour of landlords, who have been able to recover their process costs from leaseholders at times. The Bill will change that, as has been acknowledged, and will significantly broaden the cases in which each party will be required to bear their own costs. However, it is important that we take steps to protect landlords from unfair costs.
On amendment 7, the Government judge that it would be unfair if a landlord were required to meet their own process costs where a right to manage claim is withdrawn or ceases to have effect as a direct result of unreasonable conduct from the RTM company. The power for the tribunal to order payment of costs for such ceased claims also includes protections for leaseholders. The landlord will not be entitled to costs automatically and it will be necessary to make an application to the tribunal for an order to that effect. If the tribunal does not consider that costs should be payable, it can decline to make an order. I note that the shadow Minister acknowledged that in his initial remarks.
In aggregate, and with that in mind, my and the Government’s view is that, while the cost regime must change, if the amendment were passed, it would expose freeholders to the risk of facing burdensome and unfair costs. I ask the shadow Minister, if he is willing, to withdraw the amendment.
Turning to clause 23 itself, as has been indicated, leaseholders bringing forward a right to manage claim currently face unknown and potentially significant costs. That is because, under current rules, they must meet reasonable costs of a landlord as well as their own costs, and the costs of others often run into thousands of pounds. Those costs—also known as non-litigation costs—include professional services, surveyors, accountants and insurers from which a landlord may incur costs as a result of the claim. Clause 23 seeks to help by removing the requirement for right to manage companies and their leaseholder members to contribute towards those non-litigation costs, meaning that both parties to a claim will bear their own. It does so by replacing the existing cost regime in the 2002 Act.
A requirement that landlords should bear their costs means that they have an incentive to keep costs down, which hopefully reduces some of the issues that the shadow Minister highlighted, and to process claims quickly because they will not be able to pass those costs on to leaseholders bringing forward the claim, potentially reducing the overall cost for both landlords and leaseholders. To protect landlords from frivolous right to manage claims, the clause includes an exception, so landlords can claim costs where the claim has been withdrawn, abandoned, struck out or otherwise ceases, or where a RTM company has acted unreasonably. Under those circumstances, as has been outlined, the landlords can apply to a tribunal.
To reduce existing obstructions to the process, the clause amends the 2002 Act to ensure that a person complying with the duty to provide information cannot withhold supplying a copy of a document to a right to manage company on the basis that they are waiting to receive a reasonable fee. However, the right to manage company will still be liable for reasonable cost of a person complying with that duty.
The clause also removes the current one-way cost shifting rule for litigant costs, which means that only landlords can currently claim the litigation costs from the RTM company, if they are successful. It is only fair that parties to litigation should bear their own costs, and that is the change that has been made.
Finally, the clause prevents landlords from passing costs on to leaseholders via the service charge. We believe that, in aggregate, these measures will reduce uncertainty in making a right to management claim by making sure that each side to a claim bears their own costs. I commend the clause to the Committee.
Alistair Strathern (Mid Bedfordshire) (Lab)
I rise briefly to support the comments from my hon. Friend the Member for Greenwich and Woolwich. Although I welcome much of the Minister’s message about removing some of the deterrents to taking on the right to manage on estates, having spoken to a number of residents and campaigners in my constituency, I know that if the clause is not removed it will continue to be a real deterrent and to expose them to a risk of significant financial liability that they would be poorly placed to take on. I know the Minister has already set out that he is unwilling to support the amendment today, but I hope that the Government will reflect on whether they might be willing to come back to the point to ensure there is no unnecessary deterrent to leaseholders in obtaining the right to manage effectively.
Matthew Pennycook
I thank the Minister for his response. There are two differences of opinion, the first of which is on the principled point of whether it is right that leaseholders should be charged for exercising their statutory right. We lean quite strongly towards the argument that they should not be, in principle.
The more pertinent argument for me is the second point I made, which, in all fairness, I do not think the Minister addressed. Let us be clear: in many respects, the Bill forces the Government to judge the right balance to strike between the interests of leaseholders and landlords. In coming to that view, the Bill has to account for the possibility that it creates quite perverse incentives, and I do not think it does that here or in a number of other places. This is one example of where that might happen. If a landlord wants to frustrate, disrupt or stop an RTM claim, the way in which the Government have implemented the exception to the general rule will incentivise them to fight the claim on the basis that they can try and convince the adjudicating party that the claim is defective, in the hope of recovering costs. A leaseholder exploring whether to take forward a claim is then faced with the risk of significant liabilities, as mentioned by my hon. Friend the Member for Mid Bedfordshire.
That will deter a huge number of leaseholders from exercising the right. Landlords will know it and fight more claims because they know that the deterrent effect of the exception to the general rule will be quite powerful in a number of cases. We argue quite strongly that we should just end the process costs for leaseholders as a matter of principle. That will incentivise many more groups of leaseholders to seek to acquire the right to manage. For that reason, we are minded to press the amendment to a Division.
Question put, That the amendment be made.
Lee Rowley
The tribunal needs the power to order compliance with obligations under the Commonhold and Leasehold Reform Act 2002. Clause 24 amends section 107(1) of that Act to enable the tribunal to make an order requiring a person who has failed to comply with the requirement on them to address that failure and comply with the requirement within the time set out in the order. The clause also provides that where an order other than an order to pay money has been made by the appropriate tribunal, a person may apply to the county court for the enforcement of the order, or the tribunal may transfer proceedings to the county court for the enforcement of the order. If the tribunal makes an order for compliance, it will be enforceable by the county court in the same way as if it were an order of the county court itself. The clause also inserts a signpost to a general provision in the 2002 Act about the enforcement of tribunal decisions and to provisions in the Tribunals, Courts and Enforcement Act 2007 about the enforcement of an order to pay a sum of money. The measures will allow the appropriate tribunal and courts to exercise their proper enforcement function. I commend the clause to the Committee.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25
No first-instance applications to the High Court in tribunal matters
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 25 complements clause 24 by removing the risk that the change of jurisdiction for right to manage disputes to the tribunal will be circumvented through applications being brought in the High Court instead in the first instance. The clause prevents such applications being brought in the High Court. The tribunal already has exclusive jurisdiction over proceedings, and it is well placed to take over proceedings concerning the compliance with the right to manage provisions in the 2002 Act in the same way that they do for the acquisition of the right to manage. The clause does not prevent an appeal of the decision of the tribunal to the High Court or the jurisdiction of the High Court to consider judicial review claims. The measure will make the determination of disputes clearer, help to reduce costs and ensure that disputes are handled by judges with specialist knowledge. I commend the clause to the Committee.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26
Extension of regulation to fixed service charges
Matthew Pennycook
I beg to move amendment 10, in clause 26, page 42, leave out lines 12 and 13.
This amendment would ensure that the statutory test of reasonableness would apply to fixed service charges.
In considering part 3 of the Bill, we move away from provisions that draw on recommendations made by the Law Commission across its leasehold enfranchisement and right to manage reports from 2020 and instead turn to other Government proposals on the regulation of leasehold. The first five clauses in this part concern service charges in residential leases. The Government’s stated objective in including the clauses in the Bill is to improve the consumer rights of leaseholders by requiring freeholders or managing agents acting on their behalf to issue service charge demands and annual reports in a standardised format and a more transparent manner so that leaseholders can more easily assess—and, in theory, challenge—any unreasonable or erroneous charges.
We very much welcome the intent of the clauses. While much of the detail will await the statutory instruments required to bring them into force, the clauses have the potential to improve tangibly what is without doubt one of the most contentious and, for leaseholders, injurious aspects of the feudal leasehold tenure. My office receives scores of complaints, literally on a weekly basis, from leaseholders in my constituency who believe that when it comes to the setting of their service charges, they have been subjected to unreasonable costs; costs artificially inflated as a result of outright error, such as the duplication of charges for the same service; large periodic increases that are rarely justified; or abusive practices, such as the deliberate misuse of funds. Even when leaseholders do not believe that there is a specific problem with their service charge amounts, my experience talking to many thousands of them over the years in Greenwich and Woolwich is that most nevertheless feel that they are not particularly aware of or informed about what their charges are spent on or what their future liabilities might be.
That may well be a trend that is particularly prevalent in constituencies such as my own that contain a significant number of new-build leasehold flats, but my team and I increasingly find—as I am sure other hon. Members find in their own caseloads—that a sizeable proportion of the work we do involves simply demanding from freeholders and managing agents, on behalf of leaseholders pushed to the financial brink, a detailed breakdown of service charge costs. We are then frequently required to assist individual leaseholders or informal groupings of them in probing the relevant freeholder or managing agent on the justification for individual charges, and more often than not we expose discrepancies or charges levied for services that are not provided as a result.
Given that a Member of Parliament is involved in those cases, most freeholders, head lessees or managing agents will, in such circumstances, ensure that the aggrieved leaseholders are reimbursed, thus avoiding the need for them—[Interruption.] My hon. Friend the Member for Brent North laughs, but we have had success on occasion, once the relevant error is exposed. In those circumstances, it avoids the need for the leaseholders in question to take the matter to tribunal, with the detrimental implications that the current cost regime entails. However, many —perhaps most—do not, instead relying on the barriers that leaseholders face in going to tribunal to ensure that the unjustified costs are still paid and not challenged. I would wager that, in the scenario that I just set out, I am not alone among Members of the House in dealing with service charge disputes of that kind on a regular basis. To my mind, that is a clear indication that the current service charge regime is woefully failing to adequately serve leaseholders or protect their interests. The Opposition take the view that there is a cast-iron case for making changes to the regime, with a view to ensuring that service charges are levied in a more appropriate, transparent and fair way.
Lee Rowley
I thank the hon. Member for his amendment. Even though I will not be accepting it today, it raises an important question and he is right to allow us to debate it. We absolutely recognise that leaseholders who pay fixed service charges do not have the same rights of challenge as leaseholders who pay variable service charges—that is accepted and understood—but it is also the case that there are good reasons for that.
As the hon. Member indicated, the main sectors where fixed charges exist are the retirement and social housing sectors, where households are often on limited and fixed incomes, as I do not need to explain to the Committee. Leaseholders, especially those on low incomes, who pay a fixed service charge have certainty about that charge, whereas those who pay variable service charges do not. Landlords benefit from not having to consider tribunal applications but, in return, they should have a clear imperative to provide value for money.
If we were to grant the right to challenge fixed service charges in a similar way to how variable service charges can be challenged, there would be some operational and practical challenges, which is one of the reasons why we will not agree to the amendment today. For example, if landlords underestimate costs in one year, but overestimate them in another, is it feasible and reasonable to be able to challenge the reasonableness only in the year in which the costs are overestimated? Should a reciprocal ability to challenge or to recover the balance of an underestimated cost in a year, on the basis that it would be reasonable to do so, not be proposed? Landlords might move away from employing fixed service charges and switch to variable service charges, which could have unintended consequences.
Fundamentally, I share the hon. Gentleman’s view that there are challenges in all parts of service charges, and so there will be challenges within fixed service charges. The whole point of other elements of the Bill is to provide transparency and visibility of the reasoning for charges being made. For the reasons I have outlined, we are not of the view that this extension should be made for fixed charges.
Eddie Hughes (Walsall North) (Con)
I want to pick up on the shadow Minister’s point about ambiguity. There is no definition of what exactly would constitute a fixed charge, so there is the opportunity for flexibility or the law of unintended consequences. Given the lack of opportunity for subsequent challenge, a landlord might choose to move a charge from one column to the other. When the Minister said he would not accept the amendment today, did he mean he would give this point some further consideration in the future, or was he just being polite?
Lee Rowley
I am grateful to my hon. Friend for his question. Notwithstanding the tone of my responses, given the Committee’s interest I will happily write to it to make sure there is clarity on that point. I hope that, as a general and broad macro point, my comment still stands.
Barry Gardiner
The Minister has yet again confirmed his reputation for being reasonable. Can I probe him on the point about reasonableness? Many leaseholders complain that there is an amount in their service charges, which they may think is either reasonable or unreasonable, for a particular service, but when they enquire about the service provider, they find that it is in fact their landlord under another name. They then pay not only the cost of that arm’s length contractor providing the service, but a 15% service charge on top of it. Many people would feel that this is another rentier practice that landlords are using. I appreciate that the issue does not relate specifically to amendment 10, but I would very much like to get the Minister’s thoughts about the reasonableness of that practice on record.
Lee Rowley
I am grateful to the hon. Gentleman for raising that point. He articulates another example of good law being used in a way that is, in my view—without talking about individual incidents—both unintended and inappropriate. I am not a lawyer, and do not seek or have any desire to be one, but as I understand it, there is a concept of reasonableness within the legal domain based on an Act from a number of years ago. Hopefully that helps to answer part of his question, at least from a structural perspective. On the variable service charge side, without talking about individual instances, that kind of instance is a clear example of where those impacted would be able to go through the process of challenging it, which I think would be very sensible. If I were a leaseholder, I might be very tempted to do that, unless the charge could be justified in a different way. On the fixed service charge side, although I accept that there is the potential for these kinds of challenges, conceptually that needs to be balanced with the fact that when the contract was entered, an agreement was made to consent to that amount, for whatever reason—good or otherwise. That is why we are pursuing this. However, I take the hon. Gentleman’s broader point.
Rachel Maclean
This discussion goes to the heart of some practices and problems that leaseholders have experienced across the sector. On behalf of the many retirement leaseholders, mentioned by the shadow Minister, the hon. Member for Greenwich and Woolwich, I will make a point and ask for reassurance from the Minister.
What we are talking about with this amendment is different from the ground rent issue. Ground rent is a payment for nothing—nothing is being provided—whereas something is being provided for service charges. There is a service, so there is a need for a charge; that is perfectly legitimate. As Conservatives, we do not dispute the fact that there should be financial recompense for services. However, we find ourselves with a problem, the law of unintended consequences and the drivers of business models.
I would welcome if the Minister could touch on this in his response, but my fear is that if ground rents are removed and business models need to adjust to make recompense for that, the natural behaviour of unethical operators in the retirement sector and possibly elsewhere—some are unethical and do not think about the people who bought properties in good faith—will surely be to seek to load their charges, their profit and loss, back on to the service charge in some way. I am not close enough to existing contracts to know whether they will be able to do that with a fixed charge, so the discussion might be better suited to when we talk about the variable charge. The Minister can help me on that.
The broad point stands, however, in the case of someone dealing with the estate of a loved one, perhaps someone who has passed on, is in care, is suffering from dementia or otherwise does not have the capacity to deal with all this—the Minister will be familiar with such cases. They might be stuck with a property that they cannot sell, and that often applies in such cases when service charges are racking up in a way that is difficult for people to get a handle on—
Barry Gardiner
I agree with all the points that the hon. Lady is making. I wonder whether she is aware of the report by Hamptons last year, which said that service charges had increased by 50% over the past five years. That is an indication of just how much of the gouging she is talking about is going on. Furthermore, leaseholders paid a staggering £7.6 billion in service charges last year. Of course, much of that is for the proper renovation of the property, but it seems an extraordinary amount. In fact, 10 years ago, Which? estimated that leaseholders were being overcharged by £700 million.
Rachel Maclean
I thank the hon. Gentleman for bringing those figures to the attention of the Committee. I am familiar with them, as are others. [Interruption.] I do not wish to detain the Committee any longer—I can see the Whip making that plain to me. I will leave my remarks there, perhaps to continue at a later point, but the Minister may wish to respond in detail.
Lee Rowley
I, too, do not wish to challenge the patience of my colleague the Whip. There will be people who have existing fixed charges; that should not change. There will also be people who have choices about whether to enter into new fixed charges, whether absolute or indexed to some extent. For an inappropriate attempt to do something with variable service charges, there will be the ability to apply to tribunals. I hope that we are closing off all the options that would allow the kind of instances mentioned.
Matthew Pennycook
I will be brief, so as to dispose of the amendment.
I appreciate what the Minister said. He provided some useful clarity. In particular, he highlighted the practical challenges in addressing this matter, and the potential for landlords possibly moving away from fixed charges and into variable. I think that there is a corresponding risk the other way. I appreciate and take on board what he said about the certainty of the charge.
I think the Minister alluded to the point that I am trying to make, which is that residents should have value for money, and they do not always get it on each occasion. We have deliberately not sought to apply all the protections that apply to variable service charges, but focused on the test of reasonableness. With the help of two former Housing Ministers, I think I had an indication from the Minister that he will do this, but I would appreciate it if the Government went away to satisfy themselves that the protections are in place for that category of leaseholder. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Ordered, That further consideration be now adjourned. —(Mr Mohindra.)
Leasehold and Freehold Reform Bill (Eighth sitting)
Thursday 25th January 2024
(10 months, 3 weeks ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 January 2024 - (25 Jan 2024)
The Committee divided: - Ayes: 5 / Noes: 7 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 7 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 7 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 5 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 5 - Question accordingly agreed to.
The Minister for Housing, Planning and Building Safety (Lee Rowley)
I beg to move amendment 46, in clause 26, page 42, line 19, leave out “, and subsection (2)”.
This amendment is consequential on NC6.
The Chair
With this it will be convenient to discuss the following:
Clause stand part.
Government new clause 6—Notice of future service charge demands.
Lee Rowley
The amendment is consequential on Government new clause 6, which introduces a requirement for landlords to provide a future demand notice under section 20B of the Landlord and Tenant Act 1985 if the landlord has incurred costs and cannot issue a demand for those costs within 18 months. The new clause makes it clear that a future demand notice applies only in respect of variable service charges; as a result, there is no longer a need to include the reference to section 20B(2) in clause 26, which otherwise seeks to provide clarity on what measures apply to all service charges and what measures apply only to variable service charges. I commend the new clause to the Committee.
I turn to clause 26. It is important that all leaseholders have access to appropriate information on what they are paying for and the condition of their building. That will help them to determine whether their landlord is providing an adequate service or whether they are being overcharged. Many landlords already provide a good service; however, some do not, and that must change. The existing regime is geared up to protect leaseholders who pay variable service charges. There are some leaseholders who pay fixed service charges, and those leaseholders do not enjoy the same protections. Leaseholders who pay fixed charges have a right to receive a good-quality service, which means having a better understanding of how their funds are being used, as well as having access to key information on matters that are important to them, as we discussed before we adjourned.
Clause 26 extends part of the regulatory framework on the provision of information to cover leaseholders who pay fixed service charges. Subsection (2) amends section 18 of the Landlord and Tenant Act 1985 to create separate definitions of “service charge” and “variable service charge”. That enables the Government to provide clarity on which provisions in the 1985 Act apply only to variable service charges. Subsections (3) and (4) amend the 1985 Act to ensure that parts of the regulatory regime continue to apply only to leaseholders who pay variable service charges—that includes, for example, the ability to challenge the reasonableness of the service charge under section 19 of the Act. The measure will ensure that leaseholders paying fixed service charges are entitled to receive information of relevance to them. I commend the clause to the Committee.
I return to Government new clause 6. When section 20 major works are undertaken, landlords may require a leaseholder to pay for costs up front or pass on costs to the leaseholder once the work has been carried out. Where leaseholders are charged after work is completed, the leaseholder must be issued with a demand for payment within 18 months of the costs having been incurred or, alternatively, be notified in writing within the 18-month period that they will be liable to pay the costs in the future. Failure to meet one of those two conditions will mean that leaseholders are not liable.
There is no prescribed form or content of a notice under section 20B(2) of the Landlord and Tenant Act 1985, which has led to confusion regarding the meaning and effect of the section, and much case law has followed. It has also left leaseholders with uncertainty on whether they will be required to contribute, the amount of their contribution and when the demand for payment could be served; the new clause seeks to provide clarity on all of those. New clause 6 introduces new subsections (3) to (9) into section 20B of the 1985 Act, which will require landlords to specify the amount of costs incurred, the leaseholder’s expected contribution and the date by which the demand will be served. The intention is to give leaseholders certainty on costs that have been incurred by the landlord, their own individual liability and when they are likely to receive the demand.
The changes to subsections (2) and (3) require landlords to issue a future demand notice when they will be passing costs through the service charge more than 18 months after the costs have been incurred. Subsection (3) defines “future demand notice” as a notice in writing that relevant costs have been incurred, and that the leaseholder is required to contribute towards the cost by payment of a variable service charge. Subsection (4) sets out that the Secretary of State and Welsh Ministers can, by regulations, specify the form of the notice, the information to be included in it and the manner in which the future demand notice must be given to the leaseholder. Subsection (5) details that regulations by the Secretary of State and Welsh Ministers may specify that information to be included in the future demand notice should include an estimate of the costs incurred; an amount that the leaseholder is expected to contribute to those costs; and a date on or before which it is expected that the service charge will be demanded. We will work with landlords, managing agents and leaseholders to set out what a future demand notice may contain, to ensure that regulations require the right level of information.
Subsection (6) sets out that regulations may provide for a relevant rule to apply where the leaseholder has been given a future demand notice and the demand for payment is served more than 18 months after costs were incurred. Subsection (7) sets out the relevant rules and the leaseholder’s liability to pay the service charge where a future demand notice contains estimated costs, an expected contribution or an expected demand date. Subsection (8) also allows the landlord to extend the expected demand date in cases specified by regulations. That might be because of unexpected delays in completing the work, for example. The measures seek to provide leaseholders with more certainty on costs. I commend the new clause to the Committee.
Amendment 46 agreed to.
Clause 26, as amended, ordered to stand part of the Bill.
Clause 27
Service Charge Demands
Matthew Pennycook (Greenwich and Woolwich) (Lab)
I beg to move amendment 11, in clause 27, page 43, leave out line 12.
This amendment would remove provision for the appropriate authority to exempt certain categories of landlord from the requirements relating to service charge demands set out in subsection (1) of the clause.
Clause 27 replaces provisions in the 1985 Act with a new provision that imposes a simple requirement on landlords to demand payment of a service charge using a specified form, rather than, as is presently the case, in accordance with the terms under the lease in question—or, in the absence of any such provisions, in any manner that suits them. We very much welcome the clause, which should ensure that service charge demands and annual reports are provided to leaseholders in a standardised format. If it works well, the clause is likely to have the most widespread practical impact of any provision in the Bill, given that many hundreds of thousands of service charge demands each year will have to be in a prescribed form.
The clause will also ensure, by means of inserting proposed new section 21C into the 1985 Act, that where the demand for service charge payments is not in the specified form, containing the specified information and provided to the leaseholder in the specified manner, the lease provisions relating to late or non-payment do not apply to the charge in question, and there is no obligation to pay until they are met. There is also a new sanction for non-compliance, which we will consider in due course. The effectiveness of the provisions in the clause will ultimately rely on enforcement, but new section 21C should ensure that the majority of freeholders and managing agents comply with the requirement to issue a service charge in the standardised form.
We do, however, have two concerns about aspects of the clause. Amendment 11 addresses the first of those concerns, which relates to exemptions from the requirements being introduced. New section 21C(3) confers powers, by regulations subject to the negative procedure, on the appropriate authority to exempt certain landlords. We have reservations about the inclusion of such powers, because they could be used to exempt entire categories of landlords from the requirements set out in subsection (1), and thereby deny large numbers of leaseholders the benefits that they would otherwise secure as a result of their application. Amendment 11 simply deletes subsection (3)(a) to remove the power to provide exemptions from subsection (1) for certain types of landlords. We hope the Minister will consider accepting it. If not, we would be grateful for some clarity on what kind of landlords the Government believe might need to be legitimately exempted from the relevant requirements, and some reassurance that the power will be used sparingly and in an extremely limited manner.
Lee Rowley
I thank the shadow Minister for his amendment. We will resist it for reasons that I will give, and I hope I can reassure him to the extent that he does not seek to push it to a vote. I am happy to give at least one instance of a good reason for exempting landlords now or in future: there are cases where it may be too costly or disproportionate to expect a landlord to provide this degree of information, or where doing so is unnecessary. An example that I was not aware of before I was told is a freeholder of two flats who resides in one of them; that is known as a Tyneside or criss-cross lease, which became common in the north-east of England in the 19th century. Given the limited number of people who live in there, and the reason for that structure, we would deem it unnecessary to provide this form, hence the ability to exempt.
However, to address the hon. Gentleman’s key point, notwithstanding individual exemptions, I am happy to place on record that once we have consulted, understood people’s views, taken on the broad range of views about this, and potentially found other things like criss-cross leases, we would expect any list to be very small indeed. We share the clear hope that the power will be used only where it is absolutely necessary, and certainly not to the extent that the hon. Gentleman fears. I hope that, on that basis, he may consider withdrawing his amendment.
Matthew Pennycook
I thank the Minister for that response. I was also unaware of criss-cross or Tyneside leases, although the Opposition Whip, my hon. Friend the Member for North Tyneside, indicated to me during the Minister’s remarks that she used to live in one, so she will have some familiarity with them. On the basis of the Minister’s response, and given the reassurances that he has provided, I am happy to withdraw the amendment. It is our hope that the measure will apply to very limited categories of landlord, and I think that the Minister indicated as much, so very few leaseholds will be exempt from the requirements. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lee Rowley
I beg to move amendment 47, in clause 27, page 43, line 24, after “1987” insert “(‘the LTA 1987’)”
This amendment and Amendment 54 align references to the Landlord and Tenant Act 1987 with other references to Acts.
Lee Rowley
Amendments 47 and 54 are required because of new clause 9, which amends the Landlord and Tenant Act 1987. They ensure that references to the Landlord and Tenant Act 1987 are aligned with other references to Acts, by adopting the abbreviated reference. Amendment 124 is consequential on amendments 47 and 54; it aligns references to the Landlord and Tenant Act 1987 with other references to Acts in the Bill. I commend these amendments to the Committee.
Amendment 47 agreed to.
Matthew Pennycook
I beg to move amendment 12, in clause 27, page 43, line 38, at end insert—
“(c) in section 48 (notification by landlord of address for service of notices), after subsection (3) insert—
‘(3A) Subsections (2) and (3) do not apply in relation to a written demand for payment of a service charge if section 21C of the Landlord and Tenant Act 1985 requires the demand to include information which subsection (1) also requires to be provided to the tenant.’”
This amendment would ensure consistency between the information requirements provided for by Clause 27 and specific contractual requirements set out in leases.
Amendment 12 addresses our second concern with clause 27, which relates to consistency between it and existing contractual requirements. This issue came to our attention purely as a result of written evidence—actually, to be precise, I think it was as a result of a blog post—from Mark Loveday of Tanfield Chambers. He drew attention to the fact that the amended provisions in this clause are likely to supplement, rather than replace, contractual requirements in some existing leases about the form of demands for payment. There is therefore potentially a risk of confusion and duplication. Mr Loveday also highlighted the overlap between provisions in the 1987 Act relating to the information to be furnished to tenants, and the fact that clause 23(4) does not disapply the information requirements of section 48 of the 1987 Act.
I throw my hands up: this is far from my most elegantly drafted amendment. It is simply an attempt to probe the Government on the consistency between the information requirements provided for by this clause and provisions in 1987 Act relating to specific contractual requirements set out in leases. I look forward to hearing the Minister’s thoughts on the amendment, and on the general need to ensure complete consistency between the measures being introduced by clauses 26 to 30 and those in the 1985 and 1987 Acts that set out the main limitations on variable service charges in residential leases.
Lee Rowley
I thank the hon. Gentleman for his amendment. The advice that I have received is that the amendment is unnecessary. Sections 47 and 48 of the 1987 Act already prescribe that landlords must give details of their name, and an address in England or Wales where they can be served with notices, when making a demand for rent or other sums, including service charges. Clause 27(4) provides clarity on the fact that if there is an overlap between information required under proposed new section 21C of the LTA 1985 and the obligations under the 1987 Act, proposed new section 21C takes precedence. For example, if the new standardised service charge demand form requires a landlord to give the same information as is provided under sections 47 and 48 of the 1987 Act, proposed new section 21C would take precedence, and failure to provide the information would be dealt with by the provisions of the proposed new section.
Critically, the new standardised demand form will not restrict the amount of information that must be provided with a demand. Landlords will be able to provide additional information on the demand form if they wish. That may include any information set out in the lease. Unless we have missed something, we believe that, for that reason, the amendment is unnecessary, and request that it be withdrawn.
Barry Gardiner (Brent North) (Lab)
I think the Minister referred to section 47 of the Landlord and Tenant Act 1987. Is he entirely confident that that is effective? I have a case in my constituency, in Wembley Central Apartments. The co-developers have sold on and on, and the owner is now in the Cayman Islands. The UK address to which one can apply is that of the managing agents, Fidum, but Fidum says, “We have asked our principals, and they say that they have asked their principals,” and it goes all the way to the Cayman Islands, and one gets nothing back. The leaseholders have been desperately trying to access the information for months. They have served the correct notice to the correct address in the UK, but they still cannot get the information that they require.
Lee Rowley
I recognise that in some instance it is an incredibly frustrating process to go through. As I know the hon. Gentleman will appreciate, this is a pretty technical element of policy. The assurances that I have received from officials and experts involved is that the legislation should cover those bases. There will always be challenges around finding people and going through operational processes. There will be challenges in finding people who do not want to be found easily, but ultimately the law is clear that they need to be found. From that perspective, I think that the law is sufficient. We do not think anything has been missed, but if something has, we will happily receive further correspondence and consider it.
Matthew Pennycook
I will be brief. My hon. Friend the Member for Brent North raises an interesting point. Can the Minister—if not now, then perhaps in writing—expand on whether, where a landlord has not complied with the relevant requirements, proposed new section 21C means that the provisions relating to late or non-payment do not apply? Does it provide that level of protection? The hope is that it does.
On the general point, I welcome the clarification and assurances that the Minister has provided. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause, as amended, stand part of the Bill.
Lee Rowley
Service charge demands are one of the most important ways in which leaseholders receive information from their landlord, as we have been discussing. Under current arrangements, landlords are required to issue any service charge demand in accordance with the terms of the lease, or otherwise in a manner that suits them. That has led to variable practice in the sector, which has often been to the detriment of the leaseholder, who then gets confused about what they are paying for and has to spend time chasing the landlord for more information.
Proposed new section 21C enables the Secretary of State and Welsh Ministers to prescribe a standard form and the information that it should contain. We will work closely with leaseholders, landlords and managing agents to ensure that we prescribe both the right information and the right level of detail. Proposed new section 21C(2) makes it clear that a failure to provide information in the new standard format will mean that the leaseholder does not have to pay the charge until the failure is remedied, and any provisions in the lease for non-payment will not apply. The Secretary of State will also have the power to create any exemptions if our work with stakeholders demonstrates that there is a good case for any landlord being excluded, either now or in the future.
Clause 27(2) omits existing legislation relating to obtaining information on a summary of costs, as well as other unimplemented legislation surrounding service charge demands. Those measures will be superseded by the provisions we are implementing in part 3 of the Bill, so it is not necessary to retain them. That measure, alongside others, should ensure that landlords provide relevant information to leaseholders, and I commend the clause to the Committee.
Question put and agreed to.
Clause 27, as amended, accordingly ordered to stand part of the Bill.
Clause 28
Accounts and annual reports
Barry Gardiner
I beg to move amendment 130, in clause 28, page 44, line 17, at end insert—
“(iii) a statement of all transactions relating to any sinking fund or reserve fund.”
This amendment would require the written statement of account which the landlord will be required to provide to a tenant to include a statement of all transactions relating to any sinking fund or reserve fund in which their monies are held.
This amendment would require the written statement of account, which the landlord will be required to provide to a tenant, to include a statement of all transactions relating to any sinking or reserve fund in which their moneys are held. Sinking or reserve funds in England and Wales contain literally millions of pounds. Even the smallest block of flats will have a fund of tens of thousands of pounds, yet leaseholders find that they cannot get information about what is happening with it. A landlord may be raiding it to meet their cash-flow problems, in the hope—which is not always fulfilled—of putting the money back later. If millions of pounds is held in a reserve account, leaseholders want to know what interest they may be earning on those funds or whether it is being quietly siphoned off by the landlord.
The amendment would require the written statement of account, which the landlord will be required to provide to a tenant, to include a statement of all transactions relating to any sinking or reserve fund in which their moneys are held. As colleagues will remember from the evidence session that we had before we started our line-by-line scrutiny of the Bill, Martin Boyd of LEASE—the Leasehold Advisory Service—and Andrew Bulmer of The Property Institute said that this provision was really important to include; indeed, it is now part of their voluntary code. They pointed out that it was originally included in the Commonhold and Leasehold Reform Act 2002 but was never brought into force.
The provision is particularly dear to me because it is what started my campaigning for leasehold reform 26 years ago. A group of leaseholders in Mountaire Court came to me and explained that they had each paid £23,000 to their landlord, who was the head leaseholder. They lived in a block of 30 flats, so the total was well over £600,000. They said that the head leaseholder had gone into liquidation and that their money had gone. At that point, the freeholder came to them and said that they were prepared to do some of the work. The leaseholders had been arguing that the work should be done. The freeholder then came to them and said, “Yes, we’ll do the roof and the windows, but we need you to pay us £6,000 each to do that,” in addition to the £23,000 they had already incurred. They came to me and asked, “What guarantee do we have that our moneys are not going to be filched away in the same way as the original funds?”
I tracked back through Companies House—I think there were 156 different companies, which were ultimately registered, through Daejan Holdings, to Freshwater—to find out that the head leaseholder, who had gone into liquidation, had signed form 397, which allowed Freshwater to take any moneys that were left with the head leaseholder. All that money had gone back to Freshwater, and there was no way of accounting for it. The debate that I held with the then Minister at that time started the campaign. He said, “This is outrageous. These moneys should be held in some sort of escrow account.” They were not, however, and the leaseholders had no access to what was happening. It is important that there is real accountability for reserve funds, because at the moment it is being held blind from the people who are paying the money.
Lee Rowley
I am grateful to the hon. Member for his amendment. When I was a councillor in a location not too far away from him a number of years ago, I had similar experiences with the challenges of sinking funds, so I completely appreciate the point he makes. The amendment would prescribe that landlords provide specific information to leaseholders. I agree that they should have access to relevant information. My pushback is merely about where we put this as opposed to what we do, subject to consultation. I am very sympathetic to many of the points he made.
Clause 28(2) does give the appropriate authority the power to prescribe other matters that should be included as part of a written statement of account. We need a consultation to give relevant parties the ability to debate and discuss that and give their views. We must ensure that it is proportionate and cost-effective, but once we have gone through that consultation, I think there is a strong case for ensuring that there is sufficient information as he has outlined to some extent.
Barry Gardiner
I am grateful to the Minister for what he has said, but the strongest protection would be to have it on the face of the Bill. Even when it was on the face of the 2002 Act, the Government never brought it into force. So this is not something we have not had previously. It is right there in legislation for a leaseholder to have access to this information, but we have never brought it in. What the Minister is suggesting is actually a regressive step, taking leaseholders further away by saying, “We’ll do it through secondary legislation now.”
I really do think it is important to have this on the face of the Bill. We know how Committees work. I know the Minister cannot accept the amendment now, but I would ask him to go away and come back on Report. If he comes back with his own amendment to achieve the objective, I will be delighted.
The Chair
Order. I am not surprised the hon. Lady has mistaken that intervention for a speech. It was a very long intervention—
Eddie Hughes (Walsall North) (Con)
It’s like those leases he keeps talking about; they just keep rolling round.
Lee Rowley
Thank you, Mr Efford. Would my hon. Friend the Member for Redditch like to intervene on me?
Rachel Maclean
I thank my hon. Friend the Minister. Perhaps he would like to ask whether, given his extensive history and detailed knowledge on the subject, the hon. Member for Brent North knows why those provisions were not brought in following the 2002 Act. Or perhaps the Minister would like to update us if he has that knowledge for the Committee.
Lee Rowley
Sadly, I confess to not having that knowledge from back when I was at university; I probably was not studying the right things. I appreciate the point from my hon. Friend the Member for Redditch that there has been an opportunity for this to be implemented under Governments of both parties and it has not been done. I am always happy to listen to the hon. Member for Brent North, and I do appreciate the point he is making. It is this Government’s intention to move forward with this, albeit through secondary legislation, which I know he has concerns about. I am happy to put that on the record on the assumption and hope, at least on the Conservative side, that we are in government when this happens. I hope he will not press his amendment.
Barry Gardiner
I will press the amendment to a vote because I think it is important that we have it on the record.
Barry Gardiner (Brent North) (Lab)
I beg to move amendment 131, in clause 28, page 44, line 34, at end insert—
“(4A) Any of the contributing tenants, or the sole contributing tenant, may withhold payment of a service charge if the tenant has reasonable grounds for believing that the payee has failed to comply with the duty imposed by subsections (1) to (4); and any provisions of the tenancy relating to non-payment or late payment of service charges do not have effect in relation to any period for which a service charge is withheld in accordance with this subsection.”
This amendment would enable leaseholders to withhold service charge payments where the landlord has failed to comply with the obligation to provide a written statement of account in the specified form and manner within the six month period from the end of the financial year.
The Chair
With this it will be convenient to discuss the following:
Amendment 13, in clause 28, page 45, line 4, at end insert—
“(8) Where a landlord of any such premises fails to comply with the terms implied into a lease by subsection (2), any rent, service charge or administration charge otherwise due from the tenant to the landlord shall be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply with those subsections.”
This amendment would require courts and tribunals to treat the landlord’s compliance with the implied term requirement for annual accounts and certification as a condition precedent to the lessee’s obligation to pay their service charges.
Amendment 14, in clause 28, page 45, line 40, at end insert—
“(9) Where a landlord fails to comply with subsection (1), any rent, service charge or administration charge otherwise due from the tenant to the landlord shall be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply with that subsection.”
This amendment would require courts and tribunals to treat the landlord’s compliance with the implied term requirement for annual accounts and certification as a condition precedent to the lessee’s obligation to pay their service charges.
Barry Gardiner
Amendment 131 would enable leaseholders to withhold service charge payments where the landlord has failed to comply with their obligation to provide a written statement of account in the specified form and manner within the six-month period from the end of the financial year that is specified in the legislation. Arguably, it is more important for leaseholders that the accounts are presented in time than that they are presented in a specific form. I welcome what the Government have done to make sure that accounts are presented in a specific form, but the real crux of the matter is: are they presented in time? The amendment would enable leaseholders to have redress if they were not.
We heard in the evidence sessions of that huge imbalance of power in the leasehold system. Given that the Government already accept the principle of leaseholders withholding service charge moneys where they have not been demanded by a landlord in the right way, surely we should rebalance that imbalance of power in the landlord-tenant relationship in leasehold by permitting them to withhold service charges when they are not forthcoming within that allotted time. I believe that policy was also in the 2002 Act, but again, as with the provisions on sinking funds, it was not brought into force.
I also welcome amendments 13 and 14. Certainly, the former achieves something similar—maybe even better. If the Minister were able to give me an assurance that he were willing to accept amendment 13, tabled by my hon. Friend the Member for Greenwich and Woolwich, I might even be persuaded to withdraw amendment 131.
Matthew Pennycook
I rise to speak to speak to amendments 13 and 14. As I think my hon. Friend the Member for Brent North just touched upon, clause 28 inserts new sections 21D and 21E into the 1985 Act to create a new requirement for a written statement of account to be provided by landlords within six months of the end of the 12-month accounting period for which variable service charges apply. It also places an obligation on landlords to provide an annual report to leaseholders. We welcome the clause, as did my hon. Friend the Member for Brent North, for the reasons discussed in the evidence sessions last week. The 2002 attempt to mandate a form of regular service charge accounts and statements was ultimately unsuccessful, with the replacement section 21 of the 1985 Act never brought into force. As a result, service charge processes remain unstandardised.
A staggering range of different procedures are being used across the country. Some leases specify the form that annual budgets and accounts must take, while others do not. Some require certification by the freeholder, managing agent, management company, accountant or auditor, while others do not. Some prescribe deadlines by which budgets or accounts must be produced and make adherence to those conditions a precedent to liability to pay a service charge, while others do not.
Clause 28 clearly seeks to overhaul this fragmented patchwork of arrangements by introducing the new section 21D, making annual accounts and certification by a qualified accountant a mandatory requirement and, through new section 21E, introducing a statutory duty to provide leaseholders with an annual report about their service charges. By introducing the mandatory requirements that it does, new section 21D(2) implies a term into leases of dwellings with variable service charge provisions.
In our view, the decision to imply terms raises a number of questions and concerns. First, do the implied terms of new section 21D replace any equivalent existing provisions in the lease? If not, landlords and managers will potentially be forced to prepare two sets of accounts: one under the existing terms of the lease and the other under the new implied terms in section 21D. Secondly, why are no express sanctions for non-compliance included in new section 21D? That point was raised by Amanda Gourlay in the Committee evidence sessions.
Given that the implied terms are not covered by the enforcement provisions in new section 25A—provided for by clause 30—surely it is not the Government’s intention to require leaseholders to apply for specific performance through the courts when it comes to this matter. Thirdly, despite the clause including no right to recover implied costs, there is a risk that some landlords will nevertheless seek to recover the extra costs of complying with these requirements through service charges. Can we be sure that leaseholders will not find themselves picking up the bill for complying with the new mandatory requirements? I would welcome the Minister’s response to each of those questions and concerns, in writing if he is not able to address each in detail today—they are very specific and technical.
Perhaps the more significant question that arises from the decision to imply terms by means of new section 21D is whether the landlord’s compliance with those terms will be treated by the courts and the tribunal as a condition precedent to the lessee’s obligation to pay their service charges. We believe it is important that it is made clear in the Bill that compliance with the implied terms in question is a condition precedent to the lessee’s obligation to pay their service charges and that, by implication, leaseholders are not required to pay if the landlord does not comply with the implied terms. Amendments 13 and 14 would have that effect, with the same desired outcomes as the welcome amendment 131, in the name of my hon. Friend the Member for Brent North, but without the tribunal potentially having to arrive at a judgment on the state of mind of the leaseholder who is withholding their charge. I hope the Minister will accept those amendments as a means of providing the necessary clarification.
Lee Rowley
I thank the hon. Members for Brent North and for Greenwich and Woolwich for their amendments.
Amendment 131, in the name of the hon. Member for Brent North, seeks to enable leaseholders to withhold payment of their service charges when accounts are not provided within six months. I absolutely agree with the sentiment that information must be provided in a timely manner, and that there have to be consequences for not doing so. However, the question is whether withholding the service charge is a proportionate and effective means of doing so; the effective question is whether the risk of doing so creates unintended consequences. For example, were a leaseholder to withhold payments in circumstances where it is found that section 21D had been complied with, that may render the leaseholder liable to pay their landlord’s litigation costs, depending on the terms of the lease. Withholding payments also creates consequences for other leaseholders and may eventually mean that works are not carried out. I recognise that that is not the intention or the point that the hon. Gentleman is making, but in the portion that we are looking at, it is important that we consider all potential unintended consequences.
Services of certified accounts will, for most landlords, be a necessary step for a landlord to identify whether they have spent more than estimated during the accounting period and, where the costs incurred during that period are more than was estimated, the landlord will wish to serve a further demand to recover the shortfall. It is in the landlord’s interest to do that, but I recognise that not all landlords act in a completely rational way or a way that necessarily follows logic. Should a landlord, however, fail to issue a demand for costs within 18 months of those costs having been incurred, then through new clause 6, the leaseholder would not be liable to contribute towards those costs at all.
I realise that that answer will probably not address every part of the concern expressed by the hon. Member for Brent North; it is the same as when I applied that logic to the amendment in the name of the hon. Member for Greenwich and Woolwich. However, I hope it demonstrates both that we are clear that it should be done—that there is a logic, an incentive and a rationale for it to be done—and that there is ultimately a cliff at the end of it, a cut-off point in the event that they do not do it. I hope that provides some assurances; I will see whether that is enough to tempt the hon. Member for Brent North to withdraw his amendment.
Barry Gardiner
I appreciate what the Minister has said about that cliff edge of 18 months. We have talked about cynicism in this Committee before, but let me tell the Minister what I believe may happen. I think a landlord who is withholding information will decide that they can now do so with impunity for 17 months and 28 days, and then they will serve the required information up on a plate. The provision is almost tempting them to do that. If the Minister is going to rely on that, rather than looking at the question again in further detail, I urge him to reduce that timeframe substantially. I will not put a figure on it—I do not say that it should be 12 months, or nine months—but it should be reduced substantially. However, I am very happy to withdraw my amendment in favour of amendment 13.
Lee Rowley
I am grateful to the hon. Gentleman for his comments in that regard. To save time, the same logic applies from our perspective to amendments 13 and 14, and I hope that at least in part reassures him—I will wait to hear his comments, but I encourage him to withdraw his amendment if it does.
Barry Gardiner
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Matthew Pennycook
Mr Efford, may I respond to the Minister’s comments on amendment 13?
Matthew Pennycook
In that case, I will press the amendment to a vote without justifying it.
Amendment proposed: 13, in clause 28, page 45, line 4, at end insert—
“(8) Where a landlord of any such premises fails to comply with the terms implied into a lease by subsection (2), any rent, service charge or administration charge otherwise due from the tenant to the landlord shall be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply with those subsections.”—(Matthew Pennycook.)
This amendment would require courts and tribunals to treat the landlord’s compliance with the implied term requirement for annual accounts and certification as a condition precedent to the lessee’s obligation to pay their service charges.
Question put, That the amendment be made.
Lee Rowley
We have already talked about this, but in summary, most landlords are required under the terms of the lease to provide leaseholders with a written statement of accounts. Where leaseholders feel they have not been provided with sufficient information, they may ask for a written summary of costs for the past accounting period or, if the accounts have not been made up, for the period of 12 months ending with the date of the request.
We know that the current arrangements, as we have just discussed, do not provide adequate statutory protection. Although many landlords provide their leaseholders with sufficient information, others fail to do so. Subsection (2) of clause 28 introduces two new measures to address that. Proposed new section 21D of the 1987 Act implies into leases a new requirement for landlords who charge variable service charges and manage blocks of four or more dwellings. The threshold reflects existing arrangements for the preparation of a summary of costs. We are placing an obligation on such landlords to provide a written statement of account to leaseholders within six months of the end of the 12-month accounting period. This statement must be certified by a qualified accountant.
Matthew Pennycook
The Minister provides me with the opportunity to get my justification in, but, without going through it, he can answer the question that underpinned amendments 13 and 14 by simply telling me whether the decision to imply terms, as new section 21D does, means that a landlord’s compliance with them is to be treated as a condition precedent to the lessee’s obligation to pay their service charges.
Lee Rowley
I am grateful to the shadow Minister for his question, and, because of its specifical legal and technical nature, I will write to him. I know that members of the Committee may wish to seek assurances about the word “arising”, which was referenced in evidence last week. I am happy to give the assurance that we will consult accountants on to how to present these service charge accounts, which I hope will mean that there is a process to ensure that any necessary clarification of particular terminology will be clear to those who operate within it.
Rachel Maclean
In the same evidence session, we also heard Amanda Gourlay’s concern about the nature of the accounts being mandated, and she said that it is not something that she would recognise as a set of accounts because it does not have a balance sheet or expenditure. I think the Minister said that a chartered accountant will have to sign off on them. Can he reassure members of the Committee that that will address the concern raised with us by Amanda?
Lee Rowley
I thank my hon. Friend for her question. Yes, that is my understanding, and, as part of the response in writing, we will clarify that.
To conclude, new section 21E places an obligation on landlords to provide an annual report in respect of service charges and other matters likely to be of interest to the leaseholder arising in that period.
Barry Gardiner
Could the Minister clarify a point for me? Obviously, there are different forms of accounts, such as short-form accounts and audited accounts. In what he is proposing, as I understand it, there is no compulsion to have an audit of the service charges shown in those accounts. The certified accounts happened in blocks already, but they are pretty meaningless because the freeholder appoints the accountants and tells them what form they want them in. Surely the key is having not just the accounts but the service charges audited as proper.
Lee Rowley
I am going to include that in my written response, too, because I know that the specifics of the definition of audit are quite different from other aspects of this question. My understanding is that we will prescribe in secondary legislation what needs to be provided. Given that an accountant will be a part of that, they will have to ensure that the audit conforms to their usual codes of practice. I will write on the specifics to ensure that I have given sufficient information.
Richard Fuller
As the Minister is contemplating what he will put in his letter, including a response to the hon. Member for Brent North, could I gently remind him that auditing is an expensive procedure? There will be a number of instances where these accounts might fall short of what would be required under existing Companies House legislation. There are some metrics and things out there that the Government could use, but he should bear in the mind the cost of auditing.
Lee Rowley
My hon. Friend is absolutely right. One of the reasons why I want to write is that I want to ensure that the specific elements and substantive parts of the concept of audit are represented to the Committee in the most accurate way. We have to strike a balance by ensuring that sufficient information is made available for decisions to be made, but equally we cannot create a process that is so involved, for what I am sure are very good reasons, that it would be disproportionate, and then create a whole heap of new consequences on the other side, which is what we are trying to avoid.
To conclude, new section 21E places an obligation on landlords to provide an annual report. For service charges, that report must be provided within one month of starting a 12-month accounting period, although it can be provided earlier if it is expedient to do so. Both new sections allow the Secretary of State, as we have already discussed, and Welsh Ministers to prescribe the detailed content in secondary legislation. We will work closely with interested parties when we come to do that. Subsections (3) and (4) make consequential changes to the definition of “qualified accountant” under sections 28 and 39 of the 1985 Act to reflect these new sections. I commend the clause to the Committee.
Question put and agreed to.
Clause 28 accordingly ordered to stand part of the Bill.
Clause 29
Right to obtain information on request
Matthew Pennycook
I beg to move amendment 15, in clause 29, page 46, line 19, at end insert—
“(3) Information specified for the purposes of section (1) must include accruals and prepayments and digital copies of service charge accounts.”
This amendment would ensure that regulations made by the appropriate authority must provide tenants with the right to accruals and prepayments and digital copies of service charge accounts.
As things stand, leaseholders only enjoy the right to request a summary of relevant costs and inspect supporting documentation in relation to such a summary. Barring a disclosure order made during tribunal proceedings, there are few direct means for leaseholders to secure relevant information. Clause 29 makes a series of changes to the 1985 Act to provide for a new stand-alone right for leaseholders to request information from their landlord, and we welcome it.
Precisely what such a right will entail will largely be set out in regulations that will presumably not only specify the relevant categories of information that can be requested and obtained, but the relevant timelines for compliance. We take no issue in principle with the detail being brought forward by statutory instrument—for obvious reasons—but we have tabled amendment 15 to ensure that the information that ultimately can be lawfully requested by leaseholders under clause 29 includes accruals and prepayments, as well as digital copies of service charge accounts.
We feel that statutory access to accruals and prepayments is vital because they are prepared on a true and fair basis and are necessary to understand most service charge accounts. The case for ensuring that service charge account information can be accessed by leaseholders in a digital format is, we hope, self-evident. I hope the Minister will consider accepting the amendment or, if he feels that he cannot, will at least provide the Committee with robust assurances that the relevant regulations will in due course specifically include accruals and prepayments and digital copies of accounts in the categories of information that can be requested.
Lee Rowley
I do not seek to detain the Committee, and I hope the hon. Gentleman will accept my short response. I am not disregarding the substantive points of the amendment, but some of them we have discussed before. I accept that this is an important area and we have to get it right. We must make sure that the information prescribed in the process works and is comprehensive enough for people to get a true understanding of what is going on and proportionate enough to make it meaningful and not incur unnecessary costs. I agree with the hon. Member that leaseholders should have access to the relevant financial information and that that information should be clearly understood and articulated so that people can derive decisions and comfort from it.
The Government prefer that the detail is prescribed in secondary legislation and are committed to consulting. It is fair to say that the details will be key parts of a discussion about the feasibility of inclusion in the final decision when it is made.
Matthew Pennycook
I welcome that response from the Minister. On that basis, I am happy to beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Matthew Pennycook
I beg to move amendment 16, in clause 29, page 48, leave out lines 1 to 8 and insert—
“(4) P may not charge R any sum in excess of the prescribed amount in respect of the costs incurred by P in doing anything required under section 21F or this section.
(5) The prescribed amount means an amount specified in regulations by the appropriate authority; and such regulations may prescribe different amounts for different activities.
(6) If P is a landlord, P may not charge the tenant for the costs of allowing the tenant access to premises to inspect information (but may charge for the making of copies).”
This amendment would make the appropriate authority (i.e. the Secretary of State or the Welsh Ministers) responsible for setting a prescribed amount for the costs of providing information to leaseholders. That prescribed amount would be the maximum amount that freeholders and managing agents employed by them could seek to recover through a service charge.
The Chair
With this it will be convenient to discuss the following:
Amendment 132, in clause 29, page 48, leave out lines 1 and 2.
This amendment would prevent a landlord from recovering the costs of complying with the requirements to provide information imposed by new sections 21F and 21G.
Amendment 133, in clause 29, page 48, line 3, leave out “But,”.
This amendment is consequential on Amendment 132.
Matthew Pennycook
Arguably of more importance in ensuring that clause 29 is beneficial to leaseholders than the type of information that they will henceforth have the right to request and what form it is shared in is the need to protect them from excessive charges levied for providing that information. As it stands, subsection (4) of new section 21G of the Landlord and Tenant Act 1985 would allow person P to charge person R for the costs of doing anything required under new section 21F or this new section, while subsection (6) renders those costs relevant for the purposes of a variable service charge. In other words, new section 21F includes an implied right for landlords to recover the costs of supplying the relevant categories of information to leaseholders through the service charges, with penalties for non-compliance under clause 30.
We obviously do not take issue with the right to recover reasonable costs of complying with the mandatory requirements introduced by the clause, but there is an obvious risk, given everything we know about how some landlords in the market operate, that some will charge excessive fees for supplying that information. We have tabled amendment 16 to give the Secretary of State the power, just as the Bill provides for in other respects, to set prescribed amounts with a view to ensuring that leaseholders are not subject to unreasonable costs should they feel they need to request certain categories of information. I hope the Minister can understand the very simple point that the amendment is driving at and will consider accepting it.
Lee Rowley
I am grateful to the hon. Gentleman for moving amendment 16. He does not deny that landlords will incur a cost for answering information requests. The level of cost will vary, depending on the volume of information, the complexity, the period, the timeline and a number of other factors. There may be difficulties in obtaining all that information. Landlords may also incur a cost in chasing other people who hold the information required to answer a leaseholder’s request, notwithstanding our earlier conversations about the reasonableness of the costs for talking to other parties.
Given the variety of different scenarios, we start from a place in which it is very difficult to set a cap that would not create another unintended consequence somewhere else. None the less, I note the hon. Gentleman’s concern and am happy to confirm that we are listening very carefully on this matter, but I hope he might consider withdrawing the amendment.
Barry Gardiner
Amendments 132 and 133 would prevent a landlord from recovering the cost of complying with a requirement to provide information imposed by new sections 21F and 21G of the 1985 Act, which is very much in line with what my hon. Friend the Member for Greenwich and Woolwich said.
Given that the Government are rightly focusing on reducing costs to leaseholders, these amendments would ensure that a landlord cannot charge leaseholders for giving them information about their home and their charges. We do not charge voters or taxpayers for complying with freedom of information requests, so I am not clear why there should be a distinction here. Many requests and information transfers will now be made electronically. The days when people had to go to the office to pull out hordes of receipts are, I hope, a thing of the past. These requests and transfers should not involve a great deal of expense.
Again, I do not want the Minister to think I am a cynical chap, because I am not, but I know what will happen. There will be the same hierarchies that we talked about earlier. Landlords will create arm’s length companies to hold this information in tiers and categories, and they will charge for providing information at each level. That is what they do. We have to understand that it is not a mistake or one bad apple. Many landlords adopt this practice as a way of securing revenue. Painful though it is to admit that our fellow citizens do this sort of thing to each other, they do. We are passing this legislation to try to protect people.
Lee Rowley
I will not detain the Committee, because my response will be similar to the one I gave to the hon. Member for Greenwich and Woolwich.
We accept the broad point made by the hon. Member for Brent North but, for the reasons I outlined previously, we think it would be difficult to do this. There is at least an argument that proportionality has to be considered. However, I am happy to confirm that we are listening very carefully. On that basis, I hope the hon. Member for Greenwich and Woolwich may be willing to withdraw amendment 16.
Matthew Pennycook
I appreciate what the Minister has said, both about the variety of circumstances that need to be covered and about the difficulties with imposing a flat cap. I take on board what he said about the Government listening carefully.
I am minded to press the amendment to a vote purely to indicate how strongly we feel about this issue. The thrust of the five provisions is, “Let’s increase transparency and let’s increase the enforcement measures,” all ultimately to ensure that leaseholders have a better ability to bear down on unreasonable costs, and it is of great concern to us that while we are trying to do that, we are opening up other routes whereby unscrupulous landlords can start to introduce unreasonable costs in relation to the very things that we are trying to clamp down on. We will press the amendment to a vote simply to put on the record our concern in respect of leaseholders needing some protection—even if it is not a flat cap—from unreasonable costs being passed on through this mechanism.
Question put, That the amendment be made.
Barry Gardiner
Mr Efford, it is the definition of insanity to do the same thing over and over again, expecting a different result. Therefore I am happy not to press amendments 132 and 133.
Lee Rowley
As I outlined in relation to clause 28, the Government accept that the current arrangements do not provide adequate statutory protection. In addition to the measures set out in clauses 26 to 28 to drive up transparency, clause 29 introduces new provisions to enable leaseholders to request information from their landlord or a third party who holds relevant information. Subsection (2) introduces proposed new section 21F of the Landlord and Tenant Act 1985, which sets out provisions that enable leaseholders to receive information on request. That information may relate to
“service charges, or…services, repairs, maintenance, improvements, insurance, or management of dwellings.”
One example might be a stock condition report for the building. Landlords will be obliged to provide information that they have in their possession, and where they need to ask another person for it, that person is required to do the same.
Proposed new section 21G provides further details on information requests under section 21F. It allows a leaseholder to request that they inspect a document and make and remove a copy of the information. Section 21G also provides that landlords may not charge the leaseholder for providing facilities for access, although they can charge for the making of copies. Alternatively, the landlord can pass the reasonable costs of any inspection through the service charge. This section allows the Secretary of State and Welsh Ministers to specify the time period for providing such information, circumstances in which that period may be extended and how the information is to be provided.
Proposed new section 21H provides that where the lease is assigned, the obligation to provide the information requested under section 21F must still be complied with. However, the person obliged to provide the information is not required to provide the same information in respect of the same dwelling more than once.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Clause 30
Enforcement of duties relating to service charges
Matthew Pennycook
I beg to move amendment 19, in clause 30, page 49, line 15, leave out “damages” and insert “penalties”.
This amendment, together with Amendments 20 to 25, would make clear that the sum to be paid to the tenant in circumstances where a landlord failed to comply with duties relating to service charges is a punishment rather than a recompense for loss to the leaseholder thus ensuring it is not necessary to provide proof of financial loss. See also Amendments 17 and 18.
The Chair
With this it will be convenient to discuss the following:
Amendment 20, in clause 30, page 49, line 27, leave out “damages” and insert “penalties”.
See explanatory statement to Amendment 19.
Amendment 21, in clause 30, page 49, line 30, leave out “Damages” and insert “Penalties”.
See explanatory statement to Amendment 19.
Amendment 22, in clause 30, page 49, line 34, leave out “damages” and insert “penalties”.
See explanatory statement to Amendment 19.
Amendment 23, in clause 30, page 49, line 39, leave out “damages” and insert “penalties”.
See explanatory statement to Amendment 19.
Amendment 24, in clause 30, page 49, line 41, leave out “damages” and insert “penalties”.
See explanatory statement to Amendment 19.
Amendment 25, in clause 30, page 50, line 2, leave out “damages” and insert “penalties”.
See explanatory statement to Amendment 19.
Amendment 134, in clause 30, page 49, line 29, at end insert—
“(4A) An order under subsection (2)(c) or (4)(c) may include an order that the landlord remedy any breach revealed by the application in respect of any other leaseholder.
(4B) Where the tribunal makes on order under subsection (4A), the tribunal may make an order that the landlord, or (as the case may be) D, pay damages to any other leaseholder in respect of whom a breach revealed by the application must be remedied.”
This amendment would enable a tribunal to order the remedy of a breach in respect of, and damages to be paid to, a leaseholder affected by a breach revealed by the application to the tribunal, even if that leaseholder is not a party to the litigation.
Matthew Pennycook
Clause 30 substitutes existing section 25 of the 1985 Act, which includes penal provisions dealing with any failure to comply with the relevant provisions, with proposed new section 25A, which decriminalises the sanctions and applies a new enforcement regime. The new enforcement regime will allow a tenant to apply to the appropriate tribunal in instances in which their landlord did not demand a service charge payment in accordance with section 21C under clause 27, failed to provide a report in accordance with section 21E under clause 28, or failed to provide information in accordance with sections 21F and 21G under clause 29. The tribunal will have the power to issue an order that the landlord comply with the relevant provision within 14 days and that they pay a fine of up to £5,000 to the applicant, or other consequential orders.
We welcome the new enforcement regime, but we have three main concerns about how it will operate in practice. With amendments 19 to 25, we seek to address the first of those concerns, which is our fear that the use throughout clause 30 of the term “damages” may imply that leaseholders are required to provide proof of financial loss for the tribunal to order that the landlord pay a fine for failing to comply with one or more of the modified requirements introduced in clauses 27 to 29. The risk that the tribunal takes that view, and thus stipulates that proof of financial prejudice is required, is real, as we have seen with the reforms made to section 20 of the 1985 Act. We tabled this group of amendments to encourage the Government to consider replacing “damages” throughout the clause with “penalties” to make it explicit that an order for failing to comply with requirements under sections 21C, 21E, 21F or 21G of the 1985 Act requires no proof of financial loss on the part of leaseholders. I look forward to hearing the Minister’s thoughts.
Lee Rowley
I thank the hon. Gentleman for amendments 19 to 25, with which, as he indicated, he seeks to adds clarity that any sums paid to the leaseholder where there is a failure to comply are a punishment rather than a recompense for loss. As the Committee is aware, clause 30 will replace the existing and ineffective enforcement measures for failure to provide information with new, more effective and more proportionate measures. That includes allowing the leaseholder to make an application to the appropriate tribunal in cases where landlords have failed to provide the necessary service charge information.
It is the Government’s view that the tribunal is the appropriate body to handle such disputes and to determine whether the landlord has failed in their duties, and whether subsequently they are required to pay damages to the leaseholder. In reaching its decision and ordering that damages be paid, the tribunal need only be satisfied on the balance of probabilities that the landlord breached the relevant section. If a financial penalty were applied, the appropriate tribunal would need to be satisfied beyond reasonable doubt that the landlord had breached the relevant section.
While I understand the hon. Gentleman’s point on the use of the term “damages”, I am advised that its use does not mean that evidence of financial loss is required. Therefore, in aggregate, we consider that financially recompensing the affected leaseholder by way of the payment of damages is both a suitable incentive for the leaseholder to bring the application and a suitable deterrent for landlords, while aligning with the tribunal’s powers.
Richard Fuller
The Minister speaks quickly and is knowledgeable about this matter; I just want to put it into everyday speak that the rest of us can understand. I think that the intention behind the Opposition’s amendment is to be clear that there is a difference between penalties and damages. They do not want the burden of proof to be on leaseholders, in this case, and there is tremendous merit to that. Whatever we put into law has to be accessible to people. I think the Minister said that if we change the word from “damages” to “penalties”, that would raise the hurdle. Can he assure us of his objection to the proposed amendment in everyday speak,? As the Bill is drafted, the hurdle will be lower, and there will be no burden of proof on the leaseholder for the penalties/damages to take effect.
Lee Rowley
As best as I understand it, the situation is exactly as my hon. Friend describes. The threshold is lower, and therefore the provisions are more proportionate, and evidence of financial loss is not required. On that basis, I hope that the hon. Member for Greenwich and Woolwich will withdraw the amendment. I will come to amendment 134 in due course.
Barry Gardiner
Amendment 134 would enable a tribunal to order the remedy of a breach in respect of, and damages to be paid to, a leaseholder affected by a breach revealed by an application to the tribunal, even if the leaseholder is not party to the application. Let me explain why that is appropriate. In an estate in my constituency, Chamberlayne Avenue and Edison Drive, FirstPort was the estate manager. It failed in the case that went to the leasehold tribunal, which was brought by one member of the estate. The tribunal quite correctly found in favour of the leaseholders. However, everybody else on the estate was equally affected, and they are now all having to bring a separate tribunal case against FirstPort in order to receive the same benefits and relief. It seems to me that where that is the case, it would make sense for the tribunal to be able to instruct the landlord that where there has been a failure affecting all the leaseholders, they should remedy that breach to all the leaseholders, not just the one who brought the case, if there are damages.
I was heartily gratified by the explanation that the Minister and the hon. Member for North East Bedfordshire gave about “damages” not being the legalistic sense of damages, because I was beginning to worry that the second part of my amendment might fall foul of exactly what my hon. Friend the Member for Greenwich and Woolwich said. However, if we want to free up and speed up the tribunal system, that would be one way of doing so that would afford great relief to the very many people trapped in that situation.
Lee Rowley
I thank the hon. Gentleman for his amendment, which he has just outlined. The Government are sympathetic to the intention of the amendment. It is not that we do not understand the point that he has made or the point that he articulated in relation to Chamberlayne Avenue; where freeholders behave badly, it should apply across the board, and that is the kernel of the point he makes. The challenge—and I am sorry to be difficult about it—is that, as I know the hon. Gentleman will appreciate, there is a potential ramification to asking a tribunal to make a read-across from one case to every other one. Even though it is highly likely that it will apply to all or almost all of those cases, there is the difficulty of creating the link that makes the assumption that it must apply. For that reason, we do not think we can accept the amendment, although I am sympathetic to the point made by the hon. Gentleman.
Barry Gardiner
I am grateful to the Minister, because it is really good to know that he will consider those points further. Let me therefore make a suggestion: if the tribunal were given powers through secondary legislation on estate cases where the matter is remedying something about the estate that applies equally to everybody, it should be obvious to the tribunal that anybody living on that estate is equally affected.
Let me give an example. If the managing agent, FirstPort, says that it has mended a fence, and it has charged everybody for mending that fence, but it is found that it did not mend the fence and it was not its fence to mend—this is the actual case. Everybody on the estate received those charges, and everybody on that estate was due therefore to be compensated for them. That will happen in some cases, but I accept what the Minister says. Would it make sense to consider giving the tribunal the power to instruct the managing agent to remedy the breach for any of those similarly affected, such that, if they did not, there was an additional penalty when that case was brought to the subsequent tribunal to prove that they were affected?
Lee Rowley
I am happy to ask the Department to look into that in further detail. I have no personal understanding of whether that would be possible or reasonable and proportionate and not have a series of other consequences, but it is reasonable to look into it further.
Matthew Pennycook
Briefly, I welcome what the Minister said on the issue of damages versus penalties. It could be another word than “penalty”, but I hope the point that the amendment tried to make was understood. I am not certain, because I, like him, do not have expertise in the area, whether “damages” could be misinterpreted by a tribunal, notwithstanding what he said. I encourage the Minister to go away and ensure that the reassurance he has given—it is on the record and can be referred to, which is helpful—is understood and cannot be misinterpreted. I think we share the same end: this must be punishment rather than recompense, and leaseholders cannot be expected to provide proof of financial loss. If, as the Minister has indicated, that is the shared intention, I am happy to ask leave to withdraw the amendment, but I hope he will go away and reassure himself further that the tribunal can have no confusion on that point. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Matthew Pennycook
I beg to move amendment 17, in clause 30, page 49, line 30, leave out “£5,000” and insert “£30,000”.
This amendment would raise the cap on penalties under this section (see explanatory statement to Amendment 19) for a failure to comply with duties relating to service charges to £30,000.
The Chair
With this it will be convenient to discuss the following:
Amendment 142, in clause 30, page 49, line 30, leave out “£5,000” and insert “£50,000”.
This amendment would increase from £5,000 to £50,000 the maximum amount of damages which may be awarded for a failure on the part of a landlord to comply with the obligations imposed by new sections 21C (service charge demands), 21E (annual reports), or 21F or 21G (right to obtain information on request) of the Landlord and Tenant Act 1985.
Amendment 18, in clause 30, page 49, line 30, at end insert—
“(6) Penalties under this section must be at least £1,000.”
This amendment would insert a floor on penalties under this section (see explanatory statement to Amendment 19) of £1,000.
Matthew Pennycook
Amendments 17 and 18 address our remaining main two concerns about the clause. The first concern, to which we will return when we consider penalties in relation to part 4 of the Bill, is that we are not convinced that a penalty cap of £5,000 is a sufficient deterrent against non-compliance with the requirements in question. For many—not all, but many—landlords, a penalty of £5,000 will be very easily absorbed. The degree to which the sanctions in proposed new section 25A to the Landlord and Tenant Act 1985 bite would obviously be improved if the penalty cap of £5,000 applied to all leaseholders partaking in any given application, rather than them having to share an amount up to £5,000 between them. My reading of proposed new section 25A(5) is that the fine would apply to each person making an application on grounds that the landlord has failed to comply with a relevant requirement, but I would be grateful if the Minister would clarify that point. Is it a single fine, or is it a fine that would apply to each leaseholder involved?
However, even if a fine of up to £5,000 could be awarded to multiple leaseholders, we still question whether it is sufficient—I think that is a point that is worthy of debate. Labour is minded to believe a more appropriate threshold for penalties paid under proposed new section 25A—I remind the Committee that penalties are awarded at the discretion of the tribunal, so they are not automatic—would be £30,000, thereby aligning penalties in the Bill with other leasehold law, such as financial penalties for breach of section 3(1) of the Leasehold Reform (Ground Rent) Act 2022. Amendment 17 proposes such a cap, although we would certainly consider an even higher limit, such as the £50,000 proposed by the hon. Member for North East Bedfordshire.
Secondly, Labour thinks that the functioning of the new enforcement regime would be improved by specifying a floor on penalties in the Bill. In making clear that non-compliance with the relevant requirements will always elicit a fine, landlords will be incentivised to comply. Amendment 18 proposes that penalties under this section must be at least £1,000, with the implication that the tribunal would determine what award to make between the range of £1,000 and £30,000 for each breach. I look forward to the Minister’s response to each amendment.
Richard Fuller
I am tempted to frame page 25 of today’s amendment paper, because it includes the shadow Minister’s amendment 17, which would increase the penalties from £5,000 to £30,000, and my amendment 142, which would increase them from £5,000 to £50,000. I thought it was usually the Conservative party that is pro-business and tries to keep costs on business low, but then I recalled that these penalties apply to people doing something wrong, and of course the Labour party is always soft on criminals.
Seriously, though, the shadow Minister and I have a clear intent, which I am sure is shared by the Minister. A lot of the measures in this part of the Bill are trying desperately to unpick complicated things and rebalance them in favour of people who own their own home but do not run a large business, or people with small financial interests, where there are 30 or 40 of them against one person with a significant financial interest that covers all those people. In trying to rebalance things here, we all want to ensure that these measures are as effective as possible and that there is enough encouragement to ensure that the good practice the Government want to see can be done effectively.
The concern that I share with the shadow Minister is that the current levels of penalties just look like a cost of doing business. [Interruption.] Indeed! The hon. Member for Brent North has just slapped himself on the wrist, which is probably how many businesses will see it.
Can I gird the Minister’s loins and encourage him to take up his shield and his sword of righteousness in defence of individual leaseholders and say, “This amount is too low. We shall change the legislation. This party and this Government stand to make the intent of what we will do to truly bite on those who are doing wrong”?
Lee Rowley
I am grateful to my hon. Friend the Member for North East Bedfordshire and the hon. Member for Greenwich and Woolwich for tabling their amendments. I share their basic conceptual desire, and that of other Committee members, for people or organisations that have done the wrong things to be held to account. There should be penalties that recognise that they have done the wrong thing. The challenge is always going to be where we draw the line.
I recognise that there are multiple parts of the menu on offer. Notwithstanding the very valid points that have been made, it is important not to lose sight of the fact that the Government are doubling the number from £2,500 to £5,000. Individual right hon. and hon. Members will take different views throughout this process and beyond on whether that is proportionate or whether it should be higher or lower. We think we have struck a proportionate balance.
I will add to the record, for consideration, the importance of the potential for unintended consequences. The response will quite rightly be that it will ultimately be for the tribunal to determine how much to apportion and how to use any changed option. There is a scenario in which the potential penalty on the freeholder, or the party being taken to the tribunal, becomes so great and the hazard becomes so visible that the freeholder starts to oppose it with even more objections, difficulties and the like.
I am making quite a nuanced argument, and Members may feel that I am overthinking this, but we have to be cautious not inadvertently to create a process that emboldens freeholders to fight even harder because of the potential hazard and because they feel that they may be exposed to a fine larger than would be reasonable and proportionate. However, I take the point about the challenge of setting the penalty in the right place. The Government’s view is that the increase from £2,500 to £5,000 is a step forward. That is what we are proposing to this Committee. As a result, we will resist the amendments.
Matthew Pennycook
To clarify whether my reading of proposed new section 25A(5) of the Landlord and Tenant Act 1985 is right, is the penalty a single amount that is shared, or an amount per challenge? This is important.
Lee Rowley
I apologise for not covering that point; I intended to do so. It is £5,000 per challenge. There is the ability to bring forward multiple challenges. Should that be the case, similar amounts of damages may be awarded.
Richard Fuller
Sorry, I am such a pedant, but “per challenge” could relate to person A making the challenge that report x was not done on time, and then person B making the challenge that report x was not done on time. Do those two challenges count as two separate challenges because they are brought by two different people, although they are for the same objection, or as one challenge because they are for the same objection, although they are presented by two different people?
Lee Rowley
They are two separate challenges. If a challenge goes to the tribunal and it is deemed that a penalty should apply, for whatever reason or whatever poor behaviour, and a penalty of up to £5,000 is apportioned, and then another person makes the same claim about exactly the same instance, one would logically expect the tribunal to allocate the same penalty. Multiple challenges get multiple fines.
Barry Gardiner
Could the Minister elaborate on something? Where a group of leaseholders brings the challenge—let us say that 30 leaseholders in the block all club together and bring the challenge—is it one challenge that pays one set of £5,000, or is it 30 challenges that pay £5,000 each? Otherwise, we risk leaseholders bringing one challenge and then everybody thinking, “Okay, if I’ve got to, I will now do it,” and making the same challenge over and over again, clogging up the tribunals. That is not what we want. If they all come together and make that application, surely they should all get the damages that the tribunal feels is proportionate.
Lee Rowley
The hon. Gentleman is making a number of important points. As it is currently structured, one challenge of n people gets up to £5,000; if it is multiple challenges of one person or n people within challenge 2, challenge 3 or challenge 4, that would be £5,000. As it is structured at the moment, one challenge equals £5,000, irrespective of the number of people within that challenge.
Barry Gardiner
Does the Minister appreciate that that could lead to a situation in which we are multiplying challenges unnecessarily?
Lee Rowley
I absolutely appreciate the point that has been made. There is a balance to be struck here. Obviously we will need to go through the justice impact test, or whatever it is called, to check the volume of challenges that would potentially come into the tribunals system as a result of the changes in the Bill. Again, it is about trying to balance those very challenging concepts, making sure that there is a penalty—it is important to recognise that the penalty is doubling—but also that people have the ability to choose to do things or not do things. I know that members of this Committee will have different views about how to structure that balance.
The Chair
Order. We are getting a bit conversational in the exchanges we are having. Can Members make either interventions or speeches, please? It is difficult to follow what is going on up here.
Matthew Pennycook
The Minister’s response was quite disappointing. I think he has made it clear that it is per challenge per group, so what is the incentive for a large group of leaseholders to press the dispute if the potential amount of the share that they are going to get is £100, or even £50? It might be a low amount. [Interruption.] No, it could be. It is a share of the challenge; if there are 100 leaseholders in the challenge, they get a maximum of £5,000 to share between them unless they make multiple challenges. That is my reading of what the Minister has just said.
Richard Fuller
I think the shadow Minister is mixing two things up when he says that people get a share. The issue here is about changing the behaviour of the person who is doing wrong, not “I’m going to get this much money out of it.” The incentive is for the person who is doing wrong. Does the shadow Minister agree with the point made by the hon. Member for Brent North about clogging up the system: why would 150 people put one challenge in when they could put 150 challenges in?
Matthew Pennycook
I take the point, and I understand what the hon. Gentleman is driving at: there is the very real risk of clogging up the system with multiple challenges if leaseholders are sophisticated enough to understand the provisions of the clause and work out that the best thing they can do is submit multiple challenges. I do not think that most will. There is therefore a detrimental impact on the incentives for leaseholders to try to dispute these matters.
Coming back to the fundamental point of whether this will change the behaviour of landlords when it comes to compliance, though, I think the hon. Gentleman is right: the figure of £5,000 is too low. I have had this debate so many times with Government Ministers. We had it on the Renters (Reform) Bill: the maximum that local authorities can charge for certain breaches of that Bill is £5,000. Most landlords will take that as a risk of doing business.
Matthew Pennycook
It is operational. It can be absorbed on the rare occasion that it will be charged, so we think that amount should be higher. Ultimately, as the hon. Member for North East Bedfordshire said, we have to make clear that we are very serious about the sanctions in this new section biting appropriately. For that reason, although I am not going to push the amendment to a vote at this stage, it is a matter that we might have to come back to. It applies to part 4 of the Bill—to residential freeholders—equally, and it is important that we get it right and convince the Government to look at this matter again. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lee Rowley
I beg to move amendment 48, in clause 30, page 50, line 14, leave out subsections (4) and (5).
This amendment is consequential on Amendment 123.
Lee Rowley
Amendment 48 is consequential on amendment 123, which we discussed in our debate on part 2. Amendment 123 ensures that the Bill is clear for the reader by grouping a set of related amendments that are consequential to section 26 of the Landlord and Tenant Act 1985, which clarifies that the provisions of amendment 29 do not apply to tenants of public authorities.
Clause 30 will introduce new, more effective and more proportionate enforcement measures to replace existing ineffective measures. Subsection (2) will repeal the existing enforcement provisions under section 25 of the 1985 Act, which allow a local housing authority or leaseholder to bring proceedings against the landlord in the magistrates court. This measure proved an ineffective deterrent and has hardly been used.
Subsection (3) will insert a new section 25A into the 1985 Act. It sets out routes to redress. Proposed new section 25A(2) sets out measures for situations in which landlords have failed to provide the information required to be included within the annual report or have failed to provide the service charge demand form in the prescribed format. When those circumstances apply, the leaseholder may make an application to the appropriate tribunal. The tribunal may order that the landlord must serve a demand for payment using the correct form under section 21C or provide a report in accordance with section 21E within 14 days of the order having been made. It can also order that the landlord pay damages to the leaseholder.
Proposed new section 25A(3) sets out measures for where the landlord has failed to provide information on request. In such circumstances, the leaseholder may make an application to the appropriate tribunal. The tribunal may order that the information is provided within 14 days, or that the landlord pays damages to the leaseholder, or both.
Proposed new section 25A(5) provides that the damages payable to leaseholders must not exceed the £5,000 figure that we have just debated. Proposed new section 25A(6) will confer powers on the Secretary of State and Welsh Ministers to amend this amount to reflect changes in the value of money, if they consider it expedient to do so. Proposed new sections 25A(7) to (10) contain measures to ensure that landlords cannot pass through service charge demands that they have been ordered to pay nor draw on service charge moneys held in trust and hence seek to reclaim their losses. I commend the clause to the Committee.
Amendment 48 agreed to.
Clause 30, as amended, ordered to stand part of the Bill.
Clause 31
Limitation on ability of landlord to charge insurance costs
Amendment made: 49, in clause 31, page 50, line 24, leave out from beginning to “insert” in line 25 and insert
“After section 20F of the LTA 1985”.—(Lee Rowley.)
This amendment is consequential on Amendment 51.
Barry Gardiner
I beg to move amendment 151, in clause 31, page 50, line 32, leave out from beginning to end of line 32 and insert—
“(a) exceed the net rate charged by the insurance underwriter for the insurance cover, and”
This amendment would define an excluded insurance cost as any cost in excess of the actual charge made by the underwriter for placing the risk, where such cost is not a permitted insurance payment.
The Chair
With this it will be convenient to discuss the following:
Amendment 135, in clause 31, page 50, line 34, at end insert—
“(2A) Costs for insurance are also ‘excluded insurance costs’ where—
(a) a recognised tenants’ association has not been provided in advance with three quotations from reputable insurance companies or brokers, or
(b) the recognised tenants’ association has not had the opportunity to submit a further quotation (in addition to the quotations required by paragraph (a)), which the landlord must consider prior to placing the insurance.”
This amendment would require a landlord to provide a recognised tenants’ association with three insurance quotes before placing the insurance, and provide an opportunity for a recognised tenants’ association to submit an alternative quotation.
Amendment 152, in clause 31, page 50, line 35, leave out from beginning to end of line 6 on page 51.
This amendment, to leave out subsection (3) of the proposed new section 20G of the Landlord and Tenant Act 1985, is consequential on Amendment 151.
Amendment 153, in clause 31, page 51, line 18, at end insert—
“(5A) The regulations must specify a broker’s reasonable remuneration at market rates as a permitted insurance payment.
(5B) The regulations must exclude any payment which arises, directly or indirectly, from any breach of trust, fiduciary obligation or failure to act in the best interests of the tenant.”
This amendment would require “permitted insurance payment” to include payment of a reasonable sum to a broker at market rates for placing the cover, and to exclude any payments which have arisen from wrongdoing.
Amendment 137, in clause 31, page 52, line 24, leave out third “the” and insert “a reasonable”.
This amendment would ensure that the costs which a landlord can recover from tenants in making “permitted insurance payments” are reasonable.
Clause stand part.
Amendment 154, in clause 32, page 51, line 3, leave out “Sub-paragraph (2) applies” and insert
“Sub-paragraphs (1A) and (2) apply”.
This is a paving amendment for Amendment 155.
Amendment 155, in clause 32, page 53, line 5, at end insert—
“(1A) Within six weeks of the insurance being effected, the insurer, or, where the insurance has been arranged by a broker, the broker, must provide all tenants with a written copy of the contract of insurance.”
This amendment would ensure that tenants are provided with the contract of insurance which covers their building.
Amendment 136, in clause 32, page 53, line 12, at end insert—
“(2A) Regulations under sub-paragraph (2) must specify the contract of insurance containing the full extent of the protection afforded by the insurance, and the associated costs.”
This amendment would require a landlord to provide a tenant with the contract of insurance containing the full extent of the protection afforded by the insurance, and the associated costs.
Amendment 156, in clause 32, page 53, line 22, leave out from beginning to the end of line 23.
This amendment, to remove sub-paragraph (7) of new paragraph 1A of the Schedule to the LTA 1985, would remove the landlord’s right to charge tenants for providing them with information about insurance.
Amendment 157, in clause 32, page 54, line 20, leave out from beginning to the end of line 21.
This amendment, to remove sub-paragraph (7) of new paragraph 1B of the Schedule to the LTA 1985, would remove the right of a person required to provide information about insurance from charging for providing that information.
Amendment 138, in clause 32, page 54, line 21, after “the” insert “reasonable”.
This amendment would ensure that the costs payable by a landlord for information requested by him from another person, under paragraph 1A(2)(a), are reasonable.
Clause 32 stand part.
New clause 41—Building insurance and section 39 of the Financial Services and Markets Act 2000—
“A landlord may not manage or arrange insurance for their building under the protections of section 39 of the Financial Services and Markets Act 2000.”
This new clause precludes a landlord from operating as an appointed representative under the licence of Broker, where the landlord has no such licence themselves.
Barry Gardiner
Gosh, that is quite a mouthful of a group! I draw the attention of the Committee in the first instance to amendments 151 to 153. I welcome the fact that the intention behind the Bill is to improve the situation with regard to insurance charges; I make it clear to the Minister that I do recognise that. Together, however, those amendments would prevent the Bill from excluding different descriptions of the type of costs that are excluded. Amendment 151 would change the definition of the actual cost that is permitted to a much tighter one, namely that which the underwriter has charged. Amendment 153 would add that the reasonable brokerage that the broker is charging the client, who is the landlord, is recoverable at prevailing market rates.
There is also the issue of fiduciary duty. Fiduciary duty and breach of trust are important, because the leaseholder on whose behalf the insurance is being arranged by the landlord has an insurable interest in the property. That means that the landlord, in affecting the insurance, is doing so not only on his own behalf but on behalf of the leaseholders; otherwise, the leaseholders would not be paying for it. The landlord is technically an agent of the leaseholder, and the law of agency in common law is specific about the duties of an agent to their principal. In particular, they may not do anything against their principal’s interest, as that would be a breach of trust. That means that should a landlord do anything improper to increase his own revenues against the leaseholder’s interest, he would be guilty of a breach of trust, and the leaseholder would and should be able to recover under common law and have a remedy for it.
Together, the amendments would provide a tight circumscription of what should be permitted as the recoverable costs when placing insurance, but of course I have left wiggle room for the Secretary of State, who is still able to specify in the secondary legislation anything that he or she thinks reasonable, so it is not a straitjacket. I hope that the Minister will understand that this gives much greater clarity to the notion of permissible insurance costs and much greater clarity, which I think is what he seeks in the Bill, to that which properly ought to be excluded. I have not constrained it so greatly that secondary legislation could not come into force to make something else permissible.
Amendment 135 would require a landlord to provide a recognised tenants association with three insurance quotations before placing the insurance, and to provide an opportunity for a recognised tenants association to submit an alternative quotation. In its multi-occupancy buildings insurance investigation, the Financial Conduct Authority found evidence of at least £80 million in insurance kickbacks going to landlords and their managing agents paid for by leaseholders. The amendment would bolster the rights of a recognised tenants association, which successive Governments have supported and sought to protect. Although it would not give the RTAs the power to place the insurance policy, it would help them to close the informational asymmetry with the landlord and pressure them to get a competitive deal by submitting their own quote.
I point out to the Minister that where capital works are being done under a section 20, that is exactly the procedure that would be in operation. The landlord would provide quotations, and the RTA would have the opportunity to submit its own quotation for the work to be done. It seems to me that introducing that same procedure for insurance would be extremely helpful.
Amendment 137 would ensure that the costs that a landlord can now recover from tenants in making permitted insurance payments are reasonable. Although the reasonableness of the cost of buildings insurance can be difficult to prove, especially in a market where brokers are often loth to quote to anyone who cannot place the insurance, the reasonableness test for service charges is the last line of defence for many. I do not think that the insurance scheme in the Bill can fail to make reference to the reasonableness of the permitted insurance payments. The Minister may well say that that will be prescribed in secondary legislation, but I seek to probe him on the point.
Amendment 136 is an important amendment that would require the landlord to provide a tenant with a contract of insurance containing the full extent of the protections afforded by the assurance and the associated costs. In the Bill, we have gone to great lengths to ensure that the leaseholder, as the assured, is able to access information from the landlord, but we heard in the evidence submitted to us by the witnesses in the evidence sessions that there should be a shortcut. The FCA rules already state that, if approached, an insurance company has to provide the information, although we then found out that the landlord did not have to tell leaseholders who the insurance company was; and we know about the difficulties in securing information from a landlord.
Would it not make sense to the Minister to have amendment 136 on the face of the Bill? This information is in the schedule of insurance. The underwriters want to know, “What is it I’m insuring?” They know exactly which units are in that block and exactly what is going on in that block. Therefore, they have the information to do it directly. It seems to me that the amendment would be a far more efficacious way of achieving the objective that the Minister has rightly set out in giving powers to acquire the information from the landlord; it would be far easier and far cheaper simply to say that the insurer has to do it.
Amendment 138 would ensure that the costs payable by a landlord for information requested by him from another person are reasonable. I am sorry that that was a lot, but it is a big grouping. Absolutely at the heart of the issue are amendments 151 to 153 and, ultimately, new clause 41, but we do not get to that until later, I understand.
Barry Gardiner
Fine. In that case, let me speak to new clause 41, which
“precludes a landlord from operating as an appointed representative under the licence of broker, where the landlord has no such licence themselves.”
The whole point of this new clause, which goes to that issue of fiduciary duty and agency, is that at the moment, landlords can operate under the licence of a broker to provide brokerage services. If we were to take away that capacity from them by passing new clause 41, we would then have circumscribed the way in which a landlord would be able to game the system, because they would not be able to operate under the protections that the Financial Services and Markets Act 2000 affords them, operating under somebody’s licence when they themselves do not have those qualifications.
I am unsure whether this is a proper interest to declare, but I am an associate of the Chartered Insurance Institute. That was many, many years ago; I am not practising now, but I have mentioned it just in case. I think that landlords are getting away with murder by operating in this way, and it would be good to close that loophole to bring it all very tightly together. I appreciate that amendments 151 to 153 and new clause 41 have to be seen as a unit, but they really do give the Minister the opportunity to do what I think he is attempting to do through the Bill, but in a tighter and more effective way.
Matthew Pennycook
I will be fairly brief, because my hon. Friend covered a lot of detail. He is right to do so, because these are important clauses. We welcome the intent behind them, and we think they have the potential to address a very serious problem that has plagued leaseholders across the country for many years. Not just those in buildings with fire safety defects who have seen their insurance premiums soar in the aftermath of the Grenfell fire, but across the board, we are seeing leaseholders face unreasonable and in many cases extortionate buildings insurance commissions that the property managing agent, landlords and freeholders have charged through the service charge. We discussed this in our evidence sessions last week. The Financial Conduct Authority’s report of September last year on the subject of insurance for multi-occupancy buildings found evidence of high commission rates and poor practice, which were “not consistent” with driving fair value to the customer.
The FCA also found—I put this question to one of the witnesses in our evidence sessions, because I find it quite staggering—that the mean absolute value of commissions more than doubled between 2016 and 2021 for managing agents and freeholders of buildings with fire safety defects. Put simply, in far too many instances, managing agents, landlords and freeholders have been gouging leaseholders in this area with impunity. In practice, the effectiveness of this clause will hinge almost entirely on whether the definition of “excluded insurance costs” is sufficiently tightly drawn, and how we define “permitted insurance payments” for the purposes of specifying what payments can be charged.
I appreciate fully that the Minister will be bringing the necessary detail forward through regulations and we will scrutinise them very carefully when that happens. My right hon. Friend—sorry, just hon. Friend, but it is only a matter of time—the Member for Brent North is right to try to strengthen the clauses, because although the permitted insurance payments must be attributable to a permitted insurance, there is nothing on the face of the Bill to ensure that they or the cost of providing information in relation to them is reasonable to the leaseholders. As far as we understand the clause, there is no guarantee that leaseholders will be able to transparently scrutinise quotes or the agreed contract. We fully support my hon. Friend’s amendments 151 to 153, 157, and particularly new clause 41, which attempt to address some of these omissions and deficiencies. I hope the Minister will give them due consideration.
Specifically on my hon. Friend’s amendment 136, clause 32 introduces a new duty to provide specified insurance information to leaseholders. Again, it will be for regulations to fill out the detail about how the new duty will operate in practice, but I would like to briefly probe the Minister on it. During our evidence session with Matt Brewis of the Financial Conduct Authority, it became clear that although the FCA’s new rules mandate that a contract of insurance must be provided by an insurer or broker to the freeholder, and although the leaseholder will be able to write to the insurer to request a copy of the contract, there is nothing that we can see in either the FCA’s rules or the Bill as drafted that will permit a leaseholder to know who that insurer is in the first place. I would like to press the Minister, as my hon. Friend has, to confirm that the Government’s intentions when regulations are made under this clause is for the specified information to include a copy of the contract with the relevant insurer.
While we are considering these two clauses, I would like to take the opportunity to raise a separate concern, which I do not believe is covered by my hon. Friend’s amendments, in relation to proposed new section 20H of the Landlord and Tenant Act 1985, as provided by clause 31 of this Bill. This proposed new section would introduce a new right to claim where excluded insurance costs are charged. Again, this has the potential to provide leaseholders with effective means of redress, but its efficacy depends on how it is implemented. I would be grateful if the Minister could confirm that there is no specific requirement for any damages awarded under this proposed new section to credit the service charge accounts of leaseholders not party to the claim, or any service charge fund generally. It stands to reason that if one has been affected—and this follows from the debate we had on a previous clause—the rest of the leaseholders in the building will be too. If so, could the Minister look at how the regime operates to ensure that all leaseholders that have paid excluded costs are reimbursed in the same manner as the claimant?
Lee Rowley
I turn first to amendment 151, in the name of the hon. Member for Brent North. As someone who has held the building safety portfolio in my Department for the past 16 months, one of my greatest frustrations is that we have not yet made the progress that I would like to see, and that I am sure we would all like to see, with regards to insurance for buildings that have been affected by cladding, having made good progress on lending and other areas.
I think we have made some progress, and the willingness of a number of brokers to come together and voluntarily cap what they are willing to take is a step forward; I would like to see other brokers doing the same. I would also like to see an industry-led solution to be brought forward for those with the greatest exposures at the earliest possible opportunity. That is something I outline to the Association of British Insurers, and other insurers, on a very regular basis—with varying degrees of frustration and emphasis. I hope we will see movement on that in the very near future.
That is a broad discussion about a more specific issue—I will turn shortly to the amendments we are currently debating—although I hope that highlights my interest in this area and my desire to get this right not just for people with remediation and cladding issues, but for the broader community of leaseholders in general. On that basis, I hope that both the hon. Members for Brent North and for Greenwich and Woolwich will appreciate that we have similar ambitions in making sure that transparency in this area is as effective as it can possibly be, and that we ensure the appropriate outcome so as to improve things from where they are at the moment.
I turn to the amendments, specifically amendment 151. We believe that clause 31, which inserts proposed new section 20G into the Landlord and Tenant Act 1985, already achieves the intent behind the amendment by providing powers that allow the appropriate authority to specify the permitted insurance costs that can be passed through the service charge to leaseholders.
From discussions held with the insurance sector itself, and with the FCA, we know that the value chain is a complicated one. Some buildings rely heavily on the reinsurance market—we have seen that increasingly with remediation issues—using a broker for access, and some do not. Some place insurance with numerous insurers splitting the risk, whereas others only use one—the hon. Member for Brent North may know this from his previous engagement with the industry.
Clause 31 is designed to constrain unreasonable costs in all scenarios by defining a payment and allowing us to then separate these costs as either permitted or excluded. Although I understand the intent of the hon. Member for Brent North, the Government’s concern about amendment 151 is that in seeking to tighten the provisions, it may have pulled the strings a little too tightly and become too narrowly focused on certain elements. I hope the hon. Gentleman will consider withdrawing his amendment as a consequence.
Again, although I have great sympathy for the sentiment behind amendment 135, I hope the transparency provisions already in the Bill will help in this regard. Once implemented, they intend to enable leaseholders to have access to details of the policy and the total amount of remuneration being taken on their building's insurance placements. This can be used for a legal challenge if costs have not been reasonably incurred. Our concern with the amendment is the potential for delays in the placement of insurance, which could result in a lapse in cover to the material risks of the building. There also may be instances—although I hope it would be a minor number of cases—where three quotes cannot be obtained, as much as that is possibly unlikely to occur.
We seek to focus the legislation on ensuring that those buildings have insurance that works, with a balance that is appropriate and supported by regulatory changes brought in by the FCA. On the basis of that explanation, I hope the hon. Member for Brent North will withdraw his amendment.
I will address amendments 152 and 153 together. Again, we have are similar ambitions, aspirations and intent, but again, there is a question of narrowness through the amendments, and our view remains that clause 31 will allow full scrutiny of what is to be a permitted insurance payment. The intention is for that to be both through consultation and then subsequently set out in regulations through the affirmative procedure, which will allow hon. Members to debate measures and highlight if there is a better way of doing it. I hope that, with those reassurances, the hon. Member for Brent North may be willing to withdraw the amendments.
Amendment 137 seeks to introduce a reasonable test to permitted buildings insurance costs. At the heart of clause 31 is the need for any costs passed on to leaseholders relating to the placement or management of buildings insurance to be fair and transparent. That is the whole point of it. Section 19 of the Landlord and Tenant Act 1985 already requires for those costs to have been reasonably incurred and for a reasonable service to have been provided. We have obviously seen a whole heap of bad behaviour in this sector; I accept that that is the case. Within the sector, there is ubiquitous use of commissions with poor or no underlying connection to the work undertaken, and I hope that some of the progress made through the Bill will hopefully reduce that.
I do not believe that the amendment would sufficiently protect leaseholders. We seek very clear requirements in the secondary legislation for how permitted insurance fees will be calculated, and that their reasonableness be included in that. We will consult on the measures in due course, and I hope that, with those reassurances, the hon. Member for Brent North will withdraw his amendment.
I turn to clauses 31 and 32, which address insurance, before turning to some further Opposition amendments. Several actors in the procurement of buildings insurance each seek to make a profit in return for their role in supplying insurance, whether they be brokers, managing agents or landlords, who can all take commissions, and that all adds to the overall cost.
Currently, as we have discussed, leaseholders do not have to be made aware of these commissions, and that can hinder the ability of leaseholders to challenge unfair costs. Inflated premiums can be paid through the service charge because there is a lack of transparency and knowledge about what is happening. Clause 31 seeks to ban the placer of insurance on residential leasehold properties from receiving any form of commission that is passed on to leaseholders as a cost, and instead uses a transparent handling fee that must be proportionate to the value of the work done.
Proposed new section 20G provides that excluded insurance costs cannot be charged and enables the Secretary of State and Welsh Ministers to prescribe a permitted insurance payment, which will be the only payment that can be charged. The detail of calculating the fee is to be set out in affirmative secondary legislation, and we will work with stakeholders across the industry and in this place to support that.
Proposed new section 20H sets out what happens should the ban be breached. There is an ability to apply to the tribunal in England and the leasehold valuation tribunal in Wales. It also removes the presumption that leaseholders have to pay their landlord’s legal costs when challenging poor practices, as we talked about earlier. If the tribunal determines that the legislation has not been complied with, damages can be paid. That will be a minimum of the commission taken or the unlawful insurance handling fee, but it will not exceed three times the level of the commission or fee.
Proposed new section 20I outlines the right of the landlord to obtain a permitted insurance payment. The section clarifies how all costs for placing and managing insurance incurred by the landlord must then be charged to the leaseholder. Transparency reforms in the Bill will require the placer of insurance to disclose information about the decision-making processes when purchasing buildings insurance on behalf of leaseholders.
Amendments 154 and 155, tabled by the hon. Member for Brent North, seek to stipulate how the insurance contract is to be provided to leaseholders. We have been working already with the FCA on that area, and it has already produced a number of reports and changed its regulations. The changes allow leaseholders to receive their policy documents and information about the charges within their overall premium. Those changes are important to ensure that the relevant information is available, but they do not remove the necessity for the landlord to supply that information as the placer of the insurance. The amendments tabled by the hon. Member for Brent North remove the focus on the landlord’s responsibility to undertake that activity. Clause 32 is designed to complement the work of the FCA and to provide the powers necessary to ensure that landlords supply the information that will enable leaseholders to scrutinise. With those assurances, I hope that the hon. Member will not press the amendments to a vote.
Barry Gardiner
I am grateful to the Minister for the way in which he is engaging with the issue and for the points he has made. Given that it would be possible to relay the insurance contract electronically, will it be possible for secondary legislation to stipulate that any additional layers of complexity would be outwith the permitted costs? The Minister will see that I keep coming back to that theme, because unfortunately landlords add additional layers of complexity. We need to be sure that, where it is possible to do something simply, it is not permissible to recover the cost of doing it not simply, if I can put it that way.
Lee Rowley
The hon. Gentleman raises an important point. I will not try to solutionise in Committee, given the inherent dangers doing so from the Government Front Bench. We have committed to consulting, and there will be lots of experts and interested parties who will want to engage in that. As the hon. Gentleman suggests, transfers of data in an electronic form do not necessarily involve a substantial amount of time or effort, albeit that the provision and creation of the data in the first place may do. Those are exactly the kinds of things that we will want to talk about as part of the consultation, as and when it comes. On that basis, I hope that the hon. Member will consider not pressing amendments 156 and 157.
Amendment 138 seeks to require that charges made of parties where they request information from the landlord are reasonable, and I agree with the sentiment. Reasonableness is already required through section 19 of the Landlord and Tenant Act 1985. As I indicated in relation to amendment 137, reasonableness is not in itself a guarantee that costs will be constrained and proportionate, especially where the test is reliant on the assessment of normal behaviour across the sector. The Government would seek to deal with this area in secondary legislation, to ensure that the priorities of transparency and proportionality are in place. On that basis, I hope that the hon. Member will consider not pressing his amendment.
Before I conclude, I have two further points. Clause 32 confirms the importance of the intention of transparency, which is behind the Bill. The clause places a duty on landlords and managing agents that compels them to proactively provide information on building insurance to leaseholders. That should help leaseholders to better understand what they are paying for, and give them information they need to scrutinise that and take appropriate action, should that be necessary. The required information will be specified in the regulations, but it is anticipated that it should detail the insurance policy that is purchased, including a summary of the cover such as the risks insured, excess costs, premium costs and any remuneration received by the insurance broker. We also anticipate that it will include details of all alternative quotes obtained from the market and any possible conflicts of interest that arose during the procurement process.
Subsection (2) will insert new paragraph 1A into the schedule to the 1985 Act to allow leaseholders to request further information from landlords or managing agents. This could include full contractual documentation and policy wording, as well as the declaration of technical information that may have shaped the eventual premium price. We hope that giving leaseholders this improved information will allow them to challenge the reasonableness of their policy costs, if required. We expect that it will change landlord behaviour by making sure they are more price conscious, as it will be clearer that their movements are being watched. This will ensure that they do not try to pull a fast one on their leaseholders when it comes to insurance.
New paragraph 1B imposes a duty on third parties to provide landlords with any specified information requested within the specified period. Under paragraph 1A landlords will be obliged to provide information that is in their possession, and under paragraph 1B, where a landlord needs to ask another person for that information, that other person will also be required to provide the information within the specified timescales. Again, those timescales will be detailed in secondary legislation.
Clause 32 places requirements on landlords for how the handling fee that will replace insurance commissions will be disclosed to leaseholders. Again, this seeks to ensure greater transparency and allow more scrutiny where the charges are unreasonable.
Under paragraph 1C of the schedule to the 1985 Act, a leaseholder may make an application to the appropriate tribunal if their landlord fails to comply with the requirements under paragraphs 1A and 1B. I commend the clause to the Committee.
Finally, new clause 41 would preclude landlords from undertaking regulated insurance activity on behalf of a broker. Although I understand the sentiment behind this new clause, I hope the hon. Member for Brent North will recognise that the underlying point behind clauses 31 and 32, on which I hope we all agree, is transparency and fairness. These clauses will require the disclosure of fees charged for any work, as I have just indicated. We will prescribe what is a permitted cost that can be collected through the service charge, which should ensure that commissions that bear no connection to the work undertaken will not be permitted. It should also ensure that key documentation is provided.
Barry Gardiner
The Minister said that all the costs of the broker will have to be disclosed, which is absolutely right. However, where the landlord is operating under the provisions of the Financial Services and Markets Act 2000, he or she would be indistinguishable from that brokerage company and, therefore, the leaseholder will not be able to ascertain what was done by the broker and what was done by the landlord operating under the licence of the broker. What will be revealed is simply “the brokerage.” Unless we can unravel that, we will never get to the issue of kickbacks. As we saw with the Canary Riverside case before Christmas, those kickbacks can be frighteningly large—£1.6 million for one block. The disaggregation of what is the landlord qua broker and what is the broker qua broker is really important.
Lee Rowley
I will try to reassure the hon. Gentleman. I think we both agree on the intention behind full transparency and clarity, so that things are not being hidden in the “value chain,” to use a terrible expression from my previous life.
The secondary legislation for clause 31 will seek to define the permitted insurance costs, and we will consult specifically on issues around regulated insurance activity. I hope that secondary legislation will cover some of the hon. Gentleman’s points and allow him, and others with concerns, to make their case. We can then determine how best to approach it.
With that, I hope the hon. Gentleman will consider withdrawing his amendment.
Barry Gardiner
There is good news and bad news, Mr Efford. The good news is that I am content to withdraw amendments 135, 137, 154, 155, 136, 156, 157 and 138, but I wish to press amendments 151, 152, 153 and 157 to a vote.
Question put, That the amendment be made.
Lee Rowley
We know that there is currently a lack of transparency around administration charges and that leaseholders can face high administration charges. Administration charges must be reasonable, but this can be difficult to determine due to the lack of clarity surrounding them. As a result, leaseholders are often reluctant to challenge the reasonableness of administration charges at the appropriate tribunal.
Clause 33 inserts new paragraph 4A into schedule 11 to the Commonhold and Leasehold Reform Act 2002. It will require landlords to publish an administration charge schedule. A revised schedule must also be published if a landlord revises the administration charges. The Secretary of State and Welsh Ministers will be able to prescribe the form and content of the schedule, and how it is to be provided to a leaseholder, in regulations. If a landlord has not complied with the provision of publishing an administration charge schedule, a leaseholder may make an application to the appropriate tribunal. The tribunal may order that the landlord provide an administration schedule within 14 days and pay damages of up to £1,000 to the leaseholder. This measure seeks to increase transparency, and I commend the clause to the Committee.
Matthew Pennycook
As the Minister has just made clear, clause 33 amends the 2002 Act to create a new duty on landlords to publish administration charge schedules. We welcome it but, as with clauses 31 and 32, the effective functioning of the new requirement will depend on details such as the form and content of the schedule and how it should be published, all of which is to be set out in future regulations.
I have two specific questions for the Minister. The first largely mirrors my concern about the provisions in clause 31 relating to damages. If a tenant claims damages as a result of a breach of the requirements in new paragraph 4A of the 2002 Act, is it not likely that other tenants will have been similarly affected by the failure to publish an administration charge schedule? If it is the case that the damage provisions relate only to the claimant, will the Minister look at how the regime operates to ensure that all leaseholders who may have paid costs, other than in accordance with new paragraph 4A of the 2002 Act, are reimbursed in the same manner? It is a recurring theme, but it is worth putting on the record that it applies to clause 33 as well.
Secondly, along with other measures in the Bill that add new provisions for when a leaseholder is liable to pay a charge—in this instance, where an administration charge has been levied that has not appeared for the required period on a published administration charge schedule—how do the Government intend to make leaseholders aware of their new rights in this respect and in various other places throughout the Bill? Will he consider mandating that freeholders must furnish all leaseholders with an updated “how to lease” guide?
Lee Rowley
I am grateful to the hon. Gentleman for his questions. I will write to him on the answers or the process by which he can get them.
Question put and agreed to.
Clause 33 accordingly ordered to stand part of the Bill.
Clause 34
Limits on rights of landlords to claim litigation costs from tenants
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 35 stand part.
New clause 3—Prohibition on landlords claiming litigation costs from tenants—
(1) Any term of a long lease of a dwelling which provides a right for a landlord to demand litigation costs from a leaseholder (whether as a service charge, administration charge or otherwise) is of no effect.
(2) The Secretary of State may, by regulations, specify classes of landlord to which or prescribed circumstances in which subsection (1) does not apply.
(3) In this section—
“administration charge” has the meaning given by Schedule 11 of the Commonhold and Leasehold Reform Act 2022;
“dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;
“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002;
“service charge” has the meaning given by section 18 of the Landlord and Tenant Act 1985;
“landlord” has the meaning given by section 30 of the Landlord and Tenant Act 1985.
This new clause would prohibit landlords from claiming litigation costs from tenants other than under limited circumstances determined by the Secretary of State.
Lee Rowley
We know that leaseholders can be deterred from challenging costs, or the services that their landlord provides, at court or tribunal for fear that they will also be charged their landlord’s legal costs. The ability of the landlord to charge litigation costs will depend on whether the lease allows for that. That can mean that leaseholders have to pay litigation costs even if they win. Currently, the onus is on leaseholders to make an application to the relevant court or tribunal to limit their liability to pay those costs.
Clause 34 seeks to flip that presumption, and instead requires landlords to apply to the relevant court or tribunal for permission to recover their litigation costs from leaseholders, whether as an administration charge or through the service charge. It does that by inserting proposed new section 20CA into the Landlord and Tenant Act 1985 relating to litigation costs passed through the service charge, and inserting proposed new paragraph 5B into the Commonhold and Leasehold Reform Act 2002 regarding litigation costs recovered as an administration charge.
In the future, a landlord’s litigation costs will not be payable by a leaseholder unless the landlord has successfully applied to the relevant court or tribunal for an order. The relevant court or tribunal may make such order where it considers it just and equitable in the circumstances. We have also taken a power to set out matters that the relevant court or tribunal must consider when making an order on an application. We will carefully consider the detail of these matters with stakeholders, including the tribunal.
Where the landlord is applying to pass on their litigation costs through the service charge, they will be required to specify each individual leaseholder they are seeking to recover their costs from. We have sought to further protect leaseholders by ensuring that a lease, contract or other arrangement has no legal effect if it seeks to disapply this legislation. These measures will prevent leaseholders from being charged unjust litigation costs by their landlord, and will remove barriers to leaseholders holding their landlord to account. I commend the clause to the Committee.
On clause 35, at the moment landlords can charge the costs of a legal dispute to leaseholders. This is an imbalance, as landlords are in a better position to seek legal representation and are more frequently represented than leaseholders at hearings. We understand that there is no other area of law where the parties start from such an unequal position. Clause 35 gives leaseholders a new right to apply to the relevant court or tribunal to claim their litigation costs from their landlord. It does that by implying a term into all leases, ensuring greater balance between landlords and leaseholders with regard to litigation costs. On a leaseholder’s application, the relevant court or tribunal may make such an order if it considers it just and equitable in the circumstances. We have also taken a power to set out matters in regulations that the relevant court or tribunal must take into account when making an order.
Clause 35 also makes it clear that any costs that a landlord is ordered to pay to a leaseholder are considered to be litigation costs incurred by the landlord. As such, if the landlord wants to recover such costs through the service charge or as an administration charge, they will need to apply to the court or tribunal under clause 34.
In addition, we have taken a power to describe which “relevant proceedings” will be subject to the leaseholder’s right to seek their costs. This is to help align the leaseholder’s rights with the right to costs that landlords currently enjoy. We have further protected the leaseholder’s right to recover litigation costs by ensuring that a lease, contract or other arrangement has no legal effect if it disapplies this legislation. I commend the clause to the Committee.
New clause 3 seeks to disapply terms in a lease that allow a landlord to recover their legal costs from leaseholders. It also allows exceptions for certain types of landlord to be set out by the Secretary of State in regulations. Currently, landlords are able to recover their litigation costs from leaseholders, and we absolutely agree that unjust litigation costs should not be incurred.
There may, however, be legitimate cases where a landlord may need to seek their litigation costs from a leaseholder—for example, where a leaseholder has breached their lease in a way that is affecting the other residents in the building, or where non-payment of a charge is limiting the upkeep or repair of the building. In these cases, where landlords have exhausted other means of addressing the dispute, we would want them to feel able to address such issues and be able to recover their litigation costs, if that is justified. That is why we have included measures in the Bill to rebalance the system, but we do not necessarily believe that we should go further at this time. We hope that the Bill takes a proportionate approach. I hope that I have reassured the hon. Member for Greenwich and Woolwich that we are committed to ensuring a fair approach, and that he will withdraw the new clause.
Matthew Pennycook
I must disappoint the Minister, because what he says does not reassure me. I rise to oppose clause 34 standing part of the Bill, and to argue in favour of new clause 3. As he has made clear, clause 34 amends the Landlord and Tenant Act 1985 and the Commonhold and Leasehold Reform Act 2002, with a view to limiting but not abolishing the right of landlords to claim litigation costs from tenants. Although the property chamber tribunal does not generally tend to shift the legal costs of the winning party on to the losing claimant, on various occasions landlords have been able to rely on contractual rights to recover costs against leasees. When that occurs, it is in essence a form of one-way cost shifting, and it is inherently unfair to the affected leasees. Previous attempts have been made expressly to limit these cost recovery provisions, notably by means of schedule 11 to the Commonhold and Leasehold Reform Act 2002, but despite those provisions, and the issue coming before the higher courts on several occasions, the ability of a landlord to recover costs incurred in litigating disputes persists.
We support the aim of scrapping the presumption that leaseholders will pay their freeholders’ legal costs when they have challenged poor practice, as outlined in the explanatory notes to the Bill, and we believe that, apart from in a limited number of circumstances, landlords should be prohibited from claiming litigation costs from leaseholders. As I have said, clause 34 does not prohibit landlords from claiming litigation costs from tenants; instead, it merely limits their ability to do so.
The clause allows landlords in certain, at present undefined, circumstances to apply to the relevant court or tribunal for an order to pass their legal costs on to leaseholders as an administration charge, or on to all leaseholders, irrespective of whether they participated in any given legal action, through the service charge. It may be that the matters that the relevant court or tribunal can take into account when determining whether to make an order on an application for costs will be defined in such a way as to protect the vast majority of leaseholders from unjust, one-way cost shifting, but to allow for cost recovery in circumstances where it is essential—for example, when the landlord is a company controlled by the leaseholders that needs to recover its reasonable legal costs via the service charge or risk going bust. However, as we consider the clause today, we have no certainty whatsoever about that, because the matters that the relevant court or tribunal can account for, as well as the application process, will be set out in regulations to come.
Even if we had certainty about what the Government will tell courts and tribunals that they can consider in determining whether to make an order, we fear that clause 34 is an invitation to litigate. Yes, regulations will prescribe the relevant matters that can be taken into account, but given the multiple Court of Appeal cases and numerous upper tribunal cases on what “in connection with” means, we will almost certainly see disputes arising about what costs are incurred “in connection with” legal proceedings, and whether they are compatible. The risk is that the outcomes of any such cases could erode the general presumption against leaseholders paying their freeholders’ legal costs that the clause attempts to enact.
We believe that it would be more prudent to implement, by means of the new clause, a general prohibition on landlords claiming litigation costs from leaseholders, and then clearly to identify a limited number of exceptions to that general rule through regulations. As I have said, such exceptions might include cases in which the landlord is a leasehold-owned company, or in which the costs are, in the opinion of the tribunal, reasonably incurred for the benefit of the leaseholders or the proper management of the building. That would cover the example that the Minister used. Amendment 8, which would simply delete clause 34, and new clause 3 would provide for that approach by leaving out clause 34 and replacing it with a new clause that provides for a general prohibition on claiming legal costs from tenants, and for a power to specify classes of landlord who will be exempted from it.
I appreciate that this is a complex argument about the best means to achieve an agreed end, but we think that clause 34 requires further thought, and urge the Government to give serious consideration to the issues raised by amendment 8 and new clause 3. As I said, the Government’s approach is a recipe for freeholder litigation, and it might mean far more leaseholders than we are comfortable with bearing the legal costs of their landlords.
Rachel Maclean
I place on record my concerns about the Government’s approach to this issue, based on my experience in the Minister’s role, and having listened carefully to representations made, particularly by members of the all-party parliamentary group on leasehold and commonhold reform and a gentleman called Liam Spender, who detailed his experiences at the hands of FirstPort. That was an absolutely horrific, heartbreaking and shocking abuse of a decent, honourable and hard-working person buying a flat. He described it as being treated like a “lab rat” in a laboratory maze. I will not forget the testimony that he and many others gave.
Lee Rowley
My hon. Friend has a huge amount of expertise and knowledge in this area. I am grateful to her for all her work in preparing for our discussion today. I am very happy to talk to her in more detail on this subject. She is absolutely right to articulate that progress must be made, and we must ensure that the correct balance is struck. I know that she will appreciate that there is a balance to strike, rather than there being movement in only one direction, but I appreciate the points that she made. I am happy to talk to her further outside the Committee, and I hope to provide her with the assurances that she seeks.
Matthew Pennycook
I thought that the Minister would provide a fuller response to our intention to remove the clause and introduce new clause 3. The hon. Member for Redditch is right to be concerned about the clause as drafted—I commend her for raising the issue. The spirit of the Committee has not been particularly party political, but I will give her the opportunity to break the Whip, because we feel strongly about the issue. Lots of leaseholders will find that they still bear legal costs because of the way in which the Government have approached this issue; it is a recipe for litigation. There is a much more sensible way to achieve the end that I think we all want: a general prohibition with a very limited number of exceptions, which could set out clearly in the Bill. We oppose the clause standing part, and will potentially move the new clause in due course.
Question put, That the clause stand part of the Bill.
Lee Rowley
Clause 36 sets out general provisions that apply to regulation-making powers under the Landlord and Tenant Act 1985. Subsection (2) introduces a new section 37A, which sets out the procedure applicable to statutory instruments. It provides clarity on what is meant by regulations that are subject to the negative procedure and those that are subject to the affirmative procedure. Subsection (3) inserts a new definition of “appropriate authority” into section 38A of the 1985 Act. That defines the Secretary of State as being the appropriate authority in England, and Welsh Ministers the appropriate authority in Wales. I commend the clause to the Committee.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clause 37
Part 3: consequential amendments
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendments 125 and 126.
Schedule 8.
Government new clause 8—Appointment of manager: power to vary or discharge orders.
Lee Rowley
Clause 37 introduces schedule 8, which concerns a number of consequential amendments to the 1985 Act and other Acts of Parliament arising from the provisions of part 3 of the Bill. We will address those consequential amendments when we come to schedule 1, and I commend the clause to the Committee.
Government amendment 125 is a consequential amendment on new clause 8, which ensures that the tribunal has the ability to vary or discharge orders it makes under leasehold legislation on its own as well as on request. Government amendment 126 clarifies that a repeal of a section in the Housing (Wales) Act 2014 is to be done in both the English and Welsh language texts of the Act. I commend those amendments to the Committee.
Schedule 8, as introduced by clause 37, sets out the consequential amendments arising from the provisions of part 3 of the Bill. Part 1 of the schedule sets out the specific consequential amendments to the 1985 Act to take account of the changes in clause 36. In many cases, it makes changes to the regulation-making powers to confirm that the Secretary of State has powers to make regulations in England, and that Welsh counterparts do in Wales. It also clarifies which regulation-making provisions in the Act are subject to the negative procedure or the affirmative procedure. Part 2 of the schedule sets out consequential amendments to other Acts of Parliament to reflect the new measures introduced by part 3 and the omission of existing measures. The schedule seeks to provide clarity on regulation-making powers and to ensure that other Acts of Parliament reflect the new measures provided in part 3 of the Bill. I commend the schedule to the Committee.
Turning to new clause 8, sections 21 to 24 of the Landlord and Tenant Act 1987 provide a remedy for leaseholders in circumstances where there is significant management failure. Under current arrangements, leaseholders may apply to the first-tier tribunal to ask it to make an order to appoint a manager, who will be responsible for carrying out functions specified in the order rather than by the landlord or an agent acting on their behalf. The manager will be accountable to the tribunal, but once an order has been issued, the tribunal may only vary or cancel it if an interested party asks it do so. The current arrangements are, in the Government’s view, too restrictive and limit the tribunal’s authority to act if there is already an existing order in place.
New clause 8 makes a minor amendment to section 24 of the 1987 Act and gives the tribunal the ability to take action on its own as well as on request. That means that, where there is a possible overlap between orders, the tribunal can amend an existing order, if necessary, of its own accord. The discretion to amend an order will be constrained. The tribunal must be satisfied that, in all cases, any variation or discharge is just and convenient, and would not result in the recurrence of the same problems that led to the order being made in the first place. I commend new clause 8 to the Committee.
Question put and agreed to.
Clause 37 accordingly ordered to stand part of the Bill.
Schedule 8
Part 3: Consequential Amendments
Amendments made: 121, in schedule 8, page 132, line 9, at end insert—
“13A The LTA 1985 is amended in accordance with paragraphs 14 to 14B.”
This amendment is consequential on Amendment 123.
Amendment 122, in schedule 8, page 132, line 10, leave out “of the LTA 1985”.
This amendment is consequential on Amendment 121.
Amendment 123, in schedule 8, page 132, line 18, at end insert—
“14A In section 26 (exception for tenants of certain public authorities)—
(a) in subsection (1)—
(i) for the words from ‘Sections 18 to 25’ to ‘do not apply’ substitute ‘Sections 18 to 25A do not apply’;
(ii) for ‘, in which case sections 18 to 24 apply but section 25 (offence of failure to comply) does not’ substitute ‘(but see subsection (1A));
(b) after subsection (1) insert—
‘(1A) The following sections do not apply to a service charge payable by a tenant under a long tenancy of a landlord referred to in subsection (1)—
(a) section 20H (right to claim where excluded insurance costs charged);
(b) section 20K (right to claim where costs charged in breach of section 20J);
(c) section 25A (enforcement of duties relating to service charges).’
14B In section 27 (exception for rent registered and not entered as variable), for the words from
‘Sections 18 to 25’ to ‘do not apply’ substitute ‘Sections 18 to 25A do not apply’”.
This amendment would consolidate the consequential amendments to section 26 of the Landlord and Tenant Act 1985 required by virtue of clauses 30 and 31 and NC7 into a single paragraph of Schedule 8.
Amendment 124, in schedule 8, page 132, line 21, leave out “Landlord and Tenant Act” and insert “LTA”.
This amendment is consequential on Amendments 47 and 54.
Amendment 125, in schedule 8, page 132, line 35, at end insert—
“(ca) in section 160 (third parties with management responsibilities), omit subsection (4)(d);”.
This amendment is consequential on NC8.
Amendment 126, in schedule 8, page 133, line 22, after “(anaw 7),” insert
“in the English language text and in the Welsh language text,”.—(Lee Rowley.)
This amendment would clarify that section 128 of the Housing (Wales) Act 2014 is to be repealed in both the English and Welsh language texts of that Act.
Schedule 8, as amended, agreed to.
Clause 38
Application of Part 3 to existing leases
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 38 makes clear that the new provisions introduced by this part of the Bill extend to leases entered into before the date the section comes into force. This provides clarity that the provisions in part 3 apply to existing, as well as new, leaseholders, but only from the date the relevant section comes into force. I commend the clause to the Committee.
Question put and agreed to.
Clause 38 accordingly ordered to stand part of the Bill.
Clause 39
Meaning of “estate management” etc
Lee Rowley
I beg to move amendment 52, clause 39, page 66, line 8, at end insert—
“(e) a charge payable by a unit-holder of a commonhold unit to meet the expenses of a commonhold association.
(9A) For the purposes of subsection (9)(e)—
(a) “unit-holder”, “commonhold unit” and “commonhold association” have the same meaning as in Part 1 of the CLRA 2002 (see section 1(3) of that Act);
(b) the expenses of a commonhold association include the building safety expenses of the association (within the meaning given in section 38A of the CLRA 2002).”
This amendment would exclude charges in respect of the expenses of a commonhold association from the definition of “estate management charge” for the purposes of Part 4.
Lee Rowley
Amendment 52 amends clause 39(9) of the Bill to clarify that any payment by a commonhold unit owner to a commonhold association is not to be regarded as an estate management charge. It is a clarificatory amendment to ensure that sums payable to a commonhold association that provides services to the common parts that it owns are not covered by part 4 of the Bill.
Turning to clause stand part, part 4 of the Bill creates a new regulatory framework to protect homeowners living on those estates where services are managed privately rather than by local authority. We know that that has been a growing trend and that homeowners on those estates have very few rights in that regard. We are determined to change that and empower homeowners to hold estate management companies to account on how they spend money and on the quality of the services they provide.
Clause 39 sets out key definitions that have effect for part 4 of the Bill. They have been drafted with the intention of providing clarity on what is and is not being regulated, and to avoid creating loopholes. For example, subsection (2) defines what is meant by estate management; subsection (3) defines an estate manager; subsection (6) defines a relevant obligation; subsections (8) and (9) define what is meant by and what is excluded from the definition of an estate management charge; and subsection (10) defines relevant costs. In aggregate, this clause helps to provide the key definitions for measures and will inform the regulatory framework in part 4, which we will discuss in due course.
Amendment 52 agreed to.
Clause 39, as amended, ordered to stand part of the Bill.
Clause 40
Estate management charges: general limitations
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 40 sets out general limitations with regard to estate management charges. Subsection (1) states:
“A charge demanded as an estate management charge is payable…only to the extent that the amount of the charge reflects relevant costs”—
in other words, purely the costs associated with estate management—and cannot be used to fund wider activities. This means that not every cost incurred by an estate manager is chargeable; an example would be if costs arose from the award of damages against the estate manager or an activity outside the estate by the estate manager that is not regulated. Those costs cannot be passed on.
Subsection (2) goes on to set out more detailed circumstances in which costs that are relevant costs may cease to become relevant costs and hence not payable or only partially payable.
Richard Fuller
I want to probe a bit more, because of the speed with which we shot through clause 39—with your leave, Chair, I am sure you will find this in order, because clause 40 also relates to relevant costs. Clause 39(10) says that relevant costs,
“in relation to a dwelling, means costs which are incurred by an estate manager in carrying out estate management for the benefit of the dwelling or for the benefit of the dwelling and other dwellings.”
As the Government were considering clauses 39 and 40, the general limitations on what might be a relevant cost, what consideration did the Minister or the Government give to the fact that there are some costs that might be covered within that general limitation that, for some people, are covered by payments they make through their council tax? Therefore, in certain circumstances it may be the case that people are paying twice for the same services covered by what are defined as estate management running costs.
Lee Rowley
I am grateful to my hon. Friend for his point. He tempts me, at this relatively late hour, to get into an extremely important conversation that we will come to in the coming days. With his leave, I will limit my response to acknowledging his broader point, which is potentially broader than simply the discussions here on this Bill. Having listened to the evidence given to the Committee last week, I recognise that this is a key area that those impacted by estate management charges would like to debate further. I know that we will come to this in due course. I am putting that down as a marker for further discussion—I am not sure if I can satisfy him with the discussion, but I will put down a marker for it none the less.
To conclude on clause 40, specifically, subsection (2) refers to the provisions in clauses 41 to 43, which cover the requirement for the reasonableness of estate management costs and broader consultation requirements. Clause 40 provides clarity that not all costs incurred by estate managers may be passed on and sets out circumstances when even chargeable costs are not payable. I commend the clause to the Committee.
Question put and agreed to.
Clause 40 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mr Mohindra.)
Leasehold and Freehold Reform Bill (Ninth sitting)
Tuesday 30th January 2024
(10 months, 3 weeks ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 30 January 2024 - (30 Jan 2024)
The Committee divided: - Ayes: 1 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 9 / Noes: 6 - Question accordingly agreed to.
Richard Fuller (North East Bedfordshire) (Con)
I beg to move amendment 145, in clause 41, page 66, line 28, at end insert—
“(c) only where they are incurred in the provision of services or the carrying out of works that would not ordinarily be provided by local authorities.”
This amendment would mean that services or works that would ordinarily be provided by local authorities are not relevant costs for the purposes of estate management charges.
The Chair
With this it will be convenient to discuss the following:
Amendment 150, in clause 41, page 66, line 28, at end insert—
“(c) where they are incurred in the provision of services or the carrying out of works, only where the requirement for those services or works is not the result of defects in the original construction.”
This amendment would ensure that services or works on private or mixed-use estate that are required as a result of defects in its construction are not relevant costs for the purposes of estate management charges.
Clause stand part.
Richard Fuller
It is a pleasure to serve under your chairmanship, Sir Mark. I remind colleagues that we have moved from the clauses that relate to what was termed the “feudal” system of leasehold to the rather more modern problem of estate management charges, which in large part, although not exclusively, are incurred by those who own their homes. Essentially, the charges have arisen because of issues to do with adoption by local authorities. They are charges for a range of services in what might be termed, but are not necessarily, public areas, and for what might be, but are not necessarily, services or provisions that would normally be provided by a local authority.
It is worth bearing in mind how rapidly the issue of estate management charges has grown. From being essentially non-existent, or at least very rare, I think the charges now cover at least 1 million or 1.5 million homeowners—perhaps the Minister will tell us it is an even higher number. One issue is that we are essentially creating a two-tier society of council tax payers: people who pay council tax once to cover a range of public services, and residents in parts of our country who pay for those services twice—once through their council tax and again through their estate management charges.
The provisions in part 4 deal with a number of changes that seek to improve the rights of those subject to estate management charges and to improve access to redress. I commend a number of my local residents and councillors, most importantly Councillor Jim Weir of Great Denham, as well as 30 of my Conservative colleagues who wrote with me to the Prime Minister and Secretary of State to ask them to include the provisions in the Bill. I am grateful to them for doing so. Most particularly, I thank the former Minister—my hon. Friend the Member for Redditch—and the current Minister for their help and guidance on these matters. The provisions will enable us to make a great amount of progress. However, it is clear—and it was clear from the evidence the Committee received—that there is another path, or at least it is clear that the public also desire to abolish or reduce the current system of estate management charges, rather than improving it and the rights that people have. That is what the amendment seeks to achieve.
At issue is the matter of adoption. In the summary on page 4, paragraph 2 of the Competition and Market Authority report that looks into estate management charges and other issues, it states that
“evidence gathered in our market study to date has shown that, over the last five years or so, amenities on new housing estates that are available for wider public use (ie not for the exclusive use of households on the estate), are increasingly not being adopted by the relevant authority. This appears to be driven by the discretionary nature of adoption, housebuilders’ incentives not to pursue adoption and by local authority concerns about the future ongoing costs of maintaining amenities”.
That gets to the crux of the issue. The decision process for creating estate management charges takes place in a cosy discussion between the developers of new estates and the local authorities, both of which have an interest in ensuring that they are not the ones to carry the cost for a range of communal services. Guess who ends up paying the bill? It is homeowners up and down the country, who have no role in that cosy discussion. I wish to influence that cosy discussion through my amendment.
It is tricky to change the process of adoption, and I think you would consider it out of scope, Sir Mark, if we sought to do so in the Bill. In the evidence session, I heard colleagues talk about some of the risks involved in leaving councils with unadoptable roads and poor-standard infrastructure that the council tax payer has to pay to bring up to standard. No one on the Committee wishes to see that happen. My amendment would not force adoption, then, but essentially take the payer—the householder or homeowner—out of the equation for paying for those costs. It would exclude services or works that would ordinarily be provided by local authorities so that they would not count as costs that could be incurred by estate management charges.
My hope is that the amendment would pour a dose of reality on to developers by saying that they could no longer pass the buck for the costs of poor-standard infrastructure used by the public to homeowners on their estates. They would have to bring them up to standard, and then councils could adopt them.
Matthew Pennycook (Greenwich and Woolwich) (Lab)
It is a pleasure to continue our line-by-line consideration of the Bill with you in the Chair, Sir Mark. I rise to speak to amendment 150, tabled in my name and that of my hon. Friend the Member for Weaver Vale. As we have heard, part 4 of the Bill deals with the regulation of estate management. The hon. Member for North East Bedfordshire provided an extremely comprehensive overview of the problem and its prevalence.
The distinct set of problems faced by residential freeholders on private or mixed-tenure estates that part 4 seeks to address is well known and well understood. Those problems include: excessive or inappropriate charges levied for minimal or even non-existent services; charges imposed for services that should by right be covered by council tax; charges that include costly and arbitrary administration fees; charges hiked without adequate justification; and charges levied when residential freeholders are in the process of selling their property.
In addition to a general lack of clarity and transparency about how estate management charges and fees are arrived at and how they break down—these problems are not dissimilar to those experienced by long leaseholders in respect of service charges—residential freeholders on privately owned and managed estates clearly suffer from inadequate transparency in other unique respects. For example, as I have said in past debates on the subject in the House, it would appear to be fairly common for residential freeholders not to be notified of their future liability for charges early in the conveyancing process; many learn of their exposure only at the point of completion. Even in instances in which residential freeholders are notified about their future liability in good time, many have to confront the fact that their contracts do not specify limits or caps on charges and fees.
There is clearly a distinct problem with management fragmentation on many privately owned estates that have been constructed throughout the country in recent years, with residential freeholders even on relatively new estates frequently having to navigate scores of management companies, each levying fees for services in a way that further exacerbates the general lack of transparency and potential for abuse that they face in respect of charges and fees. Underpinning all those issues of concern is a fundamental absence of adequate regulation or oversight of the practices of estate management companies and the fact that residential freeholders currently do not enjoy statutory rights equivalent to those held by leaseholders.
There has been a broad consensus across the House for some time that residential freeholders on new build private and mixed-tenure estates require greater rights and protections, and the Government have recognised publicly—for at least six years, by my count—that they need to act to address the range of problems that freeholders face. Labour therefore welcomes the Government’s decision to use the Bill to create an entirely new statutory regime for residential freeholders based on leaseholders’ rights and is fully supportive of the intent behind the provisions in this part of the Bill.
Although part 4 sets the broad framework for regulating estate management, much of the detail necessary to bring that framework into force will come via regulations. We take no issue with that, and do not intend to pre-empt the regulations by attempting to prescribe a series of requirements on the face of the Bill. However, we believe that, where possible, we should seek to use part 4 not only to provide greater protection to residential freeholders who live on the estates, but to contribute to a reduction in the prevalence of such arrangements—a point that the hon. Member for North East Bedfordshire was driving at.
Although additional protections of the kind introduced under part 4 will almost certainly still be required, in its “Private management of public amenities on housing estates” working paper, published on 3 November last year, the Competition and Markets Authority stated that
“we consider that reducing the prevalence of private management arrangements would be the most direct route to address the root cause of our emerging concerns”.
The CMA made it clear in that working paper that reducing the prevalence of private management arrangements would require a mix of legislative and policy changes more fundamental than the introduction of regulatory protection, and drew attention to the fact that it would result in a wider set of consequential changes, not least the potential for
“significant impact on local authority finances and resources at a time when local authority funding is already stretched.”
That is why, while we very much sympathise with its intent of ensuring that residential freeholders on private or mixed-tenure estates are not charged for services that should by right be covered by council tax, we have reservations about amendment 145. We are concerned that it will, in effect, force local authorities to adopt public amenities on new housing estates, irrespective of circumstance, or—if compulsion is not the intent of the hon. Member for North East Bedfordshire—would see those amenities degrade and deteriorate as a result of not being maintained by either the private management company or the local authority.
Richard Fuller
I am grateful to the shadow Minister for his detailed look at my amendment. First, will he explain to the Committee where he sees compulsion on local authorities in the amendment? I cannot see it. Secondly, will he explain why his more material concern about the possibility of items degrading and estate management not doing anything would not be addressed by the strengthening provisions that the Government are putting in the Bill on behalf of homeowners?
Matthew Pennycook
Under my reading of the hon. Gentleman’s amendment, if it is ensured that services or works that would ordinarily be provided by local authorities are not relevant costs for the purposes of charges in this part, who will pick up the bill? If the local authority is not compelled to adopt the amenities, our concern is that no one will maintain them. To address his point directly, I worry that his amendment would not ensure that the private estate management company picks up the charge. I will come to why I think our amendment is a superior way of addressing this very real problem.
Barry Gardiner (Brent North) (Lab)
I am listening carefully to my hon. Friend. It may interest him to know that I was on a private estate in Kingswood at the weekend, for some reason. It soon became apparent that the developer had gone into liquidation and the estate was being run down in a quite dreadful way. As my hon. Friend said, in that situation, the developer itself and the management of the estate had, to all intents and purposes, ceased—residents were very voluble on things not being done—but the local authority had not adopted the road in the first place, and the services were suffering accordingly.
Matthew Pennycook
We are all driving at the same point. I was very much taken by the CMA’s conclusion that reducing the prevalence of these arrangements requires a combination of the mandatory adoption of amenities and putting in place corresponding common adoptable standards. If we do one without the other, we risk some unintended consequences.
My concern about the amendment tabled by the hon. Member for North East Bedfordshire is that we cannot simply remove from estate charges costs that should in an ideal circumstance be borne by local authorities and then expect the private management company to simply pick them up. I fear that the more likely scenario will be that the amenities are not properly maintained. That is a real concern, and should be for residential freeholders on the estates. As the hon. Member for North East Bedfordshire outlined, there are some good reasons why local authorities are reluctant to adopt public amenities on private or mixed-tenure estates.
Richard Fuller
I would hate to detain the Committee because we have a lot to go through, but let us understand the economic process here. Initially, the local authority and the developer will work out whether to adopt roads. The developer will then have to decide whether to set up an estate management company, which may or may not deliver facilities and services that would normally be covered by council tax. If the amendment is part of legislation, no property manager in their right mind will accept taking on the responsibility because they will not wish to be liable. Here is the flow of responsibility: one cannot lumber home owners with the cost, the property manager will not be lumbered with the cost for the reasons outlined—it may go bust—so the developer will then have to recognise that there is nowhere for it to turn.
Matthew Pennycook
We fundamentally disagree on where the logic chain leads. I do not think that, on the basis of the amendment, the developer will be forced to pick up the costs. It is far more likely that they would build below what would be considered a common adoptable standard and then leave residential freeholders to live with substandard amenities. We could debate this further, but that is my take on the hon. Gentleman’s amendment: it would not force the management companies to do that. That is a real concern.
As I said, there are a variety of reasons why local authorities often do not take on responsibility. The most common one is that the public amenities on new housing estates are not built to a determined, adoptable standard. In those circumstances, one can hardly blame the local authority in question for a reluctance to adopt roads and common services that it will have to repair and maintain a great cost. My central argument is that if we are to reduce the prevalence of these arrangements, we must ensure that we introduce a common adoptable standard for public amenities on estates at the same time as we require mandatory adoption, as the CMA advises.
Eddie Hughes (Walsall North) (Con)
It is a pleasure to serve under you, Sir Mark. The civil engineer in me rises to agree with the hon. Gentleman completely; it is slightly embarrassing that we once again find common cause. The point is well made: if a set standard is identified that will be accepted universally by councils as one they would be prepared to adopt, and forced on the developers, the developers will meet that standard, but if they are left with any opportunity to build something substandard, they will always take it and they will frequently try to go further and not even meet the standard that they have prescribed in their own design work. I am sure that all Committee members will have seen examples of that in their constituencies. I again find common cause, and I hope the Minister considers these points.
Matthew Pennycook
I thank the hon. Gentleman for that intervention; it is a habit that I hope he continues because I think there is common ground here. When it comes to common adoptable standards, Ministers have often put it to me—the Minister no doubt will; previous Ministers have done—that local authorities have the tools they need to drive up the standards of public amenities that are constructed, but there is clearly something going wrong in that they are not ensuring that those standards are in place. As a consequence—not in every instance, but in many—local authorities have good reason to be reluctant to take them on.
We have tabled amendment 150 in an attempt to challenge the Government to consider how they might utilise the regulatory framework introduced by part 4 to drive up the standards of public amenities on the estates in question—that is the other half of the equation that I think we are all agreed we need. Our amendment would ensure that services or works on private or mixed-tenure estates that are required as a result of defects in construction are not relevant costs for the purposes of estate management. I think that, rather than the amendment of the hon. Member for North East Bedfordshire, would be the incentive that developers need to ensure that high standards are in place at the point that they hand the estate over. Ours is consciously a probing amendment and I hope the Minister will understand and appreciate the problem that it attempts to address, as does the hon. Member’s amendment. I look forward to hearing the Minister’s thoughts on it.
Alistair Strathern (Mid Bedfordshire) (Lab)
I rise briefly to add my weight to the comments of the shadow Minister, my hon. Friend the Member for Greenwich and Woolwich. I wholeheartedly share the concerns on this issue expressed by my Bedfordshire neighbour, the hon. Member for North East Bedfordshire. I know that, like me, he has received a lot of correspondence from constituents who find themselves with a variety of challenges and exposed by a situation whereby regulation simply has not kept pace with best practice.
As the CMA outlined last year, we have gone from a situation in which it was simply the norm that estates were adopted by the local authority to one in which that is far from the norm. In the last week, I have spoken to residents right across my constituency who have faced incredibly high service charges. Estate management companies are looking for the next frontier for their rent-seeking behaviour, often by charging fees for services that would normally be covered by council tax. Such is the fragmentation on estates, as the shadow Minister set out, that they sometimes even duplicate the fees charged by other management companies on the same estate.
Barry Gardiner
The Minister will recall that in response to a Government consultation in 2018, the Government committed to introducing a section 24 right for freeholders on housing estates, but that has not appeared in the Bill. It would have given those freeholders the right to go to a first-tier tribunal and appoint a court protective manager. The Minister and his officials may wish to reflect on and remedy that failing in the Bill. However, even that would be an imperfect measure, because it would not ensure that leaseholders in homes on estates had the same rights as leaseholders in a development block, for whom the Bill seeks to facilitate the right to manage. Will the Minister look at that issue and ensure that that provision is realised?
The Minister for Housing, Planning and Building Safety (Lee Rowley)
It is a pleasure to serve under your chairmanship, Sir Mark, and it is good to continue debating these issues this morning. I am grateful to all hon. Members who have raised such important points. I do not think that the disagreement between Members on any of the Benches is about whether there are issues; the question is rather about the technicalities of how to approach them, what to do and what is proportionate.
I will talk briefly about the amendments. Although the Government cannot accept them now, I hope that my hon. Friend the Member for North East Bedfordshire and the shadow Minister will listen to the points that I make; the broader point is that I am listening carefully and have a lot of sympathy for the underlying point, which we are all trying to solve. The question is about how we do it and whether we need to go further.
There was an extended debate between my hon. Friend the Member for North East Bedfordshire and the hon. Member for Greenwich and Woolwich. I will not try to repeat that, but not because I do not want to give due regard to everything that my hon. Friend put on record or to his underlying point. He is absolutely right that there is a problem; we all see it in our constituencies. The challenge, as I see in my constituency of North East Derbyshire, is that there is now a move towards greater estate management outside the demise of the local representation of the state. It works in some areas and for some elements, but there are specific areas and specific estates in which it clearly does not work. We have all heard the stories about the issues that are visible.
In the past, it would have been typical for local authorities to have adopted estates, but that is moving further and further away from reality. There is a question about whether there are some elements of estate management where it is reasonable to have some kind of arrangement outside the aegis of the state, but equally I accept the argument that that has gone too far in certain areas.
Rachel Maclean (Redditch) (Con)
I have listened carefully to the debate. I thank my hon. Friend the Member for North East Bedfordshire for his reference to the work that we did together.
I want to ask the Minister to expand a bit more on his comments, as I am sure he will. The argument has often been made that if we make clear to the people who are buying those homes what they are actually getting into, and if we give them a schedule of charges, the regime will be more acceptable. That is the heart of the issue: if customers know what they are buying, presumably they can freely choose whether to buy that property or a different type of property.
I think we all agree that there should be freedom of choice and that the buyer should take responsibility for their choices. However, does the Minister think that the current regime and framework are adequate to provide choice? My personal view is that we do not have that, and that that is at the heart of the problem. But even if we provide that choice, a fundamental philosophical problem remains. I am interested in his view on the balance of those two issues.
Lee Rowley
I am grateful to my hon. Friend, who has a huge amount of knowledge, expertise and background in the subject. She is right to highlight the tension with agency. As long as there is sufficient knowledge in the decision being made, the logical extension is that the decision was made on the basis on the preponderance of the facts, and people should therefore be willing to accept the consequences of their choices.
Equally, through colleagues and in our postbags, we have all seen the reality that this does not work in all instances, and it is not necessarily clear where it works. We have examples of where an indication was given about some of these things, but the reality is very different from what may have been said during the sales process. A different estate manager may take over, the developer may disappear or things may change. The reality of what happens on the ground with estate management charges can be very different from what has been talked about.
The question is therefore not whether there is an issue, but how we drive up standards. Clause 41, which I will address in a moment, seeks to drive up standards through transparency. There is a perfectly legitimate question—it has been correctly posed via the amendments tabled by my hon. Friend the Member for North East Bedfordshire and by the hon. Member for Greenwich and Woolwich, and has been outlined by the hon. Member for Mid Bedfordshire and others—as to whether that is sufficient or whether additionality is needed. Although I cannot accept the amendments today, because I think that there are genuine questions about whether they would work, the Department wants to continue looking at the issue. I would be happy to talk about it at a future stage.
Andy Carter (Warrington South) (Con)
I am listening carefully to the debate. Warrington is a new town. Over the past 60 years, about 100,000 homes have been built in total. From looking carefully at the borough council’s own details on estate adoption, it is clear that there are currently 13 estates that are not adopted, where there have been agreements in place with the council but, for all kinds of reasons, developers are not doing anything. One problem seems to be that in many cases the estates are built out over many years and things change. Some estates have been building for 13 years. The builders have changed, the involvement of council officers has changed and the structure of how things are built out has changed.
There seems to be no redress for householders so that what was promised in the first place can be delivered. That is a real problem. When the Minister is looking carefully at the issue, can he bear in mind that it is not a straightforward case of “The developer promised to do this, but they haven’t”? Things can change dramatically over time, and there is a complicated path. I think that that is what the Minister is saying; it is certainly my experience in Warrington.
Lee Rowley
My hon. Friend is absolutely right. If the Committee will indulge me, I have personal experience of examples of this in North East Derbyshire, and I know the complexity involved in getting this correct. I have an estate by an unnamed developer in the south of the constituency, near Wingerworth, where this discussion is going on already. Before Christmas, I spent two hours talking to representatives of owners on the estate and to the estate management company itself. I recognise the complexities on an estate that was being managed relatively adequately from afar but clearly still had issues.
The second example—this is why we have to be so careful to get this right—is from the other side. Fenton Street in Eckington has been unadopted for more than a century. The residents recognise that it is unadopted and have bought their houses understanding and acknowledging that. Possibly it was been adopted many decades ago, but there is no record.
We have to make sure that this works for everybody. In an ideal world, everybody would be scooped up and this would all be fixed in one fell swoop with whatever a benevolent Government could do, but that is not the reality of the choices that we face. Nor is it often the reality of what happens when a Government try to do things that work in the way that we all intend. Although I understand the intention behind the two amendments, I encourage hon. Members to withdraw them.
Barry Gardiner
The Minister has not responded to the point about a section 24 court-appointed manager. Would that not give a power enabling redress for residents in situations such as the one he outlines, where there has been a complete failure to adopt and maintain? Will he commit to considering that point as part of the mix?
Lee Rowley
We may touch on some of those elements under later clauses. The hon. Gentleman’s core point is about whether the Government are willing—without providing any guarantees in this place—to look at additionality. Of course we are. There are the usual caveats, which I have explained in previous sittings, about what we can do, how we do it, and the priorities, but this is an area in which we are listening carefully.
In conclusion, I ask my hon. Friend the Member for North East Bedfordshire and the hon. Member for Greenwich and Woolwich to consider withdrawing their amendments. I hope that they have heard that I am serious and willing to look at the issue again, although I cannot offer guarantees at this stage.
I will turn briefly to clause 41, to put on the record exactly what the clause contains and what we are voting for. Freehold homeowners on private and mixed-tenure estates who pay estate management charges have fewer protections than leaseholders paying the service charges that we have spoken about. Clause 41 will introduce limitations on what estate management companies can charge homeowners through estate management charges. Subsection (1) states:
“Costs incurred by an estate manager are relevant costs…only to the extent that they are reasonably incurred.”
Clause 41 will ensure that where these costs are incurred in the provision of services or the carrying out of works, they will be relevant costs only if the services or works are of a reasonable standard.
Subsection (2) makes it clear that when an estate management charge is payable in advance, only reasonable costs are payable. Furthermore, after reasonable costs have been incurred, any necessary adjustment must be made to the charge by repayment, reduction of subsequent charges or any other method. Those new rules are equivalent to requirements in the leasehold regime and provide homeowners with more confidence that they will not be overcharged. We seek to provide increased protections for homeowners through the clause. I commend it to the Committee.
Matthew Pennycook
Amendment 150 was a probing amendment. I take on board the Minister’s statement that the Government are looking at the issue and that they do not believe that this legislation is the appropriate vehicle to deal with it.
If the Minister is willing to respond again, I would like a bit more clarity on precisely why in many cases amenities on estates are not being built to an adoptable standard. I think we all agree that we would like to see such a system. The Minister introduced a different problem, namely circumstances in which residents might not want their amenities adopted; I think that that would be a relatively small number of estates, but we would have to account for them. In general, we want to reduce the prevalence of arrangements and see adoption becoming mandatory in most circumstances.
Will the Minister expand on why the Government think the common amenable standards are not being met across the board? In a previous debate, the then Minister stated:
“The local authority has powers to ensure that developers build and maintain communal facilities to the standards and quality set out in the planning permission.”—[Official Report, 22 January 2019; Vol. 653, c. 132WH.]
Is something going wrong with the standards that most local authorities require at the planning permission stage? Is the section 106 agreement breaking down in some way? What is the reason? That might give us an insight into the solution that the Government have in mind and into why common adoptable standards are not currently the norm.
Lee Rowley
The hon. Gentleman is absolutely right that there are a variety of scenarios. I am not sure that residents of Fenton Street would not take the opportunity to adopt if they were given the opportunity; it is more about the broader challenges of getting a single coherent answer to a very complicated set of questions that have come about in the past few decades or over a longer period.
The hon. Gentleman raises a valid point about the outcome of the planning system. Everybody, irrespective of party, would want the planning system to work to a point where there are common standards for roads and public spaces. There is an interesting question as to why that is not the case. It is an area that as a Minister I intend to look into in more detail.
The question is whether is it a systemic problem or a matter of individual circumstances, where it is working okay in some areas but not in others. Anecdote leads to bad policy and bad law, but in my experience as a constituency MP it has worked in a number of areas and not in others. That suggests that there is variability and that it is therefore not a systemic issue, but that might be different elsewhere in the country. It is an area that I think we should look at more; I am not sure whether it needs legislation. That is an open question, but it is definitely something that I am keen to understand more.
Richard Fuller
I have listened with interest to hon. Members’ contributions, particularly in respect of my amendment 145. I strongly believe that we need to close down the trend to create two tiers of council tax payers —those who pay once and those who have to pay twice—and ensure that we all pay only once. My amendment would directly address that issue. I would therefore like to put it to a vote.
Question put, That the amendment be made.
Lee Rowley
Clause 42 introduces new obligations on estate managers where the costs they wish to charge a homeowner exceed an appropriate amount. It mirrors sections 20 and 20ZA of the Landlord and Tenant Act 1985. Subsection (1) places an obligation on estate managers to consult homeowners where the costs for works or services exceed a given threshold. Subsections (2) to (4) confer a power to allow the Secretary of State to determine the appropriate threshold in regulations; the Secretary of State may also determine whether the threshold is to be a total sum or if the costs for individual homeowners exceed an appropriate amount.
Subsections (6) and (7) confer a power on the Secretary of State to set out in regulations the consultation require-ments and the provisions that may be included in the consultation process. Issues that may be in regulations are not exhaustive, but may include matters of relevance, including details of the proposed works, the provision of estimates, and requirements to have regard to homeowner observations and to specify reasons for carrying out the works if they proceed. We recognise that there are occasions where it may not be appropriate or possible for estate managers to consult homeowners—for example, where urgent or emergency works need to be carried out. Subsections (5) and (8) to (10) therefore allow estate managers to seek dispensation from the relevant tribunal of the need to consult. However, should estate managers fail to obtain dispensation or follow the consultation requirements, individual homeowner contributions are capped at the appropriate amount. The Government will engage extensively with stakeholders to determine the appropriate threshold for consultation and what the detail of the consultation arrangements should be. I commend the clause to the Committee.
Matthew Pennycook
I wish to probe the Minister a little further on the clause. As he said, it introduces requirements for estate managers to consult managed owners if the costs of any works to be charged as an estate management charge exceed an appropriate amount, which will be set out in regulations. Overall, the Government’s aim in this part of the Bill is clearly to introduce statutory protections for residential freeholders equivalent to those enjoyed by long leaseholders with regard to service charges.
If I understood the Minister correctly, he has confirmed that the Government’s intention with the clause is to establish for residential freeholders an equivalent to section 20 of the Landlord and Tenant Act 1985. If that is the intention, can the Minister confirm that the new requirements provided for by the clause will include requiring estate managers to have regard to written observations from residential freeholders on charges in excess of the to-be-determined appropriate amount, and where necessary to justify in writing the reasons why they awarded a contract to a tenderer that neither submitted the lowest estimate nor was nominated by a resident?
Furthermore, if the clause is indeed intended to mirror the operation of the existing section 20 consultation process, I urge the Minister to consider what might be done to address the known deficiencies of the process, including the fact that a leaseholder’s sole means of redress if they take issue with the landlord’s decision is the tribunal, and that there is no statutory meaning of what “have regard to” means in the context of the consultation. While he does so, I encourage him to take the opportunity to overturn, or at least modify, the decision of the Supreme Court in the 2013 Daejan Investments Limited v. Benson case, which has proved so detrimental to the consultation rights of leaseholders. I make this series of points because the Homeowners Rights Network, among others, has questioned the logic of extending to privately managed estates a regime that is not always effective in protecting residential leaseholders from unreasonable charges associated with major works.
Lee Rowley
The hon. Member for Greenwich and Woolwich encourages me to seek to overturn decisions of the Supreme Court! That could start a whole heap of discussion early on a Tuesday morning, but I will withhold further comment for now.
The hon. Member is absolutely right that clause 42 is intended to mirror section 20 of the 1985 Act. He is correct that the intention is to consider written responses as well; I hope that that reassures him. We will need to go through a consultation process: although we have said that our intention is to mirror section 20 of the 1985 Act to give confidence about the direction of travel, what is appropriate for these individual circumstances will need to be discussed, and I hope that we can pick up that discussion within the consultation.
Question put and agreed to.
Clause 42 accordingly ordered to stand part of the Bill.
Clause 43
Limitation of estate management charges: time limits
Lee Rowley
I beg to move amendment 53, in clause 43, page 68, line 7, leave out from “not” to end of line 12 and insert
“given a future demand notice in respect of the costs before the end of the period of 18 months beginning with the date on which the costs were incurred.
(2) A ‘future demand notice’ is a notice in writing that—
(a) relevant costs have been incurred, and
(b) the owner will subsequently be required to contribute to the costs by the payment of an estate management charge.
(3) A future demand notice must—
(a) be in the specified form,
(b) contain the specified information, and
(c) be given in a specified manner.
‘Specified’ means specified in regulations made by the Secretary of State.
(4) The regulations may, among other things, specify as information to be contained in a future demand notice—
(a) an amount estimated as the amount of the costs incurred (an ‘estimated costs amount’);
(b) an amount which the owner is expected to be required to contribute to the costs (an ‘expected contribution’);
(c) a date on or before which it is expected that payment of the estate management charge will be demanded (an ‘expected demand date’).
(5) Regulations that include provision by virtue of subsection (4) may also provide for a relevant rule to apply in a case where—
(a) the owner has been given a future demand notice in respect of relevant costs, and
(b) a demand for payment of an estate management charge as a contribution to those costs is served on the owner more than 18 months after the costs were incurred.
(6) The relevant rules are—
(a) in a case where a future demand notice is required to contain an estimated costs amount, that the owner is liable to pay the charge only to the extent it reflects relevant costs that do not exceed the estimated costs amount;
(b) in a case where a future demand notice is required to contain an expected contribution, that the owner is liable to pay the charge only to the extent it does not exceed the expected contribution;
(c) in a case where a future demand notice is required to contain an expected demand date, that, if the demand is served after the expected demand date, the owner is not liable to pay the charge to the extent it reflects any of the costs.
(7) Regulations that provide for the relevant rule in subsection (6)(c) to apply may also provide that, in a case set out in the regulations, the rule is to apply as if, for the expected demand date, there were substituted a later date determined in accordance with the regulations.
(8) A statutory instrument containing regulations under this section is subject to the negative procedure.”
This amendment would require notice of future service charge demands (as envisaged in clause 43(b)) to be given in accordance with regulations.
Lee Rowley
We are aware that there is no clear limit on when homeowners on private and mixed-tenure estates can be charged for works and services, regardless of when the costs were incurred. Homeowners could therefore be subjected to unexpected estate management charge demands, making it difficult for them to plan for and finance those costs. That could be the case if in future there are long-term works that take some time to complete.
Clause 43 introduces a new 18-month time limit for estate management companies to demand payment for works that have been carried out. If they fail to issue a demand within this period, the costs will not be recoverable and homeowners will not be required to pay them. Paragraph (b) sets out arrangements making it clear when the homeowner will not receive a demand for payment within the 18-month period. It requires the estate manager to notify in writing before the end of the period that the costs have been incurred and that the homeowner will be required to contribute through their estate management charge. If the estate manager does not notify, the homeowner is not liable to pay. The clause seeks to provide greater certainty for homeowners; I commend it to the Committee.
Currently, when works are undertaken estate managers may require a homeowner to pay the costs up front or pass on costs to the homeowner once the work has been carried out. Clause 43 will require estate managers to charge homeowners for works within 18 months. Amendment 53 introduces new subsections (2) to (9), which require estate managers to specify the costs incurred, the expected contribution of homeowners and the date by when the demand will be served. The intention is to give homeowners certainty about the costs that have been incurred by the manager, their own individual liability, and when they are likely to receive the demand. The amendment requires estate managers to issue a future demand notice if they will be passing on costs more than 18 months after works are carried out. Subsection (2) defines a future demand notice as a notice in writing that the relevant costs have been incurred and the homeowner is required to contribute.
New subsection (3) sets out that the Secretary of State and Welsh Ministers can, by regulations, specify the form, the information to be included and the manner in which the future demand notice must be given to the homeowner. Subsection (4) details that regulations made by the Secretary of State and Welsh Ministers may specify as information to be included in the future demand notice an estimated amount of the costs incurred, an amount that the homeowner is expected to contribute, and a date by which it is expected that the service charge will be demanded. We will work with estate managers, managing agents and homeowners to set out what a future demand notice may contain, to ensure that notices have the right level of information.
New subsection (5) lays out that regulations may provide for a relevant rule to apply where the homeowner has been given a future demand notice and the demand for payment is served more than 18 months after costs were incurred. New subsection (6) details the relevant rules and the homeowner’s liability to pay the estate management charge where a future demand notice contains estimated costs, an expected contribution or an expected demand date. New subsection (7) allows estate managers to extend the expected demand date in cases specified by regulations, for example because of unexpected delays in completing the work.
Through these measures, we seek to provide homeowners with more certainty about costs. I commend amendment 53 to the Committee.
Amendment 53 agreed to.
Clause 43, as amended, ordered to stand part of the Bill.
Clause 44
Determination of tribunal as to estate management charges
Richard Fuller
I beg to move amendment 139, in clause 44, page 68, line 31, at end insert—
“(3A) Where the appropriate tribunal has made a determination on an application under subsection (1) or (3) that an estate management charge is not payable because the costs incurred by an estate manager are not relevant costs under section 41(1)(b) (services or works to be of a reasonable standard), the tribunal may impose a penalty on the estate manager which is payable to the residents of affected managed dwellings; and the tribunal may determine how much of the penalty is to be paid to the residents of each affected managed dwelling.”
This amendment would enable the tribunal to impose a financial penalty, payable to residents of affected managed dwellings, where estate management work has not been completed to a reasonable standard.
The clause is an excellent step forward in ensuring that freeholders will have rights to access a tribunal when there are errors and poor provision of services on their estate, so I very much welcome it. Through the amendment, I seek to probe the Minister about whether we have got the balance right to enable effective use of the tribunal. The amendment essentially says that in addition to requiring that poor-standard, poorly provided services are brought up to standard, the tribunal could impose a financial penalty on the management company.
It requires a tremendous effort for people to take cases to a tribunal: they often have to make a collective effort and gather evidence about what has gone wrong, and they may have to go through weeks, months or potentially years to get to the point where they can take a case successfully to tribunal. If the only remedy at the end of that is that those services have to be brought up to standard, where is the incentive not to provide defective services in the first place? By enabling the tribunal to impose financial penalties, the amendment would redress the balance, with the bias more towards those suffering from poor service in the first place.
Lee Rowley
I am grateful to my hon. Friend for tabling this probing amendment. I agree that where works and services are provided and charged for on freehold estates, their costs should be charged to residents only if they are of a reasonable standard. As he indicated, clause 41 makes progress in that regard. Clause 44 allows for the appropriate tribunal to determine whether an estate management charge is payable. Should the tribunal find that services or works charged for have not been carried out to a reasonable standard, it will determine the amount that the homeowner is liable to pay. That is equivalent to the leasehold regime, and I do think that tribunals are the best placed to make that decision.
On whether additionality is required, the appropriate tribunal is not an enforcement body; it is not a weights and measures authority or a district council. If a financial penalty were applied for works not completed to a reasonable standard, the appropriate tribunal would need to be satisfied beyond reasonable doubt that that was the case. My hon. Friend may say—I have some sympathy with the point—that people would probably not go to tribunal, given its complexity. In addition, if people want to sue for defective works and such things, they can do so through other parts of the legal system; that form of redress is available if necessary.
If we were to introduce penalties for works or services not completed to a reasonable standard on freehold estates, the challenge would be in the implications for the tribunal and the equivalent leasehold regime. Therefore, while I have a lot of sympathy with my hon. Friend’s point, I hope that he will consider withdrawing the amendment it on the basis that it would probably move the tribunal too much in one direction and create a whole heap of other consequences that we would need to think carefully about, and which I do not think we can accept at the current time.
Richard Fuller
I am grateful for the Minister’s comments. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Richard Fuller
I beg to move amendment 140, in clause 44, page 69, line 6, at end insert—
“(7) The Secretary of State must by regulations provide—
(a) that an estate manager’s litigation costs incurred as a consequence of an application under this section may not be recouped through the estate management charge, except where the tribunal considers it just and equitable for such costs to be so recouped;
(b) for the right of an applicant under this section to claim litigation costs incurred as a consequence of an application under this section from the estate manager, where the tribunal considers it just and equitable in the circumstances.
(8) Regulations under subsection (7) may amend primary legislation.”
This amendment would require the Secretary of State to make regulations preventing estate managers from passing their litigation costs on to residents through the estate management charge, and providing for residents to be able to reclaim their litigation costs from an estate manager.
The amendment, which is in a similar vein to the previous one, is designed to probe the Minister on whether we have got the balance right in the clause to enable effective use of the tribunal by those who would wish to bring a case against estate managers. As we heard when we discussed the clauses on leasehold, one of the biggest concerns that people have is that they will face open-ended litigation costs. In this case, the litigation costs will essentially be cycled back through the estate management charges, and therefore effectively end up being paid by homeowners on the affected estates.
Amendment 140 is designed to prevent that passing on of litigation costs. It also recognises that many homeowners may wish to take action but not have the wherewithal to pay the litigation costs. Paragraph (b) of the amendment therefore enables residents to claim the litigation costs arising from their application. I am interested in the Minister’s view on the balance of litigation in such circumstances—we have spoken about it in relation to other circumstances. I think we all want the tribunal to work, but for that to happen, people must not be put off by the fear that they may face significant direct or indirect litigation costs.
Matthew Pennycook
I rise to support the amendment. We discussed litigation costs in relation to clause 34; we strongly argued for a general prohibition with very limited exceptions. The hon. Gentleman is right to draw attention to the fact, which applies to part 4 as a whole, that we should not replicate the flaws of the leasehold system in the newer system of estate management charges. Our arguments in relation to the leasehold regime therefore apply equally here, and the hon. Gentleman is right to raise the point.
Lee Rowley
I will try directly to address the point made by my hon. Friend the Member for North East Bedfordshire, to which we are sympathetic. It is important that litigation costs are not passed on. On the leasehold side, there is clear evidence that that is happening, but the question is whether there is clear evidence of it happening in the area of estate management. From speaking to officials, we do not see that clear evidence at the moment. However, if any members of the Committee or others have such evidence, I would welcome it. If it is happening, I am sure that we would be happy to consider the issue as the Bill progresses.
Richard Fuller
With the Minister’s assurance that he will keep a watching brief on the issue, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 44 grants homeowners a new right to apply to the appropriate tribunal for a determination on whether their estate management charge is payable, and if it is, how it should be paid, by whom and to whom it should be paid, and the date by which the payment should be made. Under this provision, the tribunal will enforce the newly established reasonableness principle set out by clause 41, which requires estate management services to be reasonable, and any works or services to be of a reasonable standard.
The clause requires estate management companies to charge the correct fees from the outset, thereby reducing the number of homeowners being overcharged for works and services on their estate or being at risk of legal action. The clause also sets out the circumstances in which an application cannot be made, including when the homeowner has already agreed to, but not paid, the charge, or in which the issue has already been subject to a decision by a court. That will prevent homeowners from bringing unjustified or vexatious claims, which can lead to delays in the payment of valid estate management charges and negatively impact the upkeep and good management of the estate. The clause delivers on a Government commitment to increase protections for existing homeowners, and I commend it to the Committee.
Question put and agreed to.
Clause 44 accordingly ordered to stand part of the Bill.
Clause 45
Demands for payment
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Where homeowners on a managed estate pay an estate management charge, it is essential that they have transparency about what they are paying for. Currently, there is no universal approach for demanding payment of such a charge, so there can be inconsistencies between estates and potential confusion for homeowners. Clause 45 mirrors the obligations that we introduce for leaseholders elsewhere in the Bill. Subsection (1) enables the Secretary of State to prescribe a standard form for demanding payment and the information that it should contain. We will work closely with the sector to ensure that that is the right level of information and detail. Subsection (2) makes it clear that failure to provide information in the new standard format means that homeowners do not have to pay the charge, and any provisions in the deed, lease or any other contractual document for non-payment will not apply. The Secretary of State will also have the power to create any exemptions if our work with stakeholders demonstrates a good case for them both now and in the future. I commend the clause to the Committee.
Question put and agreed to.
Clause 45 accordingly ordered to stand part of the Bill.
Clause 46
Annual reports
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 46 introduces a new obligation for estate management companies to provide homeowners on their estates with an annual report, which might cover issues such as budgets for the year ahead and details of planned works.
Subsections (2) and (5) require that the report must be provided within one month of the end of the 12-month accounting period, although it may be provided earlier if it is practical and expedient to do so. Subsection (4) defines the 12-month accounting period as starting either on a date agreed between the company and homeowner or, if no period is agreed, on 1 April. Subsection (3) allows the Secretary of State to prescribe the detailed contents of the report, while subsection (6) allows the Secretary of State to provide exceptions from the duty to provide a report.
The detail will be set out in secondary legislation and allows the Secretary of State to respond effectively to changing market circumstances. We will work closely with the sector and relevant parties to ensure that we have the right level of detail and consider the case for any exceptions.
Matthew Pennycook
Briefly, when we discussed the regulation of service charges in clauses 26 to 30, we made a number of specific arguments about how those clauses might be tightened and strengthened. Can the Minister give us a commitment that if the Government determine to amend those clauses in any way, they will seek to read across the equivalent changes to this part of the Bill or, if they do not think that they apply, to justify where wider deviations between the two regimes are necessary? As I said, we are mirroring broadly the statutory protections in place for long leaseholders here, but where they differ, the Committee would certainly welcome clarification as to why.
Lee Rowley
I am grateful to the hon. Gentleman for his question. He tempts me into hypotheticals, but I hope that we are demonstrating our willingness to try to work constructively to see where areas can be improved. I must caveat that with clarity that we will not be able to improve every area; of necessity, prioritisations will need to be made. Of course there will be disagreements in this place and elsewhere about what is possible, but we shall see; if there is read-over, we shall see.
Question put and agreed to.
Clause 46 accordingly ordered to stand part of the Bill.
Clause 47
Right to request information
Question proposed, That the clause stand part of the Bill.
Lee Rowley
As part of our reforms to drive up transparency, clause 47 introduces new provisions to enable freehold homeowners of managed dwellings to request information from their estate manager.
Subsections (1) and (3) give owners of a managed dwelling the right to require an estate manager to provide information. As per subsection (2), that information may relate to estate management. One example of such information might be a health and safety assessment of communal areas. The estate manager will be required to provide relevant information that they have in their possession.
We know that, sometimes, the estate manager will not have that information to hand, so subsections (4) and (5) introduce an obligation for the estate manager to request the information from a third party and, if they hold it, that the third party is required to provide it. Subsections (6) and (7) create an obligation where the other person under subsection (4) does not have it, but knows who does. This person must make the request to the person who does have it, who in turn must provide the information, and—presumably—so on and so on.
Subsections (1) and (8) allow the Secretary of State to prescribe further details of these requirements in secondary legislation, such as the type of information to be provided, how a request can be made and when the request can be denied. We will consult on that to make sure that it works effectively. I commend the clause to the Committee.
Richard Fuller
I beg to move amendment 141, in clause 49, page 72, line 26, leave out “£5,000” and insert “£50,000”.
This amendment would increase from £5,000 to £50,000 the maximum amount of damages which may be awarded for a failure on the part of an estate manager to comply with the obligations imposed by clauses 45 to 48 (rights relating to estate management charges).
Richard Fuller
The Minister or shadow Minister will correct me if I am wrong, but I believe we covered issues to do with penalties earlier. The intent of this proposal is to ensure that damages in the leasehold and freehold system are the same. I therefore think I ought to ask leave to withdraw my amendment.
Matthew Pennycook
Without rehashing the debate on clause 30, I rise briefly to put on record that the Opposition think that the point the amendment is driving at is well made. We need equivalence between the two regimes, but we were concerned, notwithstanding damages versus penalties and all the rest, that the proposed financial penalty is too low to act as a serious deterrent to the type of behaviour that we are trying to do away with.
Richard Fuller
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 49 ordered to stand part of the Bill.
Clause 50
Meaning of “administration charge”
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Currently, freehold homeowners on managed estates have very few protections relating to the cost of administration charges they may be liable to pay. This can leave homeowners paying excessively high administration charges that they are unable to challenge. We will address this issue and give homeowners greater protection. We intend to do that by mirroring the existing framework in place to protect leaseholders.
Clause 50 provides a definition of an administration charge. It is
“an amount payable…by an owner of a dwelling”.
That amount must be in connection with applications or approvals in connection with a relevant obligation, the provision of documents, the sale or transfer of land, a failure to make a payment by the owner, or a breach of a relevant obligation. Subsections (2) and (3) allow the Secretary of State and Welsh Ministers to amend the definition of an administration charge by regulations, which must be done using the affirmative procedure. I commend the clause to the Committee.
Question put and agreed to.
Clause 50 accordingly ordered to stand part of the Bill.
Clause 51
Duty of estate managers to publish administration charge schedules
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 143, in clause 52, page 74, line 10, leave out “£1,000” and insert “£10,000”.
This amendment would increase from £1,000 to £10,000 the maximum amount of damages which may be awarded for a failure on the part of an estate manager to comply with the provisions of clause 51 (duty of estate managers to publish administration charge schedules).
Amendment 144, in clause 52, page 74, line 13, at end insert—
“(5) An estate manager may not for any purpose set off damages payable by the estate manager to the owner under subsection (2)(b) against any present or future liability of the owner to the estate manager.”
This amendment would prevent estate managers from recouping damages from residents through subsequent charges.
Clause 52 stand part.
Lee Rowley
Homeowners on managed estates can be subject to high and unreasonable administration charges, as I indicated. Part of the problem is the lack of clarity or transparency surrounding them. Clause 51 introduces a duty for an estate manager to publish an administration charge schedule if they expect to impose an administration charge.
Subsection (2) requires that the schedule should include the detail of administration charges that the estate manager considers to be payable and their associated costs. Where the cost cannot be confirmed before a charge is payable, the method of determining the cost should be included. Subsection (3) requires a revised schedule to be published if an estate manger revises the administration charges. Subsection (5) allows the Secretary of State and Welsh Ministers to prescribe in regulations the form and content of the administration charge schedule and how it is to be provided to homeowners. We will work with all relevant partners to ensure that we obtain the right level of detail in regulations.
I thank my hon. Friend the Member for North East Bedfordshire for his amendment 143, which would increase the maximum amount of damages from £1,000 to £10,000. I hope that, potentially, our discussion on the previous clause would apply here, and I repeat that the Government intend to write to all Committee members about this issue in the days ahead.
Amendment 144 seeks to ensure that any damages that the tribunal orders payable under Clause 52 (2)(b) cannot be recouped from residents through subsequent charges. I agree with my hon. Friend that residents should be protected from future charges. An estate manager can only recover costs incurred in estate management. A tribunal order to pay damages would not be regarded as falling within the definition of costs of estate management.
The transparency measures included in clauses 46 and 47, in the form of the annual report and the right to obtain information upon request, would also deter estate managers from attempting to recoup these costs. That is because it would become obviously visible and it would be clear that it was not related to estate management. I note, however, my hon. Friend’s concerns and I am listening carefully on this matter. I hope that he might see fit to withdraw his amendment, having heard the Government’s response.
Finally, clause 52 sets out the enforcement provisions that reinforce the new duty in clause 51 to publish a schedule. A freehold homeowner on a managed estate may make an application to the appropriate tribunal if an estate manager has not published a schedule, or has done so but contrary to any provisions determined by the relevant Ministers.
The appropriate tribunal may order that the estate manager provides a correct schedule within 14 days of the order being made, and it may also order that the estate manager pays damages not exceeding £1,000 to the homeowner. We believe that this is a proportionate and effective enforcement mechanism where an estate manager fails to comply with its obligations. I commend the clause to the Committee.
Richard Fuller
Many thanks to the Minister, again, for proposing further changes to help homeowners who are affected by estate management charges. I am pleased to hear him reiterate that he will consider the issues raised in my amendment 143 about the appropriateness of charges. The shadow Minister raised similar concerns about those being set at an effective level.
On amendment 144, will the Minister consider writing to the Committee about how, in practice, not passing on damages, fees or charges to residents will work? Great Denham is a new part of my constituency, and in an estate of a few thousand houses, there may be 50, 60, 70 or more property management companies. All of them are discrete limited companies and all were set up as subsidiaries of one or more parent company. We need to be sure, from the Government’s point of view—given that some of these limited companies could go bust—about where the trail leads to. Under corporate law, as I understand it, there is no requirement for a parent company to be liable for the losses of a subsidiary that goes bust, and we want to ensure that liabilities flow upwards to the ultimate holding company.
Presumably, the payment of administration fees or dividends may go from subsidiary companies to the very large companies that are the ultimate parents. Is the Minister able to explain how he sees that working in practice? If not, or if it is too detailed to talk about now, perhaps he could agree to write to give some examples to the Committee in due course.
Lee Rowley
My hon. Friend highlights an important point. I think it is better that I write, but in principle, the transparency we seek to bring and the requirement to clearly articulate the charges that have been made, either in the annual report or elsewhere, aim to provide the sunlight that means that it is clear who is paying for what, and, if it is not a reasonable charge, there is a process that can be followed. But I will write to him with more on that, if that is helpful, because we all want to get this right.
Matthew Pennycook
I rise briefly to support the argument made by the hon. Member for North East Bedfordshire. There is a specific problem on privately managed estates, which I referred to when speaking to clause 41, relating to the fragmentation of multiple estate management companies. I share his concern, which partly speaks to whether the penalties are appropriate in terms of enforcement. On some estates, residential leaseholders will face a situation where, yes, there may be a requirement for an annual report and there may be a degree of transparency, but the onus will be on them to go through six or seven sets of accounts from the different subsidiaries. We need to look at how we can simplify some of the management structures that companies use, which could cause huge amounts of confusion for residential leaseholders, and, as I say, put the onus on them to try to work through different sets of accounts in a way that they might find difficult to do.
Question put and agreed to.
Clause 51 accordingly ordered to stand part of the Bill.
Clause 52 ordered to stand part of the Bill.
Clause 53
Limitation of administration charges
Question proposed, That the clause stand part of the Bill.
Lee Rowley
I hope that some of the comments I am about to make will reassure my hon. Friend the Member for North East Bedfordshire that we are keen to get this right.
Homeowners on managed estates can be subject to excessive administration charges, with little understanding of what fees they may be liable to pay. Subsection (1) puts a stop to that by introducing a requirement for all administration charges to be reasonable. Subsections (2) and (3) require that an administration charge is payable only if the amount or the description of how the amount is to be calculated has been published on an administration charge schedule for 28 days. Subsection (4) sets out other conditions under which an administration charge is not payable to the estate manager. They include circumstances where the estate manager is charging homeowners on the same estate different amounts for carrying out similar tasks, and therefore prevents them from being charged at different rates. I commend the clause to the Committee.
Question put and agreed to.
Clause 53 accordingly ordered to stand part of the Bill.
Clause 54
Determination of tribunal as to administration charges
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 54 introduces a new right for homeowners on managed estates to challenge the reasonableness of administration charges they are liable to pay. This approach delivers on a Government commitment to give freehold homeowners the equivalent right as leaseholders with regards to the charges they pay, and allows homeowners to get an independent assessment of whether the charge they are being asked to pay is justified and appropriate.
Subsection (1) sets out the basis on which homeowners may make an application to the appropriate tribunal and describes those issues on which the tribunal is able to be determined. They include: whether the administration charge is payable and, if so, by whom and to whom it is payable; the amount that is payable, as well as the date by, or on which, it is payable; and the manner in which it is payable. Subsection (2) is clear that this application can be made whether or not any payment has been made. Subsection (4) confirms that any payment made by the homeowner does not mean that they have agreed or admitted to its reasonableness. Subsection (3) sets out instances when an application may not be made to the tribunal. These measures mirror those provisions that apply to leaseholders under the Landlord and Tenant Act 1985.
This clause, alongside clauses 50 to 53, brings the rights of homeowners on managed estates in line with those of leaseholders with regard to administration charges. I commend the clause to the Committee.
Question put and agreed to.
Clause 54 accordingly ordered to stand part of the Bill.
Clause 55
Codes of management practice: extension to estate managers
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 55 amends section 87 of the Leasehold Reform, Housing and Urban Development Act 1993. It enables the Secretary of State to approve or publish a code of practice in relation to managed estates. The effect of this clause mirrors the position in leasehold, for which the Government have approved two codes of practice. These codes outline best practice for managing agents, landlords or other relevant parties in relation to residential leasehold property management. An approved code of practice may be taken into account as evidence of a breach of an estate manager’s obligation at a tribunal or a court. I commend this clause to the Committee.
Question put and agreed to.
Clause 55 accordingly ordered to stand part of the Bill.
Clause 56
Part 4: application to government departments
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 56 deals with the issue of Crown land, and makes it clear that the measures in part 4 should apply in circumstances where estate management functions are carried out by or on behalf of Government Departments. We consider that there are no grounds to exclude homeowners who live on land owned by Government Departments where they pay a contribution. They have as much right to hold the estate manager accountable for the charges it spends. There may be a very small number of locations where land that could now or in the future be built on is owned by His Majesty or other parts of the Crown Estate. In such circumstances, the Crown will act by analogy—in other words, it will ensure homeowners on such estates have access to equivalent rights. Prior to Second Reading, the King and the Prince of Wales granted consent in writing. I commend the clause to the Committee.
Question put and agreed to.
Clause 56 accordingly ordered to stand part of the Bill.
Clause 57
Interpretation of Part 4
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 57 provides a comprehensive definition of terms used in part 4 of the Bill. For key terms used in the Bill, such as “estate manager” or “relevant costs”, it points to other parts of the Bill where they are defined. Subsection (2) sets out the definition of an “owner” of a dwelling as being either the person who owns the freehold land that comprises a dwelling, or the person who is a leaseholder of a dwelling under a long lease. This ensures that all homeowners who pay a contribution can enjoy the new protections in this part. It also makes it clear that, where homeowners rent out their property or let it out under an assured tenancy, they—not the occupants of the dwellings—are entitled to these protections. This clause provides the more comprehensive definition of relevant measures that inform the regulatory framework in part 4. I commend the clause to the Committee.
Question put and agreed to.
Clause 57 accordingly ordered to stand part of the Bill.
Clause 58
Meaning of “estate rentcharge”
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Part 5 of the Bill addresses issues relating to rentcharges. Since the Rentcharges Act 1977, the creation of most types of rentcharge has been prohibited. The main class of rentcharge excepted from the general prohibition is known as an estate rentcharge. Estate rentcharges are usually mechanisms for a management company to obtain contributions towards the costs of maintaining communal areas.
Part 4 of the Bill creates new protections for homeowners who pay an estate rentcharge to an estate manager for the provision of estate management services. Clause 58 makes a minor amendment to the Rentcharges Act 1977 to amend the definition of “estate rentcharge” in section 2 of the Act. The effect of the amendment is to ensure that payments may be made to cover improvements to communal areas as well as maintenance and repairs. This ensures that it aligns with the definition of the service charges that leaseholders must pay, and allows estate managers to pass on costs of any improvements to the areas they look after, and will ensure that they meet their legal obligations as well as having sufficient funds to carry out such works. The sums paid for improvement will still be subject to the protections in part 4—for example, the requirement to be reasonable. This is a clarificatory amendment, and I commend clause 58 to the Committee.
Matthew Pennycook
This is a clarificatory amendment, and we do not take issue with it. I will speak on our concerns about rentcharges in relation to clause 59.
Question put and agreed to.
Clause 58 accordingly ordered to stand part of the Bill.
Clause 59
Regulation of remedies for arrears of rentcharges
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 4—Remedies for the recovery of annual sums charged on land—
“(1) Section 121 of the Law of Property Act 1925 is omitted.
(2) The amendment made by subsection (1) has effect in relation to arrears arising before or after the coming into force of this section.”
This new clause, which is intended to replace clause 59, would remove the provision of existing law which, among other things, allows a rentcharge owner to take possession of a freehold property in instances where a freehold homeowner failed to pay a rentcharge.
Lee Rowley
An income-supporting rentcharge is an annual sum paid by a freehold homeowner to a third party who normally has no other interest in the property. Under the 1977 Act, no new rentcharges of this type may be created, and all existing ones will be extinguished in 2037. Most income-supporting rentcharges can be for relatively small amounts—typically between £1 and £25 per annum—and the majority of freehold properties affected by these rentcharges are located in the north-west and the south-west of England.
However, a loophole remains. Failure to pay a rentcharge within 40 days of its due date means that, under section 121 of the Law of Property Act 1925, the recipient of the rentcharge may take possession of the subject premises until the arrears and all costs and expenses are paid. The rentcharge owner may alternatively grant a lease of the subject premises to a trustee that the rentcharge owner may set up themselves. The Government believe that that law is unfair and can have a grossly dispro-portionate consequence for a very small amount of money not being paid. This clause seeks to address that and ensure that freeholders cannot be subject to a possession order or the granting of a lease for rentcharge arrears.
Subsection (2) introduces new sections into the 1925 Act. Proposed new section 120B details that no action to recover or require payment of regulated rentcharge arrears may be taken unless notice has been served and the demand for payment complies with the new requirements. Those requirements set out what information the notice must include. The section also sets out that the homeowner does not have to pay the rentcharge owner any administrative fee.
Proposed new section 120C sets out various requirements relating to the serving of notice under proposed new section 120B, aimed at ensuring that freeholders receive the demand of payment at the address of the charged land. Proposed new section 120D confers powers on the Secretary of State to set out in regulations a limit on the amounts payable by landowners, indirectly or directly, in relation to the action of recovering or requiring payment of regulated rentcharge arrears. That provision seeks to avoid abuse of administration costs charged when simply accepting payment of arrears, and the process of removing any restriction on the freehold title at the Land Registry. The charge does not affect the cost that is paid directly to the Land Registry itself.
Clause 59 (3) and (4) to clause 59 seek to disapply rentcharge owners from using the provisions set out in sections 121 and 122 of the 1925 Act. In doing so, they provide additional protection to avoid rentcharge owners rushing to invoke those provisions. The effect of those subsections is to make any action to reclaim arrears using the 1925 Act void retrospectively once the provisions are introduced. Subsection (5) ensures that the provisions of the clause apply to rentcharge arrears that have arisen before and after the changes come into force. Subsection (6) inserts new section 122A into the 1925 Act, which details that an instrument creating a rentcharge, contract or any other arrangement is of no effect to the extent that it makes provision contrary to the provisions in this clause. Clause 59 delivers on a Government commitment to protect freehold homeowners from the disproportionate effects of falling into arrears in the payment of their rentcharge.
I turn to new clause 4, for which I thank the shadow Minister, the hon. Member for Greenwich and Woolwich. It seeks to abolish section 121 of the 1925 Act. The effect of the new clause would be that a failure to pay any form of rentcharge would prevent the owner of the rentcharge from granting a lease on the property, or from taking possession of it until the fee was paid. We are sympathetic to the issue raised by the shadow Minister, and we have recognised that forfeiture is an extreme measure and should only be used as a last resort. Although in practice it is already rarely used, I recognise that the potential consequences may feel disproportionate. That is why we have included clause 59, which disapplies this remedy for income-supporting rentcharges where we know that homeowners pay nominal sums for very little in return.
As with leasehold forfeiture, any changes will require a careful balancing of the rights and responsibilities of interested parties. We are concerned as to what this new clause could mean where a homeowner pays estate rentcharges that are essential for the management of their estate, or any other form of legitimate rentcharge. The Government want to ensure that where they are required to be paid, these charges are paid in a timely manner so that the smooth running of the estate can continue. If estate management companies are unable to recover these sums, there is the potential that the costs will fall to other homeowners or that the upkeep of the estate will worsen. We are keen to understand any unintended consequences before abolishing section 121 of the 1925 Act all together. We need to weigh up the needs of the estate with the stress and uncertainty that we know this law can cause for some homeowners and lenders. We are listening carefully to the arguments, and I am happy to give the hon. Gentleman that commitment. I hope that, with those reassurances, he may consider not moving his new clause.
Matthew Pennycook
I was slightly surprised, in a welcome way, by the Minister’s response, in that he seemed to indicate that the Government are open to considering the abolition of section 121 of the 1925 Act all together, notwithstanding the need to ensure that there are no unintended consequences, but we are debating clause 59 as it stands, which does not propose that, so I hope to convert the Minister’s sympathy into agreement with our position if I can.
Part 5 of the Bill concerns rentcharges, which in general terms can be understood as an indefinite, periodic payment made in respect of freehold land by the current freeholder to a third party or “rent owner” who has no reversionary interest in the charged land in question. In some cases, the charge relates to the provision of a service; in others it is, in effect, simply a profit stream for the interested third party. All rentcharges, as the Minister made clear, are covered by the Rentcharges Act 1977, which prohibited the creation of new so-called income-only rentcharges and provided that all such rentcharges will be extinguished in 2037.
The 1977 Act does not detail the remedies available to a rentcharge holder whose rentcharge is not paid, although any can simply sue for a money judgment. It is section 121 of the Law of Property Act 1925 that creates two additional remedies for rentcharge non-payment. First, unless excluded by the terms of the rentcharge itself, there is a right for the rentcharge holder to take possession of the charged land in question and retain any income associated with it so long as the money owed, whether demanded or not, is unpaid for 40 days. Secondly, unless prohibited by the terms of the rentcharge, and assuming that the money owed is outstanding for at least 40 days, there is a power to demise the land to a trustee by way of a lease in order to raise the funds necessary to pay the arrears and costs.
In short, the 1925 Act provides for the power to seize freehold houses for non-payment of a rentcharge, even if the arrears are merely a few pounds, and allows the rentcharge holder to retain possession or render it in effect worthless by means of maintaining a 99-year lease over it, even if, as demonstrated by the 2016 case of Roberts v. Lawton, the rentcharge is redeemed or the underlying debt cleared. In our view, the remedies provided for by the 1925 Act are a wholly disproportionate and draconian legacy of Victorian-era property law. As I have said, the 1977 Act prohibited the creation of new rentcharges and provided for existing rentcharges to be abolished in 2037, but 13 years from now is still a long time away and any lease granted prior to the abolition will remain in force. Rentcharges are therefore an area of law in respect of which legislative reform is long overdue, and the need to protect rent payers from what amounts, essentially, to a particularly severe form of freehold forfeiture as a result of the relevant remedies provided for by the 1925 Act is pressing.
With clause 58 having amended the definition of estate rentcharge, clause 59 seeks to provide for revised remedies for arrears by amending the 1925 Act. As the Minister has set out, clause 59, in place of the existing two remedies for rentcharge non-payment under the Act, proposes requiring the third party or rent owner to issue an appropriate demand before they can seek to recover or compel payment, and gives the Secretary of State the power by regulation to limit the amount payable by the freehold homeowner in respect of rentcharge arrears or to provide that no amount is repayable. Although we appreciate that the intent of the clause is to better protect freehold homeowners from the existing disproportionate remedies that are available to rentcharge holders when rentcharges go unpaid, we believe it is an overly complicated and onerous attempt to make more palatable the methods of enforcing rentcharges provided for by the 1925 Act that are simply not justifiable in any form.
No one disputes that there might be a need for legitimate and reasonable rentcharges. Indeed, if and when the Government finally deliver on the pledge to require all new houses in England and Wales to be sold as freehold properties, such charges will become even more important as a means to ensure that freehold houses contribute towards communal estate services. However, the threat of their being enforced by means of the draconian remedies in section 121 of the 1925 Act must, in our view, be removed.
Lee Rowley
I am grateful to the hon. Gentleman. He makes a strong case for his arguments. As I have indicated, although I will not accept new clause 4, we do think there is an argument that is reasonable to be had here, while recognising that we need to consider the consequential potential of any change. I am happy to discuss that further with him separately to see whether we can make further progress at a later stage of the Bill.
Matthew Pennycook
I thank the Minister for that answer. I am tempted to not move the new clause, but I can only deal with the piece of legislation in front of me. What is in front of me is not a placeholder clause that says, “We will review the 1925 Act”; it is a clause that puts in place an amended version of the remedies. We feel so strongly about this point that we will vote against clause stand part, but I will take the Minister up on his offer to discuss a more sensible way of dealing with the types of contraventions that we have discussed.
Question put, That the clause stand part of the Bill.
Lee Rowley
Clause 60 sets out the meaning of references throughout the Bill to other Acts. I commend the clause to the Committee.
Question put and agreed to.
Clause 60, as amended, accordingly ordered to stand part of the Bill.
Clause 61
Power to make consequential provision
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 61 gives the Secretary of State the power to make provision that is consequential on the Bill through regulations, including provision amending an Act of Parliament. We do not take such a power lightly and, in drafting this legislation, we have sought to identify necessary consequential amendments on the face of the Bill. Long residential leasehold is, however, a complex and interdependent area of law. Therefore we consider it prudent to take the power in Clause 61 in order to ensure that, should any further interdependencies be identified at a later date, those 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, section 42 of the Neighbourhood Planning Act 2017, and section 20 of the Leasehold Reform (Ground Rent) Act 2022.
Question put and agreed to.
Clause 61 accordingly ordered to stand part of the Bill.
Clause 62
Regulations
Lee Rowley
I beg to move amendment 55, in clause 62, page 80, line 33, at end insert—
“(1A) A power to make regulations under Part 4A also includes power to make different provision for different areas.”
This amendment would expressly provide that a power to make regulations under the new Part to be inserted after Part 4 includes the power to make different provision for different areas.
The Chair
With this it will be convenient to discuss the following:
Government amendment 56.
Government new clause 9—Appointment of manager: breach of redress scheme requirements.
Government new clause 15—Leasehold and estate management: redress schemes.
Government new clause 16—Redress schemes: voluntary jurisdiction.
Government new clause 17—Financial assistance for establishment or maintenance of redress schemes.
Government new clause 18—Approval and designation of redress schemes.
Government new clause 19—Financial penalties.
Government new clause 20—Financial penalties: maximum amounts.
Government new clause 21—Decision under a redress scheme may be made enforceable as if it were a court order.
Government new clause 22—Lead enforcement authority: further provision.
Government new clause 23—Guidance for enforcement authorities and scheme administrators.
Government new clause 24—Interpretation of Part 4A.
Government new schedule 1—Redress schemes: financial penalties.
Lee Rowley
Turning first to new clause 15, some leaseholders and homeowners on freehold estates do not currently have access to redress outside of the tribunal or the courts. I should note that part 4 of the Bill will give comprehensive rights and protections to homeowners on freehold estates, including access to the relevant tribunal. Though property managing agents are required by law to join a Government-approved redress scheme, there is no such requirement for leasehold landlords and freehold estate managers who manage their property or estate themselves. This means that for issues that fall outside the court or tribunal’s jurisdiction, such as poor communication or behavioural issues, those leaseholders and homeowners on freehold estates can make a complaint only through their landlord or estate manager’s own complaints process. If there is no complaints procedure, or once the leaseholder or homeowner has exhausted it, their access to redress is exhausted.
New clause 15 will fill this gap by providing that leasehold landlords and freehold estate managing agents who manage their property or estate can be required to join a redress scheme. The redress scheme will independently investigate and determine complaints made by a current or former owner. A redress scheme will need to be approved by, and administered by or on behalf of, the “lead enforcement authority”—the Secretary of State or other designated body. The Government have taken powers that will allow us to make exemptions to the requirement in specific circumstances and also a power to amend the definitions in this section. New clause 15 will fill gaps that leaseholders and homeowners on freehold estates currently experience in access to redress. I commend the clause to the Committee.
New clause 16 makes it clear that the redress scheme provided for under this part may act under a voluntary jurisdiction. That means they may allow for members to join the scheme who are not required to join under new clause 15. The scheme may also investigate and determine complaints outside their jurisdiction at their discretion, including complaints by people who are not current or former owners of a relevant dwelling. The scheme may offer voluntary mediation services and allow for certain complaints or circumstances to be excluded from their remit. The voluntary jurisdiction may be subject to the approval conditions that the redress scheme must comply with under new clause 18, which I will come to in a moment.
New clause 17 gives the Secretary of State the power to make payments, including loans, or give financial assistance to establish or maintain a redress scheme. The Government expect the costs of the redress scheme to be funded by the scheme themselves—for example, through charging membership fees. However, there may be some circumstances where the provision of funding is needed. The clause offers flexibility in that instance.
New clause 18 makes provision for the approval and designation of redress schemes. The approval conditions will apply to the future redress scheme and must be satisfied before the redress scheme is approved or designated. The approval conditions will be set out in regulations made by the Secretary of State and will include, but are not limited to, those conditions set out in subsection (3). In addition, new clause 18 allows the Secretary of State to make regulations to provide for the process for making applications for the approval of a redress scheme, the time the approval or designation remains valid, and the process for approval or designation to be withdrawn or revoked. It also allows for a scheme to set membership fees to cover the cost of providing the service.
I will now turn to new clauses 19, 20 and 9, and new schedule 1. To ensure compliance from landlords and freehold estate managers who are required to join a redress scheme, we need to ensure that robust enforcement mechanisms are in place. New clause 19 does that by allowing an enforcement authority to impose financial penalties where breaches of regulations by not joining a redress scheme occur. It also allows for the Secretary of State to make regulations to allow for the investigation of suspected breaches, and for co-operation and information sharing between enforcement authorities for the purposes of investigation.
New clause 20 sets out the amounts of the financial penalty that enforcement authorities may impose on landlords and freehold estate managers who do not comply with the requirement to join a redress scheme. An initial penalty for breaching the requirement may be up to £5,000. However, repeated breaches could lead to a penalty of up to £30,000. The new clause also allows the Secretary of State to amend the amount of financial penalty in regulations to reflect changes in the value of money.
New clause 9 provides a route for leaseholders to apply to the tribunal for an order to appoint a manager in place of their landlord if their landlord has failed to join the redress scheme. As with other “reasons”, leaseholders can apply for an order that a manager be appointed, and the tribunal will make one if
“it is just and convenient to make the order in all the circumstances of the case”.
Richard Fuller
The Minister will be aware of concerns about the practical application of this provision when it is put into practice, and the pressures on the tribunal. Under new clause 9, as I best understand it, homeowners will have the right to go to the first-tier tribunal to ask to change from company A to company B as their estate manager. If that is the case, why does it have to go through a tribunal? Why is it not feasible for people to determine that themselves without referring to a tribunal?
Lee Rowley
My hon. Friend raises an important point. I recognise the significant body of views in this place and elsewhere about the ability to appoint a right to manage company or a representative directly, and I have certainly heard those concerns. In this case, working within the framework of the proposed legislation, we wanted to ensure that there is a route to allow a manager to be appointed if a landlord refuses to comply. Of course, we would hope that a landlord would not refuse in the first instance.
The Government have also provided in new clause 13 that homeowners on freehold estates can apply to the tribunal for an order to appoint a new manager for the estate if a relevant estate manager has breached the requirement to join a redress scheme. New schedule 1 sets out further provisions relating to the penalties set out in new clause 19. It will require an enforcement authority to give a landlord or freehold estate manager whom they suspect of breaching the requirement to join a scheme a notice of its intention to issue a financial penalty before issuing a final notice. Those who are given a notice by the enforcement authority may make representations. The schedule sets out that where an enforcement authority imposes a financial penalty, it may apply the proceeds towards meeting the costs and expenses incurred in carrying out its functions. Any proceeds that are not so applied will be paid to the Secretary of State.
New clause 21 gives the Secretary of State the power to provide that a future redress scheme provider may apply to a court or tribunal for an order that a decision made under the scheme be enforced as if it were an order of the court. That may be necessary if there is an issue with landlords or freehold estate managers not complying with the redress scheme’s decisions.
New clause 22 makes the necessary provisions for the role of the lead enforcement authority. That is defined by new clause 15 as the Secretary of State, or another person designated by the Secretary of State. New clause 22 provides that the lead enforcement authority will have necessary oversight of the scheme. It also provides that if the Secretary of State decides to designate the role of the lead enforcement authority to another person, the Secretary of State will still have the appropriate power to direct the lead enforcement authority. That includes provisions to make payments and to bring the arrangement to an end.
New clause 23 provides for the Secretary of State to issue or approve guidance for enforcement authorities and the administrator of the future redress scheme about co-operation. It makes clear that the Secretary of State will exercise powers under new clause 18 to ensure that the administrator of the redress scheme has regard to guidance issued or approved under the section. Importantly, the amendment also requires the enforcement authority to have regard to the same guidance. New clause 24 makes necessary provision for the interpretation of this part of the Bill, including the definitions used. I commend the clauses to the Committee.
Lee Rowley
Clause 63 states the territorial extent of the Bill. It applies to England and Wales. We have worked closely with the Welsh Government to develop the reforms, and we will continue to engage with them. That will ensure that the legislation operates effectively to deliver long-term improvements to home ownership across both England and Wales. I commend the clause to the Committee.
Question put and agreed to.
Clause 63 accordingly ordered to stand part of the Bill.
Clause 64
Commencement
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 64 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 by regulation. For a number of policy areas, regulations need to be drafted and laid before Parliament before the provisions in the Bill can commence. Hon. Members should be assured that we are not intending to have any unnecessary delay in implementation, and the Department is working hard to plan and carry out the associated programme of secondary legislation. Subsection (2) sets out that the provisions for section 59, namely the regulation of remedies for rent charge arrears, come into force two days after the Act is passed. I commend the clause to the Committee.
Matthew Pennycook
I have two brief points. On the general commencement provisions, the Minister just made it perfectly clear that there are no firm dates for commencement on all the issues that require regulations. I take on board what he said about not seeking any unnecessary delay, and that is welcome. However, I push him to go slightly further to give us a sense of the timetabling of some of the more important provisions in the Bill, because leaseholders watching our proceedings will want to know when the rights provided for by the Bill can be enjoyed.
I have a point specifically on subsection (2), which specifies that clause 59 comes into force at the end of a period of two months, as I understand it—the Minister said “two days”, and I think it is two months. Given that some of the provisions in clause 59—I am thinking particularly of new subsection 120D(4)—bring the relevant provision into force on First Reading on 27 November 2023, why is there a two-month delay after Royal Assent? Why not bring the measures into force on Royal Assent?
Lee Rowley
I am grateful to the hon. Gentleman for his questions. Obviously, as he will know, I do not need to push too heavily the point that we need to get the Bill through this place. We are trying to move it as quickly as we possibly can, but the other place may have other ideas, although I hope that it will not. I hope I can provide assurances that we will try to get these things moving as quickly as possible.
On the hon. Gentleman’s specific point about subsection (2), I thank him for correcting me; it is two months. As I understand it—I am happy to go away and review it—there is a relative convention in these instances. However, given the desire and intention of all parties, including the Secretary of State, to move as quickly as possible, we will see whether we can speed it up.
Question put and agreed to.
Clause 64 accordingly ordered to stand part of the Bill.
Clause 65
Short Title
Question proposed, That the clause stand part of the Bill.
Lee Rowley
Clause 65 sets out that the short title of the legislation is to be the Leasehold and Freehold Reform Act. I commend the clause to the Committee.
Question put and agreed to.
Clause 65 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mr Mohindra.)
Leasehold and Freehold Reform Bill
Tuesday 27th February 2024
(9 months, 3 weeks ago)
Commons ChamberRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 27 February 2024 - large print - (27 Feb 2024)
18:01 - The House divided: - Ayes: 14 / Noes: 304 - Question accordingly negatived.
18:16 - The House divided: - Ayes: 169 / Noes: 306 - Question accordingly negatived.
18:29 - The House divided: - Ayes: 179 / Noes: 294 - Question accordingly negatived.
18:42 - The House divided: - Ayes: 171 / Noes: 300 - Question accordingly negatived.
18:56 - The House divided: - Ayes: 170 / Noes: 299 - Question accordingly negatived.
The Minister for Housing, Planning and Building Safety (Lee Rowley)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Dame Rosie Winterton)
With this it will be convenient to discuss the following:
Government new clause 27—Part 4: Crown application.
Government new clause 28—Redress schemes: no Crown status.
Government new clause 29—Part 5: amendments to other Acts.
Government new clause 30—Steps relating to remediation of defects.
Government new clause 31—Remediation orders.
Government new clause 32—Remediation contribution orders.
Government new clause 33—Recovery of legal costs etc through service charge.
Government new clause 34—Repeal of section 125 of the BSA 2022.
Government new clause 35—Higher-risk and relevant buildings: notifications in connection with insolvency.
Government new clause 42—Ban on grant or assignment of certain long residential leases of houses.
Government new clause 43—Long residential leases of houses.
Government new clause 44—Leases which have a long term.
Government new clause 45—Series of leases whose term would extend beyond 21 years.
Government new clause 46—Houses.
Government new clause 47—Residential leases.
Government new clause 48—Permitted leases.
Government new clause 49—Permitted leases: certification by the appropriate tribunal.
Government new clause 50—Permitted leases: marketing restrictions.
Government new clause 51—Permitted leases: transaction warning conditions.
Government new clause 52—Prescribed statements in new long leases.
Government new clause 53—Restriction on title.
Government new clause 54—Redress: right to acquire a freehold or superior leasehold estate.
Government new clause 55—Redress: application of the right to acquire.
Government new clause 56—Redress: general provision.
Government new clause 57—Redress regulations: exercising and giving effect to the right to acquire.
Government new clause 58—Enforcement by trading standards authorities.
Government new clause 59—Financial penalties.
Government new clause 60—Financial penalties: cross-border enforcement.
Government new clause 61—Lead enforcement authority.
Government new clause 62—General duties of lead enforcement authority.
Government new clause 63—Enforcement by lead enforcement authority.
Government new clause 64—Further powers and duties of enforcement authorities.
Government new clause 65—Power to amend: permitted leases and definitions.
Government new clause 66—Interpretation of Part A1.
New clause 1—Estate management services—
“(1) Within three months of the passage of this Act, the Secretary of State must by regulation provide for residents of managed dwellings to take ownership, at nominal cost, of—
(a) an estate management company, or
(b) the assets of an estate management company, or other company or business connected with the development or management of the dwellings, which are used to provide services to managed dwellings
if the estate management company or connected company or business does not—
(i) provide the residents of the managed dwellings with a copy of its budget for the forthcoming year and accounts for the past year;
(ii) give sufficient notice to enable residents to attend its annual meeting;
(iii) acknowledge correspondence sent by registered post to its registered office within a reasonable length of time.
(2) Regulations under subsection (1) may amend primary legislation.”
New clause 2—Estate management: compensation—
“(1) This section applies where the first and second condition are met.
(2) The first condition is that it would not be reasonable for the residents of a property to continue to occupy that property as their primary residence due to a defect which the estate manager—
(a) is responsible for remedying, or
(b) could reasonably have foreseen would arise.
(3) The second condition is that—
(a) the defect is the direct result of actions taken or not taken by the estate manager, or
(b) the estate manager has failed to remedy the defect within a reasonable period of time.
(4) The estate manager must—
(a) provide compensation to the residents of the property equal to any reasonable financial loss they incurred as a result of the defect, or
(b) provide suitable alternative accommodation for the duration of the period for which this section applies.
(5) No cost incurred by an estate manager as a consequence of this section may be recouped from the estate in question through an estate management charge.”
This new clause would allow estate residents to claim compensation or alternative accommodation where it is not reasonable for them to remain in their homes due to defects caused, or left unremedied for an unreasonable length of time, by an estate manager.
New clause 3—Prohibition on landlords claiming litigation costs from tenants—
“(1) Any term of a long lease of a dwelling which provides a right for a landlord to demand litigation costs from a leaseholder (whether as a service charge, administration charge or otherwise) is of no effect.
(2) The Secretary of State may, by regulations, specify classes of landlord to which or prescribed circumstances in which subsection (1) does not apply.
(3) In this section—
“administration charge” has the meaning given by Schedule 11 of the Commonhold and Leasehold Reform Act 2022;
“dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;
“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002;
“service charge” has the meaning given by section 18 of the Landlord and Tenant Act 1985;
“landlord” has the meaning given by section 30 of the Landlord and Tenant Act 1985.”
This new clause would prohibit landlords from claiming litigation costs from tenants other than under limited circumstances determined by the Secretary of State.
New clause 4—Remedies for the recovery of annual sums charged on land—
“(1) Section 121 of the Law of Property Act 1925 is omitted.
(2) The amendment made by subsection (1) has effect in relation to arrears arising before or after the coming into force of this section.”
This new clause, which is intended to replace clause 59, would remove the provision of existing law which, among other things, allows a rentcharge owner to take possession of a freehold property in instances where a freehold homeowner failed to pay a rentcharge.
New clause 5—Abolition of forfeiture of a long lease—
“(1) This section applies to any right of forfeiture or re-entry in relation to a dwelling held on a long lease which arises either—
(a) under the terms of that lease; or
(b) under or in consequence of section 146(1) of the Law of Property Act 1925.
(2) The rights referred to in subsection (1) are abolished.
(3) In this section—
“dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;
“lease” means a lease at law or in equity and includes a sub-lease, but does not include a mortgage term;
“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002.”
This new clause would abolish the right of forfeiture in relation to residential long leases in instances where the leaseholder is in breach of covenant.
New clause 6—Requirement to establish and operate a management company under leaseholder control—
“(1) The Secretary of State may by regulations make provision—
(a) requiring any long lease of a dwelling to include a residents management company (“RMC”) as a party to that lease, and
(b) for that company to discharge under the long lease such management functions as may be prescribed by the regulations.
(2) Regulations under subsection (1) must provide—
(a) for the RMC to be a company limited by share (with each share to have a value not to exceed £1), and
(b) for such shares to be allocated (for no consideration) to the leaseholder of the dwelling for the time being.
(3) Regulations under subsection (1) must prescribe the content and form of the articles of association of an RMC.
(4) The content and form of articles prescribed in accordance with subsection (3) have effect in relation to an RMC whether or not such articles are adopted by the company.
(5) A provision of the articles of an RMC has no effect to the extent that it is inconsistent with the content or form of articles prescribed in accordance with subsection (3).
(6) Section 20 of the Companies Act 2006 (default application of model articles) does not apply to an RMC.
(7) The Secretary of State may by regulations make such provision as the Secretary of State sees fit for the enforcement of regulations made under subsection (1), and such provision may (among other things) include provision—
(a) conferring power on the First-Tier Tribunal to order that leases be varied to give effect to this section;
(b) providing for terms to be implied into leases without the need for any order of any court or tribunal.
(8) The Secretary of State may by regulations prescribe descriptions of buildings in respect of which regulations may be made under subsection (1).
(9) In this section—
“dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;
“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002;
“management function” has the meaning given by section 96(5) of the Commonhold and Leasehold Reform Act 2002.
(10) The Secretary of State may by regulations amend the definition of “management function” for the purposes of this section.”
This new clause would ensure that leases on new flats include a requirement to establish and operate a residents’ management company responsible for all service charge matters, with each leaseholder given a share.
New clause 7—Power to establish a Right to Manage regime for freeholders on private or mixed-use estates—
“In Section 71 of the Commonhold and Leasehold Reform Act 2002, after subsection (2) insert—
“(3) The Secretary of State may by regulations make provision to enable freeholder owners of dwellings to exercise a right to manage in a way which corresponds with or is similar to this Part.
(4) A statutory instrument containing regulations under subsection (3) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.””
This new clause would permit the Secretary of State to establish a Right to Manage regime for freeholders of residential property on private or mixed-use estates.
New clause 8—Regulation of property agents—
“(1) The Secretary of State must by regulations make provision for implementing the proposals of the Regulation of Property Agents Working Group final report of July 2019 as far as they relate to—
(a) estate management;
(b) sale of leasehold properties; and
(c) sale of freehold properties subject to estate management or service charges.
(2) Regulations under this section—
(a) must be laid within 24 months of the date of Royal Assent to this Act,
(b) shall be made by statutory instrument, and
(c) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
(3) If, at the end of the period of 12 months beginning with the day on which this Act is passed, the power in subsection (1) is yet to be exercised, the Secretary of State must publish a report setting out the progress that has been made towards doing so.”
This new clause would require the Secretary of State to make regulations to implement the proposals of the Regulation of Property Agents Working Group final report within 24 months of the Act coming into force and to report on progress to that end at the end of the period of 12 months.
New clause 9—Qualifying leases for the purposes of the remediation of building defects—
“Section 119 of the Building Safety Act 2022 is amended by the insertion after subsection (4) of the following —
“(5) The Secretary of State may, by regulations, amend subsection (2) so as to bring additional descriptions of lease within the definition of “qualifying lease”.””
This new clause would give the Secretary of State the power to bring “non qualifying” leaseholders within the scope of the protections of the Building Safety Act 2022.
New clause 10—Meaning of “relevant building” for the purposes of the remediation of building defects—
“Section 117 of the Building Safety Act 2022 is amended by the insertion after subsection (6) of the following—
“(7) The Secretary of State may, by regulations, amend subsection (2) so as to bring additional descriptions of building within the definition of “relevant building”.””
This new clause would give the Secretary of State the power to bring buildings which are under 11m in height or have fewer than four storeys within the scope of the protections of the Building Safety Act 2022.
New clause 11—Report on providing leaseholders in flats with a share of the freehold—
“(1) The Secretary of State must publish a report outlining legislative options to ensure that all qualifying tenants in newly-constructed residential properties containing two or more flats have a proportionate share of the freehold of their property.
(2) The report must be laid before Parliament within three months of the commencement of this Act.”
This new clause would require the Secretary of State to publish a report outlining legislative options to provide leaseholders in flats with a share of the freehold.
New clause 12—Proportion of qualifying tenants required for a notice of claim to acquire right to manage—
“Section 79 of the CLRA 2002 is amended, in subsection (5), by leaving out “one-half” and inserting “35%”.”
This new clause would reduce the proportion of qualifying tenants who must be members of a proposed Right to Manage company for a claim to be made from one-half to 35%.
New clause 13—Prohibition on new leasehold homes—
“(1) Within three months of the passage of this Act, the Secretary of State must by regulations prohibit the sale of any new leasehold home.
(2) Regulations under this section—
(a) shall be made by statutory instrument,
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament; and
(c) may amend primary legislation.”
New clause 14—Premises to which leasehold right to manage applies—
“Section 72 of the CLRA 2002 is amended in subsection (1)(a), by the addition at the end of the words “or of any other building or part of a building which is reasonably capable of being managed independently.””
This new clause which is an amendment to the Commonhold and Leasehold Reform Act 2002 adopts the Law Commission’s Recommendation 5 in its Right to Manage report which would allow leaseholders in mixed-use buildings with shared services or underground car park to exercise the Right to Manage.
New clause 15—Meaning of “accountable person” for the purposes of the Building Safety Act 2022—
“(1) Section 72 of the Building Safety Act 2022 is amended in accordance with subsections (2) and (3).
(2) After subsection (2)(b), insert—
“(c) all repairing obligations relating to the relevant common parts which would otherwise be obligations of the estate owner are functions of a manager appointed under section 24 of the Landlord and Tenant Act 1987 in relation to the building or any part of the building.”
(3) In subsection (6), in the definition of “relevant repairing obligation”, after “enactment”, insert “or by virtue of an order appointing a manager made under section 24 of the Landlord and Tenant Act 1987”.
(4) Section 24 of the Landlord and Tenant Act 1987 is amended in accordance with subsection (5).
(5) Omit subsection (2E).”
This new clause would provide for a manager appointed under section 24 of the Landlord and Tenant Act 1987 to be the “accountable person” for a higher-risk building.
New clause 16—Commencement of section 156 of the CLRA 2002—
“(1) Section 181 of the CLRA 2002 is amended as follows.
(2) In subsection (1), after “104” insert “, section 156”.
(3) After subsection (1) insert—
“(1A) Section 156 comes into force at the end of the period of two months beginning with the day on which the Leasehold and Freehold Reform Act 2024 is passed.””
This new clause would bring into force a requirement of the Leasehold and Freehold Reform Act 2024 that service charge contributions be held in designated accounts.
New clause 17—Eligibility for enfranchisement—
“(1) The LHRUDA 1993 is amended as follows.
(2) In section 3—
(a) in subsection (2)(a), after third “building”, insert “, or could be separated out by way of the granting of a mandatory leaseback on the non-residential premises to the outgoing freeholder”;
(b) after sub-paragraph (2)(b)(ii), insert “or
(iii) are reasonably capable of being managed independently or are already subject to separate management arrangements;”
(3) In section 4(1)(a)(ii), after “premises;”, insert “nor
(iii) reasonably capable of being separated out by way of the granting of a mandatory leaseback and reasonably capable of being managed independently from the residential premises;””
This new clause would ensure that leaseholders in mixed-use blocks with shared services with commercial occupiers would qualify to buy their freehold.
New clause 18—Right to manage: procedure following an application to the appropriate tribunal—
“(1) The CLRA 2002 is amended as follows.
(2) After section 84, insert—
“84A Procedure following an application to the appropriate tribunal
(1) Where an application is made to the appropriate tribunal under section 84(3) for a determination that an RTM company was on the relevant date entitled to acquire the right to manage the premises, the Tribunal may, if satisfied that it is reasonable to do so, dispense with—
(a) service of any notice inviting participation;
(b) service of any notice of claim;
(c) any of the requirements in the provisions set out in subsection (2); or
(d) any requirement of any regulations made under this part of this Act.
(2) Subsection (1)(c) applies to the following provisions of this Act—
(a) section 73;
(b) section 74;
(c) section 78;
(d) section 79;
(e) section 80;
(f) section 81.””
This new clause would provide the appropriate tribunal with the discretion to dispense with certain procedural requirements where it is satisfied that it is reasonable to do so. It is designed to deal with cases where a landlord attempts to frustrate an RTM claim by procedural means.
New clause 19—Service charges: consultation requirements—
“(1) The Landlord and Tenant Act 1985 is amended as follows.
(2) In section 20ZA, after subsection (1), insert—
“(1A) “Reasonable” for the purpose of subsection (1) is a matter of fact for the tribunal, which—
(a) may or may not consider the matter of relevant prejudice to the tenant. If prejudice is to be considered the burden is on the landlord to demonstrate a lack of prejudice or to prove the degree of prejudice;
(b) must include consideration of the objectives of increasing transparency and accountability, and the promotion of professional estate management, as well as of ensuring that leaseholders are protected from paying for inappropriate works or paying more than would be appropriate;
(c) must consider the dignity and investment of the tenant, who should be treated as a core participant in the process of service charge decisions;
(d) must have regard to the tenant’s legitimate interest in a meaningful consultation process, bearing in mind that minor or technical breaches may not impinge on the tenant’s interest, nor prejudice the tenant;
(e) at its discretion may or may not consider a reconstruction of the ‘what if’ situation, analysing what would have happened had the consultation been followed properly. The landlord is liable for the costs of such a reconstruction.””
This new clause would set matters for the tribunal to consider when deciding whether to dispense with all or any of the requirements for landlords to consult tenants in relation to any major works.
New clause 20—Building insurance and section 39 of the Financial Services and Markets Act 2000—
“A landlord may not manage or arrange insurance for their building under the protections of section 39 of the Financial Services and Markets Act 2000.”
This new clause precludes a landlord from operating as an appointed representative under the licence of Broker, where the landlord has no such licence themselves.
New clause 21—Collective enfranchisement: removal of prohibition on participation—
“(1) Section 5 of the LRHUDA 1993 is amended in accordance with subsection (2).
(2) Omit subsections (5) and (6).”
This new clause would implement recommendation 41 of the Law Commission’s report on enfranchisement, that the prohibition on leaseholders of three or more flats in a building being qualifying tenants for the purposes of a collective enfranchisement claim should be abolished.
New clause 22—Leases for new dwellings: default length—
“(1) Where a lease is a regulated lease, it must be issued with a lease term of at least 990 years.
(2) In this section—
“regulated lease” means a lease which meets the following conditions—
(a) it is a long lease of a single dwelling;
(b) it is granted for a premium;
(c) it is granted on or after the relevant commencement day but not in pursuance of a contract made before that day; and
(d) when it is granted, it is not an excepted lease.
the “relevant commencement day” is 1 January 2025.”
This new clause would ensure that all leases created for new flats following 1 January 2025 come with a default length of 990-years, bringing the position of future private sector leases into line with the existing requirements under Home England’s new model shared ownership lease
New clause 23—Report on disadvantage suffered by existing leaseholders—
“(1) Within 12 months of this Act receiving Royal Assent, the Secretary of State must commission an independent evaluation of the matter set out in subsection (2) and must lay the report of the evaluation before Parliament.
(2) The matter is the extent to which a tenant who has extended their lease or purchased the freehold of their property after 27 November 2023 but prior to this Act receiving Royal Assent (Tenant A) is disadvantaged in comparison to a tenant who has extended their lease or purchased the freehold of their property after this Act received Royal Assent (Tenant B).
(3) The report must take account of the following factors—
(a) marriage value;
(b) the legal costs likely to be incurred by the freeholder; and
(c) any charge for which Tenant A would be liable but Tenant B would not.
(4) The report must make recommendations to redress any significant disparities between the costs for which Tenant A would be liable but Tenant B would not.
(5) The Secretary of State may by regulations give effect to any recommendations made in the evaluation.
(6) Regulations under this section—
(a) shall be made by statutory instrument; and
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”
This new clause would require the Secretary of State to commission an independent evaluation of any disadvantages faced by a tenant who has extended their lease or purchased the freehold of their property after the introduction of this Bill but prior to it receiving Royal Assent.
New clause 24—Asbestos remediation—
“(1) The Leasehold Reform, Housing and Urban Development Act 1993 is amended as follows.
(2) After section 37B, insert—
“37C Asbestos remediation
(1) This section applies where a claim to exercise the right to collective enfranchisement in respect of any premises is made by tenants of dwellings contained in the premises and the claim is effective.
(2) Not less than 3 months before the effective date of the enfranchisement, the landlord must cause a structural survey of the premises to be undertaken by an accredited professional to ascertain whether asbestos is, or is liable to be, present in those parts of the premises which the landlord is responsible for maintaining.
(3) Where the survey required by subsection (2) reveals the presence of asbestos, the landlord must, at the landlord’s cost, arrange for its safe removal.
(4) If the removal of asbestos required by subsection (3) is not carried out before the responsibility for maintaining the affected parts transfers to another person under the claim to exercise the right of collective enfranchisement, the landlord is liable for the costs of its removal.””
New clause 25—Right to statutory compensation when landlord alters premises—
“(1) This section applies when both of the following conditions are satisfied—
(a) the first condition is that there are premises in which at least one dwelling is let on a long lease to a person (“T”); and
(b) the second condition is that the landlord or any superior landlord (“L”) under T’s long lease undertakes substantial development to the premises containing T’s dwelling.
(2) When both of the conditions mentioned in subsection (1) are satisfied, L must pay to T compensation reflecting the disruption caused by the substantial development.
(3) The compensation due from L to T under subsection (2) is to be calculated and paid by L to T at a time and in a manner according to regulations made by the Secretary of State.
(4) Notwithstanding any term of any agreement to the contrary, whether the agreement is made before or after the coming into force of this section—
(a) T may set-off any part of any compensation due from L but not paid by L in accordance with this section against any service charges demanded by L; and
(b) L may not exercise or omit to exercise any right, or otherwise take any step, to prejudice T as a result of any set-off exercised by T in accordance with this section.
(5) The County Court has jurisdiction to determine any dispute regarding compensation payable under this section.
(6) Regulations under this section—
(a) are to be made by statutory instrument;
(b) may make provision generally or only in relation to specific cases;
(c) may make different provision for different purposes;
(d) may include supplementary, incidental, transitional or saving provision.
(7) A statutory instrument containing regulations under this section is subject to the negative procedure.
(8) In this section—
“long lease” has the same meaning has the same meaning as in Chapter 1 of Part 2 of the Commonhold and Leasehold Reform Act 2002 (see sections 76 and 77 of that Act);
“service charge” has the same meaning as in section 18 of the Landlord and Tenant Act 1985 (as amended by this Act);
“substantial development” means demolishing, reconstructing or carrying out substantial works of construction on, the whole or a substantial part of the premises.”
This new clause is proposed after clause 21. It would require landlords who extend or alter buildings to pay statutory compensation to residential leaseholders in that building, for example when adding new storeys under permitted development rights. Residential leaseholders would have the right to set-off this compensation against service charges if landlords did not pay.
New clause 36—Codes of management practice: requirement to adhere—
“In section 87 of the LRHUDA 1993 (codes of management practice)—
(a) after subsection (1) insert—
“(1A) If—
(a) the Secretary of State has not approved a code or codes of practice which appear to him to promote desirable practices in relation to all necessary matters concerned with the management of residential property by relevant persons within three months of the passage of the Leasehold and Freehold Reform Act 2024, or
(b) as a consequence of the withdrawal of his approval of a code or modifications under subsection (1)(c) it appears to him that codes of practice in relation to all necessary matters are no longer in place,
he must draw up a code or modifications in relation to such matters as he considers necessary and treat that code, or those modifications, as if submitted to him under subsection (1)(a)(ii).”
(b) in subsection (7)—
(i) omit the words “not of itself”, and
(ii) for “but”, substitute “and”.”
This new clause would amend section 87 of the Leasehold Reform, Housing and Urban Development Act 1993 so as to make the codes of practice allowed for under that section mandatory (paragraph (b)), and to require the Secretary of State to ensure that such codes of practice are in place (paragraph (a)).
New clause 37—Qualification in property management—
“In section 87 of the LRHUDA 1993 (codes of management practice), after subsection (6), insert—
“(6A) A code of practice approved under this section must require a person who discharges management functions in respect of residential property to hold a relevant qualification in property management.””
This new clause, together with NC36, would require any person who discharges management functions in respect of residential property to hold a relevant qualification in property management.
New clause 38—Information to be given to prospective purchasers of leasehold residential property—
“In the LTA 1985, after section 30P (as inserted by section 40) insert—
“Information to be given to prospective purchasers of leasehold residential property
30Q Information to be given to prospective purchasers of leasehold residential property
(1) The landlord must ensure that any person purchasing the lease of a dwelling is provided at the point of purchase with a copy of the Government guidance entitled “How to Lease”, as it may be updated from time to time.
(2) For the purposes of this section, “landlord” has the same meaning as in sections 30K to 30N (see section 30P).””
New clause 39—Rights of first refusal on disposal of freehold homes—
“(1) Within three months of the passage of this Act, the Secretary of State must by regulations provide for the rights of first refusal granted to qualifying tenants of flats by Part 1 of the Landlord and Tenant Act 1987 to be extended to tenants of freehold houses.
(2) Regulations under subsection (1)—
(a) may amend primary legislation;
(b) are subject to the affirmative procedure (but see subsection (3)).
(3) If before approving a draft of regulations under subsection (1) both Houses of Parliament have agreed amendments to that draft, the Secretary of State must make the regulations in the form of the draft as so amended.”
New clause 40—Failure of landlords to respond to requests for enfranchisement—
“(1) Within three months of the passage of this Act, the Secretary of State must conduct a review of the problems faced by tenants wishing to exercise their right to enfranchisement whose landlords do not respond to enfranchisement requests.
(2) A report of the review must be laid before Parliament as soon as it has been completed.
(3) The Secretary of State may by regulations implement any recommendation of the review.
(4) Regulations under subsection (3) may amend primary legislation.”
New clause 41—Report on disadvantage due to payment of marriage value—
“(1) Within 12 months of the passage of this Act, the Secretary of State must commission an independent evaluation of the matter set out in subsection (2) and must lay the report of the evaluation before Parliament.
(2) The matter is the extent to which a tenant who has been required to pay marriage value when extending their lease (Tenant A) is disadvantaged in comparison to a tenant who has extended their lease after the passage of this Act (Tenant B).
(3) The report must—
(a) make recommendations to redress any significant disparities between the marriage value costs for which Tenant A would be liable but Tenant B would not; and
(b) recommend the date after which Tenant A must have extended their lease in order to be eligible for any financial redress.
(4) The Secretary of State may by regulations give effect to any recommendations made in the evaluation.
(5) Regulations under this section—
(a) are to be made by statutory instrument; and
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”
This new clause would require the Secretary of State to commission an independent evaluation of any disadvantages faced by a tenant who has been required to pay marriage value when extending their lease in comparison to a tenant who has extended their lease after the passage of this Act and therefore not been required to pay marriage value.
New clause 67—Liability of freeholders for central heating failures—
“(1) Within 12 months of the passage of this Act, the Secretary of State must commission an independent evaluation of the matters set out in subsection (2) and must lay the report of the evaluation before Parliament.
(2) The matters are, where there is a failure of a communal central heating system for which a freeholder is responsible which lasts for a minimum of 24 hours—
(a) the extent to which a freeholder should be liable; and
(b) whether, if the freeholder is considered to some extent to be liable, financial penalties should be imposed on the freeholder.
(3) The Secretary of State may by regulations give effect to any recommendations made in the evaluation.
(4) Regulations under this section—
(a) are to be made by statutory instrument; and
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”
This new clause would require the Secretary of State to commission an independent evaluation of the matter of holding freeholders financially liable for long-lasting central communal heating failures where the freeholder has a responsibility for upkeep.
“New clause 68—Shared ownership—
(1) Within three months of the passage of this Act, the Secretary of State must by regulations create certain rights and obligations for leaseholders and freeholders on all leasehold properties which are subject to a shared ownership model created after 1967.
(2) The rights referred to in subsection (1) are that any leaseholder has the right to increase their share of the freehold in the property in increments of either ten percent or 25 percent on giving formal notice in writing to the freeholder.
(3) The obligation referred to in subsection (1) is that the freeholder may not charge a rent on their freehold share of the property which is greater than 2.75% of the market value of the share of the property which they hold.
(4) Rights and obligations created by regulations under this section are to apply notwithstanding any legal agreement previously entered into between the leaseholder and the freeholder.”
Amendment 3, in clause 3, page 2, line 19, at end insert—
“(2) After section 4(5) of the LRHUDA 1993, insert—
“(6) The Secretary of State or the Welsh Ministers may by regulations amend this section to provide for a different description of premises falling within section 3(1) to which this Chapter does not apply.
(7) Regulations may not be made under subsection (6) unless a draft of the regulations has been laid before, and approved by resolution of—
(a) in the case of regulations made by the Secretary of State, both Houses of Parliament;
(b) in the case of regulations made by the Welsh Ministers, Senedd Cymru.”
(3) In section 100 of the LRHUDA 1993—
(a) in subsection (2), after “making”, insert “provision under section 4(6) or”;
(b) in subsection (3), after “making”, insert “provision under section 4(6) or”.”
This amendment would enable the Secretary of State or (in the case of Wales) the Welsh Ministers to change the description of premises which are excluded from collective enfranchisement rights. Such a change would be subject to the affirmative resolution procedure.
Government amendments 24 to 31.
Amendment 6, in clause 12, page 16, leave out from line 27 to line 20 on page 17.
This amendment would leave out the proposed new section 19C of the Leasehold Reform Act 1967, and so ensure that leaseholders are not liable to pay their landlord’s non-litigation costs in cases where a low value enfranchisement or extension claim is successful.
Government amendments 32 to 34.
Amendment 7, in clause 13, page 22, leave out lines 1 to 29.
This amendment would leave out the proposed new section 89C of the Leasehold Reform, Housing and Urban Development Act 1993, and so ensure that leaseholders are not liable to pay their landlord’s non-litigation costs in cases where a low value enfranchisement or extension claim is successful.
Amendment 2, in clause 14, page 26, line 40, at end insert—
“(ja) any matter arising under Clause [Estate management: compensation] of the Leasehold and Freehold Reform Act 2024.”
This is a paving amendment for NC2.
Amendment 1, page 28, line 11, at end insert—
“(8A) When considering any matter under this section, the appropriate tribunal must have regard to previous decisions made by an appropriate tribunal in matters which appear, to it, to be materially similar to the matter under consideration under this section.”
This amendment would require tribunals considering cases related to leasehold to have regard to precedent set by previous decisions of tribunals in similar cases.
Government amendments 35 and 36.
Amendment 17, in clause 22, page 39, line 14, leave out “50%” and insert “75%”.
This amendment would allow leaseholders with a higher proportion of commercial or non-residential space in their building to claim the Right to Manage.
Amendment 9, in clause 23, page 40, leave out from the beginning of line 27 to the end of line 27 on page 41.
This amendment would leave out the proposed new section 87B of the Commonhold and Leasehold Reform Act 2002 and so ensure that RTM companies cannot incur costs in instances where claims cease.
Amendment 19, in clause 29, page 46, line 26, at end insert—
“(iii) a statement of all transactions relating to any sinking fund or reserve fund.”
This amendment would require the written statement of account which the landlord will be required to provide to a tenant to include a statement of all transactions relating to any sinking fund or reserve fund in which their monies are held.
Amendment 12, page 47, line 16, at end insert—
“(8) Where a landlord of any such premises fails to comply with the terms implied into a lease by subsection (2), any rent, service charge or administration charge otherwise due from the tenant to the landlord shall be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply with those subsections.”
This amendment would require courts and tribunals to treat the landlord’s compliance with the implied term requirement for annual accounts and certification as a condition precedent to the lessee’s obligation to pay their service charges.
Amendment 13, page 48, line 11, at end insert—
“(9) Where a landlord fails to comply with subsection (1), any rent, service charge or administration charge otherwise due from the tenant to the landlord shall be treated for all purposes as not being due from the tenant to the landlord at any time before the landlord does comply with that subsection.”
This amendment would require courts and tribunals to treat the landlord’s compliance with the implied term requirement for annual accounts and certification as a condition precedent to the lessee’s obligation to pay their service charges.
Amendment 14, in clause 30, page 50, leave out lines 12 to 19 and insert—
“(4) P may not charge R any sum in excess of the prescribed amount in respect of the costs incurred by P in doing anything required under section 21F or this section.
(5) The prescribed amount means an amount specified in regulations by the appropriate authority; and such regulations may prescribe different amounts for different activities.
(6) If P is a landlord, P may not charge the tenant for the costs of allowing the tenant access to premises to inspect information (but may charge for the making of copies).”
This amendment would make the appropriate authority (i.e. the Secretary of State or the Welsh Ministers) responsible for setting a prescribed amount for the costs of providing information to leaseholders. That prescribed amount would be the maximum amount that freeholders and managing agents employed by them could seek to recover through a service charge.
Amendment 15, in clause 31, page 51, line 35, leave out “£5,000” and insert “£30,000”.
This amendment would raise the cap on damages under this section for a failure to comply with duties relating to service charges to £30,000.
Amendment 16, page 51, line 35, at end insert—
“(5A) Damages under this section must be at least £1,000.”
This amendment would insert a floor on damages under this section of £1,000.
Amendment 20, in clause 32, page 52, line 32, leave out from beginning to end of line 33 and insert—
“(a) exceed the net rate charged by the insurance underwriter for the insurance cover, and”.
This amendment would define an excluded insurance cost as any cost in excess of the actual charge made by the underwriter for placing the risk, where such cost is not a permitted insurance payment.
Amendment 21, page 52, line 35, leave out from beginning to end of line 6 on page 53.
This amendment, to leave out subsection (3) of the proposed new section 20G of the Landlord and Tenant Act 1985, is consequential on Amendment 20.
Amendment 22, page 53, line 18, at end insert—
“(5A) The regulations must specify a broker’s reasonable remuneration at market rates as a permitted insurance payment.
(5B) The regulations must exclude any payment which arises, directly or indirectly, from any breach of trust, fiduciary obligation or failure to act in the best interests of the tenant.”
This amendment would require “permitted insurance payment” to include payment of a reasonable sum to a broker at market rates for placing the cover, and to exclude any payments which have arisen from wrongdoing.
Amendment 10, page 60, line 2, leave out clause 35.
Government amendments 37 to 41.
Amendment 18, in clause 46, page 75, line 23, at end insert—
“(c) only where they are incurred in the provision of services or the carrying out of works that would not ordinarily be provided by local authorities.”
This amendment would mean that services or works that would ordinarily be provided by local authorities are not relevant costs for the purposes of estate management charges.
Government amendment 42.
Amendment 83, in clause 74, page 97, line 37, at end insert—
“(2) Within three months of the passage of this Act, the Secretary of State must publish guidance on the circumstances in which the Secretary of State will give financial assistance or make other payments under this section.”
This amendment would require the Secretary of State to publish guidance on the circumstances in which financial assistance would be made available for the establishment or maintenance of estate management redress schemes.
Government amendments 43 to 48.
Amendment 11, in page 104, line 30, leave out clause 83.
See explanatory statement to NC4.
Government amendments 85 and 49.
Government new schedule 1—Part 5: Amendments to other Acts.
Government new schedule 2—Categories of permitted lease.
Government new schedule 3—Leasehold houses: financial penalties.
Government amendments 50 to 53.
Amendment 4, in schedule 2, page 136, line 40, at end insert—
“(9) In setting the deferment rate the Secretary of State must have regard to the desirability of encouraging leaseholders to acquire their freehold at the lowest possible cost.”
This amendment would ensure that when determining the applicable deferment rate, the Secretary of State would have to have regard to the desirability of encouraging leaseholders to acquire their freehold at the lowest possible cost.
Amendment 5, page 138, line 6, at end insert—
“(7A) In setting the deferment rate the Secretary of State must have regard to the desirability of encouraging leaseholders to extend their lease at the lowest possible cost.”
This amendment would ensure that when determining the applicable deferment rate, the Secretary of State would have to have regard to the desirability of encouraging leaseholders to extend their lease at the lowest possible cost.
Government amendments 54 to 67.
Amendment 8, in schedule 7, page 168, line 15, leave out sub-sub-paragraph (a).
This amendment would ensure that all leaseholders, not just those with residential leases of 150 years or over, have the right to vary their lease to replace rent with peppercorn rent.
Government amendments 68 to 82, 84 and 23.
Lee Rowley
Let me begin by thanking Members in all parts of the House for their valuable contributions to the Bill. It is good to see that so many who have been involved so far are present; a number of them have been campaigning for these changes for years. I will not be able to name everyone, but I pay tribute to, in particular, my right hon. Friends the Members for Bromsgrove (Sir Sajid Javid), and for Newark (Robert Jenrick), my late right hon. Friend the former Member for Old Bexley and Sidcup, James Brokenshire, and my hon. Friend the Member for Redditch (Rachel Maclean), all of whom have played such important roles in preparing the ground for many of the measures before us today. They have all been invaluable in helping us to reach the point at which we deliver on the commitment that we made to reform a system that clearly needs change, and give millions the freedom, security and control over their life that comes with home ownership in its truest, fullest sense.
At a stroke, the Bill will provide that greater control for young people and many others. It will help to reduce unnecessary stress, uncertainty and wasted time by reforming a labyrinthine system and making it better. Buying a home, especially a first home, must be a moment of pride and celebration—a just reward for years of hard work, careful saving, sacrifices made, and doing the right thing. For some, however, the dream of home ownership is realised in soaring service charges, rip-off insurance commissions and escalating ground rents. Overall, and most infuriatingly, there is a sense of being left in the dark, and of a system that is working against, rather than for, the homeowner. That is bad for everyone, but it is notable that first-time buyers constitute nearly 50% of leaseholders; 15% of owner-occupiers are aged under 35. They are the future of our property-owning democracy, and they rightly expect and deserve to put down roots and have the same stake in society as previous generations.
Priti Patel (Witham) (Con)
I would welcome my hon. Friend’s views on that point. What he has said is entirely correct. I have met so many first-time buyers in my constituency who are trapped, because they are stuck in a cycle of increasing service charges. Even worse, facilities companies are not maintaining properties when there are serious problems. I am meeting representatives of one of them, FirstPort, at the weekend, but a great many other examples have been cited in the House. We are deeply concerned, because our constituents have sacrificed so much. They have put all their investments and savings into their property, but there is clearly no accountability or transparency, and we hope that the Bill will change that.
Lee Rowley
My right hon. Friend is absolutely right, and the support that has just been expressed for her comments demonstrates that many of us see these issues in our constituency. As she says, it is vital that we give people who have made such sacrifices in order to achieve first-time home ownership the right to, and the greatest control over, that ownership.
Eddie Hughes (Walsall North) (Con)
In my constituency, Victoria Avenue (Harvest Grove) Management Company seems to be extorting money from leaseholders and not providing any of the works that it says it is providing. It is taking them to court and charging them for the benefit of having letters sent to them with invoices. Through this Bill, we desperately need to redress the balance between freeholders and leaseholders. Will the Minister see that that is the case?
Lee Rowley
My hon. Friend is absolutely right. He makes a very important point about transparency, which is at the heart of the service charge changes in the Bill. He makes an extremely important point about fairness. Not all companies will be doing things that are incorrect, but where they have been found to be incorrect, it is important that they shoulder their own costs.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
I thank the Minister for his generosity with his time. It is not only companies that are exploiting leaseholders; the St Mary Magdalene and Holy Jesus Trust in my constituency refuses to allow its leaseholders to extend their lease or buy their freehold. The charitable exception is very complex, and nobody wants historic houses to be sold, but these are ordinary terraced houses and the charity used to sell the freehold and, indeed, extend leaseholds in the past. Is it possible for the Minister to meet me or my constituents to look at how this issue can be addressed in the future?
Lee Rowley
I am grateful to the hon. Lady for outlining that issue; I know she has raised it in this place before. As she indicates, this is a complex area of law, but I am happy to talk with her separately on that matter in the coming weeks, if it is helpful.
How are we doing this? We are giving leaseholders more security over the future of their homes by increasing the standard lease extension term to 990 years, by making it cheaper and easier for leaseholders to buy their freehold, and by tackling unfair charges, exploitative practices and poor management. In doing so, we are overturning centuries of iniquity.
The Bill will also give leaseholders the control they deserve over the buildings they live in. At present, management companies are too often unaccountable to those who pay for them, meaning that they are able to charge excessive fees for poor-quality service. The Bill gives more leaseholders the opportunity to manage the buildings themselves, so that works get done properly and they have more of a say.
Mr Clive Betts (Sheffield South East) (Lab)
The Minister might anticipate the question I am going to ask, because I have asked it before. It is fine giving leaseholders easier ways to buy their freehold, until we come across companies such as Coppen Estates, which we have debated before. It just does not reply to letters. I think that we are now on our third recorded delivery letter to the company about the residents on the Flockton estate, who have just been sent enhanced bills for their ground rent charges, with no justification. They face threats if they do not comply. Where in the Bill is there any measure to make sure that Coppen Estates and the like respond properly in future or face consequences if they do not?
Lee Rowley
I am grateful to the hon. Gentleman. As he knows, we have debated the iniquities of Coppen Estates extensively, and I repeat that it is treating my constituents in a way that is inappropriate, in the same way that it is doing with his constituents over the border. Given that we are extending the opportunity for charges to go to tribunal, I hope that the hon. Gentleman’s constituents in Flockton will be able to go to tribunal and hold that company or other companies to account, should that be helpful.
Through the reforms, we will scrap the presumption that leaseholders must pay their freeholder’s legal costs, even when they win at tribunal, correcting another historical and unfair imbalance. Someone would not be expected to pay legal costs if they were successful in their claim in other cases, so leaseholders should not be treated any differently.
Barry Gardiner (Brent North) (Lab)
The Minister was most accommodating throughout the proceedings in Committee, and we are all grateful to him for the way in which he has listened.
Further to the point raised by my hon. Friend the Member for Sheffield South East (Mr Betts), the Minister will know that many developers have located themselves extrajudicially in places such as the Cayman Islands. Wembley Central Apartments Ltd in my constituency has finally ended up there, as have many others. What in this Bill will enable us to extend our reach and force such companies to respond, reply and do what the Building Safety Act 2022 already says they ought to do?
Lee Rowley
The hon. Gentleman makes an important point, which I know we debated in Committee. He correctly highlights the challenges in certain areas of enforcement. If I may, I will come back to that later in the debate.
Stella Creasy (Walthamstow) (Lab/Co-op)
I join my hon. Friend the Member for Brent North (Barry Gardiner) in recognising that this is not a partisan issue, because so many of us see the problems. The Minister talked about people not paying the costs when they win, but many will be shocked to discover that no precedent is set at a leasehold tribunal. We see companies exploit our constituents time and again, and it creates no precedent on which the courts and the tribunal courts could draw. Will he look at my amendment 1? It seeks to set that precedent and give people the protection of knowing that a freehold manager who has mistreated people will not be able to do it with impunity, because the courts will be able to take that into consideration if a tribunal has found that to be the case.
Lee Rowley
I am grateful to the hon. Lady, and I know that she feels strongly about this matter and has raised it previously. I am always happy to talk outside the Chamber, but the advice I have received is that, at the higher tier of the tribunal, there is the ability to give an indication of the direction of travel and a precedent can be set there. As I say, I am happy to talk to the hon. Lady separately.
In Committee, we made efforts to further improve and expand the Bill. We moved 119 amendments, including on expanding leaseholder rights of redress and providing new guarantees that leaseholders will receive sales information, and tabled a number of technical amendments to improve it. Today we are proposing further improvements, and I will now turn to the Government amendments on Report. I will first speak to new clauses 30 to 35, and amendments 23 and 49.
Building on the Building Safety Act 2022, the Government have tabled a number of amendments to clarify and extend protections in specific areas to further prevent freeholders and developers from escaping their liabilities to fund building remediation work. The Building Safety Act provided leaseholders with a range of protections to ensure that those responsible for building safety defects were made to carry out the works or pay for them to be carried out. However, before and during the process of remediation, relevant steps may be required to keep the building and the residents safe. Relevant steps include such measures as providing waking watches, fire sprinklers or simultaneous alarms. Unfortunately, there have been cases where the landlord has failed to put those in place or to pay for the relevant steps. That has caused the leaseholder to bear the financial burden or required the local authority to step in.
New clause 30 would place beyond doubt that the first-tier tribunal can order that the costs of the relevant steps are met when making a remediation contribution order or a remediation order. It is often the case that doing surveys or investigative works to discover the full extent of remediation required on a building takes time, money and effort, and those assessments can be invasive. New clause 31 would place it beyond doubt that the first-tier tribunal has the power to order that a respondent must arrange and pay for evaluations, surveys or expert reports to establish the full extent of a building’s defects.
On new clause 32, we know that in some instances, landlords of buildings that are 11 metres high or above are failing to provide alternative accommodation for leaseholders when they are decanted from their homes. This new clause would place it beyond doubt that, in addition to relevant steps and expert reports, the costs of alternative accommodation for leaseholders and other residents who are decanted from their homes can be recovered through remediation contribution orders.
On new clause 33, resident management companies and right-to-manage companies allow leaseholders to have more control over their buildings. However, such management companies are unable to fund litigation against non-compliant landlords, as they are unable to recover the costs for doing so from leaseholders in their buildings. This new clause would allow such management companies, where the relevant lease allows, to raise funds for remediation contribution orders, making sure that we continue to hold those responsible for life-threatening defects to account.
New clause 34 would repeal section 125 of the Building Safety Act, which was intended to allow for the recovery of remediation costs relating to residential buildings that are 11 metres high or above in an insolvency, and for these funds to be used to remediate the building. However, there is a conflict with insolvency law and a risk that, instead of being used for remediation, any sums recovered under section 125 could be directed to pay down the debt. This problem cannot easily be remedied, so we are seeking to repeal the section at this time.
New clause 35 proposes that regulators need to be made aware if those responsible for relevant buildings—that is, responsible persons—become insolvent. This new clause introduces a duty on insolvency practitioners to notify local fire and rescue authorities, local authorities and, where necessary, the building safety regulator.
I also want to speak to new clauses 42 to 66, new schedules 2 and 3 and amendment 84. We know that there is little justification for selling houses on a leasehold basis. For years, developers have exploited the sale of houses on a leasehold basis for the sole purpose of generating an income stream from ground rents and fees. This has been done at the expense of consumers, who receive little or no benefit in return. We promised to shut down this abusive practice by banning the sale of houses on a leasehold basis, and today we are doing so. Other than in narrow circumstances where a lease can still be justified, all new houses will need to be sold on a freehold basis.
Wendy Morton (Aldridge-Brownhills) (Con)
I am really grateful for this news from the Minister. It certainly goes a long way towards addressing my new clause 13. He speaks specifically about banning leasehold sales of new houses, but what consideration will he give to extending that ban to leasehold flats? I know that that is a concern for a number of us on both sides of the House.
Lee Rowley
I know that my right hon. Friend has campaigned extensively for the ban on leasehold houses, as many in this Chamber have done, and she has spoken up in this place on the issue before. I am grateful for her support for it. She also rightly talks about the extensive debate about the potential extension of the ban to flats. The Secretary of State has said at this Dispatch Box on numerous occasions that the Government remain keen to make progress on finding an alternative workable solution to leasehold flats—most people in this place recognise that that will probably be commonhold—and work will continue on that. We hope to make further progress on that in the future—
Several hon. Members rose—
Lee Rowley
Commonhold has clearly created a significant amount of interest.
Bob Blackman (Harrow East) (Con)
I thank my hon. Friend for giving way, and for what he is saying. There are certain building companies in this country—Bellway Homes, for example—whose policy is to sell the leasehold to leaseholders and sell the freehold to a company that then exploits every aspect of the freehold, without even informing the leaseholder that they have done this. Surely we can close this loophole—we could close it this afternoon—by ensuring that the freeholder must give the leaseholder the first right of refusal to purchase the freehold.
Lee Rowley
My hon. Friend raises an important point. I know that it is covered in an amendment put down by the hon. Member for Sheffield South East (Mr Betts), and I will come to it later in the debate.
Mark Tami (Alyn and Deeside) (Lab)
On the point made by the hon. Member for Harrow East (Bob Blackman), Bellway is certainly a company that has done this. Indeed, many people did not even realise that they had a leasehold house and only found out quite a while afterwards when all the costs started to come down the road. I welcome what the Government have done, but we must try to find a good solution for everybody who now finds themselves in this position, because in the years to come those houses could become very difficult to sell.
Lee Rowley
The right hon. Gentleman makes an important point about the need to ensure that this regime works. We recognise that there are challenges, which is why we are bringing forward a number of measures.
Richard Fuller (North East Bedfordshire) (Con)
On the point about existing contracts that have been signed by people purchasing a leasehold property, is it the Government’s view that those were legitimate contracts and that there is therefore a risk in trying retrospectively to reverse the conditions of those contracts? Or is it the Government’s view that those were abusive contracts and that there is therefore a public policy interest in retrospectively eliminating the leasehold element of them?
Lee Rowley
I hope that I will be able to answer my hon. Friends’ questions in a moment when I run quickly through our amendments. We are banning the sale of leasehold houses in all but unusual circumstances, but for those that are out there at the moment, there must be an ability to ensure that they can buy the freehold and move from the leasehold challenges to a freehold. Let me deal with some specifics that I hope will answer some of the questions that have been raised.
Lee Rowley
The right hon. Gentleman is absolutely right, which is why I hope that measures such as new clause 51 go some way towards making it crystal clear that there is no way to get around this, and towards providing clarity to those who seek to buy a new property.
New clause 52 will require a statement on the front of all new leases declaring that it is a permitted lease and is not a long residential lease of a house. Should a developer make a dishonest declaration to His Majesty’s Land Registry, the homeowner may be able to exercise the redress right contained in new clause 54, which will allow them to acquire the freehold from the developer free of charge.
Under new clause 53, if a lease does not include the prescribed statements, His Majesty’s Land Registry will have the power to restrict the resale of the property until the right information and declarations have been provided.
Mr Betts
The Minister is talking about the information on houses. Will it also apply to flats so that, before anyone buys a property, it must be explained to them that they are buying a lease and what that entails? I tabled new clause 38, which says that everyone buying a lease should be presented with a copy of the Government’s “How to Lease” document. Everyone in this situation should be given independent advice.
Lee Rowley
I am focusing on homes, and we have been emphatic and clear that the sale of leasehold homes will be precluded other than in exceptional circumstances. I am happy to talk to the hon. Gentleman both later in the debate and outside the Chamber about whether further consumer protections for those purchasing a flat may be proportionate and reasonable.
New clause 54 grants homeowners who have been mis-sold a new lease of a house the right to acquire the freehold from the landlord, as well as any superior leasehold interest in the property, for zero cost. New clauses 55 and 56 set out protections and reasonable limitations on this requirement, and new clause 57 provides for the Secretary of State to make regulations setting out further details on how redress can be obtained.
We understand that granting homeowners the right to redress alone may not be enough to prevent bad actors from attempting to breach the ban on the sale of leases on houses, which is why we are introducing a system of financial penalties where there is a breach. These penalties will start at £500 for a minor breach, rising to £30,000 for the most serious breaches. To enforce this system of fines, as set out in new clause 58, we are asking all local weights and measures authorities to play a part where they see infractions in their area. We will also set out how they need to work through new clause 60.
The chief responsibility for investigating and taking action will lie with the lead enforcement authority. Through new clause 61, the Secretary of State will have the power to appoint the right authority to fulfil this important role, while new clause 62 details the duties. By amending the Consumer Rights Act 2015, clauses 63 and 64 also vest the appropriate investigatory and enforcement powers essential for both the lead authority and local authorities to carry out the job.
Matt Rodda (Reading East) (Lab)
Can the Minister assist me with a relatively unusual issue in my constituency? I have listened very carefully to his helpful speech. In the Loddon Park development on the edge of Woodley in my constituency, residents were sold properties only to discover in the small print of their contract, as my right hon. Friend the Member for Alyn and Deeside (Mark Tami) said, that they were expected to pay a standing charge to upkeep open space on this large development, even though they are freeholders of their own houses. Will the Minister look into this matter and write to me about what redress might be open to them?
Lee Rowley
I am very happy to write to the hon. Gentleman about the specifics.
In addition to the building safety measures and the ban on new leasehold houses, the Government have tabled a number of consequential amendments to refine and improve the Bill.
With the leave of the House, I will mention three key issues among the many that were brought to our attention in Committee. I understand these issues will be subject to further debate today, but I want to acknowledge that they are: capping existing ground rents, which has already been raised; leaseholder forfeiture, which I know will be raised; and support for the residents of freehold estates, which has already been extensively addressed.
I know that Members will have questions about the Government’s plan to address ground rents, and we have consulted on introducing a cap on ground rents in the Bill. We extended the consultation on request and, as a result, we are still considering our next steps. We will say more shortly.
Wendy Morton
The Minister is generous in giving way. Can he give us an indication of the timescale? Many Members will be interested to know the answer. And does he anticipate being able to introduce something when the Bill reaches the other place?
Lee Rowley
Although I cannot give the specific assurances that my right hon. Friend seeks, we are trying to work through this at speed. We recognise that it is an important issue, and we recognise that it is vital to today’s discussion. I know that hon. and right hon. Members will recognise that this is a hugely contested area in which there has already been significant discussion. People have very different views, so we want to make sure that, while we are moving at speed, we take our time so that we reach a conclusive decision through the right methodology and process.
Vicky Ford (Chelmsford) (Con)
My constituent is in a flat with a ground rent of £454 a year. As that is over the £250 threshold, it means that their property can be taken away from them if they fail to pay their ground rent. As a result, my constituent has failed to sell their property six times, even though they have had buyers. They are stuck in this flat, and they cannot get on with their life. Will the Minister please look at this threshold, which is causing real problems?
Lee Rowley
My right hon. Friend moves me on to my second point. We also recognise the strength of feeling on the vexed issue of forfeiture. The hon. Member for Greenwich and Woolwich (Matthew Pennycook) made a clear case on this in Committee, as did other Members, and I also heard a passionate and eloquent case in Committee from my hon. Friend the Member for Walsall North (Eddie Hughes).
Eddie Hughes
Will the Minister simply remove any opportunity for forfeiture? It is arcane and has no place in our system. I strongly suspect that would get support on both sides of the House.
Lee Rowley
The House sees my hon. Friend’s passion, which he demonstrated in Committee and is demonstrating again today. Both he and my hon. Friend the Member for Redditch made passionate cases in Committee.
I recognise that this is a real and significant problem, and there is a huge iniquity at stake. I have heard from colleagues, both today and previously, about why we should act, and we are currently working through the detail of the issue. We will report back to the House with more details shortly.
Finally, a comprehensive debate in Committee on freehold estates was led by my hon. Friend the Member for North East Bedfordshire (Richard Fuller). He is a committed campaigner on this issue, and I know that many other Members also have very strong views. I have also been involved in this in places such as Alderman Park and Hunloke Grove in my constituency. We understand the strength of feeling on this issue, and we are considering it further.
Alistair Strathern (Mid Bedfordshire) (Lab)
Residents of estates across my constituency are trapped in extortive relationships with unaccountable private management companies while their estates go unadopted. On Second Reading, the Secretary of State expressed his willingness to bring forward and consider measures to make sure that residents have the right to manage on such estates, at a bare minimum, before considering wider action. Is there any reason why the Government would not accept new clause 7 in the name of the shadow Minister to finally give the residents of these estates the right to manage and to get out of these extortive relationships?
Lee Rowley
The hon. Gentleman made that case in Committee, and I am grateful to him for that and for repeating it today. As I say, we understand the strength of feeling on the issue and are considering it further.
Lee Rowley
I will give way one final time and then I will conclude, so that others can get in.
Gareth Johnson
These management companies that the Minister alluded to have a literal monopoly over the residents they are meant to serve—in effect, they control the residents, rather than the other way round—so I welcome the amendments made in Committee to ensure that residents can change their management companies. Will he give a commitment to this House that he will ensure that those amendments stay in the Bill, both here and in the other place, and that they will become law?
Lee Rowley
My hon. Friend has been a campaigner for many years on the importance of this matter, and I know how strongly he feels and how much he acts on it on behalf of his constituents. We are absolutely committed to making progress on estate management. The Bill demonstrates a significant step forward in doing that, and we will see what else we can do in the future.
Lee Rowley
I am going to wind up so as to give others the opportunity to speak. To sum up, property ownership has been described as one of the bulwarks of individual freedom, and the measures I have described today are designed to give all homeowners, particularly the younger generation, the chance to gain a proper stake in our democracy. The Bill seeks to bring greater fairness, transparency and accountability to the system, and to give millions of people across the country a more secure foundation to get on in life, a stronger stake in our society and a solid platform for the future. I am grateful for all Members’ efforts to improve the Bill and for the scrutiny and debate it has received so far, and I look forward to hearing the further discussions to that effect this afternoon.
Several hon. Members rose—
Madam Deputy Speaker (Dame Rosie Winterton)
Order. Colleagues will see that a lot of right hon. and hon. Members wish to contribute to this debate, which has to finish at 6 pm. I will want to bring the Minister back for a short time. Another Deputy Speaker is taking over in a moment, but let me advise that those speaking from the Back Benches should be prepared to speak for between six and seven minutes, in order for us to get everybody in. I am afraid that that is because of the pressure on time. I call the shadow Minister.
Matthew Pennycook (Greenwich and Woolwich) (Lab)
I start by declaring an interest: my wife is the joint chief executive of the Law Commission, whose work in this area I intend to reference in my remarks.
I rise to speak to the amendments and new clauses that stand in my name. Before doing so, I would like to put on record my thanks to all those hon. Members who served on the Public Bill Committee for so ably scrutinising the many technical and complex provisions that the Bill contains. There were, as one would expect, differences of opinion and emphasis, but it was also evident that there is a shared recognition that the Bill can and should be improved further, and an unusual degree of cross-party agreement as to some of the ways that might be achieved.
Despite reams of Government amendments tabled in Committee and for our consideration today, this Bill remains a distinctly unambitious piece of legislation. That is a matter of deep regret to those on the Labour Benches, not only because the Government’s paucity of ambition will see exploited leaseholders wait even longer for the current iniquitous leasehold system to be ended, but because it is also manifestly clear that there is widespread support across the House to go much further than this limited Bill does. Responsibility for the fact that the Bill does not contain so many of the commitments that successive Conservative Secretaries of State have made over recent years, not least in relation to the promised widespread introduction of the commonhold tenure, ultimately lies with Ministers. They had the opportunity to bring forward bold leasehold and commonhold reform legislation, and they made a political decision not to do so.
Although the Opposition appreciate the understandable desire of many leaseholders to see this Bill completely revamped so that it lives up to the many weighty promises made by the Government since 2017, we made clear at the outset in Committee that we did not intend to try to persuade Ministers to radically overhaul it by means of the many hundreds of amendments that would be required to implement all the Law Commission’s recommendations on enfranchisement, right to manage and commonhold. That remains our position. Whether this Bill receives Royal Assent or not before this Parliament is dissolved, a Labour Government will have to finish the job of finally bringing the leasehold system to an end by overhauling it to the lasting benefit of leaseholders and reinvigorating commonhold to such an extent that it will ultimately become the default and render leasehold obsolete. I reassure leaseholders across the country that we are absolutely determined to do so.
We recognise, however, that this limited Bill will provide a degree of relief to leasehold and freehold homeowners in England and Wales by giving them some greater rights, powers and protections over their homes. For that reason, we are extremely pleased it will complete its passage today, but we are determined to send to the other place the most robust piece of legislation that we can. That means rectifying the Bill’s remaining flaws and incorporating into it a select number of measures to further empower leaseholders and improve their rights. With that objective in mind, we have tabled a series of amendments and new clauses for consideration today. That they are almost identical to a number of those we discussed at length in Committee is a deliberate choice that reflects not only the importance we place on the changes they seek to secure, but the distinct lack of convincing responses from the Minister in Committee as to why the Government felt they needed to resist them.
Part 1 of the Bill concerns leasehold enfranchisement and extension. In seeking to implement the small subset of reasonable and proportionate Law Commission recommendations, it is almost entirely uncontentious. However, we believe that several provisions in this part are defective. We sought to remedy their deficiencies in Committee and we have tabled a number of amendments in an attempt to do so again.
Amendments 4 and 5 concern arguably the most significant provisions in this part when it comes to ensuring that the process of extending a lease or acquiring a freehold is as cheap as possible for existing leaseholders—namely the proposed new valuation process as provided for in clauses 9 to 11 and schedules 2 and 3. The current valuation method has a number of manifest flaws, and we fully support the new method as proposed in the Bill. However, with the applicable deferment rate becoming the primary driver of price to be paid in enfranchisement or extension claims under the new method, as a result of the abolition of marriage and hope value and the peppercorning of ground rents in the valuation calculation, we believe it is essential that it is set in a way that is fair to leaseholders. While the Government ostensibly agree, there is nothing on the face of the Bill to ensure that that will be the case and we therefore remain convinced that this Government, or a future one, could be lobbied by vested interests to set a deferment rate that will be punitive to leaseholders.
In resisting our efforts to amend the Bill in Committee to guard against such an outcome, the Minister argued that the Secretary of State must have flexibility to make decisions on the rate or rates. We agree; we are not suggesting that we bind the hands of Ministers by prescribing the rate or rates on the face of the Bill, but we do believe that the legislation should be amended to place a clear obligation on the Secretary of State to set a rate or rates with the overriding objective of encouraging leaseholders to acquire their freehold at the lowest possible cost.
Richard Fuller
The shadow Minister is right that there was a lot of consensus in Committee, so I hope he will not mind me probing him on some of the language he just used about the issue of setting rates. We all want to see what the Government do on deferment and capitalisation rates, but the shadow Minister used the term “punitive to leaseholders”. Does he accept that already embedded in the issues about ground rents and the changes here is a substantial transfer of value from freeholders to leaseholders, that the people who are more likely to suffer from punitive behaviour are those who entered into contracts historically from the freeholder side expecting that those values would be considered, and that it is a public policy decision that will change the value in those contracts?
Matthew Pennycook
I understand the hon. Gentleman’s point, which he made in Committee as well, if I am not mistaken. We very much think the risk is on the other side of the scale—that is, that a Government would be tempted to set a rate that is damaging to leaseholders as a result of being lobbied by vested interests. While there is a balance to be struck, we think it is right that we put on the face of the Bill that the objective in setting the deferment rate as part of the premium calculation must be to ensure that leaseholders acquire their freehold at the lowest possible cost. Amendments 4 and 5 would ensure that that is the case and I commend them to the House.
Part 2 of the Bill makes changes to other rights of long leaseholders. It contains the four clauses in the Bill that implement Law Commission recommendations on the right to manage, several of which we have sought to improve, as well as clause 21, which makes provision for a new enfranchisement right to extinguish a ground rent without having to extend a lease. We still have absolutely no idea how this clause—or clauses 7 and 8, for that matter—will interact with any proposals that might emerge from the recently closed consultation on restricting ground rents for all existing leases. The Minister must provide further clarification on that; it cannot be right that we could be dealing with such a significant issue when we get to ping-pong stage, in due course.
We very much welcome the intent of clause 21 and schedule 7, which it gives effect to. Even if unamended, they will ensure that some leaseholders can enjoy reduced premiums and secure nominal ground rent ownership of their properties without the need to go through the challenge and expense of repeated lease extensions. However, we remain unconvinced by the Government’s proposed conferral of this new right only on those leaseholders with leases with an unexpired term of more than 150 years. In resisting our attempt to remove the 150-year threshold from the Bill in Committee, the Minister essentially made two arguments. The first was that there is a need to
“put a finger on the scale”
somewhere. In other words, the Government take the view that the new right must be restricted based on lease length. The second argument was that in determining the threshold for restriction, the primary consideration should be which leaseholders are
“unlikely to be interested in, or do not need, a lease extension.”––[Official Report, Leasehold and Freehold Reform Public Bill Committee, 25 January 2024; c. 271.]
We do not believe that either argument is particularly strong.
First, any long lease threshold for the new right is ultimately entirely arbitrary, as evidenced by the fact that the Government chose a different threshold from the one recommended by the Law Commission.
Secondly, there is a principled argument that we should trust leaseholders to make decisions based on what is right for them and their individual circumstances, rather than denying a broad category of leaseholders a new statutory right on the basis that Ministers know best what is in their interest—a viewpoint that we would have assumed those on the Conservative Benches would support.
As I put it to the Minister in Committee, there could be all sorts of reasons why someone with a lease shorter than 150 years might want to buy out only their ground rent, including simply that they are unable to afford the premium required to secure a 990-year lease under clauses 7 and 8. Denying them that right on the grounds that other leaseholders might advertently or inadvertently disadvantage themselves by using the new right to extinguish only their ground rent strikes us as overly paternalistic and misguided.
We remain of the view that there is a strong case for simply deleting the 150-year threshold entirely given that the “remaining years” test that applies is arbitrary and that the most common forms of lease are 90, 99 and 125 years. Amendment 8 would do so, thereby making the new right to replace rent with peppercorn rent available to all existing leaseholders. I commend it to the House.
Part 3 of the Bill contains a wide range of measures relating to the regulation of leasehold. We have tabled several amendments designed to strengthen the provisions in it. Arguably, the most important are amendment 10 and new clause 3, concerning litigation costs. Although we support the aim of scrapping the presumption that leaseholders will pay their freeholders’ legal costs when they have challenged poor practice, we believe that, in merely limiting the ability of landlords to do so, the Government are creating an incentive for freeholders to litigate in a way that is likely to erode the general presumption they are seeking to implement.
As we argued in Committee, a far more sensible approach would be to legislate for a general prohibition on claiming litigation costs from leaseholders, and then to provide for a limited number of defined exceptions to that general rule by means of regulations—for example, in cases in which the landlord is a leasehold-owned company, or in which the costs are, in the opinion of the tribunal, reasonably incurred for the benefit of the leaseholders or the proper management of the building. Taken together, amendment 10 and new clause 3 would provide for that approach by leaving out clause 35 and replacing it with a new clause that provides for a general prohibition on claiming legal costs from tenants, and for a power to specify classes of landlord who will be exempted from it. I commend them to the House.
Mr Deputy Speaker, we want to see a number of other changes made to the Bill to provide leaseholders with better protection in law and to pave the way for a commonhold future. To that end, we have tabled amendments and new clauses to, among other things: abolish the draconian rent charge remedies provided for by section 121 of the Law of Property Act 1925; provide for mandatory residents’ management companies in new blocks of flats; establish a right to manage regime for residential freeholders on private or mixed-use estates; bring forward legislative options to facilitate leaseholders in new blocks of flats being granted an automatic share of freehold; and regulate managing agents.
Of particular importance to us is the need to ensure that the Bill abolishes forfeiture and the windfall it provides to freeholders. As we argued in Committee, forfeiture is a wholly disproportionate and horrifically draconian mechanism for ensuring compliance with a lease agreement. Over the course of nearly a century, this House has taken intermittent steps to tighten the laws of forfeiture, yet its continued use and the chilling effect that results from its mere existence continues to put landlords in a nearly unassailable position of strength in disputes with leaseholders.
The Opposition are not suggesting for a moment that this House abolishes the right of forfeiture in relation to residential long leases and replaces it with nothing. There must be effective means of ensuring compliance with a lease agreement, and we are more than willing to work constructively with the Government to determine what alternative arrangements are needed to deal with breaches of covenant or unpaid arrears. But forfeiture operates to the prejudice of leaseholders; it cannot be justified, and we must use the Bill finally to do away with it. We believe there is broad consensus across the House for grasping the nettle and abolishing forfeiture, and new clause 5 would do so, and—notwithstanding the very positive noises that we heard from the Minister—I urge hon. Members from across the House to support it.
Finally, let me turn to the 100 Government amendments to the Bill that were tabled last week, 29 of which were submitted just before the deadline on Thursday. In doing so, I feel I must put on record once again the Opposition’s intense frustration at this Government’s continued practice of significantly amending legislation as it progresses through the House. The sheer volume and complexity of amendments that this Government now routinely table to their own legislation represents a departure from established practice and one that acts as a serious impediment to hon. Members effectively scrutinising legislation, and increases the risk that Acts of Parliament contain errors that subsequently need to be remedied.
The Government amendments that have been tabled for consideration today fall into three broad categories—namely, shared ownership, building safety and new leasehold houses. I will take each in turn, starting with shared ownership. Although I am increasingly personally of the view that there is a growing case—one that is reinforced by the treatment of shared ownership in the Bill—for primary legislation to address various issues arising from shared ownership as a tenure, Government amendments 24 and 29, which relate to it, are not contentious and we support them.
Several hon. Members rose—
Mr Deputy Speaker (Mr Nigel Evans)
Order. I am sure that everybody heard Madam Deputy Speaker’s request for brevity, as a number of Members wish to get in, and we have to accommodate everybody before 6 o’clock.
Sir Peter Bottomley (Worthing West) (Con)
I agree with a large part of what the Opposition spokesperson, the hon. Member for Greenwich and Woolwich (Matthew Pennycook) said, and with nearly all of what my hon. Friend the Minister said. Where I disagree with the Opposition spokesperson is that I think the Bill is ambitious in what it is trying to achieve, although we would all like it to go further. It is quite remarkable that this is the first major bit of legislation to help leaseholders since 2002—although we have had the Building Safety Act 2022, the Fire Safety Act 2021 and other things, which did some things towards that.
It is remarkable how few people know much about the role of residential leaseholders. They own nothing but the right to live in a home for a period. I declare that I am a leaseholder. I have a flat in my constituency for which there have been no problems and for which the Bill will do neither harm nor good, and I also have another leasehold property. If I happened to gain from the measures, I would give the benefit to a good cause—I am not here for myself; I am here for those who have been suffering for years.
I wish I could be at the Westminster Hall debate on BBC impartiality, but it conflicts with this debate. It is now 20 years since the peace activist and photographer Tom Hurndall was shot by a sniper in Rafah. The subsequent nine months of inquiry by the Israel Defence Forces were shocking. However, I will leave that to the other debate.
On leasehold reform, I believe that we have opportunities—both in the House of Commons and, perhaps more so in the House of Lords—to make significant progress. My hon. Friend the Minister will point out to me the consultation on permitted development rights that started on 13 February. Towards the end of the consultation document, paragraphs 43,44 and 45 appear under the heading:
“Construction of new dwellinghouses on a freestanding block of flats”.
That is a reference to the inexplicable and disastrous Town and Country Planning (Permitted Development and Miscellaneous Amendments) (England) (Coronavirus) Regulations 2020—SI 2020 No. 632.
Those emergency covid regulations, accompanied by an economic assessment of which, to put it bluntly, I would have been ashamed were I a better economist, allowed owners, landlords and freeholders of certain blocks to put an extra one or two storeys on top without consulting the existing leaseholders at all. How any Government—let alone one I support—could have done that is beyond my comprehension. There had been a consultation some years before, and the general consensus was, “Don’t do it,” so why has it been done? I hope that people will look at the consultation, which is open until April, answer questions 27 and 28, and give explanations of their own experiences.
A developer tried to put extra floors on top of the St Andrews Gardens building in my constituency. That was turned down flat by the local authority, but its decision was overturned on appeal by the Government inspector. The developer then tried again, advertising for sale flats that do not exist, even though nobody wants them as they will cause significant harm.
My new clause 25, which I am indebted to Liam Spender of St David’s Square in E14 for drafting, says that the landlord or developer will have to pay compensation to leaseholders if the effects on them are harmful. The Minister’s legal advisers may say that the clause is not perfectly drafted, although I think it is pretty good. Even if he cannot accept it now, will he go through the replies to the consultation, have a talk with Members of all parties who represent those affected, and consider whether the Government can bring forward in the House of Lords proposals that would undo the effect of 2020/632 and implement some of the preferred responses to the consultation, to which he may not have time to refer in his winding up?
Mr Betts
It is five years since we produced the Select Committee report on leasehold reform. It came after long years of campaigning by the all-party parliamentary group on leasehold and commonhold reform, and I particularly commend the efforts of the Father of the House, the hon. Member for Worthing West (Sir Peter Bottomley), who has just spoken; my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders); and our good friend Jim Fitzpatrick, who is no longer in this House, but who certainly made a major contribution to that. To be fair to the Government, it is good that we have made progress on many of the items in the Select Committee report. The caveat, of course, is that we probably have not gone as far as we would have wanted or as quickly as we would have expected.
When the Committee met, I remember going into a room with about 100 leaseholders from all over the country—the hon. Member for Harrow East (Bob Blackman), who was in his place a few minutes ago, was there as well—and hearing horror stories of people being ripped off in the sale of leasehold homes by developers. They were told that there was no difference between a leasehold property and a freehold property. They were told that by the solicitors who worked for them, because the solicitors were recommended by the developers. That was together with the free carpets in the living room that came as a bribe—that is what it was. Leaseholders were not aware that they would have to pay £300 to get a doorbell fitted if they wanted one because they had to get permission, or £3,000 for a conservatory, or whatever fees the freeholder chose.
Leaseholders were told that they could, within a couple of years, buy the freehold at a fixed price from the same developer. The problem, of course, was that by the time a leaseholder came to inquire about purchasing the freehold, the freehold had been sold to another party. There are lots of examples of that, which is why I have an amendment—new clause 39—that I want to push to a vote, although I hope the Minister will accept it. It is a simple amendment to say that before the sale of a freehold, the right of first refusal has to go to the existing leaseholder. That right already exists for leaseholders in flats, but not for leaseholders in houses. Why is that? That really cannot be justified or even explained.
Will the Minister accept just that one simple amendment? It would give leaseholders that right, and stop freeholders —we know that this happens—who want to evade the legislation, including the improvements the Government are bringing in, passing a property around from one organisation to a subsidiary to a third party, with a view to evading the legislation, so that leaseholders never know where to go to get the relevant freeholder to agree to the sale.
Matt Rodda
My hon. Friend is making an excellent speech. Does he agree that part of the problem is that some of the freeholders are based overseas, and it is extremely difficult for leaseholders to track them down? This is an ongoing issue that I hope the Government will look into.
Mr Betts
Absolutely. I hope the Minister will have a look at the whole issue of freeholders who will not respond. That certainly applies to many who are overseas, with whom it is very difficult to get in touch.
I will not press new clause 40 to the vote, but the purpose of it is to say to the Minister that the default answer cannot be that the leaseholder can always go to a tribunal. Most leaseholders are simply ordinary residents trying to get on with their lives, who think it ought to be fairly easy to put in a request, get a calculation done and buy their freehold. They are not ready for these organisations, with all their lawyers and surveyors, that want to evade this and try to hide away, in some cases overseas, so that they cannot be contacted.
Can the Minister look at that issue? I know he is aware of it, because we share the same problem with Coppen Estates. There are others that are based overseas, but this one is based in a semi-boarded-up shopfront with a letterbox that never seems to be opened. That is the sort of company we are dealing with. They are small organisations that make a living out of charging ground rents from leaseholders, who cannot exercise their enfranchisement because of the attitude and evasion of the freeholders concerned. I hope that the Minister will have another look at that issue.
The other amendments I have tabled are about having professional qualifications and some form of regulation of property managers. The Government have legislated to say that the managers of social housing will need professional qualifications in future, but what is the difference between a manager of social housing and a property manager of leasehold blocks? In some ways, there may be greater complications in trying to manage a multitude of different leaseholders than people who have secure tenancies in a council or housing association block of flats. What is the difference?
Why will the Government not recognise that there are some good property managers who are well qualified, experienced and can be held to account, but others who are not like that? Indeed, some are put in place for that purpose: they are cheap, they do not have experience or qualifications, and they provide another way of avoiding the restrictions and rules that are rightly put on the management of property. They do not bother with proper service charge information or a proper list of charges for permission fees. I accept that the Government have tried to improve that, but in the end such improvements will only work if the individual or organisation managing the property does so in a proper way. Will the Minister look at those issues? What is the rationale? Why is there resistance to ensuring that people doing a serious and important job as property managers are qualified to do it and properly held to account through regulation?
George Eustice (Camborne and Redruth) (Con)
Let me begin by declaring my interest as an adviser to the HSPG group, which among other things is a registered provider of social housing.
I rise to speak to new clause 68, which is based on a specific challenge that I have encountered in my constituency and that affects residents in more than 70 homes spread across three locations in the town of Hayle and the village of Mount Hawke. The experience of those cases exposes a potential gap in the Bill and in policy on the issue of shared ownership. The Bill deals at some length with standard leasehold agreements and the problems of extortionate ground rents, as well as with some of the issues around service charges and management companies with which we are familiar. However, in the early 2000s some agreements were put together that were technically leasehold agreements but that masqueraded as shared ownership agreements, even though those shared ownership agreements do not comply with the standards of modern shared ownership agreements.
The agreements I have encountered contain a number of defects, and I would like the Minister’s view on them. The first is that the freehold on those homes is not held by a registered provider. It was initially owned by the developer who built the sites, but it has changed hands twice. In a way that is familiar to many Members, the freehold has ended up in the hands of an offshore investment vehicle based in the British Virgin Islands, and with a company called Rockwell, which has not been easy for residents to deal with over the years.
The second major defect in the agreements is that there is no provision for staircasing or enfranchisement of the leaseholder’s share of the property. Residents typically own between 58% and 72% of their property, but their stake is fixed and cannot be extended. There is no right to extend under the agreement. The agreements are under a 990-year lease and there is no ability to extend that, although I appreciate it is a long-term lease.
The third defect is that even if residents could enfranchise and extend or staircase their ownership within the agreement, a section 106 covenant means that the properties must be sold to a local connection with a significant discount on market value. The way that has been worded in the agreement means that it is simply not worth the while of residents to increase their share, since there would be no value to the increased share that they would have.
Finally, there was something described as ground rent, although in practice a big chunk of that was effectively a rent on the shared ownership portion. The ground rent was initially around £20 per week, but that was linked to the retail price index on an escalating model. It has now got close to £2,000 per year for those residents, and it is still increasing rapidly.
All of those defects in that leasehold tenure arrangement or shared ownership arrangement—indeed, it appears to be neither one nor the other—mean that all of the properties have been judged unmortgageable by lenders, and that means the residents are trapped. They cannot sell their properties because no one can get a mortgage to buy them. These are people in my constituency who had a local connection. Typically, they are on modest incomes. These agreements and these homes were sold to them as a way to get a foot on the housing ladder, and for those residents it has transpired to be a complete nightmare.
I will say a word about planning and pay tribute to Penwith District Council, as it was then, and Cornwall Council. Planning was granted between 2004 and 2006, and the local planning authorities did their due diligence. They could see that this shared ownership model was defective, and they refused planning permission on all three sites on that basis. The Minister might ask how these homes were then built and sold under the arrangement, but I suspect he can predict the answer, which is that they were approved at appeal by the Planning Inspectorate, an agency within his own Department. The situation that my constituents face has been caused principally by a chronic failure of due diligence by the Planning Inspectorate, as is often the case with such issues.
In conclusion, my new clause 68 seeks to address a gap in the Bill and to give the Government the opportunity to atone for the mistakes of the Planning Inspectorate. It deals explicitly with shared ownership agreements and would create a statutory right to staircase ownership and put a cap on the rent of the freeholders’ portion of the home. I do not intend to press new clause 28 to a Division this evening, but I hope that the Government will consider the matter closely. I would like to meet the Minister or the Secretary of State and share with them and their officials a copy of the shared ownership agreement that my constituents are suffering under so much, with a view to seeing whether the Government might consider further changes at later stages of the Bill’s consideration to address a gap in it. Given that the Planning Inspectorate has been somewhat culpable in creating this problem for my constituents, I hope that the Government will seek to do that.
I support the general thrust of the Bill in all its attempts to deal with management charges, service charges and ground rents, but I hope that the Minister will agree to meet me to discuss some of these remaining issues.
Barry Gardiner
It was 1 December 1998. I had been an MP for one year and seven months to the day, and I was chained to the railings of College Green by 200 cheering leaseholders. Thankfully, they were friendly. It was to illustrate that leaseholders felt that they are were prison. Those were the days before social media, and it was a photo op. The BBC ran the headline, “Leaseholders demand more control”. They still do.
Since then, we have had the Commonhold and Leasehold Reform Act 2022, which was an attempt to resolve some of the problems, such as forfeiture of a person’s home for a failure to pay a small service charge, the ground rent grazers charging money for no service and moneys not being held in trust in sinking funds. It is strange that after 25 years, these should be the very areas that yet another Bill on leasehold reform is pretending and failing to solve.
I say “failing”, because that is the reason I rise to support new clause 5, tabled by my hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook). It is ridiculous that a landlord can take away a person’s home worth hundreds of thousands of pounds for a simple failure to pay a minor service charge amounting to a couple of hundred pounds and where there is a dispute over whether the service was even provided. That is why I tabled new clause 16 about moneys being held in trust, which would implement a provision of the 2002 Act that has never been brought into force. We heard in Committee that the policy had strong support from stakeholders, including spokespeople for the Property Institute and the Leasehold Advisory Service. Even the British Property Federation has campaigned for this provision of the 2002 Act to come into force, yet it is not here in the Bill. Of course, 2002 was a time when nobody had even predicted the new rentier practices that freeholders and developers have since invented to extract money from homeowners for the privilege of living in their own homes: the scandals of leasehold houses; the repeated doublings of ground rents; and the inclusion of commercial areas and shared services in any development to stop any hope of residents exercising their right to manage.
Neil O'Brien
There are a lot of good things in this Bill. I give credit to the Minister and previous Ministers for introducing it, and my hon. Friend the Member for North East Bedfordshire (Richard Fuller), who has played a massive role in bringing it to the House. It effectively bans the sale of new leasehold houses through new clause 42 that we have been discussing, extends leaseholders’ rights in various ways and increases transparency over service charges.
However, there are two big things that still need to be strengthened in the Bill, which we have spoken about in Committee and on Report. The first is to end the fleecehold estate model. New clauses 1, 2, 6 and 7 are relevant to that. I was glad to hear the Minister, who understands this issue, talking about going away and considering this further, but for the benefit of the Whips, what my constituents want is not for the Minister to consider it further but to ride in like a new sheriff on a white horse and sort out the fraudsters, scam artists and various cheats who are making their lives a misery. That is what we want on the Government Benches.
The fleecehold estate scandal is just like the Post Office scandal, except that it affects more people. In considering the Post Office scandal, many people have asked, “How could we not have known about this injustice? It ruined so many people’s lives for so long, yet nothing was done.” It is the same in this situation.
My constituency has lots of these new estates. Often, the first people know of the problem is when they receive a massive bill that they did not know was coming and that was not mentioned in the notes they were given when they bought the house. And, funnily enough, it was not drawn to their attention by the lawyers of the housebuilder, whose services they are often encouraged to use. Some of these bills are a really scary size and often escalate quickly over time. A huge number of people—more and more every day—are now affected. About 20,000 estates are affected, involving between 1 million and 1.5 million homeowners and potentially 3 million or 4 million people. According to the Competition and Markets Authority, over the past five years 80% of the freehold properties built by the 11 biggest builders have used this fleecehold model.
A lot of my residents describe it as being like paying a second council tax, except that if a local councillor is not doing a good job, they can be kicked out, but it is not possible to do that to a fleecehold landlord, no matter how badly they perform. New clause 6 would address that, and I hope that the Government will address it as the Bill progresses.
I think that everyone now knows how the fleecehold scam works. Back in the good old days, the builder would build a new estate, make sure that all the roads and so on were up to spec and pay a section 106 charge. The council would then take it over and run it, and if there was a problem, people could contact their local councillor. Under the fleecehold model, it is not so simple. In effect, there is collusion between the council and the developer. The developer agrees to hand over to a different company—it might own that company itself or hand it over to the residents—the running of many parts of the estate, be it the roads, the verges or other facilities. That means that the developer pays less in section 106, the council does not have to maintain the road and effectively they split the profits while the residents and the new tenants get the new, massive bill.
It is extremely inefficient to run things in that way in the real economy. Usually, the council goes from road to road with its verge-cutting lawnmowers—it uses one simple system. On one fleecehold estate, however, a guy drives down from Oldham, which is more than two hours away, mows a tiny bit of lawn and then leaves. It is economic madness. A lot of the charges that people are hit with involve opaque management fees for nothing. It is inefficient to run things in this way in the real world. There is a ticking time bomb here. In addition to the number of people affected by the fleecehold estates scandal, the second problem is that when things are not adopted, they do not go through a gateway where we can check whether they are up to scratch. I know from the experience of my constituency that a lot of things are done badly and then a huge bill will land on the people on these poor estates to sort out the problems in the future.
We heard all about this in Committee. I pay particular tribute to Harry Scoffin, the work of the group Free Leaseholders and the residents group HORNET—the Home Owners Rights Network. They all made a powerful case to abolish the fleecehold estates model entirely. As one witness told the Committee:
“This is my property. It is my hard-earned future…normal homebuyers are not qualified to manage estates. If we are given the right to manage, if we are looking at a development of over 100 homes, it is really hard to get in touch with 100 people who will agree and be on the same page. It is not workable.”––[Official Report, Leasehold and Freehold Reform Public Bill Committee, 16 January 2024; c. 54-55, Q133-134.]
I will give a few examples from my constituency. Karen is a brilliant lady who does lots of work for her community. She moved into a new Barratt home because she was bored of doing loads of DIY every weekend on her old home. She now finds herself spending massive amounts of time fighting a fleecehold company called FirstPort, a company so notorious that a national action group has been set up against it—the details can be found on Facebook—whose work I commend.
Karen explains:
“Barratt’s encouraged us to use their nominated conveyance solicitor for which in return we got £500 towards our legal bill. We were fools to do this, but money was tight…FirstPort didn’t do or arrange any grass cutting or anything by way of a service in the first two years.”
At first the bill was £35, and this year it will be £74. Karen continues:
“Our bill for the year includes: Property Damage & Public Liability Insurance…Terrorism Insurance…Grounds Maintenance…General Maintenance…FirstPort’s Management Fees”—
the most expensive item—
“Audit/External Accountant’s Certificate and Fee…General Reserve…Health and Safety Risk Assessment…This comes to £74.64 per house.”
She says:
“In the months of December, January and February each year I must spend more than a couple of days a week working on this. It’s like having a part time job. I didn’t move house to face the possibility of having to be a director of a residents’ ‘Right to Manage’ company. I want adoption…by the local council…as it used to be.”
She is right. Members may be asking, “Why are residents of this estate having to pay terrorism insurance for a fence?” That is a very good question, to which I do not know the answer.
Let me introduce Members to James—a brilliant, hard-working constituent of mine, who has had to do tons of work on the estate where he lives. He says:
“Councils should be adopting new estates”.
He says that he has done
“about 50 days’ work…over the first couple of years. We moved in in 2018 and it wasn’t really sorted until 2021—in fact it is still going on.
Had I not been proactive we would have ended up being short-changed.”
Ms Lyn Brown (West Ham) (Lab)
I rise to speak to new clause 3 and amendments 12 to 14. A huge number of new builds have been built within my constituency boundaries over the last months, the vast majority of which have been flatted. There have been numerous difficulties over the years, many of which I will not be able to cover today due to the time limit and your exhortation, Mr Deputy Speaker, to stay within seven to eight minutes; as the first woman to speak, I intend to do so.
I will start with Legacy Wharf in Stratford, where leaseholders have been stuck with a succession of management companies that fail them time after time. Under the former management company, shoddy—and probably overpriced—repairs were made by favoured companies at leaseholders’ expense over and over again, rather than any investment in long-term, high-quality maintenance. Residents were hugely suspicious about possible kickbacks from service firms to the management company and the use of companies under the management company’s ownership, rather than it seeking the best price and the best quality of service.
Thankfully, that management company has changed, but many problems remain. Residents have just been handed bills for 18 months of energy use all at once due to the management company’s mistakes. Service charges and insurance bills rocket year after year, with residents wondering what on earth has been done with their money: they have poor landscaping, broken lifts and inadequate fire doors; the security of communal areas is rubbish; residents have lost access to hot water and the boilers have not been serviced for as long as four years. Those are all serious concerns raised about just one building. Ultimately, when accountability is sought, there is absolutely no way to get a prompt response. When there is such as constant deficit of transparency, it inevitably looks like a way to cover up wrongdoing, mismanagement or incompetence.
I strongly welcome the provisions in this Bill on service charge transparency, and I add my support for the amendments tabled in the name of my hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook). Amendments 12 and 13 would surely provide additional support to my constituents, because they would mean that leaseholders would not have to pay service charges unless basic transparency and accountability were in place. Amendment 14 would enable a maximum cost to be set for the provision of information to leaseholders, preventing the abuse of such costs to effectively obstruct accountability—it ain’t on.
Leaseholders in every part of West Ham have faced massive difficulties getting accountability. I am reminded of events in the Hallsville Quarter development in Canning Town, where residents in several buildings had to leave their homes after a sewage ingress and power cuts. The two management companies responded in totally different ways: Grainger offered £50 a day in subsistence payments, while FirstPort initially offered just £15 a day and only raised it to £25 after enormous pressure. FirstPort had to be chased by me for multiple basic actions, and responded so poorly to residents whose lives had been turned upside down by problems that were absolutely not of their making.
Next, I would like to raise the continuing concerns of the residents of Chobham Manor about their estate charge, which has increased rapidly over recent years. The charge is supposed to help pay for the upkeep of the Queen Elizabeth Olympic Park, but many Chobham residents believe that it bears no relation at all to the amenities available to residents near the park. Despite my support, they have found it almost impossible to scrutinise the budgets they are paying for and to make sure that they ain’t paying through the nose for poor value for money. Chobham Manor residents frankly do not see what they are getting from the park in exchange for this charge, given that they are the only local residents who pay for it. I know that they will be grateful for an explanation of how they might benefit from the changes that the Bill will make.
I also want to mention, yet again, the continuing limbo of many residents of East Village in Stratford. Leaseholders there have lived under serious financial threat for well over four years now. The remediation needed to make their homes safe is still being held up because this Government’s previous legislation left the issue open to litigation. How can my constituents be reassured that this Bill goes further? The Secretary of State himself committed to using his planning powers to call in proposals submitted by irresponsible developers. I have to ask: will he make good on that promise and target those who are continually refusing to act on fire safety and leaving leaseholders on the hook?
In a final case from West Ham, diligent and determined leaseholders have successfully taken managing agents or freeholders to the tribunal for their dire failings. I am sorry to tell the House that these failings were across the board, including rat infestations, lack of insulation causing skyrocketing energy bills, no transparency on the huge service charges, building safety problems and a complete lack of accountability. Surely it should not have come to this.
We should not be depending on individual leaseholders to battle their way through obscure systems for their plight to get the attention it needs. MPs should not have to make dozens of detailed representations over and over again. It could not be clearer who has the power in these disputes, and in so many cases leaseholders are still paying the price for a system that is absolutely broken. Sadly, the legacy of years of failure to act creates understandable scepticism that change will come now, so I want to hear from the Minister today that he believes that the Bill will finally end this injustice.
Andrew Rosindell (Romford) (Con)
It is a pleasure to follow the hon. Member for West Ham (Ms Brown). We share a similar part of the world: Essex and the east of London. In Romford, just as in West Ham and the London boroughs to the east of the capital, we have seen a huge increase in the number of flats and high-rise blocks being built over the last 20 years. Havering is a town and country borough and we have not had many flats in the past, but suddenly we are seeing huge numbers of that kind of accommodation being built. This brings huge numbers of problems with it, including what we are debating today.
I thank the Minister for bringing this Bill forward. I hope that it will deal with many of the issues that colleagues across the House have raised today, because they are very real. I sense that there is consensus on both sides of the House that serious action needs to be taken, because this can really destroy people’s lives and ruin them; they have saved to buy a property and they have a leasehold, yet they are fleeced by sharks and managing agents who pile on the costs, and by armies of lawyers who make their lives miserable and threaten them with losing their property all together. This is not right for the people we all represent.
I am now dealing with these cases in Romford on a daily basis. The hon. Lady mentioned many of the problems in West Ham, and I have examples in the Steelway apartments in the centre of Romford. I visited those apartments only a few weeks ago and saw the problems that people there are facing. They are failing to get responses from the management agents and those responsible, they are paying money for no service, and they are being ripped off by management agents who are not doing the job they are paid to do. I went to Rubicon Court, a fairly new development built only a few years ago, and was shocked—absolutely flabbergasted —to see how badly the residents are being looked after. The service they are paying for has completely failed. I saw mould, rats, rubbish and CCTV cameras that do not work. That is not acceptable and, when the Bill is passed into law, I hope the Minister will ensure that it is effective. It is no good passing legislation unless it is effective and comes into force quickly.
Janet Daby (Lewisham East) (Lab)
I can see that, across the Chamber, there is strong concern for leaseholders who are caught up in very difficult situations. I will first speak to new clause 67, which I tabled after a case came to my attention late last year. I will then speak in support of new clause 5 and amendments 4, 5 and 8 tabled by the official Opposition. These amendments relate to issues that have not been properly addressed by the Government, including forfeiture, the right to vary ground rent to a peppercorn, and deferment rates.
My motivation for tabling new clause 67 stems from what has happened to residents of Lee Court, a purpose-built art deco mansion block in my constituency dating back to the early 1930s. Many will remember the cold snap at the start of the year, when temperatures went below zero and Arctic winds swept across the country. Until mid-January, residents of Lee Court had not had any heating all winter. Furthermore, they did not have access to hot water for weeks and, prior to that, hot water provision was very patchy. This has seriously impacted many vulnerable residents, including the elderly, young families, people with medical conditions and many others.
Leaseholders at Lee Court repeatedly raised these issues with Drivers & Norris, the block’s former managing agent, and Grandpex, the building’s freeholder that has ultimate responsibility for the central heating system, yet little progress was made until it came to my attention and the attention of the national media. The residents’ plight included: a neglected communal area; a door leading to the roof that was hanging off its hinges; broken windows; exposed openings for rodents; weeds and plants growing through the drains; roof leaks; damp, mould and rot in communal areas; and the lack of heating and hot water that I have already mentioned.
Even though my constituents have now taken on the building maintenance and appointed a new managing agent, this situation illustrates the difficulty for leaseholders in securing recourse from freeholders who have responsibility for central heating and other maintenance issues. As a result, my new clause 67 seeks to open up a discussion on how to ensure that such situations never happen again to residents. It would require the Secretary of State to commission an independent evaluation on holding freeholders financially liable for long-lasting central communal heating failures, where the freeholder has a responsibility for this upkeep.
It is important for the Government to know that I am not asking for them to impose measures straightaway, but rather that I want them to pay closer attention to the problem at hand via an independent evaluation. There is clearly something wrong when vulnerable residents are left without heating for months on end despite raising their concerns with the managing agent. The only way they seem to be heard is by going to the media, and that is not acceptable. Residents’ health and wellbeing needs were put at risk by the failure to restore Lee Court’s central heating. The Government have a duty to look at how we can rectify this situation, so that it never happens again. Will the Minister say whether he would like to strengthen the voice of leaseholders? Leaseholders would like that—they need it.
More widely, this overdue Bill is welcome, but the Government’s planned reforms do not go far enough. This is why I particularly support new clause 5 which would abolish the right of forfeiture in respect of residential long leases where the leaseholder is in breach of covenant. I have heard the Minister say that the Government are working on this and will be looking at the issue, but the Law Commission proposed a repeal in 2006 and there has been no action to progress this for some 18 years.
Additionally, amendments 4 and 5, on deferment rates, are very important, because during a housing and cost of living crisis, with many families struggling to get by, it is important for leaseholders to acquire their freehold or extend their lease at the lowest possible cost.
Lastly, amendment 8 is important, because we must ensure that all leaseholders, not just those with residential leases of 150 years or over, have the right to vary their lease to replace their rent with a peppercorn rent. That is because the most common forms of lease are those of 90, 99 and 125 years, and so the Bill, as it stands, will mean that leaseholders with the most common forms of lease will not be able to enjoy the right to vary their ground rent to a peppercorn.
In conclusion, in contrast to the Government’s approach, a Labour Government will enact the Law Commission’s recommendations in full. Labour will make commonhold the default tenure for all new properties, in order to reform the leasehold system fundamentally and comprehensively. In my constituency, what has happened to the residents of Lee Court shows that the current leasehold system is not working. I suggest that the Government accept my new clause, as well as the Labour amendments.
Wendy Morton
I rise to speak to new clauses 13, 23 and 41, which stand in my name. I wish to place on record my thanks to those right hon. and hon. Members who supported me with my amendments and to the Public Bill Office for assisting with advice on their drafting.
Today’s Bill is important and I think we would all agree that it is long-awaited. I spoke on Second Reading, when I declared that I, like probably many others here, am one of almost 5 million leaseholders in this country. I am also one of the many who has gone through that awfully stressful process of extending a lease—that was prior to my being an MP. What I have learnt since becoming an MP is that the issue of leasehold affects not just London and our great cities, but constituents in places such as Aldridge-Brownhills. It affects people who have bought a house on a leasehold basis and many apartment blocks that were built perhaps 20 or 30 years ago. That is why I have taken such a keen interest in this piece of legislation. Buying a home is the biggest financial commitment that most people will make in their lifetime, but they are probably unaware of some of the complications they may experience later down the line.
I raised many questions on Second Reading and I wrote to the Secretary of State. My hon. Friend the Minister has been very engaged with me, but I gently say to the Department that a bit more engagement with Back-Bench Members would help enormously. That said, I am clear that I want the Bill to succeed, although in common with many other hon. Members I still believe it could and should go further. I will not push my amendments to a vote today, but I want to make a few points in relation to them.
On new clause 13, the prohibition on new leasehold homes within three months of the passage of the Act, I appreciate and welcome what the Minister said from the Dispatch Box. The Government have long been committed to the provisions in that new clause and I have sought clarity about what exactly they intend to do. I have heard welcome news today, but I will continue to press the point about commonhold because that matters. Moving forward, if we are to continue to look at this legislation and get it through this place, we will have to revisit this topic to ensure we get the best for our constituents, whatever type of housing or home they live in.
New clause 23 seeks a report on disadvantage suffered by existing leaseholders. In effect it was the sunset clause I referred to on Second Reading. The extent of the number of leaseholders who started the process of extending their lease during the passage of the Bill and the impact on them is unclear. Many will have been waiting to see the outcome of this legislation. Quite feasibly, that group will include people who have been forced to extend their lease in order to sell their home because, as we know, it is very difficult, if not impossible, to get a mortgage on a short lease. I am certain some leaseholders will not have been able to wait for the Bill to reach Royal Assent. Such leaseholders risk being seriously disadvantaged, so new clause 23 would take steps to assess and remedy any unfairness by considering issues such as marriage value, legal costs and other charges. I do not think we fully appreciate the size of this group compared to the number of people who will extend their leasehold after Royal Assent.
Similarly, new clause 41 seeks to redress the imbalance and unfairness of marriage value for those leaseholders who extended their leases many years ago or prior to the Bill passing through this place. By seeking to produce a report on disadvantage due to payment of marriage value, I hope we can better understand the extent of some of challenges around a system that, as we have heard today, is feudal, difficult to navigate and has disadvantaged many leaseholders over the years. It is important that we do not lose sight of the need to address the issue of marriage value.
The fourth area of concern is ground rent. I did not table an amendment on this issue but I will touch on it again. Many colleagues on both sides of the House have mentioned it. The Minister was clear in his response to me, but we need to continue to push forward for change.
I will support the Bill and I welcome the steps that have been taken. However, from the many examples that colleagues on both sides of the Chamber have highlighted today and the examples we have all seen sent to our inboxes by constituents, particularly around the challenges of service charge, it is clear that we need to go further. I will continue to gently nudge the Minister; he is nodding his head. He does a really good job and I am certain he gets the issue, but let us continue to work together for the benefit of our constituents.
Mr Deputy Speaker (Mr Nigel Evans)
I have nine Members trying to catch my eye, so if people speak for about five minutes, that will allow everyone to get in roughly equally. There has been some slippage, I can see that.
Sir Stephen Timms (East Ham) (Lab)
I rise to speak to new clause 24, which is in my name. It was also considered in Committee. I am most grateful to my hon. Friend the Member for Brent North (Barry Gardiner) for moving it there and to the Minister for his response. I am also grateful to the hon. Member for Loughborough (Jane Hunt) and the right hon. Member for West Suffolk (Matt Hancock) who have added their names to the new clause on the Order Paper.
I thank the Minister for his reply in Committee, but I think he missed the crucial central point of the amendment. At the moment, the risks of exposure to asbestos in a workplace are managed by the Control of Asbestos Regulations 2012, which is monitored by the Health and Safety Executive. For every workplace under those regulations, there is a duty holder responsible for monitoring the condition of the asbestos. They are required to keep up-to-date records of the location and condition of all asbestos-containing materials, to provide that information to anybody liable to disturb the materials, and to develop a plan for managing any risks that arise.
Residential blocks with a commercial freeholder will generally also have a duty holder, because the block will have been for them a workplace, so it is covered by the Control of Asbestos Regulations. It is usually the freeholder or their agent who is the duty holder. That duty holder is responsible for all the common areas in the block, such as foyers and staircases.
The effectiveness of this whole regime is debatable. The sixth report in the 2021-22 Session of the Work and Pensions Committee expressed considerable reservations. It is doubtful, I think, that the Health and Safety Executive is doing enough to monitor compliance, and the assumption that leaving asbestos in place is better than removing it is increasingly questionable as the asbestos ages. None the less, there is at least a clear regime for managing the risks.
The concern that motivates this new clause is that, following a transfer of the kind made possible and facilitated by the Bill, there will no longer be a duty holder for the communal areas in such a block. At the moment there is, but the responsibility will be entirely extinguished, as far as I understand it, on transfer. The asbestos is still going to be there, the risks will remain, but nobody will any longer be responsible for managing them. Understandably, no individual resident will take on the responsibility, but there will be no corporate entity to do it either. In fact, it may be worse than that. The residents may well not be aware before the transfer is completed that they are taking on both a financial liability for managing the asbestos in the communal areas, and possibly a risk to life as well. It is important to bear it in mind that we are seeing 5,000 deaths per year at the moment as a result of past exposure to asbestos.
In his response in Committee, the Minister said that the amendment would
“duplicate the existing duty in regulation 4 of the Control of Asbestos Regulations 2012 for landlords to survey the common areas of their property”.—[Official Report, Leasehold and Freehold Reform Bill Public Bill Committee, 30 January 2024; c. 461.]
However, the newly enfranchised property would not fall any longer under regulation 4. There would be no landlord to survey the common areas once the transfer has taken place.
New clause 24 aims to prevent this problem from occurring. It requires landlords to perform a detailed survey of the asbestos present in the building within three months of a transfer taking place and then requires the landlord to remove any asbestos that is there.There is a 150% tax relief for businesses removing asbestos from their premises, so removal will not be costly for landlords. It will save newly enfranchised leaseholders from a large and probably unexpected liability and a potentially lethal long-term risk. I hope that makes the case for this change clear.
I am grateful to the Minister for his assistance with the residents of Barrier Point in my constituency. I think we have a meeting in his office next month. Last night, I had my regular Zoom call with leaseholders from Waterside Park in my constituency. Before Christmas, we thought we had a clear way forward. Barratt, the builders, had signed up and Aviva, the current freeholder, was happy, but last night we learned of the requirement that the Building Safety Regulator to look at any proposal for a minimum of eight weeks, which will substantially delay the work that has been committed to. Will the Minister look at whether it is really necessary for residents who have been waiting so long for these problems to be resolved to wait another eight weeks?
Nickie Aiken (Cities of London and Westminster) (Con)
I fully support the Government’s wish to overhaul the antiquated and feudal leasehold system in this country and address the imbalance of power between freeholders and leaseholders. I thank the Minister for his ongoing discussions with me about a number of issues I have with the Bill, and for attending the leasehold roundtable that I held recently with my constituents.
I would like the Government to abolish the system completely, but I understand that that will not happen with this Bill. I have therefore tabled an amendment and three new clauses that would improve the Bill further. New clause 12 would reduce the participation threshold required to claim the right to manage from 50% to 35%. That is a massive issue in Cities of London and Westminster. More than 1,300 properties in the City of London and an eye-watering 12,100 in Westminster have owners living abroad or are owned by companies using central London’s golden postcodes as a place to park their cash. That reduces the ability of leaseholders in those blocks to secure the 50% of signatures required to achieve the right to manage, as it is incredibly difficult to contact those overseas leaseholders for a meaningful discussion.
Let me give an example of that type of dilemma in my constituency. Residents in The Quadrangle in the Hyde Park Estate say that leaseholders in their block will struggle to meet the 50% participation threshold. They estimate that at least 40% of leaseholders in their block do not live in the building and are uncontactable. Accepting new clause 12 and lowering the threshold to 35% would give many more leaseholders living in similar blocks the chance to manage their buildings.
I commend the work that has been done on the Bill to support blocks that have shared commercial and residential usage. The Bill proposes to increase the proportion of commercial or non-residential space permitted in an individual block for a right to manage application from 25% to 50%, but I believe we can go even further. I have heard from many residents whose blocks will fail to qualify even after the threshold rises to 50%. For example, residents of 8 Artillery Row in Victoria believe that increasing the threshold to 50% does not go far enough, as the residential element of their block is lower than 50%. That is why amendment 17 is needed, as it would allow residents in a block with up to 75% commercial premises to apply for the right to manage.
New clause 14 is similarly designed to allow more leaseholders to strive for the right to manage, especially those in mixed-use buildings. Simply sharing a broom cupboard with a commercial property can disqualify them from claiming the right to manage. At Cambridge Court in Marylebone, for example, leaseholders striving to manage their block would benefit from the Government’s proposals to increase the non-residential threshold allowed in a building, but they are concerned that their ability to qualify for the right to manage would be undermined by the existence of a single shared car parking space in their building. My new clause 14 would amend the Commonhold and Leasehold Reform Act 2002 by adopting recommendation 5 from the Law Commission’s “Right to Manage” report, which is to allow leaseholders in mixed-use buildings with shared services or underground car parks to exercise the right to manage.
Finally, my new clause 15 would correct the unintended consequences of the Building Safety Act 2022. That Act has interfered with the long-standing section 24 regime, which was a vital right for leaseholders. It introduced an accountable person mechanism that expressly banned section 24 managers from being the accountable person. Consequently, specially trained and vetted professional property managers willing to take on difficult sites have been barred from being the accountable person. That makes absolutely no sense, and it stripped leaseholders of an existing right. That could not have been the Government’s intention when they introduced the 2022 Act, which was intended to provide leaseholders with additional statutory protections. So many leaseholders in my constituency and across the country would benefit from applying for a section 24 manager, but they cannot risk it if they are in blocks of 18 metres or higher because of the accountable person regime issue arising from the Building Safety Act. It is imperative that our buildings are safe, that leaseholders are safe, and that the burden does not fall heavily on leaseholders.
I will not press my amendments to a vote, but I hope that the Government will consider what I have spoken about and work with me to introduce the measures in the other place. This is a watershed moment for the Government to prove that they understand the terrible treatment that leaseholders have faced and continue to face by incompetent freeholders, and to address the imbalance between freeholder and leaseholder. I hope that the Bill will deliver real change.
Helen Morgan (North Shropshire) (LD)
I rise to speak to new clause 1, which was tabled in my name, and in support of a number of new clauses and amendments tabled by right hon. and hon. Members from both sides of the House.
I tabled new clause 1 because, as was said by the hon. Member for Harborough (Neil O’Brien), who is no longer in his place, fleecehold is a scam. It attempts to deal with the issue whereby a freeholder is trapped in a situation where they pay estate management charges for the areas around their development, be they roads, play areas or open spaces. Critically, the new clause also deals with the shared assets that might be in use to service their homes, such as ground source heat pumps, septic tanks or sewage pumps. I am sure that there are many instances in which the management company does a great job and charges reasonable fees for its work, but my inbox—like those of many hon. Members—contains horrifying examples of the management company, which is usually directly owned by or related to the developer in North Shropshire, failing to do a good job, or to do any sort of job at all.
There is a freeholder in my constituency, for example, who must obtain an information pack from their estate management company in order to sell their house. Despite repeated requests, my constituent has not received that information pack, so their sale has been significantly delayed and is at risk of falling through altogether. The management company is apparently just a shell—it does not respond to correspondence, hold annual general meetings or provide accounts—so the affected residents are powerless and cannot take control of the company and appoint a reliable professional to provide the services that they so desperately need. New clause 1 would allow them, where the management company has gone AWOL and will not respond to anything that they request of it, to take control of the company and do those things themselves.
The new clause also extends to assets, which may be more of a rural problem when it comes to shared estate charges. In one example in my constituency, a developer installed a ground source heat pump to provide all the heating and hot water for a barn conversion development that involved several houses in the same set of barns.
That developer has two separate companies: one is the management company through which he charges the owners of those houses for their electricity bill, and another, totally separate company that was nothing to do with the sale process, which is where he placed the heat pump. As such, he is able to cream off all the renewable heat incentive income for himself; he provides accounts to residents through the management company, but does not provide them with any information about the fundamental asset that is servicing their home. Those residents are unable to benefit from the renewable heat incentive that accrues from that asset, and do not know whether it is being properly maintained and serviced. They are unable to do so themselves—they have no rights in relation to that heat pump.
Sir Peter Bottomley
I draw to the hon. Lady’s attention and that of the Minister the article by Patrick Hosking in The Times today, which deals with estate management companies and estate management charges. I hope that the Government will read what he has written and see what they can do to make things better.
Helen Morgan
I thank the hon. Gentleman very much for his intervention.
I will conclude by saying that I support the amendments that would require professionalisation of the industry— that would be very sensible and consistent with other legislation that the House has passed. I also support new clause 5 and amendments 4 and 8, tabled by the shadow Minister, the hon. Member for Greenwich and Woolwich (Matthew Pennycook); new clause 39, tabled by the Chair of the Select Committee, the hon. Member for Sheffield South East (Mr Betts); and new clause 25, tabled by the Father of the House, the hon. Member for Worthing West (Sir Peter Bottomley). The Bill goes some way towards providing the protection that we need, but it needs to go much further to protect freeholders from rogue developers and estate management companies. I urge the Government to take that away and do more.
Mr Deputy Speaker (Mr Nigel Evans)
To protect the last six speakers and protect ministerial time as well, there is now a five-minute limit on speeches, which will give the Front Benchers sufficient time to respond.
Rachel Maclean (Redditch) (Con)
It was a great pleasure to serve on the Public Bill Committee on this Bill. We had a great debate, and there was actually a lot of agreement across the Committee Room. These are deeply Conservative reforms, championed by none other than Mrs Thatcher, starting in 1965, which she continued to do throughout opposition and during her premiership.
I gently say to Opposition Members, of whatever party, that they must not fall into the trap of making this a political football. They must engage with the seriousness and complexity of these reforms, in part because, as we have heard, they did very little to advance these very significant reforms during their own time in office. I suspect that they backed away from it because of the very significant legal challenges they would have faced, as we ourselves will no doubt face. Pretending they do not exist is not a serious position. I say to the Minister and the Secretary of State, who are aware of my comments, that we must not buckle, but must continue to take this forward.
It is great to see the package of amendments laid by the Government, particularly new clause 42, which is a ban on leasehold houses. I want the Minister to think carefully about how he will address the inevitable imbalance in the creation of a two-tier system, in which some people will have the freehold of their house, but some will not. There is an additional imbalance between flats in our urban areas and new freehold houses. That point was very well made by James Vitali in a Policy Exchange report. I am slightly worried about the omission from this of retirement properties, so perhaps the Minister could return to that.
In Committee, I spoke about the need to truly move towards a commonhold system. I think the Opposition’s new clause 11 is something of that nature. I very much hope that, as the Bill goes through completing its stages, the Government—here or in the other place—can look at that suggestion. I think we do need to set out the future legislative scaffolding for our fifth term in office, and to build on the work we have done so that we can finally get rid of this leasehold system.
Other Members have mentioned a lot of the points I would have made about shared services. My hon. Friend the Member for Cities of London and Westminster (Nickie Aiken) raised that, and it is one of my concerns. My hon. Friend the Member for Harborough (Neil O’Brien) has done a fantastic job in talking about the lack of adoption by local authorities. There is also new clause 7, which I know is again an Opposition amendment, and new clauses 1 and 2. This problem is not going to go away. It is a blight on many homeowners in Redditch, and it also goes to the heart of our planning system. We really do need to look at that; we cannot pretend that it is going to solve itself.
I thank the Minister for writing to me about one of my concerns, which is litigation costs. I think new clause 3 looks at that. He has reassured me that what is in this Bill will go the distance in ensuring that leaseholders are not subject to unjust litigation costs by their landlord. That is one of the cases highlighted by Liam Spender and many others. These are hugely complex issues, but we must tackle them.
I want to see ground rents reduced to a peppercorn. It is pure extortion, and a feudal relic from medieval times when people were serfs and worked the land. We should not have this in 2024, or in any year. I refuse to believe that there is not a way, through the wit of man and the considerable intelligence of Ministers on the Front Bench, to solve the issue, perhaps where some financial assets are held in pension funds. I do not buy the pretence of that incredible con artist Mr Steve Whybrow and his outfit that somehow we are robbing pensioners. I would urge anybody with an interest in this debate to look at the genuine pensioners who are fighting for the right to have pure enjoyment of their own properties, which they richly deserve after a lifetime of working.
I will make my final remarks on forfeiture: it must go. The forfeiture of a long lease cannot be right. It cannot be right that a freeholder can hold this nuclear bomb over somebody such as Dennis Jackson, a pensioner, of Plantation Wharf. He disputed a £6,000 service charge, which led to an £80,000 legal bill, and he had his £800,000 flat forfeited during a 10-minute hearing at Wandsworth court. I thank LEASE for all the work it has done to help him. That just simply cannot be right, and we must address it. I want to see us finally finishing the job that Mrs Thatcher started when she was Opposition Housing spokesman in 1965. We must finish that job, and I thank the Minister for all the work he has done so far.
Stella Creasy
I feel for the Minister today, because he must be kicking himself. This is probably one of the few debates I have heard in this place recently where I have not heard a bad idea. As constituency MPs, we see time and again the problems caused by retaining this feudal system of leasehold, and I suspect that the Minister, who has been looking at this issue for some time, is kicking himself because what he would really like to do is abolish the whole thing. Indeed, today we have heard support from across the House to do just that. In the short time available, let me say again to him that he would have our support to move to commonhold. He talked about how commonhold was probably the better model, and for those of us living in the vortex of gentrification, where thousands of flats have been built in our community, this is an incredibly pressing issue. We know that the casework we have seen over the past few years will expand as a result of leasehold continuing. That is why I wish to see the Government change their mind, perhaps in the other place, about getting rid of leasehold altogether, and why I have been pressing my local authority to listen to concerns of local residents who are stuck with leasehold, and change our local plan to make commonhold the default. I hope that they have heard this debate and will rethink their opposition to that.
I support the amendments in the name of my hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook), and wish to draw the Minister’s attention to two new clauses that I have tabled on issues with the existing system and the problems that leaseholders face. With 12,000 leaseholders in Walthamstow, I know that these issues will come up time and again.
New clause 2 is about the fact that although we have leasehold legislation, it does not tally with our consumer legislation. Leaseholders pay a service charge. They have a contract with freehold management companies to oversee problems in their properties, but few residents feel empowered to access rights that exist under the Consumer Rights Act 2015 to have a reasonable service within a reasonable timeframe for repairs. Today, colleagues across the House have given countless examples of that, so let me add my own, which is where my proposed new clause has come from. I am sorry that my hon. Friend the Member for Lewisham East (Janet Daby) is not here. She talks about Leigh Court and new clause 67, but residents in Essex Brewery in Walthamstow have been without hot water and heating since before Christmas. Indeed, they are still without hot water and heating, with little sight of any change.
Essex Brewery was built just five years ago. It has become apparent that the build by Crest Nicholson was poor at best, and a downright con at worst. Until January this year, Crest Nicholson was on the management committee and made more than £100 million in profit in the year that Essex Brewery was built. It has made half that this year—possibly less—because of widespread concerns about the condition of the builds it has made. What does someone do when they have bought possibly their first home, whether through shared ownership or leasehold, as hundreds did in that development, and they find that the pipes that bring in the hot water are faulty? I am sorry to say that those resident have little redress, because the management company, Kinleigh Folkard and Hayward—another multimillion pound organisation—left them without any explanation of why it would not repair the hot water until after Christmas. What a Christmas present that was. The Grinch had strong competition.
That was another layer of bureaucracy. KFH was appointed by the Essex Brewery management company, which was established by the freeholder, Helpfavour, to meet those obligations. KFH told the residents that because their insurance policy said that as long as they had water at all, the property was habitable and it was not going to do anything about it. That has left hundreds of residents, many of them vulnerable, for months on end without any hot water or heating in the current weather. Residents have had to boil kettles to get hot water to cleanse their babies, or pay bills that they cannot afford for extra heating through portable heaters. For those who have shared ownership it is even more complicated. Metropolitan Thames Valley states that it owns 24 of those properties and that it is prohibited by law from fixing the problem. New clause 2 is about matching consumer legislation with leasehold legislation, and giving residents the right of redress, not saying, “You’ve either got to buy out the leaseholders if you want some property control, or you are stuck with them and waiting to see.” I hope KFH hears this debate and is ashamed of its behaviour.
Amendment 1 is about leasehold tribunals. I know the Minister spoke of precedent setting, but residents across the country would tell him otherwise. I beg him to look at the Warner properties in Walthamstow, and at Y&Y management, which repeatedly rips off constituents across the country. The hon. Member for Harborough (Neil O'Brien) is not here, but he asked why people have to pay terrorism insurance. In Walthamstow that was the Warner estate company, which said that because the plane bomber lived in our constituency, 3,000 households had to buy terrorism insurance. Such cases come up time and again with leasehold and they do not get fixed in the tribunal. Amendment 1 would give precedent.
Vicky Ford
For some of my Chelmsford constituents, these provisions cannot come soon enough. One constituent told me how he bought his leasehold flat seven years ago, but now he and his wife want to move to a bigger home to start a family and progress their lives. For the past three years, they have been unable to sell their flat. They have tried listing the property with many different estate agents and had many offers, but no buyer can get a mortgage on the property due to a clause in the lease that means the ground rent can be doubled every 15 years. According to my constituent, nobody in this block of 20 flats has been able to sell a property since 2018. They feel stuck.
Priti Patel
The amendments tabled by the Government —new clauses 30 to 32 in particular—will offer my constituents some hope and a quicker means of redress on many of the points raised in the House’s discussions. I will press the Minister on some concerns raised by my leaseholder constituents and by all colleagues on the whole issue of remediation of defects, and transparency and accountability.
At one development in my constituency that opened in 2019—now a significant period of time ago—the residents experience a shocking case of misery and distress. The problems include water ingress, damp and mould, with children getting sick as a result, which is unforgiveable. There are also: damaged sprinkler systems; defective and non-compliant fire doors, which is unthinkable in this day and age; inadequate insulation—we have heard about water pipes and the lack of heating and cold water; roofing issues; damaged gates; and poor grounds maintenance. On top of that, when someone raises a complaint, guess what happens? Nobody does anything about it. However, whenever constituents get a letter, it is about their service fees increasing—it happens all the time. That is not acceptable.
The residents seek redress, but it just does not happen. Not only are they frustrated but we see a clear issue with buck passing; that is shameful and must be addressed. This property was a permitted development, and we should pause for thought on that. I am pro such developments—we need more of them—but we must ensure that charlatans do not come along and exploit people who are desperate to buy their first home, with all sorts of things happening in the building. I have had reports from residents who have purchased their property more recently, and guess what? They were not informed of all the defects and the problems going on. That is simply scandalous.
I want to mention again FirstPort—this should be a topic of wider debate in the House—and management companies. I am meeting FirstPort at the weekend. Again, why do these companies feel that they can be let off the hook? They will not engage effectively. In one case, leaseholders of a site in Stanway were not notified of a change in management company for about half a year. Every single colleague in the House will have cases of that nature.
FirstPort has refused requests to hold annual general meetings and has been lacking in visibility. If I may, I will praise Councillor Kevin Bentley, my county council leader, who is a divisional member for the area in question and has secured a public meeting for the weekend. It will be the first point when we have been able to get in the room with these people to seek redress. Contractors come in, and people are charged for monitoring works that never take place—it goes on and on.
I am grateful to the Minister for how he opened the debate, and spoke frankly about the issues and concerns. I have a suggestion to put to him. Yesterday it was announced that the Competition and Markets Authority will look into the practice of house builders and whether there has been collusion in pricing and the development of schemes. May I suggest that it might be worth looking into management companies? Many of those house builders come part and parcel with the management companies. The house builders do the negotiations with the management companies, and there is a lack of transparency. Should we be looking at more open book contracting around management companies, with details of how they are brought on board by the developers published, so that there is greater transparency for the purchasers? That is really important. As the Minister’s Department has already enlisted the CMA, he may wish to ask it to look at that important area as well. I hope that he can respond to some of those points when he sums up.
All hon. Members are grateful for the chance to raise these points, which speak to the totality of what we are seeing—a sense of a lack of fairness for many of our constituents, which the Government are clearly pressing in the right direction and seeking redress.
David Simmonds (Ruislip, Northwood and Pinner) (Con)
I very much welcome the Bill, which addresses the frustrations expressed by a great many leaseholders in my constituency. I thank Suzy Killip from the Pembroke Park Residents Association and Jo Tapper at The Sigers, both of whom have faced significant challenges while representing their communities and taking forward issues arising from the management and lack of services often provided to them under their lease arrangements.
I would particularly like to thank Ministers, because this legislation takes into account the way that the market has changed. Many years ago I started my career as a financial adviser, dealing with people taking out mortgages. One stark change is the extent to which leaseholds are seen as an opportunity to extract money from people as investments to be traded by freeholders, on the basis of extracting the maximum possible amount rather than ensuring good quality of services. I was involved in cases as a local authority councillor, where part of the planning agreement was that roads, parks and open spaces would be brought up to an appropriate standard to be adopted by the local authority. Once the development was completed, an opportunity was spotted by the developer and, therefore, people who had moved in on the understanding that the local authority would take over—because the roads were built to adoptable standard, for example—found that it did not happen because it was seen as an investment opportunity. That is very much in line with the rip-offs referred to by Members across the House.
I commend Ministers on taking a balanced approach on the need to recognise a link between the arrangements in the Bill and our housing supply. The UK has the oldest housing stock in Europe. The ability of freeholders of larger developments to regenerate sites where properties that have been rented are falling vacant over a period of time could be inhibited if there is a proliferation of small freeholds on those types of sites. If we are to ensure that the quality of our housing, in particular energy efficiency, is brought up to a good standard, it must still be possible for larger sites to be regenerated. We must not inhibit that completely while addressing a different concern about the rights and freedoms of leaseholders.
I mentioned some constituents earlier; the situation in particular at Pembroke Park is a good example of why the reforms in this legislation are so important. The development was constructed on a former military site by Taylor Wimpey, and handed over to be managed by A2Dominion housing association, with a mix of social housing tenants and private leaseholders. There are umpteen issues still more than a decade after the completion of that site, and issues simply getting A2Dominion to respond to problems including insulation that was never installed in buildings to the building regulations standard, a complete failure to ensure that proper ventilation was installed in the buildings, and drains that are completely inadequate. There has been progress, but I would add A2Dominion to the list of companies raised by other Members.
I commend A2Dominion’s relatively new chief executive, Ian Wardle, on the progress that he is making, but it remains a huge challenge to my constituents, and a huge frustration, that as opaque charges rise and rise, the actions of that organisation make it incredibly difficult even to understand whether the basic legal protections that they enjoy under existing legislation are being observed, including how insurance costs are apportioned across a very large property portfolio.
I strongly support the points made around forfeiture provisions. A number of constituents have come to me with significant challenges and justifiable concerns about the rising service charges on their properties. It is completely unacceptable that they would forfeit a significant amount of value that they have paid for and earned—potentially to fall to the developer. That is another opportunity for the shamelessly greedy to rip off our constituents. I am very glad that this legislation and the comments made by Members across the House today will represent a significant step towards ending that practice.
Richard Fuller
Thousands of homeowners in my constituency and millions across the country who face estate management charges will have their rights substantially increased thanks to the provisions in this Bill. I am extremely grateful to the Prime Minister, the Secretary of State, the Minister and his predecessor, my hon. Friend the Member for Redditch (Rachel Maclean), for including estate management charges in this Bill.
Lee Rowley
With the leave of the House, let me start by thanking all Members for their contributions to the debate. The breadth of discussion across the House has shown that while we can discuss precisely how far we should go, there is a general consensus that progress needs to be made, and I think all Members will accept that it has been and is being made in the Bill.
My hon. Friend the Member for Worthing West (Sir Peter Bottomley) tabled new clause 25, and he is right to say that it deals with an important issue. As he said, a consultation is open, and we will review the responses very seriously. I urge anyone whose views are as strong as those expressed by my hon. Friend to contribute to the consultation, so that we can consider the issue in the round.
The hon. Member for Sheffield South East (Mr Betts) spoke passionately about his new clauses 39 and 40, and I understood the points that he was making. I hope that some of the changes introduced in the Bill will make the acquisition of freeholds much easier. We have discussed regularly the need for a disincentive for freeholders not to respond or to “go slow”, which should mean that the right to first refusal falls away to the extent that it is no longer necessary.
I was sorry to hear about the problems experienced by the constituents of my right hon. Friend the Member for Camborne and Redruth (George Eustice). He was kind enough to mention them to me earlier, but I would be happy to meet him as he requested, because I recognise that the specific matter that he raised is important to his constituents, and we need to look into it in more detail.
The hon. Member for Brent North (Barry Gardiner), who served on the Bill Committee, made many useful points. I cannot do justice to all of them, but I am happy to continue the discussion about Daejan Holdings and building safety to ensure that, if there is an issue that the Government have not worked through fully, we understand the details better.
The hon. Member for West Ham (Ms Brown), my hon. Friend the Member for Romford (Andrew Rosindell), my right hon. Friend the Member for Chelmsford (Vicky Ford) and my hon. Friend the Member for Ruislip, Northwood and Pinner (David Simmonds) highlighted the huge inequity that is affecting individuals in individual blocks in their constituencies. That inequity is exactly the reason why we must make progress, and I hope that the Bill is a good proposition for that to happen.
The hon. Member for Lewisham East (Janet Daby) was kind enough to give me more details about the background to her new clause in a separate discussion. What I have heard about from her, and also from the hon. Member for Walthamstow (Stella Creasy)—who is not in the Chamber, but who has a similar concern—is absolutely unacceptable. I entirely appreciate the individual concerns that are felt, and I am keen to continue our discussion so that we can learn from it for the broader good of the building safety sector in general.
My right hon. Friend the Member for Aldridge-Brownhills (Wendy Morton) tabled an important new clause about leasehold houses. I am glad she recognised that the Government have now introduced measures to deal with the issue that she raised. She also raised two important points about reports, and I am keen to meet her so that we can discuss those further and, in particular, discuss the impact involved.
I can tell the right hon. Member for East Ham (Sir Stephen Timms) that we are looking into the issue of the Building Safety Regulator, and I will be happy to talk to him about that when we meet to discuss Barrier Point. Since his speech I have checked the position on asbestos. We do not believe that that right is extinguished, but if we are not correct I would be keen to talk to him further to ensure that we understand exactly how that regime will work in practice, and to try to assuage his concerns.
My hon. Friend the Member for Cities of London and Westminster (Nickie Aiken) exhorted us to move at this watershed moment. I am keen to talk to her further about the participation thresholds. She has made a powerful case, both to me in the House today and more broadly, about the importance of ensuring that this is workable, particularly in the circumstances that are faced in the centre of London.
While I entirely understand the point made by the hon. Member for North Shropshire (Helen Morgan) about some of these changes, I worry about her new clause, and I ask her not to push it to a vote. While her intentions are clearly noble, the new clause would put us into a position in which assets were being expropriated for the purpose of something that could be as insufficient as notice of an annual general meeting. I hope that she will reflect on that during the time we have left before the votes.
My right hon. Friend the Member for Witham (Priti Patel) made a strong point about the need to consider estate management further, and I have given a commitment to do so. FirstPort was raised by a number of Members, including my right hon. Friend. It may interest the House to know that my hon. Friend the Member for Harborough (Neil O’Brien) will lead a Westminster Hall debate on that tomorrow—so same time, same place, same discussion, but an opportunity to consider further the people and organisations that are not doing the right thing in this regard.
My hon. Friend the Member for North East Bedfordshire (Richard Fuller) has been an absolutely doughty champion of progress on estate management, and he is absolutely right to do that. His speech demonstrates again the strength of feeling about this issue and, as I said at the Dispatch Box a moment ago, we are considering it further and recognise the importance of doing that.
I turn to the contribution from the hon. Member for Greenwich and Woolwich (Matthew Pennycook), who speaks for the Opposition. He has tabled a new clause on forfeiture. I hope that the Government have indicated very clearly that we recognise the significant problems in this area and are working through the detail. Although I understand what he is trying to do with amendments 4 and 8, we think it is proportionate to retain the current position that we have set out from the Front Bench, for the same reasons as in Committee.
My hon. Friends the Members for Redditch (Rachel Maclean) and for Harborough made a very clear case about the importance of those on the Government Benches leaning into reform. In the time I have left, knowing that other parties and other traditions represented in this House will make similar cases—it is a shared endeavour in this area—I want again to make the Conservative case for leasehold reform. Building on our proud heritage of reform, it is a Conservative Government who are bringing forward the most transformational proposals for improving the lives of millions of leaseholders. It is a Conservative Government who are building the case for change to deal with the iniquities present on new estates, and who are committed to setting ordinary families free from unnecessary burdens. It is a Conservative Government who have brought forward one of the most comprehensive changes to property in a generation.
Why have we come forward with these proposals? It is precisely because it is a Conservative thing to do. We are cautious about interfering in the markets, for fear of unintended consequences or the creation of barriers. We know that no Government can ever fix every problem, but when we are convinced about the case for reform, we will fight for it with every sinew. At the heart of being a Conservative is the desire to smash monopolies and remove bad practice. We will celebrate where things work well, but we will joyfully remove distortions that are exploited by chancers and rogues. We will constrain rent seekers and middlemen, who add little to the basic economic exchange of goods and services that is at the heart of our economy.
Fundamentally, we are committed to making our markets more perfect and, as a consequence, to setting people free to make their own choices, live their lives and build their own future. Leasehold has been exploited for far too long by those who have no interest in the good functioning of capitalism. The lack of transparency, clarity and redress in freehold estate charges causes frustration up and down the land, and it does nothing for the efficient functioning of markets. That is why we are reforming.
Adam Smith talked of ground rents as monopolistic in 1776, Hayek reminded us in 1944 of the importance of making competition work and of not accepting institutions as they stand and, as my hon. Friend the Member for Harborough indicated, Margaret Thatcher asserted in 1982 that there is no prouder word in our history as Conservatives than “freeholder”. That is the centuries-long call as to why we have to make further improvements to our property system. With this Bill, in the true spirit of thousands of Conservative reforms that have made this country better, we are sending a clear signal that change for the better is coming and will benefit millions of people for the long term. That is only possible because of all the hard work of all the officials, all the people in the Law Commission and my opposite number, the hon. Member for Greenwich and Woolwich, who has been extremely constructive on this Bill.
I give huge thanks to Professor Nick Hopkins; Tom Nicholls and Chris Pulman at the Law Commission; officials in the Department, led by Robin Froggatt-Smith; my private office, including Grace Doody; and Members from across the House for their valuable input. Although I have just made the Conservative case for reform, we know that this is a shared endeavour among us all, which is why there is an unusual amount of unanimity in this place. It demonstrates the importance of our continuing to make progress on this issue.
As the Bill moves to the other place, I hope that those sat in the other place take note of the consensus and keenness here to ensure that progress is made. I hope they also take note of the importance of ensuring that the Bill continues and of the very many great reforms that are in it already. This demonstrates that together, as a broad group all across this House, we are committed to ensuring that leasehold reform happens, that leaseholders get a better deal and that the estate managers, estate management and freehold estates get clearer transparency, clearer information and a clear understanding of how they can live their lives and set themselves free in the future.
Leasehold and Freehold Reform Bill
Wednesday 28th February 2024
(9 months, 3 weeks ago)
Lords ChamberRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 27 February 2024 - large print - (27 Feb 2024)
Leasehold and Freehold Reform Bill
Wednesday 27th March 2024
(8 months, 3 weeks ago)
Lords ChamberRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 27 February 2024 - large print - (27 Feb 2024)
Baroness Scott of Bybrook
That the Bill be now read a second time.
Relevant document: 16th Report from the Delegated Powers and Regulatory Reform Committee. Welsh legislative consent sought.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, I thank those Peers who have already engaged with the Bill and, indeed, those who have championed reforming the leasehold market for many years. I also thank colleagues from the Law Commission, without whom much of this vital legislation may not have been possible.
The Bill delivers long-awaited reforms to improve home ownership for millions of leaseholders across England and Wales. Reforming the leasehold system is a long-standing ambition of this Government. The comprehensive package of reforms before us will bring greater fairness, security, transparency and competition to the leasehold housing market. At present, leasehold home owners are too often at the whim of their freeholder, disempowered by the fundamentally unfair system. The Bill will address this power imbalance and give people the security of home ownership for their future and their families’ futures.
I will now move to the specific content of the Bill and outline the ways in which, when taken together, this package of reforms will transform the leaseholder housing market and the lives of millions of leaseholders across England and Wales. The core enfranchisement reforms of the Bill will give both families and individuals the security of an automatic 990-year lease extension, with ground rent reduced to a peppercorn on payment of a premium. This ensures that leaseholders can enjoy secure ground rent-free ownership of their properties for years to come without the hassle, distress and expense of repeated lease extensions. Removing the requirement to pay marriage value, capping the treatment of ground rents at 0.1% of the freehold value in the calculation, and prescribing the rates for those calculations will bring significant tangible financial benefits to leaseholders if they choose to extend their lease.
The Bill will also give more leaseholders the right to manage their own building, enabling them to appoint a managing agent that delivers good-quality work at reasonable prices and replace one that does not. As well as empowering leaseholders to make these important decisions themselves, this Government believe that making managing agents more accountable to the leaseholders who pay for their services will encourage these companies to up their standards.
Allied to this, we have also focused measures on cracking down on the poor, unresponsive practices blighting the daily lives of leaseholders, whether a managing agent is involved or not. This will give them true transparency over service charges, so that they can better understand the costs they are being charged and are better equipped to challenge them if they are unreasonable. Following the excellent work of the FCA, we will end the practice of leaseholders being charged exorbitant, opaque commissions on top of their building insurance premiums. We will also extend access to redress schemes for leaseholders to challenge poor practice. The Bill makes it a requirement for freeholders who manage their property to belong to a redress scheme, so that leaseholders can challenge them if needed. This will again empower leaseholders to challenge bad practice and bad management. This Government do not believe it is right that somebody can mistreat a leaseholder and their private property, while said leaseholder has no means to seek redress or compensation for that mistreatment.
Through these reforms, we will also scrap the presumption that leaseholders must pay their freeholders’ legal costs even when they win tribunal cases, levelling the playing field and correcting an historic power imbalance. There must be equality before the law. This Government believe firmly that leaseholders should not pay for a freeholder’s legal costs when said freeholder is found guilty of mismanagement or abuse.
I know that many across the House will be pleased to note that we are also granting further rights to home owners on private and mixed-tenure estates, which many here today have campaigned for. The Bill will give home owners the power to apply to the appropriate tribunal to challenge the reasonableness of charges they face or to replace a failing manager, access to support via a redress scheme, and measures to make buying or selling a property on such estates quicker and easier by setting a maximum time and fee for the provision of information required to make a sale. This measure encapsulates what the Bill is trying to do, which is to bring fairness and equality to the housing market. It is not right to force someone who has bought a freehold property to deal with only one managing company, which is not required to give them any information or charge them reasonable fees. It is also not right that someone who has bought a property on these estates has no effective way to hold the management company to account for the services they provide. These reforms will address that.
The Bill also clarifies and extends the protection in some specific areas of the Building Safety Act 2022, building on the legislation previously brought forward. These specific changes will further prevent freeholders and developers from escaping their liabilities to fund building remediation work, ultimately protecting leaseholders.
The package of reforms in the Bill before us is substantial and far-reaching for existing leasehold properties, but the Government wish to reform the future leasehold housing market too. The Bill therefore now explicitly bans the creation of future leasehold houses, with all new houses needing to be sold on a freehold basis, other than in exceptional circumstances.
In addition to the measures I have outlined today, I want to assure your Lordships that I understand the strength of feeling in the House to make even more changes to the Bill, in particular on the issue of forfeiture. We recognise that this is a real and significant problem and that there is huge inequity at stake here. We are working through the detail of this and will report back to the House shortly with more details as we consider the matter further.
I reassure noble Lords that the Government remain committed to commonhold reform and see it as a long-term replacement for leasehold. The Law Commission did fantastic work to review the commonhold framework and set out 121 separate and detailed recommendations on how to modernise it. These are not trivial changes; implementing them requires detailed consideration to make sure that we get it right, so that commonhold works for everybody.
The Government are also committed to reviewing the leasehold market and considering ways to improve its fairness. As such, we have launched a consultation on the capping of existing ground rents, which we are still carefully considering. The results will be published in due course.
In conclusion, this Bill will give leaseholders and their families greater security of ownership over their own private property for generations to come, and improve the lives of millions of home owners who have been forced to enter into a system that is unfair and outdated. I know that many in this House have campaigned to see these reforms, and I look forward to hearing the contributions of noble Lords during the debate on this important Bill. I beg to move.
Baroness Taylor of Stevenage (Lab)
My Lords, I thank the Minister for her thorough introduction to the Bill and, as always, for the way she has worked with opposition parties and Cross-Benchers in the weeks prior to the Bill coming to us, so that she could understand our concerns and issues. I thank the many organisations that have sent us briefings, and particularly the Law Commission for all the work it has done. I thank the individuals who have sent us their personal accounts of the impact of leaseholds. I also thank all the individuals and organisations that have campaigned so effectively and for so long on leasehold, including, of course, my noble friend Lord Kennedy.
The Bill is certainly not the leasehold Bill that the Labour Party would have wanted. Most importantly, it is not the Bill that the beleaguered legions of leaseholders wanted. To be candid, I do not think it is even the Bill that the Secretary of State wanted. He set out the original vision last year, stating:
“I don’t believe leasehold is fair in any way. It is an outdated feudal system that needs to go. And we need to move to a better system and to liberate people from it”.
The Secretary of State also made his views on ground rent quite clear in his speech on the Second Reading of this Bill, when he said:
“I was asked by the Select Committee last week what my favoured approach would be, and I believe that it should be a peppercorn”.—[Official Report, Commons, 11/12/23; col. 659.]
The Secretary of State clearly wanted to see a scrapping of the feudal leasehold system and a capping of ground rent to peppercorn rents. From this original vision for the Bill, what we have before us today is a virtually eviscerated shell of a Bill, with little to give comfort to the people and families who had hoped to realise their dream of home ownership and have found instead that being a leaseholder simply does not offer the security and control of their lives that their dream promised.
I have been receiving many letters from leaseholders since the Bill was listed in your Lordships’ House. A particularly heartbreaking one yesterday was from an older couple, who said that they have been waiting patiently for this Bill for years to relieve the misery of their experience of leasehold, but feel now that it will not do what they wanted it to. They went on to say:
“We have an apartment where the freeholders changed last year and our service charges quickly increased and now amount to £8,602 per annum. But additional to this our already high Ground Rent charge of £4,000 per annum is currently being reviewed by our Freeholders who estimate this shall increase to £28,000 plus VAT per annum. If they win this review they shall then look to backdate this increase over 6 years”.
The impact of this type of sharp practice, whether on older people on fixed incomes or younger people who are juggling enough with the cost of living crisis, can be catastrophic. This couple face losing their home. It can taint the dream of home ownership, with a raft of excessive conditions, fees and charges. For many leaseholders these charges do not bring anything in return, and the charging regimes are complex and opaque.
I have received many representations from young people whose dreams of home ownership have been shattered, when they finally save their deposit and buy a home, only to find that the terms of their lease leave them, at best, shackled to a regime of unreasonable cost increases and, at worst, unable to sell their home because the lease conditions are too onerous. To quote again the Secretary of State,
“freeholds have become utterly torn away from the warp and weft of the capitalist system as we understand it in this country, and have become tradeable commodities that foreign entities are using to exploit our people who have worked hard and saved to get their own home”.—[Official Report, Commons, 11/12/23; col. 660.]
In addition, the Competition and Markets Authority has already stated that it continues to consider that statutory intervention may be necessary to protect consumers associated with excessive ground rents. The CMA concluded that ground rent is
“neither legally nor commercially necessary”,
stating that it saw
“no persuasive evidence that consumers receive anything in return”.
With all that in mind, you might expect a Bill that gets rid of leasehold once and for all. But this Bill, although dating back to the Conservative manifesto in 2017 and the subsequent White Paper, is a very long way from what leaseholders have been waiting and hoping for: an end to the injustice in the anachronistic leasehold system. It does not ban the sale of new leasehold flats. It does not even properly ban the sale of new leasehold houses. The Government know that the leasehold model and market is broken; they have known that at least since 2017. This Bill was the opportunity to address that, so why is that not being done more comprehensively?
We could have had a Bill that fundamentally reformed the leasehold system, making leasehold obsolete by making commonhold the default tenure for all new properties and enacting the Law Commission’s recommendations in full. There seems to be a determination on the Government’s part to miss the open goal they are presented with here—one that my team, Stevenage FC, would certainly never miss.
What we have in the Bill are baby steps toward leasehold reform. We could not oppose those, because they will at least ease a little of the pain currently experienced by leaseholders. We will therefore not oppose the Bill’s progress, even if we have to finish the job later on. Your Lordships’ House can rest assured that we will attempt to use this House’s stages of its passage to make some more of the improvements that leaseholders desperately need.
I turn to the detail of what is in the Bill, before I go into more detail about what is not. Extension to lease terms is welcome, although the devil will be in the detail of how this operates. We welcome the steps towards right to manage, although they do not go the whole way towards commonhold. We believe that the changes to the calculation of lease extension premiums and the collective buying of freeholds will make it easier and cheaper for leaseholders to buy their homes and maintain long-term housing security. These are welcome, as are the 990-year leaseholds, which will offer the same security, taking away the hassle and expense of future lease extensions.
The further provisions on building safety—for example, replacing the regime for dealing with insolvent developers and orphaned buildings—are welcome. However, it could have afforded a lot less heartache to affected leaseholders if these were included in the Building Safety Act in 2022—but better now than never.
The end of marriage value will right the injustice where leaseholders had to pay the freeholder when extending their lease or purchasing the freehold, so that is also welcome. Additional rights for freeholders on private and mixed-tenure estates will be beneficial. However, I think we still have some way to go to ease the misery for freeholders of what is known as fleecehold.
The provisions relating to ground rent, while welcome as far as they go, are still subject to the outcome of a consultation that we do not yet have. Will the Minister be offering government amendments in this respect later in the progress of the Bill? We will certainly be trying to clarify the situation on ground rent for all leaseholders, including those who currently have lower ground rents, as the Bill progresses.
We welcome the change to the inclusion of leaseholders in the management of their homes, but there remain concerns about this and how it will operate. I know my noble friend Lord Kennedy will want to question the complexity of enabling the participation and enfranchisement of leaseholders as we go through today’s debate.
We will be looking at more fundamental improvements to the Bill in Committee and on Report. I will start with the disproportionate and draconian legacy of Victorian property law that is forfeiture. This mechanism allows landlords to ensure compliance with a lease agreement by using forfeiture of the lease as a threat, even for minor breaches of leasehold or relatively small amounts of arrears. Its continued use, and the chilling effect that results from its mere existence, continues to put landlords in a nearly unassailable position of strength in disputes with leaseholders. It is routinely used by landlords as a first resort when seeking to recover alleged arrears of payments from leaseholders. Worse still, the threat is often invoked to deter leaseholders from disputing any unreasonable costs and defending claims.
With the pledges to reform leasehold stretching back over so many years, the Government have had plenty of time to consider how they would deal with forfeiture in this Bill and yet in the other place Members were told as recently as February this year that the Government were:
“working through the detail of the issue”.—[Official Report, Commons, 27/2/24; col. 197.]
I ask the Minister to set out how long this is going to take and say whether we will have a solution before we reach Third Reading. Too many of the Bills that come before this House now are subject to further work as the Bill progresses.
We will be seeking to remove deferment rates from the discretion of the Secretary of State. We believe that without having something on the face of the Bill which will deal with this issue, in future vested interests may still be able to attempt to introduce rates which are punitive to leaseholders, and that is not acceptable.
Unless the Minister is able to introduce government amendments in relation to the outcome of the ground rent consultation that restore the balance more closely to the recommendations of the Law Commission and the Competition and Markets Authority, we will want to extend the right to peppercorn ground rent to the most common leases—those under 150 years.
I know that many noble Lords are disappointed that the Bill does not go further in relation to the regulation of property agents. While new statutory rights relating to estate management companies are welcome, it is—as my honourable friend in the other place, the shadow Housing Minister pointed out—incomprehensible that the Bill does not incorporate the proposals from the Regulation of Property Agents working group in July 2019. This group, chaired by the noble Lord, Lord Best, made recommendations that have widespread support in both Houses. I am sure he will want to say more about this himself, but it is hard to understand why the Government have not taken this opportunity to implement such a common-sense approach. It is a clear example of what I described earlier as missing an open goal.
Lastly, but probably most significantly, we hope to persuade the Government to rethink their decision not to extend the ban on leasehold to flats; 70% of leaseholders live in flats. To leave out new flats from the ban on leasehold justifies my description of an eviscerated Bill because it means that the Bill simply will not do what it set out to do. We will be proposing amendments to the exclusions the Government have included for the ban on new leasehold houses. We believe these are too wide and will almost certainly result in a way through for landlords who want to perpetuate the leasehold tenure for houses.
There is clearly a broad consensus in both Houses for a radical overhaul of leasehold, so the question is whether this Bill achieves that. Although it set out with worthy intentions and initiates some improvement, we do not believe it goes anything like as far as it should. With the parliamentary time left to us, and with the desperation of leaseholders to see at least some improvement in the catastrophic circumstances some of them face, it is not our intention to try to persuade Ministers to radically overhaul the Bill by means of the many hundreds of amendments that would be required to implement all the Law Commission’s recommendations on enfranchisement, right to manage and commonhold. However, it remains our position that this will need to be done.
Whether this Bill receives Royal Assent or not before this Parliament is dissolved, a Labour Government will have to finish the job of finally bringing the leasehold system to an end by overhauling it, to the lasting benefit of leaseholders, and reinvigorating commonhold to such an extent that it will ultimately become the default and render leasehold obsolete. I reassure leaseholders across the country that we are absolutely determined to do so.
Baroness Thornhill (LD)
My Lords, it is an absolute pleasure to follow the noble Baroness, Lady Taylor of Stevenage, with her meticulous attention to detail. I too thank all those who have contributed to getting the Bill to where it is now. It is noticeable that MPs across all parties have worked tirelessly on this Bill— I will not name names because you always miss someone out—in the other place. That is a sure sign that there really is a consensus and a need to drive this forward.
To say that this Bill is needed and well overdue is an understatement. The Secretary of State himself said that the leasehold system was “outdated” and “feudal” and a lot more besides. Millions of property owners own their homes through leases in England and Wales, which along with Australia are the only places in the world where this system still exists. As there have been numerous parliamentary and independent reports from organisations ranging from the aforementioned Law Commission to the Competition and Markets Authority giving incredibly similar recommendations, you would think this Bill would be relatively straightforward—but not so. We are disappointed that there are no proposals to really reinvigorate, which is the word being used, commonhold nor a clear pathway to it becoming the main tenure.
Liberals have actually been campaigning against leasehold since—wait for it—Lloyd George’s People’s Budget—
Baroness Thornhill (LD)
Of 1909—I am glad that my noble friend Lady Pinnock knows that.
This system is so engrained in our history that there is inevitably going to be a chasm between the Secretary of State’s theatrical rhetoric and harsh reality. There are also going to be winners and losers. Indeed, the Secretary of State pledged to
“squeeze every possible income stream”.—[Official Report, Commons, 11/12/23; col. 659.]
that freeholders have under the unfair feudal leasehold system. But we do not feel that the Bill as it stands does this. As has already been said, the devil will be in the detail, and we will hope to work with some of that detail.
The Government are demonstrably vulnerable to extensive lobbying, and this has weakened both the Government and the Bill, most recently regarding ground rent, which we feel should eventually be abolished. There is no hiding our disappointment that promises to abolish leasehold have been watered down, particularly the fact that flats are exempt; we would seek to include them, the more so because they make up 70% of leasehold properties. Retirement homes are also exempt. Why developers of retirement properties get a special carve-out is beyond me—surely the Government should be on the side of the elderly and vulnerable, at that time in their lives, who have downsized, freeing up family homes. However, they are unwillingly extorted in their new home and when they or their relatives come to sell, there are further charges—the so-called event fees.
The exemptions will mean that significant numbers of leasehold homes will still be built. The rhetoric has turned to “reform” rather than “abolish”. It is a disappointment but perhaps understandable in a Government that are now too weak to deliver big changes such as this and perhaps have too many of those with vested interests in their ranks or on their donor lists. Add to this the quiet death of the Renters (Reform) Bill—I hope the Minister will have an update on that—and it certainly leaves much for the next Government to get their teeth into.
On these Benches, our biggest concerns are building safety and cladding, which my noble friend Lady Pinnock, of Cleckheaton, will continue to work on as she has done since the very early days of the Grenfell tragedy.
The other big one for us is the lack of real reform regarding regulation of property agents and their management fees. These are a right rip-off and a licence to print money for doing nothing or next to nothing. The report from the noble Lord, Lord Best, in 2019 made many sensible recommendations as did the Law Commission in the same year. These should be implemented in full.
My own recent casework reminded me sharply of how vulnerable elderly leaseholders are when demands are made for payment for repairs that they deemed were completely overpriced. To prove their point, they went to the trouble of getting three quotes from local builders for the same work. The range within the local builders’ quotes was very little, but the difference between the landlord’s quotation and the most expensive local builder was thousands of pounds—for fencing.
A closer inspection of the last years’ invoices revealed the kind of stories we are now all too familiar with: huge sinking funds; many contingency cushions; eye-watering rises, all with no reasonable—an interesting word that we will no doubt talk about during the passage of the Bill—explanation. The residents decided collectively not to pay their most recent management bill. The company responded with threatening letters, which of course were intended to intimidate them into paying. I will not name the company, as following my involvement things began to be sorted out—we do have our uses—and moneys were reimbursed to residents. But this Bill will offer them very little to ensure that they are not ripped off again, and in this situation the fact that the digging was done by two retired accountants, who have now left the scheme, made me realise that even with the right to manage some residents may not want to manage for themselves and will need to employ a property management company. These are currently unregulated and unscrupulous in far too many cases.
I will, however, praise the work of the Property Institute, which represents thousands of property managers and aims to raise standards and improve transparency for residents. We need to remember that there are always good guys—and gals—out there who also hate their reputation being trashed by those less scrupulous.
The Bill will ban the sale of leasehold houses, but not so-called fleecehold estates: the practice that has developed over the past 10 to 15 years of the public spaces that were once adopted and maintained by the local authority now being in private hands—a management company—with the residents footing all the bills for communal repair and maintenance. What a nasty surprise for them on moving into their new home. First, they may not have known that they were liable for such costs. Often, people are told, “Oh, you’ll just be paying for the grass to be cut a couple of times a year”, before they realise that it is also for the playgrounds, roads, fencing and everything else. There is evidence to show that there is mis-selling in this area. Secondly, those people may not have realised that they would be paying for services that have already been done by the council. In effect, they are paying twice for facilities that others can also use, as well as paying full council tax. Freeholders refusing to pay the so-called rent charge could find their freehold changed to leasehold.
To be fair, the Bill really is trying to put some of this right, but it is all a little bit uncertain—there are more consultations, and more this and more that—as to how things will work; for example, on the ability to appoint a substitute manager. I look forward to the details of how that will happen, along with the proposals that give leaseholders a new right to request information about service charges and the management of their building. That is good but it, too, will need fleshing out, as it feels like the power of what is released and how is still very much in the hands of the management company.
Likewise, the proposals for right to manage will come to naught if leaseholders are not supported to transition. Current charities, such as the Leasehold Advisory Service and others, will need more tools and resources to help this transition and make it work. It is disappointing that commonhold has not taken off in the way that we expected, so we clearly need to give more support to make these really positive changes work.
Key to all of this working at all is to regulate managing agents. Without that, many of the measures will not be successful, or not as successful as they could and should be. We must raise standards and increase competence across the sector and, ultimately, have a fair and transparent system that residents feel is fair—and, if not, that there is a simple and accessible form of redress, unlike the current recourse to the First-tier Tribunal, which, when I explored it for those elderly residents, was neither simple nor accessible. We feel that this fleecehold practice should be abolished altogether and revert to local authority control, with developers contributing to the council coffers towards the upkeep of the estate.
I make a final plea to the Minister that there are potentially thousands of leaseholders who are in a bit of a quandary at the moment about whether they should extend their lease or wait for the legislation—will they be be winners or losers?—depending on which way things go. If the Government could give clear guidelines and guidance as soon as possible to all those who are thinking of selling or remortgaging, I am sure that would be welcome.
Of course, it would be churlish not to say that there is much to welcome in the Bill. I am sure that, by the end of it, we will all be a lot wiser as to marriage value, the extension of leases, enfranchisement, forfeiture, and much more. We look forward to working across the House to table amendments to improve this well-intentioned but somewhat disappointing Bill. In particular, we would like to ensure that the rhetoric around the Bill is borne out in reality.
Lord Best (CB)
My Lords, the Bill before us contains some very welcome reforms but also some omissions. It is silent on one overarching issue: the need for a regulator of property agents.
Any reform of leasehold needs to consider the arrangements for the sale of leasehold property and for the ongoing management of leasehold flats. A good agent, providing an effective service at a fair price, can enhance the quality of life for the residents, and a bad agent, demonstrating poor service, incompetence or misconduct, can make life miserable for leaseholders. Sadly, there are all too many examples of mis-selling, exorbitant service charges, lack of transparency and accountability, and overpriced leasehold management. In a survey by the Property Institute, no less than 62% of those who have bought leasehold homes maintain that they were given misleading or insufficient information. I suspect that most of us speaking in this debate have been sent tales of abysmal management and excessive fees, as illustrated by the noble Baronesses, Lady Taylor and Lady Thornhill. Yet in most cases leaseholders cannot change their managing agent and escape this trap.
The role of a new regulator of property agents would be to encourage and support the good, raise standards, and drive out the bad. The regulator would require agents to be suitably qualified and to engage in continuous professional development. The regulator would require adherence to codes of practice, probably with one overarching code and then specific codes for each specialism within the sector. Only those individuals and firms meeting the regulator’s criteria would be given a licence to operate. The regulator would have powers to discipline those who breached the relevant code, including the power to withdraw their licence.
I declare my housing and property interests as on the register and would add that I chaired the Government’s Regulation of Property Agents Working Group, which presented its report to government back in July 2019. The working group comprised representatives of the sector and consumers, and it was unanimous in strongly recommending the establishment of a regulator of property agents—estate agents, lettings agents and managing agents, not least of retirement accommodation. Over recent weeks your Lordships’ Committee on Industry and Regulators, of which I am a member, has been revisiting the working group’s 2019 report. Its conclusions were put to Secretary of State Michael Gove last week, and received widespread publicity. The Select Committee endorsed in all respects the earlier report, adding some extra emphasis for engagement by a new regulator with the consumers—the tenants, buyers and leaseholders. The Lords committee noted the strongly held views of those representing the consumer, with powerful advocacy from Generation Rent and the Leasehold Knowledge Partnership, but there was also unanimity of view from the relevant professional bodies and industry stakeholders.
In the briefings for our debate today, regulation of the sector is the number one issue for both the Property Institute—previously the Association of Residential Managing Agents and the Institute of Residential Property Management—representing 6,000 property agents, and Propertymark, incorporating the National Association of Estate Agents and the Association of Residential Letting Agents, with some 18,000 member agents. That is the industry’s top ask, as we consider amendments to the Bill. Indeed, the urgency for regulatory reform has increased now that the Building Safety Act 2023 has meant managing agents handling huge sums of leaseholders’ and public money to ensure that remedial work is carried out. It is more important than ever that only reputable and qualified professional agents are in charge.
It seems curious that, with support from all sides, and the obvious popularity of raising standards and rooting out bad practice in this sector, the Government have failed to include the creation of a regulator of property agents among their reforms to the leasehold sector in the Bill. Is it not necessary? None of the Select Committee’s expert witnesses or the relevant consumer bodies has claimed that the industry does not need this change or that self-regulation is sufficient. The preparation of a voluntary code of practice by an industry group convened by the RICS and chaired by the noble Baroness, Lady Hayter of Kentish Town, has paved the way for a regulator to determine the content of a statutory code. But all parties are agreed that a regulator with independence from the sector and real teeth is essential.
Too late? No one can say that the proposals for a regulator have come too late to be included in the Bill: the Government have had the Regulation of Property Agents report, the RoPA report, for nearly five years.
Too costly? It cannot be argued that the cost would be unduly burdensome. For example, some £15 million a year could be raised by a levy of £3 per annum for every leasehold property under management, Clearly, this would not add significantly to overheads or deter new entrants to the sector.
An ombudsman instead? Could a more powerful ombudsman scheme achieve a similar outcome more simply than by creating a new regulator? A regulator and an ombudsman perform complementary but distinct roles, as demonstrated by the financial services sector and the social housing sector. The ombudsman—and a single ombudsman service is certainly to be preferred to the current situation with two competing redress schemes that can cause confusion—can respond only to complaints by individuals, and the ombudsman’s powers to insist on codes of practice and sanction offenders are necessarily limited. By contrast, a regulator has a wide brief; can specify required qualifications; can take account of information from many sources, for example, from neighbouring agents who notice abuses, from press reports, from whistleblowers within firms, et cetera; and can have the flexibility to act accordingly.
The property agency sector has a vital role to play in keeping people safe and well, providing a valued service for owners and landlords, as well as for leaseholders and tenants. Good agents ought to be held in high regard. Bringing the industry into a properly regulated framework would professionalise the whole sector and give it the status and prestige it deserves. I therefore say to the Minister that there is still time to introduce an enabling clause into the Bill to empower the Secretary of State to create a regulator of property agents. This would be greeted with acclaim by all parties involved, especially by the leaseholders suffering at the hands of badly performing agents. Let us put this key component into the Bill while we can: who knows when the opportunity will arise again?
Lord Young of Cookham (Con)
My Lords, it is a pleasure to follow the noble Lord, Lord Best. I agree with everything he said about the regulation of property agents and, were he minded to table an amendment to the Bill, I would like to add my name. I thank my noble friend for her readiness to consult colleagues throughout the passage of the Bill: I am sure this will facilitate its speedy work.
My speech is in two halves, the first focusing on the Bill and the second dealing with unfinished business with the Building Safety Act. The Government are well ahead in the first half but heading for a score draw by the end. I warmly welcome the Bill, building as it does on previous pieces of legislation, all progressively empowering leaseholders and moving away from a feudal system of tenure that exists nowhere else in the world. I will just touch on the more controversial measures on ground rents and marriage value. Having attended a meeting, with other noble Lords, with freeholders, it is absolutely certain that this is going to be challenged in the courts. I take comfort from what is on the face of the Bill, namely that my noble friend asserts that the Bill is compatible with the ECHR.
The consultation on ground rents closed on 17 January and the Cabinet Office guidance says Governments should
“publish responses within 12 weeks or provide an explanation as to why this is not possible”.
That runs out on 10 April, so will we have a response before Committee, hopefully rebutting rumours in last week’s Sunday Times? If the Bill becomes an Act, and a leaseholder declines to pay the historic rent demanded by a freeholder, citing this Bill, and is taken to court, as seems likely, will the Government stand behind that leaseholder and bear the costs?
On marriage value, many properties in London, from where most of the freehold objections have come, have been on 99-year leases for centuries. Each time the lease expired, the freeholder had all the marriage value—financial polygamy if ever I saw it.
There is one area where we are going make progress: I was relieved to hear what my noble friend said about forfeiture. A tenant can lose possession of a £500,000 flat for a debt of £351, with the landlord keeping the entire difference between the value of the property and the debt. Will my noble friend go a little further than she did in her opening speech and commit to a government amendment to abolish forfeiture and replace it with a more balanced response?
I share the disappointment of other noble Lords at the absence of progress on commonhold. In 2019, the House of Commons Select Committee, with a Conservative majority, urged the Government to ensure that
“commonhold becomes the primary model of ownership of flats in England and Wales”.
The noble Baroness, Lady Taylor, quoted Michael Gove’s statement, which is worth repeating:
“I don’t believe leasehold is fair in any way. It is an outdated feudal system that needs to go. And we need to move to a better system and to liberate people from it”.
But in the Bill, there is no progress whatever on these flats.
Turning to the Building Safety Act, I welcome the measures the Government have introduced to alleviate the problems of those living in flats requiring remediation following the tragedy of the Grenfell fire, but there is a significant gap, best illustrated by quoting the commitments the Government made at the outset. In his Statement in the other place on 10 January 2022, the Secretary of State said:
“We will take action to end the scandal and protect leaseholders”.
Later, he clarified what he meant:
“First, we will make sure that we provide leaseholders with statutory protection—that is what we aim to do and we will work with colleagues across the House to ensure that that statutory protection extends to all the work required to make buildings safe”.—[Official Report, Commons, 10/1/22; cols. 285-91.]
Note that that commitment extends to all building work, not just cladding, and there was no qualification of the word “leaseholders”.
This broad commitment was confirmed by a letter written to all noble Lords by my noble friend’s predecessor, my noble friend Lord Greenhalgh, on 20 January 2022. He wrote:
“The Secretary of State recently announced that leaseholders living in their homes should be protected from the costs of remediating historic building safety defects”—
not just cladding. However, the position now is that not all buildings are covered; not all building safety defects are covered; and, crucially, not all leaseholders are protected. In particular, it remains perverse that, while we debate a Bill to facilitate enfranchisement, the Government have deliberately chosen not to give protection to those that have enfranchised, while leaseholders who have not enfranchised continue to enjoy a better deal.
The two principal exclusions from the commitment given by the Secretary of State are leaseholders who live in buildings less than 11 metres tall; and other non-qualifying leaseholders, a category that does not exist in Wales, where remediation funding is available for all buildings and all leaseholders are protected. On buildings under 11 metres, the Government’s position seems to be that residents should be able to leave the building in the case of fire without expensive remediation. This position is at odds with that of the London Fire Brigade. This is its statement:
“With regards to the remediation of buildings, we strongly assert that all buildings with serious fire safety defects should be remediated regardless of height”.
Many of these flats are unsaleable and unmortgageable, the owners cannot afford to pay for remediation and, in the view of the fire brigade, they are unsafe. The department’s case-by-case approach is moving at a glacial pace, with no clear outcome even for cases that are audited by the department and deemed to require remediation.
Also excluded are leaseholders who own three or more residential properties. The perverse consequence of this is that you can own a manor in the Cotswolds, plus a villa in Italy on Lake Garda and a luxury penthouse in central London worth £1.5 million and qualify for protection. Yet if you and your partner own a small, terraced house and three small £100,000 buy-to-let apartments as part of your pension planning, only one of which has non-cladding fire safety defects, you will face bankruptcy. If we are to have exclusions, they should be value-based, not quantity-based.
Then there is the position of joint ownership. In many cases, landlords exceed the threshold of more than three UK properties only because they jointly own properties with their partner. I welcome the Government’s rather belated decision to consult on this. They issued a document last week, with consultation due to end next week. That is a very short time for consultation, but if it means that a fit-for-purpose amendment can be introduced in this Bill, then that could excuse it.
The LUHC Committee in the other place, with a government majority, rightly noted last year:
“Leaseholders are no more to blame for non-cladding defects than they are for faulty cladding on homes they bought in good faith. Buy-to-let landlords are no more to blame than other leaseholders for historic building safety defects, and landing them with potentially unaffordable bills will only slow down or prevent works to make buildings safe”.
That, of course, affects everybody in the block. At the moment, there are 4,092 buildings over 11 metres with unsafe cladding, but over half of those—2,077—have no remediation plans in place.
In short, the Building Safety Act created a two-tier system where leaseholders deemed qualifying will benefit from the protections, whereas those arbitrarily deemed non-qualifying have been left to fend for themselves, exposed to uncapped costs for non-cladding remediation. Those people took all available precautions when they bought and are in no way responsible for the defects that now need remediation. Without a truly comprehensive solution for all buildings of all heights and tenures, unfairness and uncertainty are set to perpetuate, not least because there is no deadline for remediation. My amendments to this Bill will seek to rectify those injustices and I hope the Government will listen.
Baroness Andrews (Lab)
My Lords, it is a great pleasure to follow the noble Lord, who has been indefatigable in his pursuit of justice and improvements to the leasehold system. The Minister is going to have a huge amount of help to improve the Bill; she has already heard from the noble Lord, Lord Best, about how to improve the regulatory system, and there will be lots of advice coming from around the House, as there has been from every part of the industry that knows about leasehold.
I welcome the Bill, but like many others in the House—as I am sure the Minister will hear in the rest of the debate—I think it is a disappointing Bill because it does not fulfil the full task that the Law Commission undertook. Mr Gove, who is ever cheerful, was hardly right when he said at Second Reading in the other place that the Bill would mean
“the effective destruction of the leasehold system”.—[Official Report, Commons, 11/12/23; col. 659.]
That is not so, sadly. It does serious damage, but the leasehold system survives and will go on inflicting and perpetuating real damage, as we have heard already from around the House. He also conceded that more improvements were necessary and I think we have heard several, very powerful reasons for that. Without delaying it, I am sure that this House can improve the Bill very seriously.
The failure to follow the full recommendations of the Law Commission is particularly frustrating because it is one area of the complex and disastrous housing landscape where a solution can be found through the law. The Government have said that there has not been enough legislative time; I say very gently to the Minister, because I know she is not responsible, that if the Government had not distracted both Houses with legislation such as the Rwanda Bill, then we might have had more legislative time. There certainly would have been more time to consider, for example, the proposition made by the noble Lord, Lord Best, about introducing a regulator, or addressing the impact on building safety.
The Government would also not have had to introduce 124 of their own amendments, 34 new clauses and a new schedule in Committee. We are making legislation on the hoof. Legislation like this, which is consensual, ought at least to have the benefit of proper and thorough scrutiny, and we will give it that in this place, not least to some of those 72 very constructive amendments which came forward from the Opposition in the other place—all of which were, of course, rejected.
Reference has been made to this bizarre medieval system of leasehold which we have inherited. Like the feudal laws it echoes, it places all the power in the hands of the freeholders, who are indeed free of all obligations to show responsibility, transparency or fair treatment to the leaseholders beholden to them. Leaseholders live with insecurity compounded by secrecy. They live with no control over what the freeholder is up to next—they never know, especially with offshore companies. They are subject to arbitrary cuts and things being loaded into maintenance, over which they have no control; the cases mentioned by my noble friend on the Front Bench were extraordinarily powerful. They are subject to bad or indifferent property management, as the noble Lord, Lord Best, has described. They worry constantly about whether they should or could afford to extend the length of lease, or pursue enfranchisement—what does it involve and what will it cost?—or what the implications are if they rent out, stay in or sell their homes? No other form of tenure faces such intractable problems.
We talk these days about the precariat; this is at the very edge of the precariat, and more so the 70% of leaseholders living in flats. Yet they have less protection in this Bill, which does not offer them what they need. I speak from experience: as a leaseholder in a block of flats in London, I am in that precariat. This is a speech of two halves, and the second half will be about a particular issue that comes on top of all the others.
If the Bill had been comprehensive, it would certainly have abolished leasehold for all properties. While I welcome the ban on new leasehold houses, I cannot understand the logic of not extending that to flats—not for political reasons alone. I welcome the changes which will make it cheaper and easier for existing leaseholders in houses and flats to extend their lease or buy their freeholds. It is long overdue to be able to extend a 90-year lease to 990 years. As has already been said, why could the Government not have followed the logic and given leaseholders greater protection against losing their homes if they are found to be in minor breaches of the lease? I take comfort from what the Minister has said, and I look forward to seeing what the Government will bring forward; I just hope it will deal with the problem. Also, why did they not follow the logic of placing in the Bill, the purpose of which is to reduce the cost of enfranchisement, a clear legal obligation to encourage leaseholders to acquire their freehold at the lowest possible cost when determining the applicable deferment?
Many of the amendments put forward in the other place will have served the purposes of this Bill very well. It would have been right and sensible to give leaseholders the right to buy up their ground rent, or to provide that all new flats should include a requirement to establish and operate a residents’ management company. Every day, we see the evidence for how effective resident management buyouts are, with lower costs, higher standards, and so on. As other Members have said, the Bill might have also included provision to give leaseholders the right to a share of the freehold, which is the first step towards the preferred option of commonhold. The extension of the protections around the Building Safety Act are very welcome.
We have heard already several times about the importance of the work done by the noble Lord, Lord Best, on the property agents working group. If the Government were worried about Henry VIII clauses, because that is what they said, it would be the first time I have ever heard, in this House, any Government be worried about Henry VIII clauses. I am not going to take that seriously and I do not think anyone else should either. All I hope, at this point, is that the Government find a better reason for supporting the case put forward by the noble Lord.
I am sure we will have a lot of further discussion in Committee, and I am grateful to the Minister for already having engaged with me on a particular issue that I will bring forward in Committee, unless the Government choose to do so. I ask the House to indulge me while I tell a particular tale which affects quite a lot of leaseholders in London, and it is a sort of extension of many of the issues.
Many leaseholders in blocks of flats around and beyond London have been threatened in recent years by upward extensions. Upward extension has been made possible by permitted development; there is no right to be consulted or requirement for a planning application, and there is no strength in objection. No affordable housing provisions are required nor is there provision for disability, and the proposed new homes are market-rent and do not help solve London’s housing crisis.
There is no provision for compensation caused by disruption or decanting of tenants. Imagine an 80 year-old who has been living in the top floor of a four-storey house who suddenly finds she is on a building site. She cannot afford to move, no one is going to help her, and she has to stay put. That is the situation facing the residents of my block of flats at the moment.
Extraordinarily, building control does not help. The way building control operates means that permission can be given without construction methods being tested in advance. There could be a builder who has never done this before, who suddenly decides to put a concrete structure on top of four storeys, and no one will actually know whether it is going to work. Building control will not take action until it has gone through the process. There is, in fact, potential damage or danger by construction methods and approach, recognised by departmental circular 3 of 2020, but it is given pretty short shrift. This is a really awful situation to be in when, as a resident, you have no power to challenge.
We were in that situation when we were threatened by two storeys. There was no consultation and minimal information. Permission was sought and granted, first for one storey under normal planning rules and then for two. We lost our judicial review on the one storey, and, extraordinarily enough, we won on appeal on the two storeys, because we were within the catchment area of a hospital heliport. It was nothing to do with planning or our rights; it was only by accident. We are still under threat of a one-storey extension.
In this Bill, I want the Government to honour their promise. The development ambitions of freeholders, all across London and beyond, are having a chilling effect on the ability of leaseholders to seek and afford enfranchisement. The new hazard is that the development value of the plans brought forward by our freeholder have doubled the collective enfranchisement cost from £0.75 million to £1.75 million. This puts it outside of the reach of most of the residents. The Law Commission proposed a remedy in its valuation report, and the Government—Mr Jenrick, no less—said in the House of Commons on 11 January 2021 that:
“Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’”.—[Official Report, Commons, 11/1/21; col. 10WS.]
The Bill has an impact assessment, thank goodness. Buried in it—you have to be forensic—in annex 2, paragraph 12, is the recognition that the prospect of paying development value can make enfranchisement prohibitively expensive, contemplating that there will be a new right for an option not to pay development value on condition that leaseholders guarantee not to develop themselves. I will draw my remarks to a close soon, but the assessment is detailed. It also contemplates that the freeholder would be due reasonable out-of-pocket expenses, if they have been genuinely incurred. The freeholder gets some profit, but the leaseholder gets absolutely nothing out of this. The Law Commission did not recommend it—this is an invention of the Government.
I have asked the Minister whether she thinks this is something that the Government can honour in the Bill, and she has said that it is a live issue. That is all I need for now, because I trust the Minister to take this issue seriously. It is quite a general issue. I will come back and discuss this with her, if the Government feel that they cannot. She has already told me that the permitted development review is under consultation and that there may be an implication there. Perhaps she could tell me more about that.
We will certainly engage over the course of Committee, and I will not make any further argument at this point, other than simply to say that I welcome the Bill. It is a huge opportunity; let it not be a missed opportunity. Let us use the resources and expertise in this House to make the Bill as robust and comprehensive as we can. I believe that there is quite a lot of good will on the part of the Government to do that.
Baroness Finn (Con)
My Lords, it is a pleasure to follow the noble Baroness, Lady Andrews, and to listen to so many well-informed and eloquent contributions. I thank my noble friend the Minister for her engagement on the Bill thus far. I am delighted to speak in favour of this important Bill, and in so doing recognise the tireless advocacy of so many noble Lords, especially my noble friend Lord Young of Cookham, the noble Earl, Lord Lytton, and the noble Lords, Lord Kennedy and Lord Best.
Just over a 100 years ago, a little-known thinker called Noel Skelton coined the idea of a property-owning democracy. That belief is still a core tenet of conservatism. However, today, we are talking about tenants, not just tenets. For far too many in England, property ownership has a fatal flaw: for far too many their ownership is fundamentally limited, in that they do not truly own the properties that they have saved to buy. They are merely tenants, albeit often on longer leases. In some cases, they are trapped by extortionate ground rents; in others, they risk losing the roof over their heads if they fail to make such payments. Some face exorbitant management charges or have to seek permission and pay a charge simply to change a kitchen cabinet.
Our leasehold system has its origins in the feudal property laws. Feudalism was a core part of my history degree; it has no place in contemporary Britain. This is why I am so delighted to speak in this debate today. Successive Governments have promised reforms to the leasehold system and failed to deliver. As we heard in the other place, Tony Blair’s new Labour promised to sweep it all away—it even produced a pamphlet about all its plans. However, the Labour Government did no such thing during their years in power. They retreated in the face of vocal opposition, and the situation of leaseholders today is little changed from that of the 1970s. That is why this Bill is so profoundly important.
The reforms are deeply conservative, championed by none other than Margaret Thatcher during her opposition and her premiership. I am encouraged that His Majesty’s Opposition plan to engage seriously, as we all have a common interest to ensure the Bill’s success.
The Bill corrects many injustices. Let me list just a few. It will end permanently the sale of new freehold houses; it will give new rights to existing leaseholders, making it cheaper and easier for them to extend their leases, and making such extensions 990 years as a default; it will bring new transparency over service charges and make it easier for leaseholders to enfranchise; it will protect more leaseholders from unfair and unjustified service charges; and it will improve the management of many buildings. These are huge steps forward, and I pay tribute to the work of my right honourable friend the Secretary of State for Levelling Up. Housing and Communities, as well as to the Housing Minister, Lee Rowley, and before him, Rachel Maclean. The reforms also build on the work of Sajid Javid as Housing Secretary, and incorporate many recommendations of the Law Commission. I welcome all of these measures. Taken together, this package is by far the biggest and most serious change to the leasehold system in recent decades.
However, I hope my friends in the Government will not object to me pressing them to go further in a few key areas, while recognising all that they have already secured. The first area is enfranchisement—the process by which leaseholders can take over their freehold. This will be improved by the Bill, but I urge the Government to go further and abolish the residential freehold exemption and lower the threshold of consenting flats required. Certainly, it should not be possible for a freeholder who also owns leases in a particular block to cast deciding votes on enfranchisement, and nor should absentee overseas owners be able to block the process.
Secondly, successive Housing Ministers have championed commonhold as a viable alternative to leasehold. I am encouraged that the Government have included a swathe of the Law Commission’s reforms, yet the Bill does not yet include the measures that the Law Commission considers necessary to make that system of tenure the new default. We need to move towards a commonhold system, and I sincerely hope that the necessary further measures can be incorporated as the Bill goes through its further stages. I hope that my noble friend the Minister can confirm that they will be included, so that we can finally get rid of the leasehold system.
Thirdly, my right honourable friend Boris Johnson secured a substantial majority just five years ago on a manifesto which included the promise to implement a
“ban on the sale of new leasehold homes”.
The Government have sought to suggest that banning leasehold houses fulfils this promise. It does not, for the majority of leaseholders are in flats. I recognise that no Government would want to ban immediately the sale of new leasehold flats, and that the commonhold fixes I have referenced above would need to be shown to work. However, I suggest that the Government take a power to allow the Secretary of State to end all leasehold, while committing here that it would be commenced only once the market was ready.
Fourthly and fifthly, we have heard a great deal in the other place about the need to address both forfeiture and the fleecehold estates. My honourable friend Rachel Maclean said quite simply that forfeiture must go, and she is right. It is simply wrong that a freeholder can make a tenant forfeit their flat over a disputed service charge. Likewise, my honourable friend Neil O’Brien was one of many who argued strongly about the need to end the model of fleecehold estates and to help the 3 million or 4 million people who are stuck with them. I will not repeat all the points made, save to say that I completely endorse the thrust of their arguments and call on my noble friend the Minister to commit to act now.
I have outlined five areas where I believe the Government should move further. I hope they will do so, so that the Bill, which already achieves so much, can be one which truly delivers the reforms needed to end leasehold for good.
Lord Campbell-Savours (Lab) [V]
My Lords, I congratulate my noble friend on the Front Bench on her very comprehensive canter around the course of reform, and I look forward to meeting her during the proceedings on the Bill, if at all possible. I too give a cautious welcome to aspects of the Bill. I say “cautious” because I believe that a lack of political courage and clarity of purpose at this stage at least to commit to the issue of enfranchisement under a more acceptable form of tenure has created a lot of anxiety. I will return to this issue later in my brief contribution.
I should confess to some experience in some areas covered by the Bill. In the 1970s, I purchased the freehold on my London home, a seamless process which worked fairly well. Also in the 1970s, on acquiring offices in a Lancashire town, I found myself in a quagmire of lease complications over leased accommodation with both office and residential leases. It seems I had inadvertently acquired a series of subleases, which I managed to dispose of to a number of grateful lease-holders at no cost to them. I have never had any desire to be a landlord.
More recently, I, along with other flat owners, after protracted and expensive negotiations and days in a leasehold tribunal, acquired the freehold to our flats outside London. The experience of sitting through days of these hearings at great expense has given me front-line experience of the process of enfranchisement. However, a far greater interest in terms of this Bill is the experience and knowledge I gained while an MP over attempts to purchase the freehold of a London flat used for attending Parliament.
In that case, over half the block concerned was owned by persons overseas, and many of these owners held their London assets in the name of nominee companies, either in tax havens or in the Far East. At that stage, there was no way to crack that wall of secrecy. The managing agents pleaded client confidentiality. In effect, they could do what they wanted. So why did we want to buy? I saw the service charge rise in 17 years, from just over £2,000 a year to nearer £10,000 today, so I just sold up. The scandal of escalating service charges is not only hitting London, it is now hitting flat resale prices in many of our great northern cities. The evidence is to be found in property auction prices at Cluttons, Nationwide and Savills, to name but a few. Escalating service charges are at the heart of arguments over the Bill, and I greatly welcome those provisions in it that provide for greater transparency.
I have always believed that transparency influences conduct. It stands at the heart of my whole approach to political life. For example, just imagine what arguments are going to break out when leaseholders learn of the percentage uplifts being added to their bills for contractual services, maintenance costs, insurance premiums and variable admin charges. I have never seen a leasehold title service charge notification which reveals top-slicing percentages. The question is: how will service charge companies compensate for their lost revenues? Will it simply fall on increased account-handling charges?
I return to the issue of title. This appears to me to be the issue of most concern in the property market. I have had some very interesting conversations on this area of thinking, as set out by Michael Gove over recent days. The letter from the Residential Freehold Association is what alerted me. I quote:
“The proposed cap on ground rents would represent a retrospective interference in the value of legitimate investments made by institutional and private investors, and could wipe out almost the entire value of investments into ground rents. The Government cannot illegitimately reduce the value of these investments without compensating the investors, who will be entitled to, and will seek, compensation for the loss of value they will suffer. Interfering with investors’ existing contractual income streams will lead to a high rate of insolvency for landlords, leaving thousands of buildings in England and Wales without a functioning landlord”.
I do not think the association has really grasped the scale of public anxiety and abuse deployed in property portfolio administration by some of its members. There is a very controversial message there, and while it may be exaggerated, it does need a response from the Government. I think it needs to be corrected. We now hear reports of ground rent investments falling. They are increasingly being offered on property auction sites, and I worry that innocent buyers are picking them up in the expectation of long-term income returns, without realising the possible long-term negative effects on their investments.
The Government are not sending out a clear message. I have been able to talk to auctioneers marketing these products, who all report a nervousness in the market, with the only real interest, interestingly, coming from those investors who lack the savvy to do their homework —primarily investors from overseas. I have also had the opportunity to talk to one investor who commands a very substantial portfolio in the area that we are talking about. It was a difficult message for me, as he described in detail his concerns over what he regarded as expropriation. He foresees the collapse of his portfolio. The question is: what are we to do with this group of investors, some of whom are ethical in their dealings, and others whose approach has been thoroughly exploitative?
I want reform and an end to exploitative leasehold practices, but, equally, I want fairness. Confiscation cannot be on the agenda, but I want reform. This is obviously a very difficult issue for the Government. I suspect it will be all left to the incoming Labour Government to sort out. I suppose, in truth, that I want a review of all forms of title. The system removes the speculative [Inaudible]. That is a tall order.
I speak in the [Inaudible]. After about 4.30 pm each day, I start believing [Inaudible]. Reliability of transmission to the Chamber is impossible in terms of participation, especially in Committee, which invariably comes later in the day on all Bills going through Parliament. I will do my best to intervene when I can, although I shall be following the whole debate, which I find extremely interesting.
Lord Stunell (LD)
My Lords, it is a pleasure to follow the noble Lord, and I am sorry that his speech was somewhat interrupted by technological problems.
I declare an interest as a vice-president of the LGA simply because it is one of many organisations which have contributed evidence and views on the Bill. I also want to declare that I am the joint leaseholder of just one residential flat, which I occupy during my parliamentary work, and I am in the same block of construction that the noble Baroness, Lady Andrews, referred to, with exactly the same issues; I shall certainly work alongside her at later stages of the Bill. However, that will not be the central point of what I want to say. There have been some powerful contributions so far, and many of the things I want to highlight have already been properly drawn into the debate by people who have created the policies I want the Government to advocate, never mind persuading them to join with me.
Unfortunately, the Bill comes from the same stable as the levelling up Act. With that Act, all the promise was in the title; the delivery part was the problem. We have exactly the same tendency here. With the leasehold reform Bill, the promise is in the title but the delivery is not in the Bill. The Bills have other things in common. Both suffered—in this Bill’s case, it is still suffering—from a headlong rush by the Government to introduce new material into the Bill as it goes along. In many cases, as we see in the report from the Commons, it was not controversial enough for the Commons to think that it should be divided on. However, it came at such short notice that the Commons did not have the opportunity to examine whether the stuff brought in front of it was going to work. We have heard enough evidence so far today that the Government are spending an increasing amount of time chasing their tail, trying to make their legislation work. We saw that with the levelling up Act, and some of us think that, however hard they chased, they did not succeed in catching their tail on that one.
During the passage of the Building Safety Act, which I and other noble Lords spent a good deal of our time trying to steer through and improve, on all sides there was a broad level of consensus as to what should be in it. However, in many cases the Government were somewhat resistant to the sensible improvements suggested by Members on all sides of the House, including their own Back-Benchers. Some of those things have had to be put right through further amendments, both to the levelling up Bill and now to this Bill, where loopholes and omissions have come to light.
We had a hint in what the Minister said that we will have some more tail-chasing in subsequent stages of this Bill. Capping ground rents and forfeiture may be coming back to us—I hope they do. However, I hope also that they will come sufficiently soon for us to spend a reasonable amount of time examining the material the Government bring forward, so that we do not have to have follow-up Bills chasing the Government’s legislative tail.
Having said all that, I welcome the Bill before us, despite the fact that it suffers from some major flaws. They have already been spelled out by others, so I will not rehearse them. Some of the worst were set out by my noble friend Lady Thornhill earlier. Can the Minister give us some positive information about the Government’s consultation on capping ground rents and on service charges? The noble Lord, Lord Young of Cookham, rightly brought both matters into play earlier on.
There are also some missed opportunities for real reform. The regulation of property agencies is clearly right up there near the top, and the omission of flats from the creation of new leases is just absurd. Some 70% of leaseholds are flats. The biggest growing market is flat-building in inner urban areas, and all such flats are leaseholds. The problem is getting bigger; it is becoming a larger fraction of the housing market as we speak. The idea that it is not appropriate, timely or sensible to tackle that seems strange in the extreme and difficult to justify, and it certainly needs to be challenged.
I will not say that the failure to make more progress on commonhold is a mystery; the problem with commonhold is that it is broadly seen as a neat solution, but nobody has quite grappled with how you bring it into force. It is a pity that the Government are still struggling when there is so much good information available from the Law Commission and others about what needs to be done to make that happen.
The barriers to the right to manage are being tackled in the Bill. However, as the noble Baroness, Lady Andrews, pointed out, there are some serious tripwires for potential enfranchisers to get to grips with, and I am sure we will want to discuss that in more detail.
However, I want to pick up a point that my noble friend Lady Thornhill raised about the right to manage. The right to manage works well if you have managers who are tenants or leaseholders in those blocks. Therefore, if you like, it is an upper middle-class project enfranchisement. If your leaseholders are solicitors and accountants and so on, you are well made—you can do it, but surely the right to manage needs to go much further through the socioeconomic pyramid than that. This means that, to be workable, there will be not just right-to-manage projects but residential management agents who can do that work effectively on behalf of leaseholders. Surely they then have to be of good quality and integrity—in other words, regulated. I hope that the Government, in responding to the noble Lord, Lord Best, on his point about property agents, will also pick up the residential management agents question as well.
There is a deeper philosophical debate to be had about who in a mature democratic society should have the right to monopoly exploitation of the scarcity value of land. The balance of that debate has moved over the last 250 years substantially in the direction of providing better protection for the weak and minimising harm to the common good. Both are at the expense of the monopoly holders of the scarcity of land. The Government are fond of saying that Britain is world leading but in this area of policy we are world trailing. Only England and Wales, which this Parliament is responsible for, and Australia, have anything like our anachronistic leasehold system tainting the whole property market. It is time that we caught up with the rest of the pack, even if it is too much to hope that the Bill will get us somewhere near the front of it.
The Bill is just a skirmish in a much bigger battle for fair property rights and access to decent housing for all. I very much welcome that when introducing it today the Minister said that she will be ready and willing to engage with us on improving the Bill because, my goodness, it does need improving.
Lord Moylan (Con)
My Lords, it is a pleasure to follow the noble Lord, Lord Stunell, with whom I served on the Built Environment Select Committee. I declare as interests that until August 2023, I was a member of the board of the Ebbsfleet Development Corporation, and that I own and live in a leasehold flat in London and own nominally a further leasehold flat as a will trustee, though I have no financial interest in it.
Some time ago, the block of flats in which I live was the second block in the country to exercise the right to manage when that legislative provision was introduced. It has worked extremely well for us. It has persuaded me very strongly that the control of the management of the building in which you live is the solution to many of the problems that leaseholders have experienced with their freeholders and managing agents. I am slightly baffled as to why the noble Lord, Lord Stunell, suggests that this is something that only the middle classes can attain to. The residents in the block where I live probably fit the description that he set out, but I do not understand why he says that this can be done only by them. We do not manage the building ourselves. We interview, appoint and periodically change a professional managing agent—a property agent—but that agent reports to us and is accountable to us, financially and in the decisions made. The structure also allows us to put in place a long-term plan. The legislation requires us to have a 10-year plan, which has made the prediction of service charges very much easier.
I strongly support those parts of the Bill aimed at giving residents greater control of the management of the blocks in which they live. However, if, as is not the case where I live, there is profound disagreement between the residents of a shared property concerning heavy expenditure, no legal structure will resolve those issues satisfactorily. We need to bring about a change in human nature, which I am afraid is probably beyond the capacity of your Lordships’ House.
I am concerned that the right-to-manage provisions appear not to extend to local authorities, even where the property is held outside the housing revenue account. That is a point that I may wish to probe further in Committee. I am also concerned that landlords will not be able to recover their legal fees from tenants as a result of disputes and about how that impacts on right-to-manage companies and any other form of tenant control that might be adopted as a result of the Bill. It would in effect make it impossible for the right-to-manage company to take action against delinquent leaseholders, because they do not have the resources or the deep pockets of these freeholders to take legal action and risk being left with large legal bills. I would like to probe that further as well.
Where the right to manage is not exercised, leaseholders must face the prospect of service charges being administered by or on behalf of the freeholder. This is the nub of the matter. I will come to ground rents in a moment; this is a much more important issue. I certainly take the view that freeholders should not make a penny out of service charges. There is no justification for them to do that. I would be perfectly happy if the Bill contained a provision preventing that from happening. I would also be happy if the Bill contained a provision saying that the total revenue to a managing agent was capped at a certain percentage of expenditure. I do not think that it requires, at least in this respect, for a regulator to enforce that. One could simply make such Bills unenforceable in the courts, so that the demand could not be collected.
Where I depart from the Government—and, I think, from nearly all noble Lords who have spoken so far—is on the provisions relating to the retrospective cancellation of ground rents, and indeed of marriage value. I am afraid to say that this is an astonishing proposition from a Conservative Government. As lawyers have said, it clearly threatens to damage the reputation of English law in the eyes of both domestic and foreign investors. It makes a wholly unjustified transfer of wealth from one group of persons to another—an estimated £40 billion being transferred from one pocket to another, with almost no justification involved. It will cause very serious difficulties for pension funds and other good-faith investors. I worry that there will be a tendency in this House not to engage properly with this issue, but to say, “Leave it all to the European Court of Human Rights, because they’re going to sue anyway; let them sort it out”. I think we have to engage with the equity of this issue: with its fairness and justification. I have great difficulties with it.
I come to the question of estate charges. I have not heard until today the expression “fleeceholder charges”; I think we are talking about the same thing. These were brought up with great eloquence by the noble Baroness, Lady Thornhill, and I share her outrage. The reason I mentioned my former membership of the board of the Ebbsfleet Development Corporation is that Ebbsfleet is being developed on this basis. The residents of Ebbsfleet will be paying charges for the maintenance of common utilities—parks, roads, amenities and things like that—which would normally be borne by a council.
I think this is the next great scandal approaching the housing market; I have actually said this in the House before. But I do not think it is the case that one should present this, as the noble Baroness did, as a case of wicked mis-selling by developers, because it is in very large measure attributable to councils that are simply resiling from taking on their duties. They will accept the additional council tax generated by the new properties, but will not take on the responsibilities for maintaining those common amenities. So there are at least two parties involved whose attitude on this needs to be addressed if we are to correct it.
I come finally to two lighter points. First, could we all agree to drop this use of “feudal” as a term of abuse? First of all, not everything about feudalism was bad, despite what the noble Baroness, Lady Finn, may choose to correct me on. But, much more importantly, the law of property in this country was totally reorganised by the Law of Property Act 1925. That made provision for a form of tenure where property was shared and gave it the name “leasehold”. That might be an ancient name—they have got rid of “copyhold” and all the other stuff that existed—but the fact is that leasehold as we know it today is not even 100 years old, let alone medieval. It is the creation of 20th-century law. We should recognise that and stop trying to demonise it by making out that it comes from the Dark Ages.
Finally, and very briefly, although this last point may be thought to stretch the scope of the Bill a little, I shall be making a personal effort at some point to try to persuade the Secretary of State that it is time to amend the building regulations to make starling nest bricks compulsory in new developments.
Lord Adonis (Lab)
My Lords, I follow the noble Lords, Lord Moylan and Lord Young, in pressing the Minister further on this vexed issue of ground rents. The history of the proposals on ground rents is of a kind of mirage on the horizon, which the Government are constantly hoping to attain, and then it vanishes at the moment when action is expected to be taken. Perhaps I can just sum up the past, because it is important to understand quite how firm the commitments the Government have given are. They have not just raised this as an issue for consultation; they have given very firm commitments up to now. I will then press the Minister further, not just on when the Government intend to respond to the consultation which, as the noble Lord, Lord Young, said, is due, but also on some of the key issues of principle that underlie that consultation.
This process began on 9 November last year, when the Secretary of State issued a press notice from his department, headed “Ground rent reforms to save thousands for leaseholders”. It was a straightforward statement that said:
“Proposals to slash ground rents and save homeowners thousands have been unveiled by the government today”.
The 9 November statement said not that the Government were consulting on whether there should be reform of ground rents, but what the specific reform should be.
The press notice of 9 November set out, in respect of historic ground rents—not new peppercorn leases—the five options of
“setting ground rents at a peppercorn … putting in place a maximum financial value which ground rents could never exceed … capping ground rents at a percentage of the property value … limiting ground rent in existing leases to the original amount when the lease was granted … freezing ground rent at current levels”.
So, in November, the Government set out five options, and the consultation was to choose between those five. Each of the five, if I may comment on the point made by the noble Lord, Lord Moylan, has differing impacts on those who currently earn the ground rents, and some would appear to take more account of their rights than others. What the consultation does not have is an option of no reform of ground rents.
So my first question to the Minister is: is it still the Government’s position—this is a fundamental issue that either this Government will grapple with, or the next one will have to inherit—that there will be a capping of ground rents? Or is it their position that the status quo might be an option?
To muddy the water further, when the Secretary of State introduced the Bill on 11 December—repeating all kinds of points about feudalism which the noble Lord, Lord Moylan, does not like and which my noble friend Lady Taylor pointed out that he had expanded on in his previous speech—he came down very firmly in favour of restricting ground rents for historic leases at peppercorn value. What he said regarding the conclusion of the consultation on the five options that had just been announced will I think be of some importance to us at later stages of the Bill, or to a future Government. He said that,
“at its conclusion, we will legislate on the basis of that set of responses in order to ensure that ground rents are reduced, and can only be levied in a justifiable way … my favoured approach would be, and I believe that it should be, a peppercorn. Of course, if compelling evidence is produced, as a Secretary of State with great civil servants, I will look at it, but my preference is clear, and I suspect that it is the preference of the House as well”.—[Official Report, Commons, 11/12/23; col. 659.]
I too suspect that it was; I think there would have been a cross-party majority in the House of Commons. Indeed, there would be a cross-party majority in this House for limiting ground rents.
That leads to the issue of the disappearing consultation, and why the Government have given no response to it. I suspect that the content of the briefing to the Sunday Times, which the noble Lord, Lord Young, referred to, is more significant than we might be giving credence to. I suspect that it goes to the heart of the issues that the noble Lord, Lord Moylan, raised, and a concern on the part of the Government that there will be protracted legal action, or that they might have to provide some form of compensation.
I do not support the status quo and I believe that, where profits are made by companies and private entities in a totally unjustifiable way, injurious to those on whom they impact, it is a proportionate use of Parliament’s power to intervene to stop it—particularly in cases where that harm is set to increase, which is the big problem at the heart of many of these ground rent complaints, where you have formulae for increasing ground rents that are completely beyond the power of existing tenants to influence. Though it is true that tenants might have the right not to buy, if this is a totally onerous and unjustifiable imposition in the first place, it is right that Parliament should intervene.
However, it is not my view that matters in respect of this; we need to know the Government’s view—not just when they will respond to the consultation and whether they still stand by the five options but, crucially, their view on the legal position with respect to the rights of ground landlords and whether they might have a legal case or be liable for compensation. It is extremely important that we know this, because we may have to legislate in a different way depending on their view.
As it happens, the Secretary of State did address that issue in his Second Reading speech. This is a very Michael Gove statement, because it is so robust and yet not followed up by any action, which is a characteristic of his:
“I know that some people will say, ‘What about A1P1 rights under the European convention on human rights? You are taking property away from people.’ I respect the ECHR, but if it stands in the way of me defending the interests of people in this country who have been exploited by ground-rent massaging, I am determined to legislate on behalf of those people, because their interests matter more than that particular piece of legislation”.—[Official Report, Commons, 11/12/23; col. 659.]
My final question to the Minister is: is it still the Government’s position that if they are persuaded that the right option is to limit or, in effect, eliminate ground rents, they are justified in doing so despite the European Convention on Human Rights? I would be very grateful if she could give us specific answers to these specific questions when she replies.
Lord Truscott (Non-Afl)
My Lords, it is a pleasure to follow the noble Lord, Lord Adonis. I will come to ground rents shortly. I declare an interest as a long-standing leaseholder.
The Bill before your Lordships’ House today is, in my view, profoundly disappointing, as one or two noble Lords have said. As the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, said in the other place, leasehold is a “fundamentally unfair system”, and his aim is the effective destruction of the leasehold system. Leasehold is, in his words, “outdated” and “feudal”, although I know that the noble Lord, Lord Moylan, does not like that word. I agree with the noble Baroness, Lady Finn, that leasehold has no place in the 21st century. The Bill falls a long way short of its objective of the destruction of leasehold, as the noble Baroness, Lady Andrews, also said.
As it stands, the leasehold system is virtually globally unique—in a bad way—to England and Wales. It perpetuates a property market where around 10 million leasehold dwellers are at the mercy of freeholders and associated freehold professionals who sponge off them. Leasehold codifies and preserves, in the modern age, the medieval relationship between the serf and the lord of the manor, because that is historically where leasehold comes from. I agree with the noble Baroness, Lady Finn, on this. As a historian with three degrees in history, I can assure noble Lords that it is quite the historic pedigree. There is a gap between those who own property outright and those who do not. This applies not just to the great estates that still own huge chunks of prime London and other areas but our country as a whole.
The Secretary of State, Mr Gove himself, said in the other place that the Government would destroy the feudal leasehold system:
“We will do so by making sure that we squeeze every possible income stream that freeholders currently use, so that in effect, their capacity to put the squeeze on leaseholders ends”.—[Official Report, Commons, 11/12/23; col. 659.]
The noble Baroness, Lady Thornhill, repeated this. We hear that Mr Gove is having trouble fulfilling the Tories’ election manifesto pledge to reduce all ground rents to peppercorns. The noble Lord, Lord Adonis, referred to this. But Mr Gove is being opposed by the Treasury, Downing Street and freeholder interests. Meanwhile, as noted in the debate, the Competition and Markets Authority has ruled that there is no legal or commercial justification for ground rents. Ground rents provide no service and are purely rent-seeking.
I have very little sympathy for the self-serving arguments of vested interests that want not only to water down the Bill further but to emasculate it completely. The effect of reducing ground rents to peppercorns is exaggerated by the pension industry and freeholder lobby groups. I do not agree with the noble Lord, Lord Moylan, on this point. Some are hiding behind the European Convention on Human Rights and the right to property. The noble Lord, Lord Adonis, referenced this. Apart from this making an excellent case for an opt-out from the ECHR, which I would have thought the noble Lord, Lord Moylan, would welcome, I point out that the rights of leaseholders need protecting too.
We were told that marriage value was to be abolished under the Bill—
Lord Moylan (Con)
I have never actually argued that we should withdraw from the European Convention on Human Rights. I have an open mind.
Lord Truscott (Non-Afl)
I did not say that at all. I said that I would have thought that the noble Lord would welcome an opt-out from the ECHR on this. If that is not the case, I am happy to accept what he says.
Going back to marriage value, I do not think that marriage value should be replaced with a deferment rate that makes lease extensions even more expensive than they are now, because the deferment rate that the Government are talking about setting is merely marriage value by another name, and it can end up with leaseholders paying even more for lease extensions than they pay now, because it depends on the rate. In my view, His Majesty’s Government should completely abolish the outmoded concept of marriage value based not on what a property is currently valued at but on what a freeholder imagines it may be worth in the future. However, I welcome the Government’s commitment to an online calculator, so at least leaseholders know what the cost of extending their lease might be.
I listened carefully to the Minister’s opening speech, and I hope that she can assure the House that, when the Bill becomes law, it will indeed be cheaper and easier for existing leaseholders to extend their lease or buy their freehold. The greater transparency on charges, including insurance, and the end of the unfair presumption of leaseholders always paying all the landlord’s legal costs is a step forward. As it stands, the system is heavily weighted in favour of the landlord or freeholder. Any legal challenge is fraught with risk, uncertain and extremely costly. Very few leaseholders attempt it. As noble Lords have said, the stories of excessive and padded service charges and extortionate insurance premiums are legion and endemic. These abuses must be brought to an end as soon and as far as humanly possible.
The extension of right to manage in residential blocks is long overdue. I do not accept that mixed residential and commercial blocks cannot be managed by right-to-manage companies, or that investments will dry up as those who live or invest in such blocks are given more say over how they are run.
I regret the absence of the regulation of property management agents, as the noble Lord, Lord Best, has repeatedly raised, or even an insistence that they should be trained and qualified. Property agents can control millions of pounds, and the standards of some of them are unbelievably poor. I know of no other body that manages potentially such large sums of other people’s money that is wholly unregulated. Voluntary codes and redress schemes are not enough.
Commonhold is once again being insufficiently promoted by His Majesty’s Government, as mentioned by the noble Lord, Lord Young of Cookham, and others, including the noble Baroness, Lady Taylor of Stevenage. It may be unpopular with developers but I believe it offers a realistic alternative to the flawed leasehold system.
On forfeiture clauses in leasehold, which a number of noble Lords and the Minister mentioned, although I agree that no one should lose their home for service charge arrears of a few hundred pounds—these can be dealt with by the county court and bailiffs—forfeiture clauses can be a useful deterrent to other breaches of the lease that are otherwise difficult to enforce, such as persistent anti-social behaviour. I look forward to these and other issues being fully debated as the Bill progresses through your Lordships’ House.
The Earl of Lytton (CB)
My Lords, I remind your Lordships of my profession as a chartered surveyor and my lifelong involvement with building, survey valuation and property management, for my sins. I thank the Minister for organising a drop-in session last week, and for her suggestion of a further meeting. I thank her particularly for the answers to several questions I raised after that session, which I received this morning. I will look at those with great care. I also thank the many bodies and individuals who have communicated with me about the Bill.
On the face of it, the Bill contains some very welcome measures. For all the reasons the Minister has given, I support its aim of better consumer protection, but it lacks coherence in many areas, particularly its interface with building safety.
We know the problems, and other noble Lords have explained them: the escalating and opaque charges demanded of leaseholders, the building safety crisis that aggravates cost and risk, a mercenary culture among those who control and manage blocks in which anything not expressly forbidden is fair game, mortgage-lending practices which exacerbate the wasting asset problem, and an opaque leasehold system that, while arguably not itself the prime cause, certainly facilitates abusive behaviours.
There are laws and regulations on our statute book relating to misrepresentation, unfair terms, quality of goods, fitness for purpose, and implied warranties and misdescriptions, to name just a few. To my knowledge, few are enforced to the satisfactory protection of leaseholders. Of course, the regulation of property agents is completely absent.
Let me point to progress in the remediation of defects which are plaguing leaseholders. Of the firms which signed a non-binding pledge with the Secretary of State, the best performer is understood to have remediated some 35% of the affected stock for which it was responsible. The worst performer remediated perhaps 8%. This was rather conveniently set out in the Mail on Sunday of 17 March.
The Government’s January statistics on the developer remediation contract also make uncomfortable reading. Developers have accepted responsibility for 5% of some 90,000 residential buildings of 11 metres in height and above. Some 37% of those where a determination had been made—more than a third—needed remediation of some sort. There was not a squeak about the homes in the 11 metre and below category, where residents might arguably be safer from loss of life but just as vulnerable to the remediation and financial loss trap. Building safety continues to foul up other leasehold issues.
The noble Lord, Lord Young of Cookham, referred to a two-tier market; I would describe it as a three-tier market of qualified, partially qualified and non-qualified leaseholders. This overlies a labyrinth of tests and exclusions regarding such matters as freeholder assets, cladding or non-cladding defects, building height and building information, particularly where landlord certificates are required and the landlord is not the managing agent. Leaseholders unable to contract are further let down by a level of complexity with which even professionals are reluctant to engage. There is a particular problem with conveyancers. While this overshadows some 1.6 million unqualified leases, the construction sector appears to have escaped the bulk of its true responsibilities. This Bill does not address the fundamental issue that all innocent owners should be protected from poor construction and management practices as a consumer right.
In the grand political gesture of this Bill—and there is something of that—the Government appear unaware of how interconnected construction, property and financial markets are. The policy on ground rents appears to be unravelling. All parts of this model have to be addressed together if we are to stand any chance of fixing the problem. The Government wag their finger at freehold—fair enough—and seek to remedy some of the leasehold issues by adjusting the tenure balance. Unfortunately, exploitative practices and building remediation do not entirely go away under this model. The same innocent home owners remain imprisoned in their unmortgageable, unsaleable and potentially uninsurable homes—homes that should have been a safe haven and a secure investment, but are consuming lives and livelihoods, and damaging life chances, productivity and health.
These reforms do not seem to be driven by benefit to leaseholders as consumers who need protecting, so much as by political risk management. Otherwise, why does the Bill seek to turn leaseholders into freeholders, while denying freeholders the protection the Government promised to give to leaseholders? This is an example of incoherence in the Bill.
The Government’s policy is to make freeholders, who may be innocent of creating the construction defects themselves, uniquely responsible for ensuring remediation; doing so at their own cost and risk; taking a legal punt on cost recovery from a developer, if one exists; and doing so out of resources to be depleted by the effects of the Bill. Do the Government think that freeholders are willing and able to do this for the primary benefit of leaseholders, or indeed solvent enough to enable them to do so?
It seems to me that the default here simply puts the matter back into the hands of leaseholders and lawyers. As somebody who is interested in property markets, that is something I want to avoid. I have even heard it suggested that insolvent freeholders’ administrators will hand over the freehold to residents, with all the supposed benefits and none of the remediation and other burdens. I regard that as completely naive.
The claim of abolishing marriage value in fact disguises a transfer of an identifiable element of value long recognised in valuation practice and statute. I do not necessarily advocate for or object to that; I merely state it as a matter of fact, but in future this will solely benefit the leaseholder. This has wider consequences for the financial model. I cannot say which way that will pan out, but it has consequences. Furthermore, it is unclear from the Government’s impact assessment whether any real net benefits would fall to leaseholders. In London and the south-east, most benefiting leaseholds seem to be owned by investors, and a significant number of them are non-UK resident. I do not necessarily object to that at all, but is that the object of the policy in transferring the benefit of this gain? By contrast, investors owning three or more units are actually denied the protections of the Building Safety Act. How do the Government explain that dichotomy?
I also point to Schedule 4, where the market value of assets is defined not by a relevant reference to the accepted national and international standards relating to that term—market value—which assumes a willing buyer and a willing seller, but by reference to a willing seller alone. Presumably they are deemed to be willing at whatever low price the buyer suggests, for that is the inevitable consequence. Can the Minister explain that, and does she subscribe to a rules-based approach to property evaluation?
The market is on notice about the direction of travel here. Even without peppercorn rents, the Bill is definitely going to shift the dial. I simply ask the Minister: where is the evaluation of all these direct and indirect effects? We need to know.
The Secretary of State’s views on the problem are well known and have been repeated by noble Lords. I am not sure whether it is the leasehold system as such or the culture and policies which attend it that is most at fault; presumably, it is a combination of the two. I really support the consumer protection measures in the Bill, but I counsel against wanton destruction of value, undermining people’s investment in their homes and the risk of market disruption. Those have to be avoided. I regard the Government’s proposals as a bit piecemeal and lacking in strategic foresight on replacing leasehold, which people generally feel has to be replaced. But in the meantime, it is going to continue for some time for certain people.
This is not good enough. There are around 5 million leasehold homes in England, worth at least £1.25 trillion. Home owners and their lenders need to be assured that there are plans in place for a smooth transition from one system to the other, whatever the regime happens to be, and that they do not lose out in the meantime. Process and cost have to be transparent—and, please, less profiteering.
There are opportunities in this highly complex Bill to deliver better consumer protections and I look forward to working with other noble Lords to progress them. But parts of the Bill are very far from transparent themselves and this is regrettable. I promised the Minister suggestions on ways of further clamping down on exploitative behaviour that has blighted leasehold over the past 20 years. I regret to tell her that I have not yet finalised these. However, drawing on experience from the continent and elsewhere, I shall elaborate on them as the Bill proceeds. I will certainly return to building safety issues in Committee, because things simply cannot continue as they are. The policy needs to be much more joined up.
In conclusion, lest they become a protracted legal battleground with much collateral damage, all these things have to be dealt with together and not considered piecemeal. If they are, great dangers arise from getting it wrong.
Lord Howard of Rising (Con)
My Lords, I want to speak about the abolition of marriage value for leases under 80 years. This will create financial and legal problems, as my noble friend Lord Moylan has alluded to.
Apart from the shocking moral issues of arbitrarily transferring wealth from one holder to another, with no compensation—from a freeholder to a leaseholder in this case—there is a danger of tampering with property values, when so much of the nation’s economic activity is based on the security of property assets.
I find it difficult to believe that His Majesty’s Government have properly considered the implications of going down this path. If assets can, on the whim of a politician, have their value dramatically changed, we will ultimately end up with a breakdown of the financial system. Noble Lords might consider someone who has put some, or possibly all, of their life savings into an investment suddenly having nothing. There will certainly be examples of this if the proposed confiscation takes place, as well as a diminution of pension fund benefits from pension funds which have invested in freehold ground rents.
There is a strong risk of litigation under the Human Rights Act, as has been mentioned. This could lead to an ECHR challenge against the Government for the unjust removal of property rights, which could result in a significant bill for the taxpayer.
There are 5.2 million leasehold properties, but only 400,000 are under 80 years. Of those, almost two-fifths are owned by professional landlords and rented out. In these cases, the transfer will be from one investor to another. The remaining three-fifths of leases are owner-occupied properties. These transfers will mean a loss for His Majesty’s Treasury, because freeholders will suffer a tax-deductible loss, but the profit to resident leaseholders will be tax free as it is their principal private residence. This would amount to a loss in today’s value of at least £1 billion to the Exchequer.
Four-fifths of the total value of all transfers will be in London and the south-east, with a reputed 60% of higher-value properties held by foreign owners in central London. This means that the Bill will lead to a significant transfer of wealth out of the United Kingdom.
By grandfathering leases under 80 years, where marriage value is already imputed into their enfranchisement or lease extension value, freeholders would not suffer from an estimated loss of more than £7 billion. If the Government give up the idea of abolishing marriage value for leases under 80 years, a substantial legal threat will be removed and a loss of significant sums to His Majesty’s Treasury will be avoided. More importantly, the long-term threat of erosion of stability in the financial system will have also been avoided. I will put down an appropriate amendment in Committee.
The Lord Bishop of Manchester
My Lords, I begin by declaring my interests. I am no longer a church commissioner, as my time finished at the end of last year, but I am paid and—if the Lord spares me—will be pensioned by the Church Commissioners in due course. The commissioners are freeholders, not least of the Hyde Park Estate, which has been in continuous Church ownership and care since around the 11th century, when it belonged to the monks of Westminster Abbey. I guess, if I am going to echo a word that we have used several times today, that makes it genuinely feudal. I also own one leasehold flat in the West Midlands, as set out in the Members’ register.
I support this Bill. It addresses many deep injustices which other noble Lords have addressed and hence I do not wish to repeat. I am also grateful to the noble Baroness the Minister for meeting me and colleagues from the charity sector a few days ago. I am grateful for the comment from the noble Lord, Lord Best, about regulation and the comments from the noble Lord, Lord Young of Cookham, on forfeiture and buildings with fire, safety and other defects. I am also grateful to the noble Earl, Lord Lytton, who is such a doughty campaigner on these matters. It remains a huge scandal that so many people remain trapped owning apartments that are unsaleable.
However, there are three areas that I would like to see explored at later stages; I shall try to be brief for now. The first is about marriage value. Noble Lords might expect a Bishop to support marriage and I will not disappoint. I am grateful to the noble Lord, Lord Moylan, for raising this subject, not least in referring to pension funds, and again to the noble Earl, Lord Lytton, and, most recently, the noble Lord, Lord Howard of Rising. My concerns are with particular reference to charities which own freehold as part of their permanent endowment. We have already heard that some 80% of marriage value in UK relates to properties in and around central London. As several noble Lords, including the noble Earl, Lord Lytton, have stated, many leaseholders in such blocks are corporate and often overseas entities. They are not the people this Bill aims to protect or benefit, nor should it. The Church Commissioners’ Hyde Park properties have an average sale value of £1 million. Those who own them are not, by and large, London’s poor.
The Bill, as drafted, will take money presently used for charity purposes and give it to the wealthy—robbing the poor to pay the rich: a reverse Robin Hood. Lest I be seen as being parti pris, let me offer a non-Church example. John Lyon’s Charity exists to fund children and young people’s services, particularly in nine north and west London boroughs. It is the largest independent funder of children and young people’s services in Greater London and, in 2022-23, it reached the milestone of having awarded over £200 million in grants since 1991. That is over 4,500 grants to over 1,700 organisations. The loss of marriage value could cost it around £3 million per year, money which would go to owners of apartments valued in the millions. John Lyon’s is not the kind of rogue landlord that leaseholders need protecting from.
It is a widely accepted principle of charity law, accepted even when right-to-buy legislation was extended from council housing to many housing association tenants, that charity assets should not be transferred to individuals or bodies that would not qualify as their beneficiaries. This Bill seems to fly in the face of that principle. Is it possible to exempt charities? It appears that the National Trust already has such an exemption and one not restricted to those parts of its estate that are inalienable under Act of Parliament. The principle of exemption is not at stake; what we need to talk about is its extent. Will Ministers look at whether that exemption, or one similar to it, afforded to the National Trust could be extended to encompass other charities? Should that prove impossible, will they put forward a full compensation scheme for when a charity loses marriage value?
My remaining two points relate specifically to mixed blocks in town and city centres. Typically, you will get a ground floor of retail, then there will be some floors of offices and then the residential floors on top. These points might well have been addressed by us moving away from leasehold entirely but, while it remains, they need to be addressed if our town and city centres are to be the vibrant hubs that we need.
First, how are we to prevent groups of enfranchised leaseholders, particularly if many of them are overseas companies, from neglecting the community facilities—ground-floor shops, and sometimes even schools? I have heard it said by one of my colleagues that, on one estate, we could end up with a whole load of vaping or mobile phone shops. We would lose all the shops that really matter to those who live perhaps not in that block but locally. Can the Government offer amendments that will enshrine ways to protect the non-residential parts of blocks, particularly those areas devoted to community and retail uses, or can we limit those entitled to vote on decisions about their properties to actual individual residents in person, rather than remote and often disinterested corporate entities, which would see shops as a way in which to get a rental income, not a service to a community in which they play no part?
Finally, I am concerned that the reduction of threshold for enfranchisement could lead to less building of homes in town and city centres—or we could end up with too few homes and too much office space. I am aware that I am taking a different view from that of the noble Lord, Lord Truscott, a few minutes ago, so perhaps we need to establish the facts. Have His Majesty’s Government undertaken an impact assessment on future home building and, if not, will they do so, and report to your Lordships’ House during the passage of this Bill?
I believe that this is a good Bill, but one capable of improvement, and I look forward to continuing to engage with it through its later stages.
Baroness Twycross (Lab)
My Lords, I declare an interest as deputy mayor for fire and resilience in London, and I thank the noble Lord, Lord Young, for his kind words about the London Fire Brigade.
My deputy mayoral role does not cover residential housing directly, but I am acutely aware of the emotional and financial costs faced by leaseholders. In particular, the issues in relation to remediation following the tragic Grenfell Tower fire have opened my eyes about leasehold and about what a number of noble Lords have observed, and what I understand the Secretary of State himself has said, to be a feudal and outdated system. If it is not quite from the dark ages, as the noble Lord, Lord Moylan, argued, it definitely deserves to be consigned to history.
I shall speak later about some the issues faced by Londoners. First, however, I ask the Minister about the issue of forfeiture covered by my Private Member’s Bill, which would seek to amend the Housing Act 1988. I thank the Minister for her time discussing it, and for her assurances that the Renters (Reform) Bill would cover this. I know from her opening remarks that the Minister is aware of the issues around forfeiture.
As the Minister is aware, the main issue that my Bill would address is the current uncertainty as to whether residential leasehold properties with ground rents of more than £250 a year outside Greater London, or more than £1,000 inside Greater London, are to be deemed to be assured tenancies under the Housing Act 1988. Currently, if the leases are assured tenancies and the ground rents are not paid, the landlord is able to repossess the property. There is no jurisdiction under the Housing Act 1988 for a court to refuse to grant possession to the landlord under an assured tenancy. However, a court has the discretion to grant relief from forfeiture, provided that the leaseholder pays any outstanding amounts owed. This is an anachronism that should be addressed at the earliest stage. Would the Minister accept an amendment that would do this in this Bill, given that the renters Bill appears to be taking some time to progress? As the noble Baroness, Lady Thornhill, said, it appears to have had a quiet death.
In my view, it does not really matter that there are not numerous examples of such forfeiture happening; it is the principle, possibility and threat that matter. This is an opportunity to address this through legislation. Forfeiture of this nature could undoubtedly happen. We know this, because it already happens in relation to service charges. Recently, the Evening Standard raised the case of a Londoner who had not paid her service charge due to the fact she had lodged a tribunal case against the freeholders for bogus service charges. Because the woman concerned had refused to pay a £5,500 bill —a figure 10 times higher than the estimate provided when she bought the flat—she is in breach of the lease and could lose her home. The paper rightly pointed to forfeiture as being the most mafia-like element of leasehold law in what it described as a crowded field. The woman concerned was in fact owed money by the freeholder; she had been awarded money by a tribunal challenging bogus charges but was still liable to lose her home.
The tribunal system is slow and unfair. Many freeholders do not play ball. There are examples of unscrupulous freeholders and agents slowing down an already glacial process and often not paying what they owe. Will the Minister say how the Government feel this legislation will address issues in the tribunal system and why they have not included removing forfeiture at this point through the Bill?
The Bill is a missed opportunity to transform an outdated system which affects millions of people. In the case of this city, over one-quarter of London’s households live in leasehold properties. It is not good enough that more fundamental change, a move to commonhold, is being delayed. While the Government’s recent proposals for reform are welcome as far as they go, they are too little and far too late. England and Wales are, as far as I know, the only countries in the world still operating this feudal freeholder/leaseholder system. The Bill is a missed opportunity to provide the fundamental reform required.
The Mayor of London has championed London’s leaseholders and, like other Labour politicians, has called for wholesale reform of leasehold. London’s housing strategy calls on the Government to introduce alternative tenures, such as commonhold, which has already been introduced in Scotland, and increase the support and advice to existing leaseholders. Mayors have limited levers to improve the situation—this definitely needs government action—but in London, the mayor has developed a range of ways to support fairer outcomes for leaseholders. This includes a requirement for 990-year leases as standard for shared ownership homes funded by City Hall. The mayor has introduced a leasehold guide for Londoners, which provides guidance to help leaseholders make sense of the current unfair and complicated system.
London has also introduced a service charges charter. This ensures that City Hall’s investment partners consider affordability and transparency when providing information to leaseholders. But best-practice guidance is only ever picked up by responsible freeholders; what we really need is an end to leasehold once and for all. What more will the noble Baroness do to ensure that leaseholders get a fair deal? In the absence of government action, will the Government give further powers to regional mayors? Or will they commit to go further than the current Bill by including stronger measures in government amendments?
The Mayor of London is also campaigning for a cap on ground rents of existing leases at a peppercorn rate, which would bring the greatest benefit to leaseholders who are currently required to pay ground rent to their freeholder, often with no clear service in return. I was disappointed to read that the Secretary of State has apparently bowed to pressure from those purporting, without basis, I understand, to represent the interests of pension funds and may back away from measures introducing peppercorn ground rents. Can the Minister reassure us that the Government will reconsider this?
My final point is about the remediation of historic building safety failures. The Government have rightly acted, through legislation and through funding, to protect some leaseholders. But remediation has been far too slow and some people are left either unable to move or with unreasonable and rising insurance bills, even after remediation work has been completed. I know that the Minister is aware of the issue with timber-framed leasehold properties in Barnet, and the recent fire which has led to high remediation costs that are not obviously currently covered by building safety legislation and which will potentially, therefore, unfairly fall on the leaseholders. Will she meet with Barnet Council to discuss this issue? Will she commit to looking at the gap it represents in current building safety legislation? The issues in Barnet are by no means unique. The building safety issues are part of a shocking legacy of many years of poor practice in development. Almost seven years after the tragedy of the Grenfell Tower fire, we are still seeing issues in building safety for leaseholders revealed only when fires occur.
This Bill goes only part way to address the issues faced by leaseholders. Like other noble Lords, I ask the Government to strengthen the Bill further as it passes through this House to avoid continuing an outdated and unfair system.
Lord Bailey of Paddington (Con)
My Lords, it is a great pleasure to follow the noble Baroness, Lady Twycross, with whom I have worked for many years in City Hall. This is my first time contributing to a debate, so if I get a few things wrong, please handle with care.
I have personal experience of being a leaseholder, and I know how the system can be abused to rob you of your dignity and deny you control of your own finances. Today I speak on behalf of millions of leaseholders who want to be released from this feudal system—I share enthusiasm for the term—that renders them “captive consumers”, according to the Competition and Markets Authority.
This is about whether or not we are a property-owning democracy. In 2019, some 13.9 million people voted for a Conservative manifesto that pledged leasehold reform. A further 10 million people voted for a Labour party that promised the same. Since 1966, all parties have promised leasehold and commonhold reform in election manifestos. Once we understand how important this has been to most people in this country, it is astonishing that we have not yet been able to deliver the changes that many, if not all, leaseholders want.
Freeholders have no incentive to get the best financial value for upkeep, insurance or repairs, because they are not picking up the tab. This arrangement is ripe for abuse. Some 95% of flats are leasehold; this legal structure is a forced condition of sale for an increasing number of first-time buyers and elderly downsizers.
Many people in the leasehold world propagate a number of myths to make sure that we continue to hold on to this old-fashioned and—I will say it again—feudal regime. They say that leasehold reform is an affront to property rights, but leaseholders have already paid a premium for their home. According to a leading freehold lobby group, the Residential Freehold Association, professional freeholders typically own only a very small economic interest, defined as just 2.5% of the capital involved in most cases. The association says freehold reform is unprecedented abuse of existing contracts. Freehold lobby groups are ignoring all the times in the past when Parliament has stepped in to rebalance rights and obligations on property for the greater good. This is not a recent leaseholder thing; there are laws dating back to the 19th century that have sought to bring greater equality to existing contracts. Indeed, in the 1980s and 1990s, Margaret Thatcher and John Major gave flat leaseholders the right to acquire their freehold.
Leasehold reform removes professional landlords and puts a burden of management on residents who do not have the time or skill to take care. This is simply a straw man to prevent bill-paying leaseholders taking rightful control of their home, their money and their lives. I am a Londoner and know the valuable role that the great estates play, not only serving leaseholders but the wider community, in placemaking.
However, let us not pretend that all freeholders are benevolent actors or high-performing service providers, such as Cadogan Estates, the de Walden Estate or even the Canary Wharf Group. Your average freeholder appoints a managing agent who does the day-to-day management. That agent could easily be appointed by leaseholders, as flat owners already do in many places across the world. It has already been said in this debate that a property is best managed by those who live there and know what is going on. We could concentrate on some of the bad behaviours by freeholders, such as artificially inflated and undocumented service charges, major works projects that are handed to a friendly contractor and then billed at double, sometimes triple, the going rate when you get a second opinion on what the cost should really be. We have some of the highest housing costs in the whole of Europe, and I submit that leasehold is part of the problem. Last year, Hamptons found that leaseholders in England’s flats were paying a punishing £7.6 billion in service charges, which had jumped 50% in five years.
There are many parts of the Bill that should be commended and that I wholeheartedly back, and I have heard many other noble Lords back the measures in it. However, there are some things on which we need to go further. I personally think the ultimate solution is commonhold, and it is a shame that it is not being proposed here.
Things like 990-year leases as an extension as a norm are of course a good measure. Stopping the punitive legal costs regime, which allows freeholders to dump all their legal and professional costs on to leaseholders whether they win or lose a case, feels like feudalism to me—so I will use that word again.
All of these points lead to the question: how do we beef up the Bill? The Bill, in my opinion, does not go far enough in liberating leaseholders. For those who think the provision of information will deal with the abusive practices, I say: think again. The Government are basically saying to leaseholders, “You must become serial litigators, you will have to take on the big guys” —in the same way that the sub-postmasters had to take on the Post Office. As Conservatives, we should be fighting any unchallenged power anywhere in our system. We must always support the little man. The best version of Conservatism is supporting the little man to take care of his own affairs, and that has to be done.
For me personally, the most egregious thing is forfeiture. This is a gangster-like power, routinely used to abuse and extort money from hapless leaseholders under the threat of losing their home and all of their equity. There is no doubt that, even though there are only a few cases of this every year, just the idea that it can be done is terror enough. I come from a group of people for whom buying your own home is freedom, and that freedom is curtailed by the mere existence of forfeiture.
I could go on at length about all of the things that should be added to the Bill, but I will say this: we must turbocharge the right to manage and enfranchisement. More needs to be said about that, and I personally will be tabling amendments to make sure that it is done.
To conclude, to accept these few amendments, and many of the amendments that have been talked about in the House today, will make the Bill what has been promised. The Tony Blair Government promised to do this and did not. This Government can do it and fulfil something that the people of this country deeply need to happen. I say again: are we a freedom-loving, property-owning democracy or not? The passage of the Bill and the provisions it actually brings into law will make the difference in that statement.
Lord Palmer of Childs Hill (LD)
My Lords, I first thank the noble Lord, Lord Bailey, for his contribution; may it be the first of many. I declare my interest in the register as the chairman of the advisory board of the Property Redress Scheme, but I do not intend to speak on redress here today.
No one will disagree that the leasehold system has been plagued by cowboys and those seeking to exploit a broken system. The Government have sought to address these issues in the Bill. I am concerned that it does not go nearly far enough. That said, where they are acting, there are huge flaws that will fundamentally undermine our property rights and, as such, put our pension funds and economic prosperity at risk.
I draw the attention of the House to an aspect of the Leasehold and Freehold Reform Bill which has not, until this debate, received the attention I believe it warrants and very much needs. It concerns marriage value, referred to by the noble Lord, Lord Truscott, the noble Earl, Lord Lytton, and in detail by the noble Lord, Lord Howard. For those who are unfamiliar with this term, marriage value is defined as the increase in a property’s value once a lease below 80 years is extended or enfranchised. Existing legislation requires the financial benefit—or additional value—created when extending or enfranchising a lease and merging the freeholder and leaseholder interests to be shared equally by both parties, so they benefit, more or less, on equal terms.
As this House is no doubt aware, the Bill proposes to abolish marriage value. It concerns me deeply that this proposed change has not featured in public debate around ground rents and leaseholds. The change only very briefly featured in discussions during the Public Bill Committee’s scrutiny in the other House, and indeed much of that discussion, I might say, was about whether marriage value is a hypothetical concept. I can assure noble Lords, as other noble Lords have, that marriage value is certainly not hypothetical.
Furthermore, its immediate abolishment will cause a number of underassessed problems for the country. As I will outline, this is a highly inequitable measure that will disrupt investment in our property market and wider economy. Let me outline my concerns about the inequitable nature of the proposed measure.
The Government have stated that the abolition of marriage value will transfer £7.1 billion of freehold investors’ equity to leaseholders. In the broken feudal system of leasehold, this could initially be a warmly welcomed measure. However, if you scratch the surface, the assumed benefits of the measure fall apart. Of the 5.2 million leasehold properties in England and Wales, only 400,000 have leases under 80 years, the point at which marriage value is applied. As such, £7.1 billion will be transferred to just 8% of all leaseholders.
That sounds good, perhaps, but of these 400,000 properties—or 8% of all leaseholders—two-fifths are owned by private landlords. Many of these landlords would have made the decision to buy these short, and therefore cheaper, leases with the explicit intention of renting them out at proportionately high market rent, and therefore maximising the return of their investment, because they are not looking to the long-term. Worse still, four-fifths of the total value of this equity transfer will occur in London or the south-east, negatively impacting efforts to rebalance regional wealth disparities. However, what has struck me most significantly is that, of these higher-value properties, 60% of the leaseholds—and I do mean leaseholds—are held by foreign owners in central London.
Let me summarise that. Through this measure, the Government are transferring £7.1 billion of freeholder wealth to just 8% of all leaseholders. Two-fifths of these leaseholders are private landlords, four-fifths of the wealth transfer will occur in the already prosperous London and the south-east, and a huge amount of this wealth will be transferred out of the country into foreign ownership for leaseholders.
This is not the end of the inequitable consequences of immediately abolishing marriage value. Let us imagine that there are two flats next to each other at the point at which the properties have only 80 years remaining on their leases, when marriage value begins to be applied. One leaseholder did the right thing, and took money from their savings or remortgaged to be able to extend their lease and protect the value of their asset. Under this measure, those who did the right thing and protected their asset will be worse off than those who did not, who will now receive this benefit for free.
Essentially, the Government are principally transferring wealth not to those who require more support but to relatively wealthy individuals in the main, many of whom deliberately buy or remain in short-lease properties. The Government are about to deliver foreign leaseholders an enormous birthday present, while undermining the property rights that are the bedrock of UK pension funds. This is surely an unintended consequence that requires further consideration by the Government.
I move on to the wider implications for the property industry and our economy. I am sure noble Lords would agree that the UK has a world-leading reputation as a nation that respects property rights. This reputation has allowed us to build a strong domestic and foreign direct investment environment. I am concerned that retrospectively—I emphasise the word “retrospectively” —expropriating assets from property investment sends all the wrong messages to both domestic and international investors that British property rights are no longer sacrosanct. This failure to protect property rights will undermine the UK as a place to invest. Money will divert to the UK’s international competitors because of the risk that the UK Government can move the goalposts and retrospectively—I emphasise the word again—apply changes to existing investment returns. This will lead to uncertainty and a loss of confidence in the UK economy. The result will be fewer British businesses getting the investment they need, less housing being built, lower economic growth, and lower tax revenues to fund things such as the NHS and other vital public services relied on by the people of this country.
Abolishing marriage value threatens to completely undermine investor confidence in our property market and damage the wider economy. As we have seen in the media this weekend, the Treasury has intervened in the ground rents element of the Bill due to concerns about the impact on pension funds. Marriage value, although overlooked—but not today in this Chamber—bears similar risks for the Government. Additionally, it will lead to a tax-free gain for the leaseholders who are owner-occupiers, but the freeholders’ loss will in effect not be taxable, further impacting on the Treasury’s coffers. This needs to be reassessed.
Additionally, as has been mentioned in passing, the UK Supreme Court has observed that, as a minority group, landlords, although often unpopular, are entitled to protection of their so-called human rights, and the abolition of marriage value can be argued to be an unfair expropriation as it falls short of the fair balance principle. Marriage value has, quite rightly, been enshrined in law since 1993 to ensure that freeholders are fairly compensated when the lease is enfranchised or extended. This expropriation of wealth takes away an entitlement without a fair balancing aspect, which will lead possibly to an ECHR challenge—mentioned by another noble Peer—that could further saddle the taxpayer with a substantial bill.
Fortunately, there is a compromise to be made. I propose that the Bill needs a straightforward amendment which tweaks the legislation by grandfathering the current situation for those leases which have fewer than 80 years to run to reversion. If the term grandfathering is unfamiliar to some, I am referring to the well-established practice of excluding leases with fewer than 80 years remaining on the date of Royal Assent from the changes to marriage value. By grandfathering those existing leases with fewer than 80 years, where marriage value is already imputed into their reversion value, freehold investors will not suffer from the destruction of £7.1 billion of financial value. Any lease with more than 80 years remaining at the time of the Bill passing will not have marriage value included within the calculation of the premium for a lease extension or enfranchisement, now or in the future. The Government will therefore still have achieved the objective of abolishing marriage value.
To abolish marriage value would be to abolish investment confidence in our property market through a deeply inequitable measure. A grandfather clause would protect investors, thereby maintaining investor confidence in our property market. In case people do not understand the principle of marriage value and the abolition of it, I stress that this does not stop extending or enfranchising but affects purely the overvaluation or undervaluation of the property. I therefore trust that, in the course of the debates on the Bill, we might consider a grandfathering clause relating to property.
Viscount Hanworth (Lab)
My Lords, rent is income derived from the ownership of land or other property. It is an income derived without effort on the part of the owner. The owner would have acquired a title to the property at some time in the past. This may have been achieved by means of their labours or by inheritance, or the title may have been acquired by nefarious means that are nominally legitimate. The British economy is in decline; it offers diminishing opportunities for gainful employment. Therefore, there is, nowadays, a heightened incentive to acquire an income through rent. However, since such acquisitions are often at the expense of another party, rent-seeking requires to be restrained if it is not to damage the social fabric.
In recent years, the market for residential property and accommodation in the UK has been severely affected by the activities of rent seekers. The Bill seeks to place some restraint on these activities. It is appropriate briefly to describe what has been happening in recent times. The problems arising have two aspects. They affect both newly built and pre-existing properties. Newly built properties have been sold to new occupiers under leasehold clauses that allow the housebuilder to retain the ultimate ownership. They are often built in estates and the housebuilders will propose that payments are due for the upkeep of the estate.
There has been nothing to prevent the housebuilders which retain the freehold increasing these so-called service charges to an exorbitant level that far exceeds the cost of maintaining the estate—an income derived without effort on the part of the recipient. It is remarkable that many housebuilders have managed to sell the properties under leasehold clauses without the new occupants realising that they are not the full owners of the houses. The Bill addresses this abuse by partially banning the sale of new houses under leasehold clauses. However, it also contains provisions for a category of permitted leases in respect of new houses.
It is notable that the provisions of the Bill that restrain the sale of new houses under leasehold relate only to future ownership. They do nothing to redress the abuses of the past. Admittedly, freeholders and their agents must now guard their behaviour for fear of a legal redress that the leaseholders will be empowered to seek, but this seems to alter the balance of power between the two parties in only a minor way. Hitherto, the powers of the freeholder have been exorbitant. They have been able to set the service charges and insurance fees at whatever levels they choose. They have also been able to impose upon the tenants any legal costs that might arise out of their defence of a case brought against them in a tribunal or a court, regardless of the outcome. They still have unlimited powers of repossession in cases where tenants have refused or have been unable to pay the service charges.
The second major concern is that leasehold arrangements are to the disadvantage of the inhabitants of flats. It should be recorded at the outset that of the dwellings in England, 70% are flats and 30% are houses. Flats may be located in tower blocks or in small terraced houses. Other speakers have described how tenants in tower blocks have been affected by shoddy workmanship and inflammable cladding. Many have had no legal redress and are facing financial ruin. I shall concentrate on flats in modest houses and, for an illustration, I shall consider a small estuarine town on the mouth of the River Thames at a commuting distance from London.
The attractive terraced houses are at increasing elevations as one moves away from the water’s edge towards the high street at the centre of the town. Most of the houses are divided into two or three flats, typically occupied by elderly people or impecunious families. Like many seaside towns, this one has not been prospering of late, but there are clear signs that this is changing through the influx of wealthier Londoners. A prescient property company has been buying up the freeholds of these properties, which have remained mainly in the hands of previous owners who have moved away. They may have sold the leaseholds in respect of two or three of the flats that the houses now comprise.
The property company is a conglomerate—or, at least, a federation of agencies. A search of the companies register reveals that the constituent parts have directors in common. They comprise a property company, a managing and letting agency, a firm of solicitors and an insurance broker. There is also a shadowy affiliated company, Capital Recoveries. The property company has purchased the freeholds at what might seem to their owners to be attractive prices, but they are unlikely to have recognised in full the prospective values of their properties.
Some of the existing freehold owners acquired their titles in an era of low interest rates that encouraged them to buy to let. The current high interest rates, and, in the case of leasehold purchasers, the additional burden of increasing service charges, are encouraging many of them to sell up. The remaining problem for the property company is how to expel the tenants from the properties that are now in their control. This is not difficult to do in an era of no-fault evictions. In the meantime, it might be prepared to bide its time by deriving rents from the tenants.
The only anxiety of the property companies is that they may have to face an incoming Government intent on providing greater protection to tenants. The present Bill will require the property companies to smarten up some of their practices. After the Covid pandemic, the lists of service charges both for small houses divided into flats and for blocks of many flats contained an item described as “charges for the deep cleaning of communal areas”. There were no such communal areas in the small houses, and the testimony of the tenants was that no one from the management and letting agencies had ever paid a visit. Such spurious charges may no longer be sustainable under the prospective legislation, but it will continue to permit many other abuses.
Lord Thurlow (CB)
My Lords, there is much to be applauded in the Bill before us today. However, I am concerned that in seeking their objectives the Government are using a sledgehammer to crack a nut. The law of unintended consequences shines brightly through these proposals, and I shall address some of these concerns. I declare my interests as a retired chartered surveyor, as well as other items on the register. I am also a leaseholder of a flat. I thank the Library for its excellent briefing, and others who have provided experience and expertise.
I said that there is much to be applauded in the Bill, and there is. We have heard a lot about squeezing out bad practice from managing agents—I think it misses the point. There is improving the rights of occupiers—sometimes. Reducing ground rents and their review patterns—agreed but flawed. Improving the lease extension process—agreed. That is not a good school report. There is a shortfall; there are omissions in the Bill, missed opportunities and uncomfortable Henry VIII clauses, which are highlighted in the Delegated Powers and Regulatory Reform Committee report.
First, I will look at the impact of the Bill on investors, who are the freeholders. Here I will build on the comments of the noble Lord, Lord Howard of Rising. There appears to be a misunderstanding within government that freeholders are frequently bad actors in freehold disguise. Of course, there are some of these and they need to be brought to heel, but the vast majority of freehold residential ground rents are now in the hands of institutions—life insurance companies, charities, endowments, pension funds and other legitimate investors.
We should consider for a moment why these institutions invest in freehold ground rents. They do this because they provide a certainty of income, which, crucially, matches their liabilities. Removal of this value may impact the capital adequacy of these legitimate organisations, itself attracting the interest of regulators—government through another door—and will almost certainly require significant government compensation for the loss of value these proposals will inflict. Some pensions will fall in value and some legitimate investment managers, who have been entrusted with the husbandry of those assets, risk administration.
I see nothing in the Bill offering compensation for those who will suffer this collapse in value. I look forward to the Minister’s proposals concerning compensation and find it curious that this has not been recognised and addressed. I hope it is not being left to Mugabe-style economics: simply stripping one group of property owners for the benefit of another.
I turn to the abolition of marriage value. The noble Lord, Lord Palmer, usefully defined the phrase. When valuing a property, be it residential or commercial, marriage value is calculated to apportion value-sharing between freeholder and leaseholder, which is then divided either according to formula or agreement. Abolition of marriage value does not just interfere with the division of proceeds for a lease extension, it gives the entire sum to the head leaseholder—much better for there to be a regulated sharing arrangement.
Do the Government recognise that many of those leaseholders are not the occupiers? Many investors have bought leasehold flats and houses as investments on long leases specifically to sublet them to third parties—they are very good investments. They are buy-to-let landlords—they are investors and not occupiers. As we have heard from the noble Lords, Lord Campbell-Savours and Lord Palmer, many of them are foreign nationals. Many of them buy through companies registered overseas that probably pay little or no tax. We heard some figures relating to the volumes of money that could be transferred in this direction.
For such foreign-based investors, the Bill is the Christmas present of all time. Make no mistake, smart investors, recognising this forthcoming windfall, are already buying residential short and medium-term leases precisely for this purpose. Having cheaply extended the lease, they will immediately reoffer the flat for sale with vacant possession and enjoy the big lottery win. These winners—I repeat, these winners—are not the occupiers the Bill is designed to protect; they are speculators.
The Bill provides a huge transfer of wealth at the stroke of a pen, and not enough thought has gone into how that wealth will be distributed. The assumption that it is always the occupiers who will be relieved of the pain of paying for a lease extension is simply not the case. We should be clear that the great transfer of wealth the Bill seeks to engineer is going largely to speculators and not to the occupiers. Occupiers are often sublessees, even on long leases. Does the Minister intend to introduce an amendment to ensure that it is the occupiers, and not the investors, who will benefit from this change in the law?
Regarding the right to manage, in principle giving the residents of blocks of flats the right to manage the building is fine, but in practical terms it would be much better to tighten up on the rules applying to bad managers than to make the right to manage by occupiers so straightforward. Bad property management is one of the drivers of the Bill and, without further thought, things may not improve. The process of enforcing service charges, calculating service charges, dealing with those who refuse to pay their share, dealing with building services, and more, is not easy—certainly not easy for residents unless they instruct agents.
I ask your Lordships to consider someone living on the upper floor of a multistorey block of flats with no lift, because the right to manage has been applied and the manager cannot collect the necessary dues—they are not organised in the process of doing so—to service the lift. It can get worse—think for a moment of the disabled, unable to use the stairs. I have a close friend who is wheelchair bound and currently stranded on the upper floor of a modern block of flats because the lift has been out of service for several months. That may become the norm—a clearly unintended consequence. The right to manage needs better construction.
We have heard from numerous speakers that it would be far more effective to better regulate expert property managers and require qualifications. I fear that there will be a difficult time ahead for residents of many blocks of flats who decide to manage themselves and become entangled in a complex business that they do not fully understand, with its legal obligations. Nor will they, with all the best will in the world, have the skills to deliver—the noble Lords, Lord Moylan and Lord Bailey, clearly illustrated this. Other than for very small buildings, the right to manage should be subcontracted. This brings us back to the need for regulation and qualifications for managing agents.
Touching on service charges, I applaud the changes proposed—transparency, response times, removal of unfair practices, open reporting and penalties for non-compliance. All these and more are good. However, I do not believe the £5,000 maximum penalty proposed for bad property management behaviour is nearly enough. While it may seem high in relation to the service charge for an individual flat, it could be a very small sum of money for the firm of property managing agents which is looking after hundreds, if not thousands, of flats. This figure needs increasing to the point that it hurts, thus positively encouraging a managing agent to exercise their functions well and with the occupier’s interests in mind.
The right to manage mixed buildings has been discussed extensively this afternoon. It is hugely complex. Non-residential elements in such buildings need expert attention to an even greater extent than in blocks of flats. It is not layman’s territory. To allow residential leaseholders to manage a mixed-use building with a significant percentage of non-residential floorspace is inviting trouble, particularly when development opportunities arise. These days, such developments frequently create large volumes of housing units, helpfully adding to the Government’s targets. This will almost certainly be lost as the ownership, control and management of those properties are transferred to the residential occupiers’ management company or, in many cases, the foreign nationals and companies registered overseas who are already rubbing their hands in anticipation. That is unless, of course, the residential management team brings in the skills, but that is not without cost and it is likely to be an expensive exercise. Notwithstanding best intentions to try to exercise these functions in practical terms, it will be almost impossible, as what might have been a significant development opportunity stagnates or becomes broken up, and the critical mass required for major redevelopment is lost.
As I said at the beginning, there is much in this Bill that I applaud, but I fear it has not been sufficiently carefully thought through.
Baroness Bray of Coln (Con)
My Lords, it is a pleasure and an honour to follow the noble Lord, Lord Thurlow. The Government’s Leasehold and Freehold Reform Bill is certainly attracting support and high expectations in some places, and not only from current and potential leaseholders, with lower charges, longer lease extensions and more rights regarding management of blocks of flats. Leasehold for newly built single houses is to be abolished, so it is leasehold flats—which make up the great majority of leasehold properties—that are really being discussed today.
What is not to like about the possibility of leasehold properties paying lower, possibly even peppercorn, ground rent—which really means zero rent? That already applies to leases taken on since 2022, but consideration is now being given to applying it to all leasehold properties. What is not to like about the possible abolition of marriage value, making a far more profitable outcome for leaseholders applying for an extension to their diminishing lease, or about all leases, new and renewed, running for 990 years?
However, I have real misgivings about the main thrust of this Bill. Essentially, I find it hard to support in principle government intervention in legally held property rights, especially those that have existed for many years in accepted legal property arrangements established between two consenting parties, the freeholder and the leaseholder—although I would advise that both parties get proper legal advice so that they understand what they are taking on. It is surely important to reflect that leasehold has been a property arrangement that has benefited millions of people over many years, certainly in London, where owning property is an expensive business. Leasehold has provided, probably, the only route for most people to owning at least a small home for a set period, usually extendable, that is remotely affordable.
I myself, after working for some years in London and sharing a flat with an endlessly changing group of friends, decided I that I had to have a place of my own, and leasehold provided the only affordable and dependable route. Yes, there are greedy freeholders and property investors whose demands need to be restrained, and I very much welcome the Bill’s proposals to help leaseholders to challenge more easily poor management and unreasonable charges in court, but overall this system has survived as long as it has because, in the main, it has worked. It has provided benefits for both sides.
My first problem with the Bill concerns the proposals to axe two key components affecting the financial benefits that accrue to the freeholder. Both have been discussed at some length already, so I will try to be brief.
The first is ground rents, which stem from the entirely legitimate principle that the land on which leasehold properties sit is not owned by their inhabitants and therefore requires rent to be paid. I believe that the Government are still considering the long-term future of ground rent. I totally agree that the level of ground rent must be kept reasonable, but it cannot simply become peppercorn, which would create a huge drop in income for freeholders and investors, such as pension funds. I suspect it could lead to a major legal challenge, as we have also heard. However, I would support a proposal that defends the principle of ground rent but limits the impact by settling on a permanent reasonable sum, to be agreed by both sides involved.
My second concern is marriage value, which we have also been hearing about. This arises when a leaseholder applies to the freeholder for a lease extension when the lease drops below 80 years. Marriage value represents the total value of the property—of both the freehold and the extended leasehold added together. The total is then divided between the two parties to reflect the benefit to both of them of marrying their interests.
The Bill proposes abolishing marriage value and, as the noble Lord, Lord Palmer, mentioned, allowing the leaseholder to extend their lease for far less, at the expense of the freeholder. As several noble Lords have said, this will massively advantage the many investors who own leaseholds as an investment rather than a home, especially in lucrative areas such as London and the south-east. According to figures produced by Quod and Cluttons, 80% of this transfer of marriage value would occur in London and the south-east, where approximately 60% of leasehold properties are held by investors, not home occupiers.
Alongside this, another proposed change would allow leaseholders to extend leases without having to have lived in the property for at least two years. I am told, and as we have also heard from the noble Lord, Lord Thurlow, that increasing numbers of investors are already circling round, given the prospect of more easily buying properties with leases that are running down, extending them to 990 years and selling them on for a huge profit. Property prices will certainly rise in those circumstances.
Mv final problem is with the proposed change in the rules for mixed-use buildings. A mixed-use building with more than 25% non-residential use cannot currently be managed by leasehold residents, but this limit is set to be raised to 50%, giving rise to concern about management of the buildings, as we have heard from the noble Lord, Lord Thurlow. Where leasehold residents successfully apply to manage buildings with a much larger—50%—business and retail presence, or to buy the freehold, as they can with a majority in favour, they will find the management a very much more complicated task. To meet the needs of retailers whose shops often open on to the streets, and business offices, and to keep residents happy, very hands-on management is needed, along with knowledge of business needs. There are suggestions that, in these cases, leaseholders who want to run these buildings should have lived there for at least two years so that they can begin to understand the needs and issues of these buildings, as well as having familiarity with where they are based.
One other problem is that, as I have been told, freeholders may start reducing the number of leasehold flats in mixed-use buildings precisely to avoid losing control. This includes local authorities, which have, over many years, housed leaseholders in mixed-use buildings but would be concerned about them taking control of the buildings and subsequent management failures, which could affect the overall quality and appearance of the streets where they are sited.
I have real concerns about some of the Bill’s proposals. I hope the Government will consider the issues raised here very carefully.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I have a number of interests to declare. I am a non-executive director of MHS Homes, chair of the Heart of Medway Housing Association, a vice-president of the Local Government Association and a leaseholder.
I welcome the Bill, but there is a big “but”. It represents limited progress. The next Parliament will have to return to the issue of leasehold reform to liberate leaseholders, deliver on commitments made and deliver justice for them.
I pay tribute to the campaigners outside Parliament, who have never given up. They include the National Leasehold Campaign, led by Councillor Katie Kendrick, Jo Darbyshire and Cath Williams; and the Leasehold Knowledge Partnership, led by Sebastian O’Kelly, Martin Boyd and my good friend, the campaigner Liam Spender. They will deliver justice for leaseholders.
The noble Baroness, Lady Thornhill, talked about the Lloyd George Budget of 1909. The noble Lord, Lord Bailey, talked about 1966. There is a fantastic play called “Fleecehold”, by Michele Sheldon. If it is on, I urge noble Lords to go and see it. In one scene, in 1884, Henry Broadhurst, a Liberal, and then Labour Member of Parliament for various Midlands constituencies, discusses leases on the Floor of the House of Commons. This has been a long-term problem, which we have still not sorted out. Many Members of Parliament have also stood up for leaseholders. I pay tribute to the noble Lords, Lord Young of Cookham and Lord Best, and many others who have raised these issues time and again.
It is most frustrating to look at the timeline of events and actions taken in more recent times. I have a few examples to share with the House. The fire at Grenfell Tower broke out on 14 June 2017—just short of seven years ago. We have still not resolved issues arising from that tragedy. It is not right that there are people living in blocks whose flats are unsaleable and unmortgageable. There is no excuse for it. It is a complete failure by the Government, on their watch. Does the Minister think this is acceptable? When will they finally do something about it?
There has been a complete lack of action following the report of the Regulation of Property Agents working group, chaired by the noble Lord, Lord Best. It was published in July 2019, towards the end of the last Parliament. We are now at the end of this Parliament, and nothing has happened. This Bill is the ideal place to deal with it, but there is nothing in it. This is just not good enough. Nothing has happened in five years. Can the Minister explain why this is acceptable?
Three Law Commission reports were published in July 2020 on leasehold enfranchisement, the right to manage and commonhold. It is good that this Bill largely addresses leasehold enfranchisement, but there is very little on the right to manage and nothing on commonhold. Again, can the Minister explain why this is acceptable? We have been waiting nearly seven years to complete the job on Grenfell and nearly five years without any action on regulating property agents; and it is nearly four years since the Law Commission report, in which nothing was done about commonhold. Telling this House that this is all extremely complicated and will take time is not acceptable. We have been waiting for action for years, without promises being delivered.
It has been frustrating to watch the right honourable Member for Surrey Heath tour the television studios and radio stations, speak to newspapers, give interviews about what he wants to do to end the feudal leasehold system, make promises, pledges and commitments, and give assurances and undertakings. The noble Lord, Lord Young of Cookham, referred to letters and to a Statement in the House of Commons. These have amounted to absolutely nothing.
When I spoke to a member of the Government privately, they said: “Well, Roy, you must understand that this is what Michael does.” Another member of the Government said: “Roy, everything you want to do, Michael wants to do, but you have to understand, he has been vetoed by No. 10. His plans are now shot to pieces. It is all over.” I do not know if this is true or not, but going around making promises and pledges with no agreement to deliver them is shoddy politics. There will be a heavy price to pay. Making promises and pledges without delivering is stringing people along. It is just not good enough.
I will look at a few of the issues that are missing from the Bill. There is no ban on creating leasehold flats. Why not? Seventy per cent of leaseholds are for flats, but there is nothing in the Bill at all. The answer, as the noble Lord, Lord Bailey of Paddington, said, is commonhold. Why it is not there? The Government have had the report from the Law Commission for four years. Why are they not dealing with it?
There are other issues that are just not happening. There is the stuff about the Building Safety Act; again, after Grenfell, why are they not doing that? I just do not understand why. There was also a Conservative Party manifesto commitment on forfeiture in 2017, but it is not in the Bill. Why not? It is ridiculous. We are going to be putting it in the Bill; we will certainly have amendments on that one. Forfeiture can happen for as little as £350 in unpaid rent or service charges. If pursued to its conclusion, the process allows the landlord to take the tenant’s entire flat and not account to the tenant for a penny. Any mortgage is not repaid and the lender can pursue the tenant for the full amount of the debt. I accept that very few flats or houses are lost to forfeiture, but the whole process is used to bully tenants—the people in the properties—and it is just not right. They made that commitment in 2017 and it is about time they delivered it.
I move on to a few other issues. My noble friend Lady Twycross mentioned the assured shorthold tenancy trap. She was up on the ballot for a Private Member’s Bill; she got it and was then approached by the Government, who assured her: “You don’t need to do this Private Member’s Bill because we’re going to do it in a renters reform Bill”. But the Renters (Reform) Bill has disappeared. It started in the House of Commons before this Bill did, but it is still not out of that House. At the moment, it has vanished without trace. My noble friend was told there was no need for her to do it, so I hope that the Government will deal with the issue in this Bill, because we cannot guarantee that the other Bill will ever appear in this House. We know there have been all sorts of problems with people upset about what is in that Bill, so we certainly need to ensure that it is addressed here.
What there is on leasehold houses is absolutely welcome, but there are still some issues about that. It was introduced in the House of Commons only on Report; remember, it was left out of the Bill when it was first published, so it came in then. There are one or two little problems. Clause 7 and part 1 of Schedule 1, paragraph 1, together allow new leasehold houses to be created as under leases or sub-leases. An example may be where a local authority granted a head lease to a developer before 22 December 2017; the developer could still create leasehold houses. In Clause 7 and part 1 of Schedule 1, paragraph 3 allows the creation of new retirement leasehold houses, regardless of whether they are built on freehold land. Again, that issue has been raised elsewhere, but why are some of the most vulnerable in our society not protected? That is another big issue we need to deal with.
Then there is the control of service charges. In many cases, with great property companies and good freeholders, it all works absolutely fine. Sadly, of course, that is not always the case and we need further reform. It was 50 years ago that there was talk in the other place about reform to service charges; we still do not have that matter sorted out, and much of the of the detail in Part 4, which deals with service charges, is left to statutory instruments—secondary legislation. There is very little detail in the Bill.
Clause 51 extends information rights to properties paying a fixed service charge. The clause does not allow for extending the right to challenge unreasonable service charges. I can assure your Lordships that leaseholders know when they are being ripped off. When things are bad, they know. So, while it is great to get some information, what they need are the tools to actually stop it. The Bill does not do that.
Clause 54 creates a new system of accounts and annual reports. Again, that is to be welcomed, but we need to go further. Clause 56 introduces a new right to claim damages of up to £5,000; again, we need clarity on what that actually means. There are two issues: we all know that “damages” has a specific legal meaning. The clause may not provide an effective remedy to claim money for delay where the leaseholder is unable to prove loss. That needs to be addressed in Committee. It is also unclear whether the clause allows each affected leaseholder to claim up to £5,000, or whether it is just £5,000 for the leaseholders as a collective body. There are many issues we need to explore in Committee.
Part 4 of the Bill requires landlords and estate managers to join an approved redress scheme, but much of the detail is missing and the Secretary of State will determine who is obliged to join by regulations, which we have not seen yet. This change is welcome, but there are still issues.
On the whole issue of commencement and interpretation, many provisions will be commenced by regulation at a later date. The Bill has 123 clauses and 12 schedules. Only four clauses will come into force two months after the Bill is passed. The rest of it will come into play when the Secretary of State determines. When will that be? We do not know. We have not got the regulations here; we do not have visibility on any dates. So, again, we need some more assurances. Even if the Bill passes, most of it will not come into force until you decide you are going to bring it in. We need to be careful about this. We need a clear timetable for when this stuff is going to come into force. I think it is really important. There are many cases, on the issue of marriage values, of leases that are approaching 80 years now. This needs to be resolved for them in particular.
So, as I said when I started, I welcome the Bill. It is progress, but it is very limited progress. We need much more progress here in Committee. I hope the Government will listen to what the House is saying and bring amendments forward. If not, certainly colleagues around the House will bring amendments forward and we will divide the House on those.
I will spend a bit of time working on what I call the “Gove amendments”—that is, all the pledges Michael Gove has made over the last few years. I will create amendments and divide the House for him, so he can actually deliver what he wants to do. It is really important that, if you make these promises and pledges, you actually want to do that. I am sure he does want to do it, so I am disappointed we have not got there. I am going to help the Secretary of State in that way and make sure that the House gets the chance to vote. Then he can have the chance to speak up for them when they get to the House of Commons. I will leave my remarks there and look forward to the noble Baroness’s response.
Lord Borwick (Con)
My Lords, I first declare my interest in my home, which is a long-leasehold property in London. It would not normally be declarable, but in the case of this Bill, this should be an exception. I also declare interests in the register in property companies, some of which are developing and have developed houses.
I have been puzzled by this Bill as it seems to be determined to solve a problem that I do not think generally exists. The problem is presented as a moral problem of the existence of leaseholds, using words such as “feudal”. I hesitate to challenge noble Lords to find bigger or more urgent moral problems to discuss on the last day before a recess. We could be here for weeks, and we would not agree with each other anyway. But I bet that few, even my noble friends on the Front Bench, would put leasehold tenure anywhere near the top of their list.
The freeholders have been upset that this Bill will force them to sell something that they do not want to sell, and I can see their point. Even though that horse bolted many years ago, I do not believe that anybody who has freely entered into a contract with another well-advised party should be forced to change its terms by the Government. This Bill makes that mandatory if the leaseholder alone wants it. This is the case now, so there is no change there except for the price.
The Bill is described as making it cheaper and easier for the leaseholder to buy. Why is it cheaper than before? It is partly because of the abolition of marriage value in the calculation of Schedule 4, but mainly because the price is likely to be lower. How much lower? The trouble is that we cannot tell, because the discount rates to be used in the calculation will be laid out in the statutory instrument when it is published in many months’ time. It is impossible for a tenant to know for certain that he is getting the purchase cheaper until that rate is announced. The Government have said that the rate will be a market rate, but a fixed rate, even though market rates constantly vary. How can there be a fixed rate that is also a market rate?
There is a trend in legislation for Bills to get longer and more complex. We have seen this in several recent Bills. This trend makes it more expensive for the citizen to obey and for us to legislate. This Bill, with 234 pages, is a distressing example. There is a separate trend that the consideration in another place has become more trivial than it was in prior years. I fear that our friends in another place may have passed this Bill with the cheerful feeling that we will study it. I am not sure that we can study it with the diligence that they expect when we cannot hope to find out what the most important rate in the calculation is until next year.
Baroness Pinnock (LD)
My Lords, I thank the Minister for being so generous with her time in discussing the content of this Bill and for being willing, on behalf of the Government, to front it. As we have heard, there is wide support for the Bill, but significant shortcomings have been noted from all quarters and all sides.
Reform of this archaic property ownership arrangement is long overdue. There has been a welcome focus on general consumer rights and protections over recent years. However, the leasehold/freehold arrangement has remained largely unchanged, to the considerable detriment of leaseholders. Liberal Democrats have long supported radical reform of the leasehold/freehold arrangement. As my noble friend Lady Thornhill reminded us, it was David Lloyd George in 1909, in the People’s Budget, who first laid down that reform was essential, not just to extend, as the Bill does, the rights of leaseholders but to deal with the concept of an outmoded system that harks back to times when everyone was beholden to the landowner.
As we have heard, this is a Bill of 123 clauses and 12 schedules—and that is just at the last count. Since the Bill’s introduction in the Commons, the Government have added 224 amendments, which illustrates its complexity and, as the noble Baroness, Lady Andrews, pointed out, developing legislation on the hoof—or as my noble friend Lord Stunell said, the Government chasing their tail.
The Bill seeks a number of key changes to the leasehold/freehold relationship which are positive. Unfortunately, the Government have failed to use this opportunity to really grasp the nettle and set down a complete reform of the system. The Government have long promised a fundamental reform to replace freehold with commonhold, which is more in line with property rights across western Europe. Despite the 2022 Act, commonhold remains a rarity. Why have the Government failed to use this opportunity to end freehold and introduce commonhold for all property, including flats?
It is extremely disappointing that, according to media reports, the Government are even backtracking on reform of ground rents. The Secretary of State announced only last November that the proposal will “save leaseholders thousands” by slashing ground rents and setting them at a peppercorn. That is another promise abandoned. Evidence shows that some freeholders increase ground rents substantially year on year, as we have heard this afternoon, and yet other ground rents remain so low that they are not worth collecting but remain as a charge on the property. Ground rent really is paying something for nothing and should be confined to history. However, I accept that there are financial interests, such as pension funds and charities, the concerns of which must be taken into account as reform proceeds. Nevertheless, a solution that achieves abolition can and must be found.
The other significant omission in the Bill is the abolition of draconian forfeiture, whereby the failure to keep up with ground rent payments can result in the forfeit of the property to the freeholder. There can be no justification in any circumstances for this to remain on the statute book. I hope that the Minister is able to respond to the numerous questions about the lack of action on forfeiture in the Bill.
This much-diluted reform Bill does, however, contain some positive changes, even if they are rather muted. Scrapping the presumption that leaseholders are required to pay landlords’ legal costs is putting right a plain wrong. Leaseholders’ service charges have been exploited by some freeholders and managing agents to such an extent that these have, on occasion, risen by up to 1,000%. The proposal in the Bill is to insist on transparency and reasonableness—but what is reasonable? How will it be defined? This leaves too many loopholes for the unscrupulous to continue to exploit. Can the Minister explain how exploitative behaviour by some freeholders, or their managing agents, will be prevented, given the wording of the clause?
That brings me to insurance charges. Since the terrible tragedy of Grenfell Tower, insurance costs for leaseholders in flats have escalated to the point at which some are paying more than £3,000 a year for buildings insurance—a travesty, considering that leaseholders do not own the bricks and mortar being insured. Of course, there must be some arrangement by which the building is insured, but to put the commissioning rights in the hands of the freeholder or agent is like putting the cat in charge of the cream. Clause 57 seeks to protect leaseholders from the worst excesses of insurance commissioning, but it is not at all clear that it will be effective. Perhaps the Minister will be able to demonstrate that the days of milking the buildings insurance to the benefit of those not paying the insurance will completely end.
So-called fleecehold is another money-making wheeze by developers and property agents. Developers, having realised that local authorities were not in a position to take on further liabilities, have devised a system whereby house owners on newly constructed estates pay a service charge for maintenance of green spaces, play areas and even roads, as my noble friend Lady Thornhill so eloquently exposed. The same householders will also be paying council tax to cover such maintenance in other estates in their district. Undoubtedly, what will happen is that, as an estate gets older, more maintenance will be required, especially if the estate road was not built to adoptable standards in the first place. The liability will fall on home owners, who may not be able to suddenly pay out for a new road. So it is good that the Bill proposes in Clause 98 to insist on a redress scheme, but how much better it would be if assets in new estates were forced to be adopted by the local authority in perpetuity.
Part 8 amends the Building Safety Act 2022 to ensure that the landlord will be responsible for remedying or mitigating relevant defects in a building. Some of us who have spoken today spent many happy hours debating the Building Safety Bill and drawing attention to its defects at the time, and it is a great pity that the Government have failed to grasp this new opportunity to redress the serious limitations of that Act and extend rights to leaseholders in buildings under 11 metres, and enfranchised leaseholders.
The Minister will not be surprised to hear that we on these Benches will seek to put right the wrongs that have still not been addressed by the Government in their legislation. As others have said, people are living in flats that are unsafe, unable to be sold and unmortgageable because this Government have failed to deal with wrongs that are not of the residents’ making but of the making of the developers and construction firms which built those flats in the first place. We will pursue amendments along those lines.
There are some real positives in the Bill, such as removing the duty on leaseholders to pay the freeholder’s legal costs in a dispute. The various redress proposals have considerable merit. Enabling existing leaseholders to extend the lease or purchase the freehold in a new way is another positive step, as are the measures in relation to some regulation of property agents, although this does not go far enough, as the noble Lord, Lord Best, and my noble friend Lady Thornhill pointed out. I recognise that, having said at the outset that the Bill is a step in the right direction of reform, I have then spelled out the many glaring omissions and the lack of bold endeavour which are a feature of the Bill as it stands.
The debate has exposed the controversy surrounding any reform, but we on these Benches will use the remaining stages of the Bill to probe the detail and propose amendments in areas where the Bill is deficient, which are various and numerous. I look forward to the Minister’s response.
Lord Khan of Burnley (Lab)
My Lords, it is a pleasure to close this Second Reading debate on behalf of the Opposition, and I thank all noble Lords who have participated in it. The expertise, skills and knowledge on this subject in your Lordships’ House have been demonstrated in such an eloquent manner. I am sure that the Secretary of State, Mr Gove, will be delighted with the scrutiny his Bill is getting in this place.
I echo what so many others have said and add my own tribute to all the individuals and organisations which have campaigned for so long for reform in this area. It was interesting to hear the noble Baroness, Lady Thornhill, talk about her ancestral colleagues raising this issue in 1909, and my noble friend talking about leasehold being raised in the 19th century in this building. Without being subtle at all, I pay tribute to my Chief Whip, my noble friend Lord Kennedy, for his relentless and consistent efforts over a long period of time to educate our Benches, with his experience and expertise in the area.
As a number of noble Lords have pointed out, we have waited a long time for this Bill. It beggars belief that we are on to our fourth Prime Minister and we have had 10 Housing Ministers since the Government first proposed legislation on leasehold reform in 2017. We are pleased that the Bill will progress today. It will provide some limited relief to leaseholders. We welcome and support most measures in the Bill, including changes to the calculation of premiums payable for lease extensions or collective buying of the freehold, and the end of marriage value, as well as the introduction of 990-year extensions, ground rent reforms and freehold estate regulation.
The problem is that the leaseholders across the country expected so much more from the Government. We are clear that, in due course, as my noble friend has mentioned, Labour will have to finish the job and enact in full all the Law Commission’s recommendations on enfranchisement, the right to manage and commonhold. We are determined to do so.
I know the Minister is looking forward to responding to the many issues raised by noble Lords. We had a number of powerful contributions across the House. It is always refreshing to hear from the noble Lord, Lord Best, and, in relation to his property agents working group, it is a shame that his 2019 report has been largely ignored. The noble Lord is calling for a regulator, and has consistently done so, and the point was made that the industry has come out with this as one of its top requests.
The noble Lord, Lord Young of Cookham, and my noble friend Lady Andrews talked about uncertainty and lack of clarity. In her eloquent speech, my noble friend spoke about how the Bill deals with the problem but, although making some progress, it is a game of two halves; there is some good progress in certain areas, yet so much is missing, and I agree with that. She also shared personal stories and spoke passionately about the letters she received from leaseholders. I agree with my noble friend Lady Taylor of Stevenage, who said that this is a long way from what leaseholders want and have waited for. The Bill needs so much more substance added to it.
One of our key areas of concern is that there is so much material arriving throughout the passage of the Bill. As the noble Lord, Lord Stunell, mentioned, this is now becoming the norm and not an exception. How can that be effective for scrutiny, for noble Lords and Members in the other House to properly advise or amend?
I want to probe the Minister on some areas of concern which, at this stage, the Bill fails to cover. First, in 2021 the Law Commission provided the Government with updated recommendations on the archaic law of forfeiture, and yet, as many noble Lords mentioned, there is nothing in the Bill to end the unjust windfall gains exploited by freeholders. My noble friend Lady Twycross described freeholders’ behaviour as “mafia-like”, and the noble Lord, Lord Bailey of Paddington, said the way they operate is “gangster-like”.
The Secretary of State claimed that he wanted to
“squeeze every possible income stream that freeholders currently use”,—[Official Report, Commons, 11/12/23; col. 659.]
so why has this income stream been untouched? The Minister mentioned that she would be bringing the issue of forfeiture back to your Lordships’ House. This has happened too many times and it is another example of not being able to look at something from the outset. As mentioned by my noble friend Lord Kennedy, we will work with all noble Lords across the House to decide whether we can support what the Government bring back to end the forfeiture rule.
As previously mentioned by many noble Lords, Labour has committed to implementing in full the recommendations in the Law Commission’s three reports on leasehold. Why is it so difficult for the Government to do the same?
In 2021, the Government established the Commonhold Council to
“advise the government on the implementation of a reformed commonhold regime and bring forward solutions to prepare homeowners and the market”.
I understand that the council has not met for two years and, as has been discussed, there is no sign of commonhold in the Bill. Have the Government completely given up on this?
I re-emphasise that deferment rates used for calculating lease extension and freehold purchase premiums are missing from the Bill. These are crucial for determining the prices paid by leaseholders who want to buy out or extend their lease. Will the Minister bring forward more detail at the next stage of the Bill to set out the methodology for their calculation?
Almost every country in the world, apart from Britain, has either reformed or abolished this archaic, feudal model. I know the noble Lord, Lord Moylan, objects to “feudal”, but we are quoting the word that Secretary of State Michael Gove has been using. If the noble Lord looks at Hansard, the speech of the noble Lord, Lord Bailey, mentioned “feudal” more times than anybody else here.
There has long been cross-party consensus on the need to do something about this horrific situation, so why have the Government watered down their commitments to leaseholders of flats? This is a point that the noble Lords, Lord Stunell and Lord Young of Cookham, made about being on our own in not being able to deal with the situation.
Just what do the Government stand for on the Bill? It is remarkable that, in a recent interview with the Sunday Times, the Secretary of State went so far as to declare, without qualification, that he intended to abolish the leasehold system in its entirety. There have been all these extravagant promises, yet we have a Bill before us which is missing in detail, and the Secretary of State’s ambition nowhere to be seen.
Leaseholders have been badly let down. Having waited so long, and had their expectations raised so high, they are understandably disappointed at the limited Bill that we are considering today. This unambitious piece of legislation makes it clear that proponents of caution and restraint have won out over those who want to lay claim to a legacy of bold reform in this area. The Government’s poverty of ambition has real implications for leaseholders being routinely gouged by freeholders under the present system.
The scaled-back leasehold reform Bill as the Government have introduced it is a far cry from what successive Ministers have led leaseholders across the country to believe would be enacted by this Government in this Parliament. Leaseholders deserve a clear answer about the real reason why they have got just a limited Bill. We on these Benches are determined to overhaul leasehold to their lasting benefit and reinvigorate commonhold to such an extent that it will become the default and render leasehold obsolete.
We look forward to working with noble Lords across the House, as well as the Minister opposite, to do whatever we can to strengthen the Bill throughout its passage in your Lordships’ House and on to the statute book. We on these Benches want to make the existing Bill the most robust piece of legislation that we can make it, by rectifying its remaining flaws. Like many noble Lords across the House, I look forward to the Minister’s response detailing how she will fill the gaps over the remaining stages of the Bill. However, I remind noble Lords that if they do a word index of what has been discussed today, some of the key phrases coming out of today’s debate are as follows: “missing detail”, “insufficient”, “limited”, “lacking ambition”, “significant shortcoming”, “not properly thought through”, and “glaring omission”. I look forward to hearing from the Minister.
Baroness Scott of Bybrook (Con)
My Lords, it is a pleasure to close this debate and to reflect on the many thoughtful contributions that we have heard. I thank all noble Lords for their engagement with the Bill thus far, and especially all noble Lords who met me before this debate to discuss their concerns. As the Bill progresses, I am keen to continue engaging. If any noble Lords would like a briefing, please get in touch. I will put further dates forward ahead of Committee, and of course noble Lords can ask for a meeting at any time, and I will try and accommodate them.
I have heard that some noble Lords would like to see what is in the Bill clarified and improved. Other noble Lords want to see it go further still, and I look forward to engaging with them on all those issues as the Bill comes to its Committee. That said, listening to this debate, I am also struck by the strength of consensus among noble Lords that the system of leasehold needs reform. I will now seek to address all noble Lords’ points in turn.
The noble Baroness, Lady Taylor of Stevenage, began the debate and set out her wide range of concerns, particularly those areas where she expects to bring forward amendments. I am grateful to her for her engagement and her work with the Bill so far; I look forward to continuing this as the Bill progresses. I will turn right away to the Government’s position on ground rents, on which she and noble Lords right across the House, including my noble friend Lord Moylan and the noble Lords, Lord Adonis and Lord Palmer, courteously asked for updates.
I understand the strength of feeling about this issue and the level of interest, given its size. We are aware that reforms to protect leaseholders will have a negative impact on those who benefit from ground-rent income, and are carefully considering this as we formulate our policy. That is why we are studying the recently closed consultation very carefully. Next steps will be set out in due course to this House as soon as I am able to do so.
I also want to address the specific point made by noble Lord, Lord Adonis, about the ECHR. The Government consider that all provisions in the Bill are compatible with the relevant convention rights; and that, in the case of provisions regarding Article 8 and A1P1, any interferences are justified and proportionate.
The noble Baroness, Lady Taylor, also had a specific question about marriage value, setting deferment rates in primary, rather than secondary, legislation. My noble friend Lord Borwick also raised this point. I understand their concerns, but we do not feel that setting rates on the face of the Bill would be appropriate. The Government absolutely recognise that careful consideration is needed on how to set rates, and that many different elements need to be considered when setting them. We have been clear that we will set the rates at market value to ensure that the amount landlords are compensated reflects their legitimate property interests, and we have had active conversations with relevant stakeholders. Ultimately, the Secretary of State’s flexibility to make these decisions is paramount, and we will continue these conversations. I welcome any further views that noble Lords might have on this matter.
I will come to the overall principle of marriage-value reform shortly, but with regard to the specific points made by the noble Baroness, Lady Thornhill, and the noble Lord, Lord Truscott, about the online calculator, it is an important issue, and I can confirm that the Government absolutely remain committed to launching this. This will help leaseholders understand how much it will cost to extend their lease or acquire their freehold up front. However, before we can launch such a vital tool and make a true success of it, we must first pass the Bill, so that the online calculator reflects the final provisions of the reforms in the Bill.
I turn now to the central issue that the noble Baroness, Lady Taylor, and many others raised: the future of the leasehold market. The Bill delivers our manifesto commitment to ban new leases of houses. Once commenced, other than in exceptional circumstances, new houses will have to be sold as freehold. I know that noble Lords across the Chamber, including the noble Viscount, Lord Hanworth, have expressed particular interest in the exceptions where a lease might still be justified, such as shared ownership, which helps consumers take their first step on the property ladder, or National Trust land where the freehold cannot be sold on. We expect a developer to prove it through the new steps included in the Bill. We believe that each can be justified, but we will keep a close eye on the market, and will not shy away from using the powers in the Bill to tighten or remove exceptions if required.
I turn now to the issue of banning leasehold flats, not just houses. The majority of houses have always been provided as freehold. There are few justifications for building new leasehold houses, so this Government will ban them. Flats, on the other hand, have shared fabric and infrastructure, and therefore require some form of arrangement to facilitate management. This has historically been facilitated by a lease.
None the less, the Government recognise the issues in the leasehold system, and I have heard the concerns from the noble Baronesses, Lady Taylor, Lady Thornhill and Lady Andrews, my noble friends Lady Finn and Lord Bailey and many other noble Lords regarding a lack of commonhold measures as a meaningful alternative to replacing leasehold for flats. I want to reassure your Lordships that the Government remain committed to commonhold reform and that we see it as a long-term replacement for leasehold.
Lord Kennedy of Southwark (Lab Co-op)
The Government have now had the report from the Law Commission for four years. I think the noble and learned Baroness, Lady Butler-Sloss, who is not in her place at the moment, raised the question: how much longer do they need?
Baroness Scott of Bybrook (Con)
As I think I have said to the noble Lord many times from this Dispatch Box, this is a complicated issue. I think there are about 121 recommendations in the Law Commission’s framework and we just have not had the time to go through them. However, this takes us a good way towards commonhold for the future.
The Law Commission did fantastic work to review the commonhold framework, and, as I said, it set out 121 separate detailed recommendations on how to modernise it. I appreciate the points from the noble Lord, Lord Kennedy, about commonhold and his frustration that these reforms have not come forward. However, these are not trivial changes. Implementing them requires detailed consideration. It is a complex policy, and to make sure we get it right and so that commonhold does not fail to take off for a second time, we will take the time required to make it work. We will therefore set out our response to the Law Commission’s report as soon as that work is concluded.
On the comments made by the noble Baroness, Lady Thornhill, the noble Lord, Lord Stunell, my noble friends Lady Finn and Lord Moylan and many others about leasehold rights to manage, managing a large or complex building is not an easy feat, especially meeting building safety requirements, and some leaseholders may simply not want this responsibility. That is why the Government believe that leaseholders should therefore have the choice to manage their buildings, which they now do. The Bill delivers the most impactful of the Law Commission’s recommendations on right to manage, including increasing the non-residential limit to 50% in mixed-use buildings to give more leaseholders the right to take over management, and changing the rules to make each party pay their own process and litigation costs. These measures will help existing leaseholders now and save them many thousands of pounds into the future.
The Government recognise that the participation threshold of one-half can frustrate leaseholders if they cannot reach it. However, we agree with the Law Commission that the threshold is proportionate and ensures that a minority of leaseholders are prevented from acquiring the freehold against the wishes of the majority of leaseholders in the building. We are therefore very clear that we should hold the participation requirement at half of the total number of residential units in the premises.
The noble Baroness, Lady Thornhill, my noble friend Lord Moylan and many others have also made powerful arguments that the creation of new freehold estates must end, and that local authorities should be compelled to adopt all communal facilities on a new estate. It is up to the developers and the local planning authority to agree on specific issues relating to new development, including appropriate funding and maintenance arrangements. That said, we are carefully considering the findings and the recommendations of the Competition and Markets Authority report to address the issue that home owners on these estates face.
On the questions from the noble Baronesses, Lady Taylor and Lady Thornhill, about expanding the right to manage regime to cover the residents of freehold estates, the Government recognise the benefits that the right to manage regime on freehold estates would bring, empowering home owners to manage and take a greater control of the estate on which they live. However, there would be many detailed practical issues to work through to deliver this, which would all require careful handling since they affect property rights and existing contract law. Instead, we have introduced measures in this Bill to empower home owners and make estate management companies more accountable to them for how their money is spent, including the ability to apply to the appropriate tribunal to appoint a substitute manager.
The noble Lord, Lord Best, spoke extensively and eloquently about the regulation of property agents, which my noble friend Lord Young, the noble Lord, Lord Truscott, and many others, supported. This Government remain committed to driving up professionalisation and standards among property agents. We welcome the ongoing work being undertaken by the industry and others to drive up standards across the sector, including on codes of practice for property agents. I put on record my sincere thanks to the noble Lord, Lord Best, and the noble Baroness, Lady Taylor, for their valuable work on this issue. However, as a Secretary of State made clear at Second Reading, legislating to set up a new regulator would require significant additional legislative time of a kind that we simply do not have in the lifetime of this Parliament.
On cost, the Government believe that any regulation can and should be done in an appropriate and proportionate way that controls the cost to business. Managing agents must already belong to a redress scheme and leaseholders may apply to the tribunal to appoint a manager to provide services in cases of serious management failure. The Leasehold and Freehold Reform Bill will make it easier for leaseholders to scrutinise costs and challenge services provided by landlords and property managing agents, and ultimately for them to take on management of the buildings themselves, where they can directly appoint or replace agents. These measures, alongside existing protections and work undertaken by the industry, will seek to make property managing agents more accountable to the leaseholders who pay for their services.
The valuable work on the regulation done by the noble Lord, Lord Best, remains on the table, but this Bill is tightly focused on the fundamental improvements for leaseholders. These, alongside our building safety reforms, already make this a time of great change for managing agents, necessitating higher standards across the sector. We continue to listen and look carefully at the issues that Members across the House are raising on this.
My noble friend Lord Young spoke specifically about forfeiture, as did the noble Baronesses, Lady Taylor and Lady Twycross, my noble friend Lord Bailey and many others. As I said in my opening remarks, the Government recognise that this is a real and significant problem. There is huge inequity at stake. We have heard from colleagues today about why we should act. We think it is the job of government to go away and work through the detail of this, which we are doing. We will report back to the House shortly with more details as we consider the matter further.
My noble friend Lord Young, the noble Lord, Lord Stunell, the noble Earl, Lord Lytton, the noble Baroness, Lady Pinnock, and many others, raised several concerns about building safety, which I will try to address in some detail. The Government understand that many individuals are frustrated with the distinction between qualifying and non-qualifying leaseholders. We have been clear that the primary responsibility for resolving issues in buildings requiring remediation is with those who caused them. In circumstances where it does not prove possible to recover the cost of remediation from the developer, we have established a threshold that strikes a balance between leaseholders and landlords as to who should be paying for the costs of remediation. No leaseholder, whether qualifying or non-qualifying, can be charged more than they otherwise would have been in the absence of the leaseholder protections for costs relating to historical building safety defects.
A range of support is in place for leaseholders whose lease does not qualify for protection. All residential buildings above 11 metres in England now have a pathway to fix unsafe cladding, through either a taxpayer-funded scheme or a developer-funded scheme. With regard to buildings under 11 metres, it is generally accepted that the risk to life from fire is proportionate to the height of the building. Therefore, the risk to life from historic fire safety defects in buildings under 11 metres will require remediation only in exceptional circumstances.
The Earl of Lytton (CB)
In relation to critical fire safety, the Minister referred to the risk to human life. I understand that that is what the independent expert statement was intended to cover; namely, critical life safety. What would she say about the other critical issues: finances and the cost of remediation, which none the less continue and are the matters that concern insurers and finance houses, which are by and large less concerned with questions of human life?
Baroness Scott of Bybrook (Con)
We have taken the issue of human life as the important one. I think we will have further debates on 11 metres as we go through the Bill. I am conscious of time; if the noble Earl does not mind, we will deal with those matters in Committee.
Given the number of small buildings under 11 metres that need remediation, our assessment remains that extending leaseholder protections to below 11 metres is neither necessary nor proportionate, as I think the noble Baroness has heard many times before.
Regarding my noble friend Lord Young’s issue about enfranchised leaseholders, the Government decided that the leaseholder protection provisions in Part 5 of the Building Safety Act would not apply to leaseholder-owned buildings. That was because the freehold to the building is de facto owned by all or some of the residents who, as leaseholders, have collectively enfranchised and would still have to pay to remedy the safety defects in their buildings. However, leaseholders in those buildings, either individually or collectively, can pursue developers and their associated companies via a remediation contribution order for funds that they have spent or will spend remediating their buildings for relevant defects.
I turn to joint ownership. This Government understand that individuals are frustrated with the distinction between leaseholders who own properties jointly and those who do so independently. We are listening carefully to feedback from stakeholders on this matter. We have also published a call for evidence on jointly owned leasehold properties, which was launched on 22 March; this will enable the Government to understand the scale of the issue and consider whether any further changes can be proposed.
The noble Baroness, Lady Andrews, asked about development value. I am very grateful to her for engaging with me beforehand about this issue. I can say to the noble Baroness, as she acknowledged, that we committed to enabling leaseholders voluntarily to agree to a restriction on future development of their property to avoid paying development value as part of the collective enfranchisement claim. We are consulting on making changes to the existing permitted development right and are seeking views on whether sufficient mitigation is in place to limit potential impacts on leaseholders. I urge the noble Baroness to contribute her views to that consultation before it closes on 9 April. When it closes, the Government will carefully consider and review all the responses and see how the regime can be improved.
I was very sorry to hear of the personal difficulties of the noble Lord, Lord Campbell-Savours, when purchasing his freehold, and I hope that the reforms in this Bill will address the issues he raised. With regard to the point that he and my noble friend Lord Bailey raised on service charges, the level of service charges that leaseholders pay will depend on many factors, such as the terms of the lease and the age and condition of the building. This means that the cost of things such as repairs, maintenance of common areas and management of the building will differ considerably. The transparency and redress reforms in this Bill will empower leaseholders to take action against any unreasonable costs.
As well as speaking extensively about building safety issues, the noble Earl, Lord Lytton, made a compelling case for thinking about leasehold from the perspective of consumer protections. The Government are committed to improving consumer protections against abuse and poor service from landlords, managing agents and freehold estate managers. That is why we will set a maximum time and fee for the provision of information as part of the sales process for leasehold homes and those homes encumbered by estate management charges, and introduce rights of transparency over service charges, extended access to redress schemes and reform of legal costs. We consider that it is a powerful package of consumer rights and reforms, and, following Royal Assent, we will make sure that appropriate guidance is available for consumers. None the less, I look forward to meeting the noble Earl after Easter to discuss how this package can be further improved and well implemented.
The noble Lord, Lord Palmer, the noble Baroness, Lady Bray, and my noble friend Lord Howard asked about the Government’s policy on marriage value. Any suggestion of retaining marriage value—wholesale or in limited circumstances—would be counter to our aim of making it cheaper and easier for leaseholders to extend their lease or acquire their freehold. Such proposals would risk both perpetuating and creating a two-tier system—eroding the benefits that the Government are delivering through the Bill. Removing marriage value and hope value will deliver a level playing field and wide access for leaseholders who may otherwise find it prohibitively expensive to extend their lease or purchase their freehold. Our wider reforms to enfranchisement value will ensure that sufficient compensation is paid to landlords to reflect their legitimate property interests.
The right reverend Prelate the Bishop of Manchester spoke about the positive contribution that charities make to our society, which this Government wholly recognise. He asked specifically about exemptions from our reforms for charity. Although well-meaning, attempting to created carve-outs for specific groups of landlords—for example, charities—would complicate the system that we aim to simplify and would risk both perpetuating and creating a two-tier system. We appreciate the engagement that the right reverend Prelate has conducted with us so far and hope that we can continue that engagement on issues that we know, and he knows, are significant.
The noble Baroness, Lady Twycross, and the noble Lord, Lord Kennedy, brought up the renters Bill and assured tenancies. We are aware that leaseholders with ground rents of more than £250 per year can be legally regarded as assured tenants. In the Renters (Reform) Bill, we are addressing this problem by removing all leaseholders with a lease longer than seven years from the assured tenancy system. That Bill is progressing through Parliament, and our priority is to pass this vital legislation before the end of this Parliament.
The noble Lord, Lord Khan, brought up the issue of the Commonhold Council. The council has met regularly since it was established in 2021 and last met in September. The Government are currently reviewing the Law Commission’s proposal to reform the legal framework for commonhold and plan to reconvene the group ahead of finalising their response to the Law Commission.
If I have missed any other specific issues raised, I can only apologise. A tremendous amount has been said in this session—all of great value—and I reiterate my commitment to meeting any Member of this House who wishes to discuss the Bill further after Easter. I hope that is acceptable to the House.
The Leasehold and Freehold Reform Bill will deliver on the Government’s 2019 manifesto commitments, promoting fairness and transparency in the residential leasehold sector. I look forward to working with noble Lords during the passage of this most important Bill.
I have noted forfeiture, commonhold, the regulation of property agents, marriage value, ground rent and service charges as areas of serious interest to noble Lords, although others of equal importance have been raised. I am sure noble Lords will recognise that this is a very long list and there is little time remaining in the parliamentary Session. However, we are listening and looking carefully at what can be done on all those things.
Lord Kennedy of Southwark (Lab Co-op)
Before the Minister sits down, although I am frustrated about the Bill, I have great respect for her and look forward to our debates in Committee. I particularly asked about commencement, because this is a Bill of 123 clauses and 15 schedules, and only the issues on rent charges and three parts of the Building Safety Act are going to be brought into force after two months. Nothing is being brought in on Part 1, on leasehold houses, Part 2, on leasehold enfranchisement and extension, Part 3, on the rights of long leaseholders, Part 4, on the regulation of leasehold, Part 5, on the regulation of estate management, or Part 6, on redress schemes. Basically, about 95% of the Bill is not going to come into force until a date that the Secretary of State determines. As in my earlier remarks, I am a bit frustrated sometimes that what we should get from the Secretary of State does not materialise. Will the Minister write to me and be clear about when these are going to come into force? We need to know what date they are coming into force, otherwise all the promises amount to nothing.
Baroness Scott of Bybrook (Con)
I am happy to write to the noble Lord on this issue, and I will put a copy of that letter in the Library.
Baroness Scott of Bybrook
That the Bill be committed to a Committee of the Whole House, and that it be an instruction to the Committee of the Whole House that they consider the Bill in the following order:
Clauses 1 to 7, Schedule 1, Clauses 8 to 18, Schedule 2, Clauses 19 to 29, Schedule 3, Clauses 30 to 36, Schedules 4 to 7, Clauses 37 to 44, Schedule 8, Clauses 45 and 46, Schedule 9, Clauses 47 to 68, Schedule 10, Clauses 69 to 103, Schedule 11, Clauses 104 to 108, Schedule 12, Clauses 109 to 123, Title.
Leasehold and Freehold Reform Bill
Monday 22nd April 2024
(8 months ago)
Lords ChamberRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 50-I(a) Amendments for Committee (Supplementary to the Marshalled List) - (19 Apr 2024)
Baroness Taylor of Stevenage (Lab)
My Lords, I am pleased to start Committee stage of this long-awaited Bill. I understand that it is not correct protocol to reiterate Second Reading speeches in Committee, so I shall not do that, but I believe that there are some long-standing unanswered questions relating to the Bill. Though we will probe some of them through our amendments, it is disappointing and unhelpful to reach this stage without some of those issues being clarified. If the Minister can comment, either in her early responses in Committee, or as the Bill proceeds, it would be helpful.
I hope we do not have to reach Report before we know, for example, the outcome of the consultation on ground rent; whether the Government have given up on their proposals to scrap leasehold as a tenure for flats; how the Government propose to help freehold homeowners who find themselves trapped in what have become known as fleecehold charges for estate management, an issue raised powerfully by the Law Commission again in its recent briefing; whether the Government intend to use the Bill to put right some of the building safety issues around qualifying and non-qualifying leases, including those relating to buildings under 11 metres in height, which undoubtedly would have been better addressed by the Building Safety Act but were excluded; and why proposals for a regulator of property agents—supported across this House, and discussed again just last week—continue to be resisted. We would be grateful for clarification from the Minister on the commencement date of the provisions in the Bill, as she has indicated in a written response to my noble friend Lord Kennedy that it will not be until 2026.
It is worth opening this group by talking about the news reports over the weekend. We learned from the Times that the costly regime of ground rent will continue for a further 20 years. Although those ground rents may be capped at £250, we have not had any official announcement on that yet.
The amendments in this group relate directly to the ban that was introduced on Report in the Commons; it was added in late so it was not able to be properly scrutinised there. So our main question is: when exactly will the Government do what was reported over the weekend? Will they amend the Bill at an even later stage, with even less opportunity to scrutinise?
Lord Young of Cookham (Con)
I want to raise a slightly different point from the one raised by the noble Baroness, who is worried that there are loopholes in the schedule. My concern is slightly different, in that the schedule currently bans a form of lease that is actually beneficial. I refer to an arrangement called Home for Life, which has been operating for some time and is based on somebody who is over 60 selling their home. Homewise, which operates Home for Life, then buys the property to which the person moves and grants them a lifetime lease. That enables them to vacate a large family home, gives them the security of the home they move to and, in many cases, releases a sum of money that enables them to expand their income.
There are a number of exemptions under the schedule; this scheme is not one of them. This is, in fact, contrary to what the Government said when they consulted on this a few years ago, when they made it absolutely clear that they would exempt these leases. I quote from paragraph 252 of the Government’s response to a consultation document, Implementing Reforms to the Leasehold System in England:
“It is not the intention of the policy to affect lease-based financial products (home reversion plans—equity release, home purchase plans—lifetime leases and Islamic/Sharia compliant finance), so long as they do not provide a loophole from which to evade the ban. For both home reversion and home purchase plans the provider acquires the freehold and the consumer has a non-assignable lifetime lease. Because these leases are not assignable to another party there is no risk of such leasehold houses coming onto the open market”.
They concluded:
“We will provide an exemption from the ban for these financial products”.
The product I have just mentioned falls squarely within the terms of the exemption that I just read out, but I am afraid it is caught by the Bill as it now stands. I hope my noble friend the Minister will be able to say that this is an unintentional capture of a worthwhile type of lease and that the Government will provide the necessary amendment downstream so that Home for Life can continue to provide a worthwhile service, which I do not think is a loophole of the kind described by the noble Baroness, Lady Taylor.
Baroness Pinnock (LD)
My Lords, this Bill is really very important. It has been a long time since Second Reading, so I think it is worth reiterating some of the fundamentals that we hope it will achieve.
The first is that this is obviously a huge opportunity to reform the leasehold/freehold property rights and relationships. That is certainly one of the key aspects that we on these Benches will pursue with vigour. It is also an opportunity to tackle the huge omissions in the Building Safety Act to provide remedies for those leaseholders and tenants living in blocks of flats that are under 11 metres or five storeys. As we have all through the debates and discussions on the Fire Safety Act, the Building Safety Act and the levelling-up Act, we on these Benches will continue to pursue the safety of leaseholders and tenants in those blocks of flats, because that is the right thing to do.
On these amendments, we on these Benches acknowledge that there will, of course, be areas in the leasehold/freehold arrangement where the abolition of leasehold impinges on other important rights, so we accept that there will be examples where an exception is justifiably made. However, the noble Baroness, Lady Taylor of Stevenage, is absolutely right to probe the reasons for these exceptions, in this group and in the following group, and has drawn attention to them individually. For example, the noble Baroness drew attention to a situation where the developer has a head lease and has yet to build out to the development. She asked the pertinent question of what happens if leasehold is going to be abolished for houses. Where does that fit in with a development that is ongoing that will be developed under the terms of a leasehold? That is not explained either in the Bill or in the Explanatory Notes.
We on these Benches understand the importance of this for historic estates that are now owned by the National Trust in England, Wales and Scotland. The purpose of the leases in those instances ought to be protected, because the overwhelming responsibility is the protection of our national heritage. That makes good sense. However, although the schedule provides details of which properties are eligible for what was described as “permitted leases” under the tribunal certification, what is not clear in either the clauses or the schedule, or in the Explanatory Notes, is what criteria the Government are using to enable some leaseholds to be described as permitted. Can the Minister provide the reasons for the choices made by the Government in determining permitted leases in Schedule 1? This is important because the legislation will be challenged in the future. It is therefore vital that, before we get to Report, we understand the reasons, as well as the purpose, behind the tribunal certification. Perhaps the Minister can provide the details of the regulations that are to be provided to the tribunal for making those decisions.
The two examples used by the noble Baroness, Lady Taylor of Stevenage, and the noble Lord, Lord Young of Cookham, relating to retirement housing and homes for life, strike me as being very important in our discussions. Those of us who have been involved in leasehold, and in the debate about leasehold and some of the criticisms of the way in which leasehold is implemented in practice, have been astonished by the way in which some retirement housing service charges have risen exponentially, without, it seems, any recourse to an explanation or a reduction. It is important to understand, for both homes for life and retirement housing—one of which is referred to in the schedule and the other which is not, as the noble Lord, Lord Young of Cookham has said—how protections will be provided for these very important areas of housing in order to provide protection for the leaseholders in these arrangements.
We support the probing amendments of the noble Baroness, Lady Taylor of Stevenage, and look forward to the detailed response, I hope, from the Minister.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, it gives me great pleasure to open Committee on the Leasehold and Freehold Reform Bill. Before turning to the debate on the amendments that have been tabled, it would be remiss of me if I did not take this opportunity to thank those Peers who have engaged with the Bill and those who have long championed the rights of leaseholders. I also thank colleagues from the Law Commission, without whose advice much of this vital legislation may not have been possible.
Lord Young of Cookham (Con)
I am most grateful to my noble friend for that undertaking, but I remind her that the Government said:
“We will provide an exemption”,
for these types of scheme.
Baroness Scott of Bybrook (Con)
I have noted that.
The noble Baronesses, Lady Pinnock and Lady Taylor, and the noble Lord, Lord Young of Cookham, also brought up the issue of the exempting of retirement houses. Retirement houses do not stand alone; they are usually part of a wider scheme with extensive communal facilities and packages of support care and hospitality services. A lease can help to organise the relationship between the two parties, with the home owner and provider managing the development in properties such as these. We think this justifies an exemption from the ban.
The noble Baroness, Lady Taylor Stevenage, also brought up the commencement day for this Bill. The letter that we wrote to the noble Lord, Lord Kennedy, explained that it is a complex Bill, and there will be complexities as we roll out the Bill after Royal Assent. However, I think we did put in that that commencement is likely to be 2025-26, not 2026.
I want to reassure noble Lords that there is a power in the Bill, should evidence of any abuse emerge, to tighten definitions further or remove exemptions entirely if there is evidence that a stricter approach is necessary. With these assurances in mind, I hope that the noble Baroness will agree not to press her amendment at this stage. In this group—
Baroness Pinnock (LD)
Before the Minister sits down, she referenced in the early part of her response the number of houses that were likely to be developed under circumstances where a lease had already been granted before the commencement of this Bill. Is she able to give the Committee a ballpark figure of the number of houses that would be caught up in this situation?
Baroness Scott of Bybrook (Con)
I am not prepared to give any ballpark figures from the Dispatch Box, but I will look into it and let the noble Baroness know. I apologise that I do not have that figure with me today.
Before I finish on this group, I have government Amendment 8, which makes minor clarificatory changes to the definition of shared ownership leases permitted under the leasehold house ban to clarify its intent. The amendment adds a further condition to permitted shared ownership leases, confirming that where a shared ownership leaseholder has acquired 100% of the equity in the house, they will then be transferred the freehold of the house at no extra cost. This brings the definition into line with government funding programmes and definitions elsewhere in the Bill. I look forward to hearing—
The Earl of Devon (CB)
Just to return to the National Trust exemption, are the Government satisfied that there are no other institutions similar to the National Trust that have similar obligations of heritage maintenance, will be impacted by these provisions and should also possibly be exempted? If there are, how would they be able to grant long leases on property that needs to be maintained for heritage purposes?
Baroness Scott of Bybrook (Con)
We have been working with the stakeholders for many months, if not years, on this. If the noble Earl looks in the schedule of exemptions, I think he will find everybody that wanted to be there. We have agreed to put them there, but if he has any particular group in mind, I would like to hear about it, please.
Government Amendment 8 is also relevant to the following group of amendments, so perhaps we could take that into consideration on the next group. In the meantime, I look forward to hearing from noble Lords about how they think these measures can be improved as we move through the Bill. I ask that the clause stand part and that the amendments are not moved.
Lord Khan of Burnley
Member's explanatory statement
This amendment, and other similar amendments in my name, probe each of the categories of “permitted leases”.
Lord Khan of Burnley (Lab)
My Lords, I will speak to these probing amendments in the name of my noble friend Lady Taylor of Stevenage. This group of amendments further relates to different parts of Schedule 1, which provides details of permitted lease categories where self-certification applies in relation to the Clause 1 ban on new leases of houses, which the Government added to the Bill on Report in the Commons. The purported ban on new leasehold houses does not actually ban all new leasehold houses—a point that my noble friend eloquently made during the opening group. It is imperative that, through the probing amendments in this group, we emphasise that this ban appears to be a weak ban.
Each of the amendments in this group refers to a different type of exemption or permitted lease: Amendment 5 relates to leases agreed before commencement; Amendment 6 refers to shared ownership leases; Amendment 9 relates to home finance plan leases; Amendment 10 refers to extended leases; Amendment 11 looks into agricultural leases—paragraph 9 of Schedule 1 details the permitted lease definition for agricultural leases as
“a lease where the house is comprised in … (a) an agricultural holding within the meaning of the Agricultural Holdings Act 1986 which is held under a tenancy to which that Act applies, or … (b) a farm business tenancy within the meaning of the Agricultural Tenancies Act”.
Without wishing to lengthen the debate on this issue, since many points were picked up by my noble friend, can I ask the Minister opposite to let the Committee know how many current leases fit these categories of permitted leases? Do the Government expect it to stay the same going forward, especially for shared ownership? How many permitted leases do the Minister and the Government envisage over the next 10 years, for example, to which these categories will apply?
Lord Young of Cookham (Con)
My Lords, I will speak to Amendment 7 in my name, which deals with shared ownership—one of the issues touched on by the noble Lord, Lord Khan. Shared ownership was developed in the 1980s and I claim some paternal responsibility for it. It was a route into affordable homes, and there are now some 200,000 shared owners.
There is a risk that shared owners will fall between the cracks between conventional leaseholders and those who rent. The Government are doing a lot for the conventional leaseholder. Under the Renters (Reform) Bill, they plan to do a lot for the conventional renter, and as I said, there is a risk of shared owners falling between the cracks. If one looks, for example, at the New Homes Ombudsman Service, which I greatly welcome, and the new homes quality code under it, the protection does not extend to affordable homes—namely, those sold under a shared-ownership scheme.
The reason for this amendment is a report, which I am sure my noble friend has seen, from the Select Committee in another place published on 26 March entitled Shared Ownership. The crucial thing to remember about this is that it was published after the Bill left the other place. Therefore, these are comments on the Bill as we see it today. I will briefly quote from three relevant paragraphs from that report.
Paragraph 80 states:
“When we asked Baroness Penn about this issue”—
shared ownership—
“she told us that the provisions of the Leasehold and Freehold Reform Bill are intended to make it easier for those on the old form of the lease to extend when needed. However, Shared Ownership Resources have said that shared owners will not benefit from the leasehold enfranchisement reforms included in the Bill, as, as assured tenants, they do not have statutory rights to leasehold enfranchisement”.
I hope my noble friend can assure me that shared owners do have the right referred to in that statement—the right to enfranchise—and that the fact they are technically assured tenants does not mean they are precluded from the rights in the Bill. Paragraph 92 reaffirms that point:
“We also believe that it is unacceptable that shared owners do not have the same statutory right to leasehold extension as other leaseholders”.
My final quote is from paragraph 94:
“Finally, the Government should ensure that any legislation passing through Parliament which has provisions to reduce the cost of, and simplify, the process of leasehold extension (for example, as in the Leasehold and Freehold Reform Bill) also applies to leaseholders in shared ownership properties, so that shared owners have the same statutory right to leasehold extensions as all other leaseholders”.
It is clear from those quotes from the recent report that the Select Committee holds serious doubts about the entitlement of shared owners to some of the rights in the Bill.
Shared-ownership leases are often complex. Leases on flats, for example, with multiple sub-lessees with different rights and responsibilities, can add further complexity. It is worth mentioning that shared owners are liable for all legal and other administrative costs of superior leaseholders and freeholders, although they only own, for example, 50% of the property. As a result, they can be paying more in service charges than other people in the block, simply because they have that extra relationship with the registered provider as well as the freeholder.
When a shared-ownership owner, for example, extends the lease and the property is valued, they pay 100% of the legal costs, although they only own 50% of the property. The explanatory notes to the Bill state, on page 8, paragraph 20:
“The Bill also gives shared ownership leaseholders the right to a lease extension for 990 years”.
However, the registered provider—the shared ownership’s immediate landlord—may have only a short-term interest in the lease as a head lessee or a sublessee. So, what happens when the shared-ownership leaseholder exercises the right, but the registered holder says, “I’m very sorry but I don’t have 990 years available; I only have a short lease”? Is there an obligation in the Bill for that registered provider to get a long lease, which, in turn, is passed on to the shared owner?
Turning to Condition C in the Bill, which my probing amendment addresses, I wonder whether this precludes certain shared owners from the right to a lease extension. Paragraph 6(6), on page 136, states:
“Condition C: the lease allows for the tenant’s share in the house to reach 100%”.
However, some shared-ownership leases have caps. They have caps at 80% in a designated protected area, and a cap of 75% in older persons shared ownership. So, are these groups excluded, or does paragraph 6(2) come into play, which says that the Secretary of State can exclude Condition C if the lease is of a description he has specified? Again, I would be grateful for an assurance on this.
My final point, which was also raised by the Select Committee, is that there is a broader risk of a two-tier market in shared-ownership leases following the changes in lease terms as part of the affordable homes programme.
My noble friend the Minister may want to reply to this in a letter, but shared owners want an assurance that their entitlements have been properly take on board during the Bill’s drafting, particularly against the background of the Select Committee report that I have just referred to, which makes it clear that there are anxieties that the interests of shared owners are not adequately reflected in the Bill.
Baroness Pinnock (LD)
My Lords, there are two elements of this category of permitted leases that are worthy of further exploration. One—on which the noble Lord, Lord Young of Cookham, has gone into great detail, questioning how it will work—relates to shared ownership. The second is to do with agricultural leases.
I would like the Minister to explain, first, why agricultural leases cannot be subject to tribunal certification, rather than the current self-certification process. There does not seem to be a reason why that does not occur under the first element of permitted leases.
There are other issues, such as shared ownership and self-certification, that are not necessarily covered in the details the noble Lord, Lord Young of Cookham, went into, but which are very important. I would like to understand how self-certification will be subject to challenge, what the process is and how such situations can be resolved. Will it be a costly process? If so, granting permitted leases for shared ownership, and agricultural leases, becomes an expensive legal minefield for those caught up in it.
So, I would like to understand why agricultural leases are not in the first set of certifications for permitted leases, and how challenges can be resolved. I look forward to what the Minister has to say.
Baroness Scott of Bybrook (Con)
My Lords, I thank the noble Baroness, Lady Taylor of Stevenage, for Amendments 5, 6, 9, 10 and 11. I thank the noble Lord, Lord Khan, for speaking to those amendments to Part 2 of Schedule 1. These amendments would remove exemptions to the ban on the grant of new leases on houses.
As I stated when addressing Amendments 1 to 4, the Government are aware that certain housing or financial products which support home ownership rely on granting a lease. We have therefore consulted extensively on scenarios where this may be justified. For example, shared ownership, a vital home-ownership product, relies on the use of a lease. We cannot surely be saying that the thousands of new shared ownership houses built each year should not be sold any longer. Equally, we cannot say that the use of home purchase plans—including, for example, through use of Islamic finance, a vital option for the purchase of houses for those who cannot, for faith-based reasons, apply for an interest-charging mortgage—should not be allowed, or that owners of existing leasehold houses cannot extend their leases.
For any of the exceptions in Part 2 of the schedule, including shared ownership, home finance plans, lease extensions, agricultural tenancies, or contracts on leases agreed pre commencement, it should be clear and unambiguous to consumers buying these that they are getting a lease on a house, and why that lease is needed. Because of this, the Government will not require these types of leases to obtain tribunal certification. However, again, we have taken powers in the Bill to adjust the definition if there is evidence of abuse, or to move permitted leases into Part 1 of the schedule, should there be a need for tribunal involvement. The Government will continue to monitor market behaviour and act accordingly.
The noble Lord, Lord Khan, asked for some more details of these groups of homes or products. On exempting shared ownership, I should say that shared ownership is one of the Government’s key affordable housing products, which helps consumers to get on to the property ladder. Consumers purchase shares in the property over time through the payment of rent to a provider, and a lease facilitates this arrangement between the two parties. The Bill therefore permits the grant of new shared ownership leases on houses.
When we go to financial products, the Bill includes an exemption to the ban on new leasehold houses for lease-based financial products, as I said, which can help people to buy a home or release equity from it. Here a lease is required because a third-party provider acquires a freehold on the consumer’s behalf as part of the financing of the purchase. Ownership is required by two parties and is best facilitated via a lease.
The noble Baroness, Lady Pinnock, and the noble Lord, Lord Khan, asked about agricultural tenancies. Farm businesses and agricultural landlords negotiate the length of a tenure to suit their business needs, and it is intended that this should continue, as longer-term leases can help to ensure that farmers have security to invest in their businesses over time. The Bill makes it clear that agricultural tenancies will be the permitted lease for the purposes of the ban on new leases of houses, and explicit exemption is provided in the Bill for tenancies that fall under the Agricultural Holdings Act 1986 or the Agricultural Tenancies Act 1995.
We are exempting lease extensions when a home owner extends their lease; often the original lease is surrendered and a new one granted in its place. While this is technically a new lease, the homeowner remains the leaseholder of the same property. Therefore, we believe that this should be treated as an existing rather than new lease, and warrants an exemption. In practice, we envisage that most leaseholders will purchase their freehold, where they are able to do so.
We are exempting agreements for lease. These AFLs are a contract between the prospective leaseholder and landlord to enter into a lease in the future. Where an AFL was agreed prior to commencement of the Bill, it is right that this contract should be honoured, and the lease granted. For this reason, an AFL entered into prior to the commencement of the ban will be treated as a permitted lease, as both parties have agreed on the terms of the lease and are aware that they will be entering into a lease. A tribunal certificate and a warning notice are not therefore required, we believe.
Lord Young of Cookham (Con)
I am enormously grateful for the assurances that my noble friend has given. Will the Government respond to the Select Committee report on shared ownership before Report? It raises some important issues which I touched on and it would be nice to have the Government’s response before Report.
Baroness Scott of Bybrook (Con)
I am not aware of the timescale for that, but I will make some inquiries and come back to my noble friend.
Lord Khan of Burnley (Lab)
My Lords, I thank the Minister for her response to what was a very interesting debate. I always appreciate the breadth and depth of expert knowledge from the noble Lord, Lord Young of Cookham, in particular. He talked about the rights of shareholders and what they are entitled to, and it is important that he finished by talking about the response to the Select Committee report on shared ownership. I appreciate also the probing of the noble Baroness, Lady Pinnock, alongside myself, on the definition of agricultural leases but, for the time being, I beg leave to withdraw my amendment.
Baroness Scott of Bybrook
(a) allows for the tenant to acquire the freehold of the house (if the landlord has the freehold), or(b) provides that the terms of the lease which make the lease a shared ownership lease cease to have effect (if the landlord does not have the freehold),without the payment of further consideration.”Member’s explanatory statement
This amendment amends the definition of a shared ownership lease so that it includes the case where a tenant has the right to acquire the freehold. This is in line with the definition being inserted into the LRA 1967 by paragraph 13 of Schedule 8 to the Bill.
“Report on providing leaseholders in flats with a share of the freehold(1) The Secretary of State must publish a report outlining legislative options to ensure that all qualifying tenants in newly-constructed residential properties containing two or more flats have a proportionate share of the freehold of their property.(2) The report must be laid before Parliament within three months of the commencement of this Act.”Member’s explanatory statement
This new Clause would require the Secretary of State to publish a report outlining legislative options to provide leaseholders in flats with a share of the freehold.
Baroness Taylor of Stevenage (Lab)
My Lords, just before I move my amendment, I should say that I omitted to thank the Minister for her collaborative approach to the Bill in advance of it coming before the Committee. I now do so and rectify that omission. I also thank the Law Commission, as she did, and the many groups that have a leasehold interest and met us in recent weeks. I hope the Committee will forgive me for not mentioning that earlier on.
Amendment 12 requires the Secretary of State to publish a report outlining legislative options to provide leaseholders in flats with a share of the freehold. I shall resist the temptation to go over the ground again of why the Government did not include flats in their ban on new leases, although it would be helpful to know from the Minister what level of consideration was given to enacting the recommendations of the Law Commission in full in regard to this matter, particularly as it was the stated intention of the Secretary of State—that is what he wanted to do. There has been a commitment to this ban on leasehold at least since 2017. One would think that there has been plenty of time to get the work done. Indeed, the Law Commission has done much of the heavy lifting on what would be needed.
Our later amendments seek to determine the Government’s appetite to move in due course to a more widespread system of commonhold as the default tenure. The successful adoption and implementation of this in other jurisdictions has been well debated and discussed in your Lordships’ House. It is certainly the clear intent of my party to move as quickly as possible to that tenure. However, that would be a policy decision, as distinct from the implementation of the Law Commission’s recommendations, and would necessarily have to follow the legal scheme that those recommendations would introduce. As that is not proposed in the Bill but follows the Secretary of State’s intent to do away with the archaic system of leasehold altogether, there is a strong case to make a start with a transitional regime.
The introduction of a mandatory share of freehold in all new blocks of flats, as proposed in our amendment and that of the noble Lord, Lord Bailey of Paddington, alongside the requirement to establish and operate an RMC—a right to manage company—with each leaseholder given a share, would be a sensible staging post on a path towards a commonhold future. It would make conversion to commonhold at a later date a far simpler process. We urge the Government to accept these amendments as they would ensure that we have started on the path to confining leasehold to the dustbin of history, which is where we believe it belongs, and would make it clear that the Bill is not ruling in one set of homes and home owners to the ban and ruling out another. That other is affecting by far the greatest number of leaseholders, with 70% of leaseholders occupying flats. To be clear, this is not an alternative to leasehold. If such a measure were brought into force, any leaseholder resident in a new block of flats would own both the lease and a share of the freehold. It would ensure, in effect, that all new blocks of flats were collectively enfranchised by default, without the need for leaseholders in them to go through the process of acquiring the freehold.
The advantage of having a default share in the freehold is that it would give the leaseholder a direct say on what happens in their building, as is the case with those who have already been collectively enfranchised. It would also provide additional valuable rights, such as the right to a long lease extension on the basis of a peppercorn rent; in other words, the rights that will be accorded to existing leaseholders but without the cost of paying a premium to the freeholder that is still required to exercise that modified right.
We know that flat owners having a share of the freehold can cause tensions; for example, in agreeing how to proceed on crucial decisions, such as whether to cover the cost of major works through service charges. That is why it is essential that proper management arrangements are in place as a matter of course, to reduce the likelihood of damaging disputes between neighbours. That is why we propose mandatory RMCs on new blocks of flats as a corollary to the new clause.
Labour is unequivocal about the fact that commonhold is a preferable tenure to leasehold, in that it gives the benefits of freehold ownership to the owners of flats without the burdensome shortcomings of leasehold ownership. As we have heard, the Law Commission made 121 recommendations on commonhold, designed to provide a legal scheme that would enable commonhold to work more flexibly, and in all contexts. It is vital that if commonhold is to be the default tenure, it is enacted fully and properly, with full account of the Law Commission recommendations.
We have not sought to persuade the Government to incorporate any subset of the Law Commission commonhold recommendations into the Bill, but we need to reform the legal regime for commonhold in one go. Labour is committed to doing so if the British people give us the opportunity to serve after the next general election. In the meantime, it would be good to give current leaseholders a share in the management of their properties. I beg to move.
Lord Bailey of Paddington (Con)
My Lords, it is a pleasure to follow the noble Baroness, Lady Taylor of Stevenage. I do not want to rehearse the reasons why I think that a mandatory share of the freehold is necessary, in the way that the noble Baroness laid out. I want to speak more to the contact that I have had with so many different groups and individuals who feel that they are trapped in their leasehold.
The number one thing that comes up is, of course, service charge abuse. Which? did a study in 2011 which suggested that 700 million service charges had been overcharged. The market for that has grown now to 6.7 billion, so we can only assume that this overcharging has grown along with it.
The challenge becomes: how do we make this market fair? How do we make sure that these abuses are washed away? That is to give the people paying the bills control, and not to lock them into the monopoly that leaseholders are currently locked into. Ultimately, the answer would be commonhold, but while commonhold is not on the table, we need to look at a share of the freehold. It should be mandatory, and it should happen straightaway. The noble Baroness laid out very eloquently the benefits that this would give to leaseholders.
We must understand that leaseholders do not want a landlord; that is why they have left the private rented sector—to avoid landlords. These amendments should stand. They really give leaseholders what they want. I have tabled an amendment which asks the Government to retain the power to bring forward a share of the freehold on new flats. That is the most important thing going on here.
Baroness Pinnock (LD)
My Lords, we on these Benches far prefer a move to commonhold. The journey towards commonhold is a solution to the leasehold/freehold issue.
I understand why the noble Baroness, Lady Taylor of Stevenage, and the noble Lord, Lord Bailey, have proposed a share of freehold as a route towards commonhold as being the ideal solution, as recommended by the detailed report from the Law Commission in 2020. However, it is only a small step, and it is an option that is already being exercised by some flat owners.
It seems to me that the disadvantage of share of freehold is that, in practice, it will be possible only for blocks of flats with a small number of units. Where there is a large number of units in a single block, it would be very difficult to have a share of freehold for some but not others. It will be interesting to hear what the Minister and the noble Baroness, Lady Taylor of Stevenage, think.
Baroness Scott of Bybrook (Con)
My Lords, I thank the noble Baroness, Lady Taylor of Stevenage, and my noble friend Lord Bailey of Paddington for their amendments.
Amendment 12 would require the Secretary of State to publish a report, within three months of the commencement of the Act, into the legislative options for mandating that new-build flats be sold to leaseholders with a proportionate share of the freehold. We appreciate the benefits that share-of-freehold arrangements have over ordinary leasehold arrangements with third-party landlords, which is why we are making it simpler and cheaper for leaseholders of flats to enfranchise collectively and, therefore, achieve share-of-freehold arrangements. However, the commonhold framework has already been designed as the optimal legal vehicle for the collective ownership of flats. As such, the Government want to see the widespread take-up of commonhold, and for it to be the future preferred tenure for owners of flats, rather than share of freehold.
The noble Baroness, Lady Taylor of Stevenage, asked why the legal framework was so complex. We need to determine precisely what property the mandate is applied to, exemptions, the processes for phased developments, the enforcement of developer liabilities for remedial works and so on. We would also need to prescribe the constitution for resident management companies—since they are presently unregulated—and to consider how the management functions are to be exercised by such companies, resident participation in decision-making, and the procedures and jurisdictions for dispute resolution. It is a complex issue, but one that we are working on—the Law Commission has worked on it for us for a number of years—and we feel that it is important that we continue with moving to commonhold rather than mandate share of freehold.
We understand the desire to offer leaseholders a share of freehold in the interim between leasehold and commonhold while the Government consider the Law Commission report and work on commonhold. However, we do not believe that mandating share-of-freehold sales would be a simple and quick undertaking. We also have concerns about using share of freehold across the whole housing market. It is not an optimum product for managing all types of shared properties, such as large and complex buildings—as we have heard—or buildings with extensive shared spaces. That is why the Government are committed to commonhold instead. We would prefer to work on one widespread take-up of a new tenure, and for that new tenure to be commonhold.
Baroness Taylor of Stevenage (Lab)
I will ask for some clarification, then. The policy was originally announced in 2017. The Law Commission did a great deal of work on what needed to be done to enact commonhold, and yet it is not in this Bill. The Minister has just reaffirmed the Government’s commitment to move to commonhold, so can she say how much longer it will take to get us to a situation where we have it?
Baroness Scott of Bybrook (Con)
I reiterate that the Government remain absolutely committed to widespread take-up of commonhold for flats. We have reviewed the Law Commissioners’ recommendations to reinvigorate commonhold as a workable alternative to leasehold, and I can assure noble Lords that we will set out next steps in due course.
Amendment 15B from my noble friend Lord Bailey of Paddington would require mandatory share-of-freehold arrangements to be made for block of flats in instances where flats are subject to long leases or collective enfranchisement. I thank him for this amendment and for his interest in this specific instance. We are aware of the interest in this and appreciate the desire to ensure that more leaseholders can obtain control or ownership of their building. Although we understand the benefits that share-of-freehold arrangements can have over ordinary leasehold arrangements with third-party landlords, we are also conscious that mandating share-of-freehold sales on new builds would require a complex legal framework to be constructed and to accommodate the mandate. As I have said, we do not believe that mandating share of freehold would be a quick or easy fix for leaseholders. The Government consider that the best option, as I have also said before, is to continue to work towards the widespread use of commonhold in future, rather than mandating share of freehold.
My noble friend Lord Bailey of Paddington was particularly keen on service charges. The Government will bring forward, through this Bill, a number of measures to require landlords to provide further information to leaseholders on a very proactive basis and to increase the transparency of their service charges and administration charges, as well as providing more information to leaseholders on a reactive basis. Those measures include the introduction of a standardised service charge demand form to standardise the information that freeholders are required to provide to leaseholders. We will mandate the provision of an annual report that sets out key information of importance to leaseholders. We will compel landlords to provide more relevant information to leaseholders on request. We will ensure that service charge accounts are provided within six months of the end of the previous accounting period that they cover, regardless of the lease terms, and this will be subject to a number of exemptions. We will require freeholders to proactively disclose—
Lord Bailey of Paddington (Con)
Can my noble friend the Minister let me know how many of the 121 recommendations that the Law Commission made around commonhold will be adopted?
Baroness Scott of Bybrook (Con)
All I can say to my noble friend is that that is exactly what the Government are working on and that further details will come forward in due course.
A number of things in this Bill will affect the transparency and accountability of freeholders to leaseholders, particularly on service charges, which is the one thing that my noble friend brought up. For these reasons, I hope that the noble Baroness and my noble friend will not press their amendments.
Baroness Taylor of Stevenage (Lab)
I thank all noble Lords who have taken part in the debate. I found it a bit of a frustrating debate in many ways. As I said, this policy was announced in 2017; we have had a very detailed Law Commission review and endless discussions in this House about how we move to commonhold. In a sense, my amendment was set out to probe whether we could have some route map towards commonhold, and this might be a first step towards that, to provide leaseholders with at least a share of freehold with a view to moving towards commonhold in the future. It seems that the Government want neither to set out what their route map to commonhold is or what the steps on it might be, nor to give us a timescale for that route map towards commonhold. Now we are faced with an indefinite timescale to get there and a Bill which could have enacted it but has not. I wonder how much longer we will have to wait. The seven years we have already waited is quite long enough.
It has been frustrating to unlock that but worth probing the Government’s intentions. I am grateful for the reassurance that commonhold is still the aim, but I would like to know how long it will take. However, in view of the discussions here today, I will for the moment withdraw the amendment.
Baroness Pinnock
“Commonhold and Leasehold Reform Act 2002: commonhold threshold(1) Within six months of the day on which this Act is passed the Secretary of State must make regulations to amend the Commonhold and Leasehold Reform Act 2002 to lower the threshold of supportive eligible leaseholders needed to enter into a commonhold to 50%.(2) Regulations under subsection (1) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”Member’s explanatory statement
This amendment would require the Government to legislate for conversions from leasehold to commonhold where 50% of eligible leaseholders in a building support the conversion, rather than 100% as it currently stands, in line with the recommendation from the Law Commission.
Baroness Pinnock (LD)
My Lords, this amendment is on commonhold. I was pleased to hear the Minister emphasise that the Government intend to ensure that commonhold becomes the norm, although it was unfortunate that the phrase that followed was “in due course”.
This conversation about leasehold reform has been going on for a very long time. I accept that it is complex and that that there are competing financial interests. I accept that it will be difficult to find a route to ensuring that leaseholders become commonholders. However, the legal work has been done by the extensive and authoritative report from the Law Commission, The Future of Home Ownership, which was published in July 2020. The commission published three massive reports—one of them is over 800 pages. Therefore, the Government have at their disposal the combined thoughts of the Law Commission on how home ownership should be extended to leaseholders, and it has explained how that is done in a straightforward way.
The amendment in my name presses the Government to legislate for conversions to commonhold where only 50% of eligible leaseholders in a building support the conversion—rather than having it at 100%, which is obviously a barrier to commonhold ownership—and is in line with the recommendation from the Law Commission.
Everyone in the Committee will be well aware that the leasehold/freehold arrangement is very unusual in western European countries. The historic norm in the rest of western Europe is the equivalent of commonhold; that is how people who live in flats organise their affairs. It was introduced in England and Wales in 2002 but, for various reasons explained by the Law Commission, it has not taken off as an alternative to leasehold.
Baroness Fox of Buckley (Non-Afl)
My Lords, I shall speak to my Amendment 14. First, I apologise that I was away for Second Reading; I confess that I would probably have made a rather frustrated and angry speech at the Bill’s limitations and the waste of a chance to end leasehold once and for all. However, I come here today in a more conciliatory mood with, I hope, a constructive proposal to create a sunset clause on all new leasehold flats that would allow the Government five years to resolve any outstanding issues for present leaseholders. Because of a time limit, there would be light at the end of the tunnel, and all the rhetoric from the Government and the Opposition condemning leasehold as a feudal, unfair tenure could be turned into a concrete outcome, with no room for broken promises.
There is nothing unreasonable or radical about the amendment. The Conservative Party’s 2019 manifesto promised to enact a
“ban on the sale of new leasehold homes”—
and note that the wording was “homes”, not “houses”—and the majority of leasehold homes are flats. In fact, as the noble Baroness, Lady Pinnock, pointed out, 70% of them are. We know that it is precisely in relation to flats where the real abuse occurs, where the real money is made by third parties in exploitative extraction, and where the majority are denied control of their own finances and lives. That is where this scandal lies.
What is more, the number of leasehold flats is increasing exponentially, whereas the proportion of new-build houses sold as leasehold is falling dramatically, from a 15% high in 2016 to a meagre 1% of all leaseholds in December 2022. Yet the Bill avoids the main problem, and I am hoping that this amendment will give us a way out, and that now is the time to do it. Banning new leasehold houses is not enough and does not, in my opinion, despite what the Minister assured us, uphold the manifesto commitment. The amendment would allow the Government to honour their promise but without doing it in a rush.
Not to be partisan, I was delighted when the shadow Housing Minister, Matthew Pennycook, pledged to scrap leasehold tenure within Labour’s first 100 days in office, but this appears to have been slightly rescinded or fudged. This is therefore an amendment for all sides, to ensure there is cross-party consensus that we will absolutely name the date by which leasehold will have gone—what Michael Gove, the Secretary of State, has called an “indefensible” system of tenure. As far as I can see, everyone, cross-party, agrees with that. If not now, when? This is the first piece of legislation tackling leasehold tenure for new and existing homes in 22 years, outside of building safety. Another opportunity to move against this iniquitous regime may not come around any time soon; it might take another 22 years.
I am keen to learn the lessons of history, because back in 1995, the late Frank Dobson, then the shadow Secretary of State for the Environment, and Nick Raynsford, then the shadow Secretary of State for Housing, brought out an excellent pamphlet entitled An End to Feudalism: Labour’s New Leasehold Reform Programme. It noted:
“Over recent decades the weaknesses and injustices inherent in the British leasehold system have become increasingly highlighted, but reform has been a long time coming”.
It was promised that reform would come under that Government, but reform has sadly been an even longer time coming because, despite a promise to use the 2002 leasehold Bill to sunset any new leasehold buildings, this was reneged on.
This failure to use legislation 22 years ago to resolve the situation means that over 2 million further leasehold properties have been created—the very debt traps that have caused so much misery for so many. Are we just going to allow this Bill to pass, knowing that we will create more leasehold flats, and therefore more problems and more debt traps ahead? As Sebastian O’Kelly from the Leasehold Knowledge Partnership bluntly put it to MPs:
“You’re out of step with the rest of the world, so stop creating more leaseholds”.
I was delighted to hear the Minister assure us that nobody wants this, but I want that promise to be written down rather than just stated.
I stress that the amendment is not trying to dictate how this should be done. Rather, it would give the elected Government of the day, whoever that is, the space and flexibility to decide on whatever schemes are appropriate to ensure that third-party investors—the rentiers—are no longer permitted to interfere in what will be, I hope, a thriving sector of flats throughout the UK.
The amendment is not prescriptive, as I have said. Commonhold is not even mentioned directly, even though I agree with all those who have said that it is best suited to deliver ownership and management of residential flats for the future. The main point is to set a sunset clause to ensure that, whichever party is in government, there are no more broken promises and that the “in due course” we heard about earlier has an end date. What is more, the amendment, via proposed new subsection (3)(c) and (d), would ensure that existing leaseholders are not left behind. In a way, what is not to like?
However, it is difficult to know exactly who or what I am arguing against, because I am not quite sure that I even understand why this could not have been done in this legislation. The answer has not been forthcoming. I want to look at just a couple of objections.
In this Chamber, the noble Baroness, Lady Penn, explained from the Dispatch Box earlier this year that reforming leasehold for flats is “inherently more complicated” than for houses, as they required an arrangement to “facilitate management” of the buildings. Surely the “it’s complicated” defence is a red herring. There have been endless consultations and commissions, and decades-worth of academic and policy research, as we have heard from the noble Baroness, Lady Taylor of Stevenage, and as the noble Baroness, Lady Pinnock, pointed out. We have had the Law Commission, with its 121 recommendations. An expert advisory group, the Commonhold Council, was launched in May 2021 by the Government precisely to prepare home owners and the market for widespread uptake of a collective form of home ownership. So, as the former Housing Minister, Rachel Maclean, told the other place at Second Reading:
“All the work has already been done”.—[Official Report, Commons, 11/12/23; col. 676.]
For the remaining complexities, this amendment would give Parliament one more term as a reasonable timeframe to work at any outstanding issues—for example, around the complications of shared ownership, which we heard about earlier.
Baroness Jones of Moulsecoomb (GP)
My Lords, I do not have an amendment in this group, but it is almost therapeutic when your Lordships’ House is asked to consider a rare Bill such as this, where, instead of the Government seeking to do something really quite nasty, they are merely failing to do the best possible thing that they could.
The amendments in this group reveal that the Government have failed to bring in any proposals to replace leasehold ownership of residential property with commonhold ownership. It is obvious that there is a political consensus—at least on this side of the Chamber and partly on the other side—that commonhold should be the main model of ownership for multi-unit residential properties. However, 20 years since commonhold was first introduced, and four years since the Law Commission published legislative proposals to enable more widespread adoption of commonhold, it looks as though this Government have chosen to leave this issue to the next Government to sort out. That might be the best thing—I do not know—but, quite honestly, this Government have had the option, even in this Bill, to do the right thing.
Housing is part of survival: it is a human right and you have to get it right. It is time to end the commodification of housing by international finance and to end the feudal model of land ownership, which facilitates developers extracting as much money as possible from home owners while providing little or no value in return. Forgive me, I should have declared an interest as a leaseholder.
I would like to ask the Minister some questions; others have probably asked these questions before, but I just want to be specific and get clear answers. When do the Government expect the Commonhold Council to complete its work on the implementation of commonhold for new housing supply? When do they expect the completion of the work on conversion to commonhold? Why is it taking so long?
Lord Young of Cookham (Con)
My Lords, I will make a brief intervention to support the thinking behind Amendment 14, in the name of the noble Baroness, Lady Fox. We all understand the disappointment that it has not been possible to make progress with commonhold in this Parliament. We all understand that it would be impossible to try to retrofit commonhold into the existing legislation. One thing we have learned over the last two parliamentary Sessions is that the capacity of the department to produce legislation that does not need wholesale amendment as it goes through is limited. We all bear the scars of the levelling-up Bill.
We have also seen the number of government amendments that have already been tabled to this Bill. What ought to happen, and I wonder whether my noble friend would smile on this, is that at the beginning of the next Session, a draft Bill should be published on commonhold. That would enable us to iron out all the wrinkles and expedite the passage of an eventual commonhold Bill when it came forward. There is all-party agreement that we need to make progress with commonhold, so urgent work now on producing a draft Bill is time that would not be wasted. It would mean that early in the next Session of Parliament we could produce a draft Bill—we have the Law Commission’s work, which we could build on—and iron out all the wrinkles. Then, when the actual Bill came forward, we would be spared, I hope, the raft of government amendments. I exempt my noble friend on the Front Bench from responsibility for this; it would be a faster destination.
By way of comment, what has happened to draft Bills? When did we last see a draft Bill? If you look at the Cabinet Office’s recommendation, I think in 2022 it said that they should be part of a normal legislative programme; there should be a number of Bills produced in draft, which we can get our teeth into. All my experience as chairman of the Parliamentary Business and Legislation Committee is that when you have a draft Bill, the actual Bill goes through much more quickly. Again, my noble friend has no responsibility for the legislative programme, but I think we need to spend more time as a Parliament looking at draft Bills rather than at Bills that have been drafted in haste, and then having to cope with a whole range of government amendments.
The Earl of Devon (CB)
My Lords, I too was unable to speak at Second Reading, and I apologise for that. However, I was able to attend much of the debate and to listen to a number of your Lordships’ speeches. I noted the numerous times in which leasehold tenure was described as “feudal”; we have heard this many times today. It is used as a pejorative term, which I do not strictly agree with, being a feudal Member of your Lordships’ feudal House, serving our feudal sovereign. It seems a somewhat discriminatory term to use. I also note that not all feudal rights are bad; we laud the Magna Carta, the right to trial by jury, and the rights of habeas corpus, all of which are essential feudal rights. I would hazard that leasehold tenure is similarly a feudal right that we should be particularly proud of, like your Lordships’ feudal House.
That said, I realise that the days of leasehold are numbered, but we should not remove such an important element of our residential housing market without ensuring that there are at least adequate alternatives that are fit for purpose. There currently are not. I believe it a mistake to dismantle leasehold tenure without ensuring that the commonhold alternative is fit for purpose.
Here I note my interests: in 2003, as a junior property barrister, I was a contributing author to a handbook on the exciting new tenure of commonhold. Since then, and despite our best hopes, the book has sold barely a copy, and I understand that commonhold has been adopted by hardly anyone. In 2015, and again more recently, the Law Commission has explored the shortcomings of commonhold, and has, as we have heard, identified numerous ways in which the law could be amended to make it better. I believe the Government are therefore wrong not to have grasped the nettle and made commonhold fit for purpose at the same time as, if not before, introducing this piece of legislation.
For this reason, I support the probing amendment of the noble Baroness, Lady Taylor, with respect to the publication of a commonhold strategy. Without that viable alternative, I am particularly concerned that the leasehold reforms will have the unfortunate effect of decreasing the available housing stock, and will drive up the price of housing, which will decrease the number of homes that are affordable. I note my interests as a member of the Devon Housing Commission, ably chaired by the noble Lord, Lord Best, which is exploring why there is so little housing available in the county for people who actually live there.
I have a question for the Minister: have the Government sought to measure the likely impact of the Bill on the availability of new housing, and the willingness of freeholders to make land available for development?
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I have a number of interests to declare: first, as a leaseholder, secondly, as chair of the Heart of Medway Housing Association and, thirdly, as a non-executive director of MHS Homes Ltd.
I spoke at Second Reading and I am sure that, as we go through these few days in Committee, we will largely agree with each other that there is a major problem. We all want to see leasehold reform and commonhold reform. Everybody backs it. I know that the noble Baroness, Lady Scott, and the noble Lord, Lord Gascoigne, back it. The problem is that we are not doing anything about it. That is the shame here.
The amendment from the noble Baroness, Lady Fox, absolutely takes us forward. She includes a day to end leasehold flats, which would deliver that Tory party manifesto commitment. We should all back her if, as I hope, she divides the House at the next stage. Her amendment would deliver the Tory party manifesto commitment, but will the Government support it? Of course not. We know that. We all agree in these debates, but what we will get from the Government Front Bench is, “When parliamentary time allows”, “The next steps will follow in due course”, “We are keeping it under review”, or “We will get back to you”. That is the problem.
This is a golden opportunity that the Government have completely failed to deal with. We have sat here for years. I have asked question after question. I have been assured, “It is coming” or “Don’t worry, don’t ask questions, we are going to sort it all out”. Yet here we are and what do we get? A Bill that delivers very little. On the point about service charges and transparency, I can assure the Government Front Bench that if a leaseholder has problems with the service charge, they know they have problems. What they want from the Government are the tools to sort them out. The Government have not delivered that. They can give more transparency—great, but we need the tools for the job and they are not doing that for us.
This is very frustrating. I think we will have lots of agreement but very little action. I hope that, when we get to Report, a number of amendments will be passed and many members of the Government will support us in delivering the commitments that their party made to leaseholders at the last general election. The amendments from the noble Baroness, Lady Fox of Buckley, in particular, are really good, giving an absolutely clear cut-off date.
My noble friend Lady Taylor of Stevenage asked the Government to set out their strategy for commonhold. What is it? I hope they can tell us. The current strategy seems to be, “We will get back to you. We know it is important, but we can’t do anything about it at the moment—sorry”. That is just not good enough. There are lots of great amendments here, but we need some action from the Government. I hope that, when we get to the next stage, we will divide the House many times. Where we have got to at the moment is just not good enough.
In 1880 Henry Broadhurst was elected as the Member of Parliament for Stoke-upon-Trent. He was then elected as a Member of Parliament for Nottingham West. He raised the problems of leasehold in the other place. We are still talking about them today. He was elected in 1880, and we have still made only limited progress. It is about time we made some progress here. We want more transparency and we want the Government to deliver their commitments. We want commonhold, and we want it now.
The Earl of Lytton (CB)
My Lords, I agree fundamentally with the point made by the noble Baroness, Lady Taylor of Stevenage, and with what other noble Lords have said with regard to the desirability of a transition to commonhold. I say that because, apart from anything else, conventional leasehold has clearly got itself an extremely bad press. Like it or not, that is something we have to take account of. However, although it is poorly regarded among leaseholders, it happens to be the commercial preference and the model on which a great deal of leaseholder and freeholder value rests. We have to be a bit careful about that.
My interest here is very much about consumer protection. I do not want us to enter a brave new world in which the existing leasehold situation is seen as in any way second class. Comments are made about the evils of monetisation of the management process, but I think that is a slightly different issue. I do not see that as intrinsic in the tenure. I see that as an abuse, a lack of transparency and another area in which consumer protection has not operated.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I forgot to mention earlier how much I support the noble Lord, Lord Young of Cookham. I think the last draft Bill we had here was the Modern Slavery Act. There was a draft Bill and a Joint Committee of both Houses on it. The work of that committee ironed out all the wrinkles; we got a much better Act of Parliament, and it had a much easier passage through both Houses. The committee was able to look at the issues and deal with them, which was really important.
It would be lovely to hear the Minister say that we will have a draft Bill for commonhold. Again, that would really help us. We could have a Joint Committee of both Houses that could take evidence and work through all the problems. Then, when we got the proper Bill, we would get it much more smoothly and easily through this House and the other House.
I suspect we will not get that, but it is the way forward. Having more draft legislation enables us to sort things out. The Law Commission has worked on the two other Bills we need. We would benefit from having draft Bill committees. It would be much easier for the Government and for everybody to get stuff through and to deal with the problems we all want to solve.
Lord Khan of Burnley (Lab)
My Lords, I thank the noble Baroness, Lady Pinnock, for introducing this group of amendments. It has been a fantastic, constructive debate, with some excellent points made across the Committee. I do not want to repeat the arguments, but I will speak particularly to the amendment in the name of my noble friend Lady Taylor of Stevenage, which many noble Lords have spoken about. I remind the Committee that this amendment would require the Government to set out a strategy for making commonhold the preferred alternative to leasehold, as recommended by the Law Commission in its report, Reinvigorating Commonhold: the Alternative to Leasehold Ownership.
The amendments in the name of the noble Lord, Lord Bailey of Paddington, and the noble Baroness, Lady Fox of Buckley, are both important. They all point towards a particular focus: that commonhold should be the future. We should help the move towards commonhold; it is overdue. The Government have had 14 years to deliver and have broken their promises to leaseholders, as mentioned by my noble friend Lord Kennedy of Southwark. Let me remind the Committee that an incoming Labour Government would be left to pick up the pieces should we have the opportunity to serve.
On these Benches, our commitment, as reiterated by my noble friend Lady Taylor of Stevenage, is to have comprehensive leasehold reform, and this has not changed. We will bring forward ambitious legislation to enact all the Law Commission’s remaining recommendations at the earliest opportunity if we are privileged enough to serve.
The important point made by my noble friend Lord Kennedy about not having a strategy is why, on these Benches, we have brought forward an amendment asking for a strategy as part of this Bill. It has been so long; commonhold was introduced in 2002 as a way of enabling the freehold ownership of flats and avoiding the shortcomings of leasehold ownership. However, fewer than 20 commonhold developments have been established since the commonhold legislation came into force. Flats in England and Wales continue to be owned, almost inevitably, on a leasehold basis.
Unlike practice in most other countries across the world, flat owners in England and Wales continue to hold leasehold interests that will expire at some point in the future, and landlords make the key decisions about the management and costs of their buildings. Commonhold enables flats to be owned on a freehold basis, so that owners’ interests can last for ever and gives decision-making powers to home owners.
The Law Commission published its final report in July 2020, in which it makes numerous recommendations that seek to make commonhold not only a workable but a preferred form of home ownership to residential leasehold. Its recommendations include measures designed to make it easier for leaseholders to convert to common- hold and gain greater control over their properties; to enable commonhold to be used for larger, mixed-use developments that accommodate not only residential properties but shops, restaurants and leisure facilities; and to allow shared ownership leases to be included within commonhold. The recommendations would give owners a greater say in how the costs of running their commonhold are met, and ensure they have sufficient funds for future repairs and emergency work. They would provide owners with flexibility to change the commonhold’s rules, while improving the protections available to those affected by the change.
I ask the Government whether they disagree with the benefits I have just outlined? If they do not, why are they not doing this? That is the fundamental question from this debate that numerous noble Lords have alluded to. There was clearly some appetite for it a few years ago, so why are they not doing this? Have the Government changed their mind or are they just not brave enough to do it?
In May 2021, the Government had even established a Commonhold Council as a partnership of industry, leaseholders and government that would prepare home owners and the market for the widespread take-up of commonhold. I ask the Minister what has happened to that council. When did it last meet and how often does it meet?
It is widely accepted that, in terms of this Bill, we will not have commonhold brought in now. However, there is still much miscommunication around commonhold in the industry. There needs to be more education and an awareness campaign. As contributions have highlighted today, commonhold is so much easier. You do not have complex laws; you talk to one another and work problems and disputes out. You have meetings and laws are prescribed so that it is easy for people to know what to do at each step of the way. There are things that could be done with commonhold in this Bill to strengthen it and pave the way to commonhold happening en masse. The amendment in the name of my noble friend Lady Taylor would help the Government ensure that there is a strategy in this Bill and fulfil their manifesto promise, as mentioned previously. I commend the amendment in the name of my noble friend, and I look forward to hearing from the Minister.
Baroness Scott of Bybrook (Con)
My Lords, Amendment 13 concerns the conversion of existing leasehold buildings to commonhold. I thank the noble Baroness, Lady Pinnock, for raising this important subject. In future, the Government would like to see widespread use of commonhold for new and existing buildings, empowering consumers to fully own, control and manage their buildings. Reforming the route through which existing leaseholders in England and Wales can convert to commonhold will be a crucial stepping stone on this path to commonhold. The Government welcome the Law Commission’s excellent work on this subject, and continue to consider its recommendations in this space.
Baroness Fox of Buckley (Non-Afl)
My Lords, I forgot to declare my interest as a leaseholder. I feel as though I might have to declare an interest to the noble Earl, Lord Devon, as a serf, or at least somebody who is rather pleased that democracy has allowed me to move from that particular interest.
In her response, the Minister said that all this change needs to be managed. In response to my amendment, she said there should not be a ban without due consideration. Fine, but this was a sunset clause in five years; it is hardly rushing it. The endless contributions that have been made suggest that this has been talked about for a very long time. The noble Lord, Lord Kennedy, made the point that we can all go back. This sort of response, saying that we need to go slowly and that it needs to be managed, makes it seem a little unclear as to what the Government are responding to. Nobody here is exactly rushing through.
Also, can I have some clarification on the idea of a danger to the supply of new homes? I was glad that the Minister responded to the noble Earl, Lord Devon, saying that there does not appear to be any evidence of that, but she said we had to be careful about a ban without due consideration. She herself said that it could damage the supply of new homes, and to be honest I think that is an unjustified threat—although not by the Minister. I keep hearing this: “If we rush this through, nobody will ever build a flat again. We have a housing crisis; what are we going to do?” I know the developers are saying that, but I was interested in the fact that Lendlease is one of those saying that this may disrupt building supply, but actually it seems to be building away and thriving, with massive developments in Australia, where it is from and where, indeed, there is a form of commonhold of which Lendlease was supportive. It is not going to stop the development of houses. We can build, build, build—just not build, build, build leaseholds, surely.
Baroness Scott of Bybrook (Con)
My response to the noble Earl, Lord Devon, was a response on commonhold. My response to the noble Baroness, Lady Fox, was more about the fact that her amendment would just ban the sale of leasehold, which I suggest would give an uncertainty to the market.
Lord Bailey of Paddington (Con)
Maybe my noble friend the Minister can give us some detail on the Government’s new-found support for commonhold. It would be easier not to move my amendment if I had some idea of the progress of the Government’s thinking, the timetable and how they intend to increase the adoption of commonhold, because that would make my amendment largely unnecessary.
Baroness Scott of Bybrook (Con)
I thank my noble friend for that. As I have said, we are working on it, we are working on further changes and we will come back in due course.
Lord Khan of Burnley (Lab)
If I can just probe the Minister on the answer she gave me, that the Commonhold Council met in September, can I just confirm that she is chairing that Commonhold Council? The government website still has the noble Lord, Lord Greenhalgh. As the Commonhold Council advises the Government, what advice did it give in relation to the plan for commonhold? Surely it was not, “Take your time”, was it?
Baroness Scott of Bybrook (Con)
I do not have that detail with me, but I will make sure the noble Lord gets it.
Lord Kennedy of Southwark (Lab Co-op)
Can the Minister tell the Committee whether the Government have a strategy for commonhold?
Baroness Scott of Bybrook (Con)
Yes. The noble Lord knows, and I have said it enough times at this Dispatch Box, that the Government fully support commonhold. It is a matter of getting through the complexities and ensuring that it is delivered in a safe, secure way for the future.
Lord Kennedy of Southwark (Lab Co-op)
It is good to hear that they have a strategy; maybe the Minister can explain to the Committee what the strategy is. All I see at the moment is that there is a lot of support for commonhold—everyone is committed to it and wants to bring it in in due course—but I would like to see some sort of timeline. When are we going to get it? They will have had this report from the Law Commission for four years in July. Where is the plan? If they had a plan they could set out for the Committee, I am sure they would get a lot of support from us here, but the worry is that we will be sitting here in another four years. What is the plan from the Government?
Lord Kennedy of Southwark (Lab Co-op)
I am sorry, but I asked a couple of questions there and I am hoping for a response.
Baroness Scott of Bybrook (Con)
I am sorry, but I have made it very clear that the Government are fully in support. I am trying to remember whether it was 219 or 120, but large numbers of amendments were required to be put into place to ensure that, while we have commonhold in this country now, it can be delivered across all our leasehold flats. We do not have the time on this Bill to do that amount of legal work, and that is why we are not promising it at present, but we want to get as far along that journey to commonhold as we possibly can within the Bill.
Lord Kennedy of Southwark (Lab Co-op)
But we are not, are we? That is the whole point. We are not getting anywhere, just making commitments and promises with no timescale, no plan, nothing. That is the problem and why we are getting so frustrated here. They have had the Law Commission report for four years. What have they been doing for the last four years?
Baroness Scott of Bybrook (Con)
Working on getting towards commonhold, which is what the Government want for this sector.
Lord Kennedy of Southwark (Lab Co-op)
The noble Baroness will obviously know this really well, then: how many more years do we need before we get a Bill to deliver this?
Baroness Scott of Bybrook (Con)
I do not think I have anything further to add.
Baroness Pinnock (LD)
My Lords, the purpose of Amendment 13 in my name was to encourage a debate on commonhold and the route to achieving it, and in that it has been successful. I am pleased about that and thank all noble Lords for their involvement. It has been a long time since the first legislative proposal was made to abolish leasehold. I think it was in the Liberal Government of 1906, so we are going back a long way.
Baroness Pinnock (LD)
I do not think that that was a legislative proposal—I was very careful in the words I used. What this debate has achieved is that it is very clear across the Committee that there is overwhelming support for the move to commonhold. That is very positive. The next achievement is that it has brought forward three different ways, or perhaps four, in which the Government can move. One is a draft Bill, which seems to me to be a very interesting proposal and one that again I think would get support across the House, because the move to commonhold is complex. I and everybody else who has spoken accept that, so let us find a way of working together to achieve that common end.
The second proposal was a “Let’s get something done” type of proposal for a sunset clause. If nothing else happens, let us adopt that. The third proposal, from the noble Baroness, Lady Taylor of Stevenage, was similar to a draft Bill: to get the Government to agree a draft strategy. Unfortunately, the Minister used the phrase “in due course” a number of times. The trouble with “in due course” is that the due course can go on for a very long time, as it has already. Some of us are concerned to enable all existing leaseholders to achieve commonhold and be part of home ownership. The party opposite always talks about that, so you would think it is in its interest to push it. That is why it is very disappointing to hear the Minister say “in due course” and, “We are considering the recommendations of the Law Commission”, which was four years ago now.
Finally, we have heard from various Members on the Labour Benches that, if they ever have the privilege to serve—that is the phrase they are using—this will happen quickly. I look forward to maybe 2025 when we might see whether the Minister will bring forward a proposal for a draft Bill on commonhold or whether somebody from the Labour Benches will do so, in which case we will make progress. We on these Benches will hold both parties to account if they fail to do that at the earliest possible moment. I beg leave to withdraw the amendment.
Baroness Scott of Bybrook
“(ca) in section 23 (agreements excluding or modifying rights of tenant), in subsection (2)(b), omit the words from “or any provision” to “or any part of it”;”Member's explanatory statement
This amendment would prevent a landlord and tenant agreeing to a restriction on the tenant making a repeated enfranchisement or extension claim.
Baroness Scott of Bybrook (Con)
My Lords, to be clear, the Bill already removes the automatic 12-month bar on leaseholders that stops them making another enfranchisement claim, should an earlier claim have been withdrawn. My Amendment 16 supplements this by removing the right for a voluntary 12-month agreement to be made between parties to restrict further enfranchisement claims for a leasehold house. Removing the ability for a voluntary 12-month restriction makes sure leaseholders are not put under undue pressure to withhold their claims. This is an important protection for leaseholders and makes it clear that they can make fresh claims as needed.
I look forward to hearing from noble Lords as to how they think that our enfranchisement reforms can be further improved. I beg to move.
Baroness Taylor of Stevenage (Lab)
My Lords, our Amendment 17 would enable the Secretary of State—or, in Wales, Welsh Ministers—to change the description of premises that are excluded from collective enfranchisement rights. Such a change would be subject to the affirmative resolution procedure. I thank the noble Lord, Lord Thurlow, for all his time in discussing the Bill with me, and I acknowledge his expertise in this area.
Clause 28, which our amendment targets, makes changes to the non-residential limit for collective enfranchisement claims. At present, Section 4(1) of the 1993 Act excludes from the right to enfranchise buildings in which 25 % or more of the internal floor area, excluding the common parts, can be occupied or are intended to be occupied for non-residential use. The clause increases that non-residential use percentage to 50%. We welcome the change, which enacts recommendation 38 of the Law Commission’s final report on leasehold enfranchisement and was supported by the National Leasehold Campaign, among others.
Of course, if the purpose of the non-residential limit is to confine enfranchisement to predominantly residential blocks, the Law Commission determined that the existing 25% limit does not achieve that purpose. There is a significant amount of evidence that, instead, it regularly prevents leaseholders from undertaking collective freehold acquisitions because a sizeable proportion of buildings fall slightly above it and that 25% is a significant bar to the ability of leaseholders to undertake a collective freehold acquisition. The Law Commission further argued that
“the arbitrary nature of the limit makes the bar to enfranchisement a source of considerable frustration for many leaseholders”.
We accept that there is no easy or non-arbitrary way in which to determine where that bar should be. However, it is the stated intention of the Bill to bring as many leaseholders as possible into enfranchisement, and it is therefore questionable as to whether limits under 50% would feel inherently fair. We would hope that a 50% non-residential limit would mean that the number of genuine cases excluded would be small and would remove the opportunity for developers to play the system, because only a genuine split between commercial and residential would apply.
Our main concern on this clause is that there is no flexibility built into it, and we are keen to probe whether a review after a period of time to determine whether the non-residential policy as set out is working in practice could be undertaken, or another mechanism used, so that changes for the limit in respect of collective enfranchisement rights do not require primary legislation but can be enacted through regulations. Enacting small but necessary changes that may occur in relation to the Government’s proposed limit—for example, whether that relates to individual cases that fall just above the limit, or a change in the criteria on using internal floor area to determine the rights, or changing altogether the criteria on which the limit is based—may need alternative mechanisms to resorting to future primary legislation. That is the purpose of our amendment.
I will comment briefly on the other amendments in this group. We understand the reasons for the amendments of the noble Lords, Lord Sandhurst and Lord Thurlow, and look forward to hearing the comments of the Minister on those amendments. In relation to the Question on whether the clause should stand part of the Bill, to be put by the right reverend Prelate the Bishop of Manchester, we understand the Church position as a landholder, but we feel it would go against the spirit of increasing the enfranchisement through the Bill to retain the 25% limit.
Lord Sandhurst (Con)
My Lords, I shall speak to Amendment 17A. I am sorry that I was unable to speak at Second Reading. I should also say that the noble Baroness, Lady Deech, who is unavoidably detained, has added her name to that amendment. We therefore have her support as well. Amendment 17A is directed at Clause 28 on mixed-use premises with substantial proportions of business and residential tenants. Currently, collective enfranchisement and lease renewal is not permitted where more than 25% of the premises are business premises. That figure is going to be changed to 50%, thereby making it easier for residential tenants to go down the collective enfranchisement route.
That will introduce management issues—I do not say that they are necessarily problems, but they are certainly management issues. The Bill proposes that, if 50% of the occupants are residential, that will be enough. That will mean that, unless more than half of the building is occupied by business premises, all residential tenants will be entitled to be enfranchised. That will create issues for management and, in particular, problems where some of those residential tenants are overseas companies. We know that there are increasing numbers of those, particularly in London.
Mixed-use buildings pose greater management challenges than purely residential ones. Freeholders need to be responsive and active property managers. Business tenants require swift responses so that they can manage their businesses. If they want changes to the premises and so on, they need their landlord’s consent so that they can go ahead. If there are difficulties with obtaining that consent because, for example, some—or possibly a large number—of the residential tenants are overseas companies, then one can see how unattractive such premises will become as business premises for the business occupiers.
The Lord Bishop of Derby
My Lords, I will speak in support of my right reverend friend the Bishop of Manchester, who is unable to be in his place today and who has asked me to speak to his opposition that Clause 28 stand part of the Bill. This is linked to a similar stand-part debate, in the name of my right reverend friend, relating to Clause 47, to be debated later in Committee.
I declare my interest as a beneficiary, as is my diocese, of the Church Commissioners. I thank the Minister for her engagement with the charities affected by the legislation so far: the Church Commissioners, John Lyon’s Charity, Portal Trust, Campden Charities, Merchant Taylors’ Boone’s Charity, Dulwich Estate and the London Diocesan Fund. I hope she will continue to engage with my right reverend friend to find an amicable solution.
The Church Commissioners for England are the freeholders of the Hyde Park Estate. If we are looking back a long way, the Church can look back longer than most. The Church has had a long relationship with that part of London, starting in 1550 when the Bishop of London was granted the manor. The first leases were granted in 1795, and the Ecclesiastical Commissioners became responsible for the estate in 1868. Like the other charities mentioned, the Church Commissioners have long relationships with their estate. The money generated from the estate beyond the local is used for the betterment of the whole of our society, by the levelling up of communities and the lowest income parishes across the country, including in the diocese of Derby.
Like the other charity freeholders of large estates, the Church Commissioners manage the whole area, focusing not only on the residential properties themselves but on the whole environment, for those who live in, work on and visit the area. Their freehold ownership includes approximately 100 commercial units on the estate, where independent cafés, specialist boutiques and restaurants are mixed alongside amenities for local residents. This by no means affects the Church Commissioners alone; other large freeholders across London and beyond use their mixed freeholdings to ensure that areas have what local residents need, such as a dry cleaners, a pub, a hardware store—I could go on.
I thank the Minister for her letter to my right reverend friend the Bishop of Manchester, received today. However, concerns remain that Clause 28 threatens the ability of freeholders in large estate areas to ensure mixed areas that have all the amenities that people need. If the threshold for collective enfranchisement and the right to manage claims is lowered so that more mixed blocks can initiate a claim, there is a risk of the degeneration of these areas. There is no guarantee that newly enfranchised blocks will have the wherewithal or even the desire to maintain the make-up of the estate area. Leaseholders may not even live permanently in the area, may be foreign-owned companies or may have no active stake in the community. What need would these companies or corporations have to ensure the maintenance of a community? My right reverend friend the Bishop of Manchester said at Second Reading of this Bill that:
“We would lose all the shops that really matter to those who live perhaps not just in that block, but”—[Official Report, 27/3/24; col. 737.]
in the locality.
The amendment of the noble Lord, Lord Thurlow, which would mean that right to manage and collective enfranchisement rule changes would apply only where 50% of the leaseholders are permanent residents in a block, would certainly be a step in the right direction. At least there would be a guarantee that those managing mixed blocks would have an active stake in maintaining community resources, including shops. Could the Minister tell us whether the Government could make proposals to ensure that great estate areas, such as the Hyde Park Estate and others, are not adversely affected? Nobody wants to see local shops, amenities and community hubs closing as an unintended consequence of the Bill.
Lord Thurlow (CB)
My Lords, I turn to my Amendment 18 in this group. I begin by declaring my interests as both the owner of two buy-to-let investment flats and the occupier of a flat, all on leases. I stand to benefit under the Bill in both situations, which is quite patently wrong.
I thank the right reverend Prelate the Bishop of Derby for articulating my amendment with greater ability than I can. I want to turn specifically to mixed-use buildings and the proposal to move from a 25% threshold for enfranchisement to 50%, and build on the comments of the noble Lord, Lord Sandhurst. Mine is a straightforward proposal: simply that lessees who are not occupiers living there as their primary residence should not benefit from the great wealth transfer that is going to take place through the enfranchisement process. It cannot be an intended consequence of the Bill.
My amendment requires that at least 50% of leaseholders should satisfy the residence occupancy condition for any collective enfranchisement to apply. I remind the Committee that I am thinking of mixed-use buildings. A very complex management expertise is required in looking after mixed-use buildings; the skills are not the same for commercial property as for residential property, and the scope for mistakes and delay is huge. The potential to improve and curate an environment through single ownership of an expansive area has been very clearly described. To expect such behaviour to continue responsibly is almost impossible under the Bill as it stands.
We have also heard that, in London and the south-east, some 50% of tenants are not residents but foreign nationals living elsewhere, with ownership registered abroad. Are they taxpayers? This group often do not want to be identified. They shroud their property in ownership interests in offshore companies, as we have heard. They are very slow to respond, doing so from time to time, let alone to offer up money when required. If the Government do not agree that 50% of leaseholders in a block should be permanent residents, can I have an informed estimate on how many billions of pounds is expected to be paid in compensation to this cohort of wealthy foreign nationals, should they pursue this new enfranchisement entitlement?
Lord Truscott (Non-Afl)
My Lords, I declare an interest as a long-standing leaseholder of some 30 years. I have been a leaseholder in apartment blocks in London, Kent and Somerset, and a right-to-manage director in two apartment blocks.
I support His Majesty’s Government’s Clause 28, which seeks to raise the non- residential limit on collective enfranchisement claims from 25% to 50%, as mentioned by the noble Baroness, Lady Taylor of Stevenage. I consequentially oppose the proposal of the right reverend Prelate the Bishop of Manchester and the noble Lord, Lord Moylan, to vote against Clause 28.
Your Lordships have heard how giving more say to leaseholders in mixed blocks of residential and commercial units would be a bad idea and negatively impact on investment and the effective running of these blocks. It has been said that reform would only help some foreign leaseholders and investors and would result in fewer homes being built. That is far from the case. I have lived in two blocks of mixed developments: one was controlled by a residents’ right-to-manage company, with a NatWest bank in the basement, and another contained a number of commercial units and was 100% controlled by the freeholder. I can say categorically that the right-to-manage block was run better and with cheaper service charges. The freeholder-run block exploited the residents, cross-subsidising the commercial units at their expense and giving them no effective say over how the block was run. I point out to the noble Earl, Lord Lytton, that the difference was that the RTM block was actually run by the residents, who were managing their own money, whereas the freeholder block was run by a managing company and the freeholders were profligate with the use of residents’ cash.
Let us be frank: maintaining the 25% cap is about the freeholders retaining control and not about fairness or efficiency. If anyone lives or invests in a flat in a block, they should have a say over how it is run. For that reason, I oppose the amendments in the names of the noble Lords, Lord Thurlow and Lord Sandhurst, which would restrict enfranchisement and further strengthen the position of freeholders by limiting the number of leaseholders who can vote on and manage their own blocks of residents. RTM directors are perfectly capable of managing mixed blocks of developments.
The Earl of Lytton (CB)
My Lords, I will speak to this group, as the noble Lord, Lord Truscott, mentioned my name, although I have not yet spoken. He represents one viewpoint and the noble Lords, Lord Thurlow and Lord Sandhurst, and the right reverend Prelate the Bishop of Manchester represent another. They are often portrayed as being mutually exclusive but, in property terms, that is not necessarily the case. Clearly, there are perfectly good managers who look after not only their residential tenants but their commercial tenants, and there are some are rotten managers. Some are good corporates while others are rotten—some are good resident management operations while others are pretty poor—so it is very difficult to make a standard rule for them all.
If one looks at the large urban estates across London, it is evident that there is a clear sense of purpose in trying to preserve the value, appearance and general amenity represented by the running of that estate. That inevitably comes at a cost, but I hope that that helps not only the commercial activities but the amenity of the residents.
Let us look at what happens if things start going wrong and getting fragmented. First, there becomes a distinction, if one is not very careful, between the purposes of long-term management in the view of the residents and the purposes of long-term management in the view of the commercial operator or landlord. Under the purposes of this Bill, if the enfranchisement of a 50% commercial ownership block goes ahead, there will be an enforced leaseback to the original freehold owner. Straightaway, you have an enforced leaseholder, whose business model was not quite hypothecated on that basis, who is none the less obliged to take it on but does not need to have the primary amenity and visual appeal functions that might be relevant to the residents.
I have seen that happen in historic high streets, where ownership has become fragmented in this way. We tend to find that when a shop becomes vacant, and if there are difficulties in the letting market, it will be let to a charity shop, a slot machine operator, a tanning shop, or some other type of operator, because the person who has it needs to move it on quickly. There is not that fat on the bone associated with having the larger estate, nor is there the fat on the bone to take on some assignee, as I have had to deal with in the past, who really runs a rather low-grade sort of business but is well funded. Therefore, you have to work out whether you can afford to fight an appeal, or fight a case, on an assignment of a lease in order to see off that person and their particular trade. If you cannot, there is a general deterioration of the area. It might be a fast-food takeaway that opens late at night; the police might be around every now and again; there might be people congregating there because it is late at night, and that sort of thing affects residents. If one is not careful, things like emptying bins and delivery of incoming goods to a retail operation can start being operated at times that are not that helpful to the interest of residents, who once might have been part of this overall concern. I can see both sides of this, and we have to be careful not to make standard rules about things where the decision is much more nuanced and difficult. It really depends on where one is starting from, the circumstances, and everything else.
As I said earlier, my interest is in consumer protection. I do not want to see degraded environments; I want to see environments that are lively and looked after and where everybody has confidence in them being managed. Fragmented management very seldom achieves that. The issue is about management being a slightly different issue to ownership. It is a big issue that we need to address, because it will not be dealt with by a local authority. That has no function there. Beyond the planning functions of a change of use, or licensing for some premises that needs it, it has very few powers of control. If overarching control is needed, and there may be an argument that ecclesiastical, heritage or possibly other environments do need it, we should very careful that we are not chucking out that baby with the bathwater and ending up with a slow process of attrition that suits nobody and ends up degrading the value not only of the freeholders, who can look after themselves by and large, but of the area and its appeal, which is ultimately to the detriment of residents. I do not want to go down that road without being clear about what we are doing, and making sure that there is some way we can pick up on processes of deterioration before they take root.
Baroness Thornhill (LD)
My Lords, this is my first intervention today—I spoke at Second Reading. I regret that this is yet another Bill that was heralded with robust rhetoric from the Secretary of State which has now come face to face with reality. I regret that some of that reality is from those with vested interests and therefore we are getting a watered-down Bill. We certainly believe on these Benches that it is a missed opportunity.
I turn to the group of amendments on enfranchisement. We on these Benches support the Government in Amendment 16. We need to see as many restrictions as possible on leaseholders’ ability to enfranchise removed by the Bill. After all, they have bought a home and should be able to extend their lease and buy their freeholds in a way that is easy and affordable, to use the Government’s own words.
It is perhaps no surprise that we also support Amendment 17 in the name of the noble Baroness, Lady Taylor, in so far as it would allow the Secretary of State to give more leaseholders rights to collective enfranchisement, and we note the detail of the noble Baroness’s reasons. However, the power cannot and must not be used to narrow the qualifying criteria or to exclude more leaseholders from freehold purchase. We are pleased that it would be subject to the affirmative resolution procedure, as this includes public consultation and the involvement of both Houses.
However, we know that cohorts of leaseholders will still not even qualify to buy their freehold under the Bill. For example, MPs in the Public Bill Committee in January heard from experts and campaigners that there really is a problem with leaseholders in mixed-use buildings—from our debate today, I would say we have a problem with mixed-use buildings that needs to be sorted out. The Government are admirably using the Bill to try to liberate leaseholders in mixed-use blocks by, as we have said, moving the 25% rule on non-residential premises to 50% and introducing mandatory leasebacks on commercial space to slash the cost of collective enfranchisement, but—and I find this strange—they have not lifted the restrictive regulations in the 1993 Act that mean that shared services, such as a plant room, would disqualify leaseholders from buying out their freehold. Apparently, there is even a regulation stipulating that the mere existence of pipes, cables or other fixed installations connecting residential and commercial premises in a mixed-use building would block leaseholders from buying their freedom. That means that many leaseholders who would otherwise stand to benefit from the changes on mixed use will be blocked from securing collective enfranchisement and being in control of their buildings. I ask the Minister whether we can discuss this aspect before Report.
Turning to what I will call the three “tricky” amendments, I noted that the noble Baroness, Lady Taylor, wisely hedged her bets on these. I suspect that it is because, like me, she knows that the intentions of the noble Lords speaking on them are based on good experience and a genuine wish to see the measures agreed, but she worries whether, in fact, they are just another means of putting commercial interests before residential interests and not getting that balance right.
Instinctively, like the noble Lord, Lord Truscott—I was relieved when he made his comments—we oppose these three amendments, because in our view they seek to row back. But I have listened attentively to what has been said and I am completely changing what I was going to say: I genuinely believe that there are some serious areas that need looking at. There is much experience in the Committee, but I am concerned that we have been subject to special pleadings.
Baroness Fox of Buckley (Non-Afl)
My Lords, the descriptions that have been put forward—the right reverend Prelate described these thriving communities, which sounded idyllic, and the noble Earl, Lord Lytton, talked about making sure that we understood that there might be some bad players but that there are also some very enlightened players—made it sound as though this is really just a question of having the right people in charge, whereas I think it is a systemic problem.
One of the reasons why I am anxious about this is that although it is always nicer to have friendly, non-rip-off freeholders—that is genuinely a positive thing—we should not be grateful that we are not being ripped off in the homes that we live in. The system problem is that people lack autonomy and control over where they live and their destiny. I just throw in that a successful community depends on people retaining their autonomy rather than being grateful that they are being looked after.
What the noble Baroness, Lady Thornhill, pointed out is incredibly important; the noble Lord, Lord Truscott, also made an excellent speech laying some of this out. There are thriving communities with mixed-use abilities all over the world that do not use leasehold. We are now getting to a point where we are saying, “If we don’t have leasehold here, we’ll never have a local swimming pool and there will be no community centres. What will happen to all the shops?” That is mythological. Although I agree that one needs to look at the complexities, and I for one am actually all for nuance in relation to this and not just blunderbussing away, we should also stop myth-building about the wonders of the system, when in fact the reason why we want enfranchisement in the first place is that when our citizens buy a house they should have control over it. It is their home, and they can work collectively on building the community. At the moment they are denied that, which is why we are trying to tackle the problem of leasehold in the first instance.
Baroness Scott of Bybrook (Con)
My Lords, I thank all noble Lords for their contributions, and I start by thanking especially the noble Baroness, Lady Taylor of Stevenage, for Amendment 17, which seeks to amend the description of premises that are excluded from collective enfranchisement rights, where leaseholders would otherwise qualify. I know the amendment is well intentioned, with the aim that there is flexibility to amend the description of exceptions without new primary legislation. The amendment introduces a broad power for Ministers to change fundamental elements of the structure of the regime, which are substantive areas of policy. The Government are already making changes to primary legislation by increasing the non-residential limit from 25% to 50%, following extensive consultation, which is right and proper. The powers in this amendment would affect the very core of the regime and how it is structured rather than amending mere procedural changes.
To make sure that stakeholders have certainty as to how the law will work in practice, changes to the fundamental structure of the statutory regime should be clear and stable. Although the intention behind the amendment is noble, the Government are not able to accept it as it is not proportionate or reasonable for the proper functioning of the regime. It would be a sweeping power to change the fundamental structure of the enfranchisement regime after it has been approved by Parliament.
This amendment would introduce uncertainty into the new system, meaning that both leaseholders and landlords would need to second-guess whether changes may be made at relatively short notice, introducing volatility to the regime. This could potentially lead to undesirable outcomes, such as undermining confidence in long-term investment decisions for mixed use-premises, or lead to irregular design of floor-space in anticipation of future changes. I want to make it clear that the Law Commission has spent years considering qualifying criteria and assessed different options in its consultation process before putting forward its recommendations to increase the non-residential threshold to 50%.
The amendment could also remove rights of leaseholders or landlords in a disproportionate way and create unnecessary uncertainty and divergence likely to complicate the overall regime, with consequential effects on the behaviour of different stakeholders in different ways. Therefore, I hope that I have convinced the noble Baroness that the amendment is not proportionate, and that it is not moved.
I thank my noble friend Lord Sandhurst for Amendment 17A, which would exclude long leases held by overseas companies from being qualifying tenants for the purpose of collective enfranchisement. The Government’s aim is to improve leasehold as a tenure and address the historic imbalance of power between freeholders and leaseholders. The Bill does not confer different rights on leaseholders by how their leases are held. The Government do not think that implementing such a definition, in respect of which leaseholders have rights and which do not, is workable or desirable.
Amending the definition of a qualifying tenant for collective enfranchisement will make it harder for other leaseholders in a building to meet the numbers required to enfranchise, should they so wish. Attempting to restrict some leaseholders may well disenfranchise others, meaning that many leaseholders up and down the country could lose the opportunity to exercise their rights. Furthermore, it would remove the existing rights of some leaseholders and complicate the system overall, contrary to the aims of the Government.
I understand that the intention of the amendment may be to safeguard against circumstances in which non-resident or overseas companies do not take an active interest in the management of a building or are slow to respond. However, we expect that most multi-occupancy buildings will be managed by professional management companies on behalf of freeholders, as they are now.
I thank my noble friend again for the amendment, but I cannot accept it because it runs contrary to the aims of the Government and may restrict leaseholders’ rights. I therefore hope that he is content not to move his amendment.
I thank the right reverend Prelate the Bishop of Derby for speaking on behalf of the right reverend Prelate the Bishop of Manchester, with whom I have had a number of meetings about this issue. I am happy if the right reverend Prelate takes back the fact that I will continue that discussion if the right reverend Prelate the Bishop of Manchester so wishes.
I thank my noble friend Lord Moylan for his clause stand part notice. Clause 28 increases the non-residential limit for the collective enfranchisement claims to proceed in mixed-use buildings from 25% to 50%. The clause implements a Law Commission recommendation that has been subject to comprehensive consultation by the Law Commission and the department. I note the right reverend Prelate’s and my noble friend’s concerns, which have been raised through various consultations with freeholders and landlords.
The Bill’s impact assessment considers the impact of increasing the non-residential limit for collective enfranchisement claims, including the potential impact on freeholders, high streets and businesses. The increase to 50% strikes a fair and proportionate balance and will ensure that leaseholders are not unfairly prevented from claiming the right to manage in respect to buildings that are majority residential. It protects the freeholders and commercial leaseholders in buildings that are majority commercial. Freeholders can also protect their commercial interests by taking a leaseback of the commercial unit, securing their interest with a 999-year leaseback at a peppercorn rent.
We recognise the importance of the responsibility of building management and, as I have said, would expect that those who exercise their right to take over their buildings will employ professional managing agents—ensuring that the building is managed with the appropriate expertise, as we have heard from the noble Lord, Lord Truscott, about the issues that he is aware of.
The Government consider that this increase is proportionate, and I ask the right reverend Prelate and my noble friend to support Clause 28 standing part of the Bill.
I thank the noble Lord, Lord Thurlow, for Amendment 18, which seeks to apply a residency test to the collective enfranchisement claims in buildings with more than 25% non-residential floorspace. As we have discussed, Clause 28 amends the Leasehold Reform, Housing and Urban Development Act 1993 to increase the non-residential limit for collective enfranchisement claims from 25% to 50%.
Clause 28 implements a Law Commission recommendation that seeks to broaden access to collective enfranchisement for leaseholders living in mixed-use buildings where the non-residential elements constitute up to 50% of the floorspace. The existing qualifying criteria require leaseholders representing at least 50% of the flats in a building to participate in a collective enfranchisement claim. When combined with these existing criteria, the noble Lord’s amendment would allow claims only in mixed-use buildings with more than 25% non-residential floorspace, where at least 25% of the flats are owner-occupied.
For leaseholders in mixed-use buildings where less than 25% of the flats are owner-occupied but more than 25% of the floorspace is non-residential, this new clause would have the effect of removing all the benefit of Clause 28. This would leave leaseholders unable to collectively buy the freehold of their building because of how their neighbours chose to use their properties. It would also complicate all claims in buildings with over 25% non-residential floorspace, as participating leaseholders would be required to demonstrate that they are owner-occupiers. This could lead to claims taking longer and costing more, and would provide freeholders with another opportunity to frustrate leaseholders’ right to buy their freehold. This is counter to the Government’s aims in this area to broaden access to collective freehold ownership for all leaseholders, and to simplify, not complicate, the system leaseholders use to do so.
Lord Gascoigne
“(ea) any combined county authority established under section 9(1) of the Levelling-up and Regeneration Act 2023;”Member’s explanatory statement
This amendment would reflect provision that has come into force since the Bill was introduced.
Lord Gascoigne (Con)
My Lords, before I start, I declare that my wife is an employee at the Crown Estate, as set out in the register of ministerial interests.
Government Amendments 19 to 22, in the name of my noble friend Lady Scott, are consequential on the repeal of the right for public authorities to block freehold acquisition and lease extension claims of houses for the purposes of redevelopment. This relates to Section 28 of the Leasehold Reform Act 1967. Removing this blocker will allow more leaseholders to enfranchise.
The power to block enfranchisement was given to authorities named on a list in the same section of the Act. The list of authorities is, however, used for wider purposes. For example, the list may be used by separate legislation when a lease has reached its end and expired. When this happens, the listed public authorities could apply to the courts to seek possession, for the purposes of redevelopment. These amendments preserve the list and its use for wider current law, as it is moved into Clauses 29 and 38 of the Bill.
Government Amendments 25, 30 to 40, and 49 are also in the name of my noble friend Lady Scott. Government Amendment 32 addresses the enfranchisement valuation procedure regarding “chained” leases—that is where successive long leases of a house are treated as one single long lease. The amendment makes it clear that the exception for market rack-rent leases will apply only where the leaseholder’s current lease is a market rack-rent lease. It will not matter whether a previous lease was a market rent lease. This will protect leaseholders and mean that in the case of chained leases, where a previous lease might have been granted for no, or low, premium, freeholders will be prevented from unfairly gaining through the new valuation scheme.
Government Amendment 39 clarifies the rules on which lease to consider when valuing a lease comprising a chain of leases—treated as one single lease—where one of them was granted for a high rent and low, or no, premium. The amendment states that it is the most recent lease that should be looked at. This will determine whether the ground rent cap should apply in the enfranchisement valuation. This will protect leaseholders and mean that in the case of chained leases, where a previous lease might have been granted for a high ground rent, but for little or no premium, freeholders will be prevented from unfairly gaining through the new valuation scheme.
Government Amendments 25, 31, 33, 34, 35, 36, 37, 38 and 40 are minor amendments that will tidy up the Bill by aligning two different sets of terminology, used to mean the same thing, across the Bill. This will help to avoid any potential for confusion and has no material impact on the valuation provisions in the Bill.
Government Amendment 30 is a minor amendment to Schedule 4. As currently drafted, the Bill would incorrectly require a valuation of a freehold for a lease extension. We are fixing this to align with the new valuation scheme, so that a lease extension will require a valuation of a notional lease. This will ensure that the provision works for lease extensions as intended. This amendment does not change the scope or effect of Assumption 3 in Schedule 4; it simply makes sure that it is phrased correctly.
Government Amendment 49 is a minor correction of a grammatical error in Clause 41 so that it refers to the appropriate tribunal. In this case, the appropriate tribunal can make orders regarding the new right for intermediate landlords to commute—that is, reduce—the rent they pay following lease extensions and ground rent buyout claims by their tenants.
Turning to government Amendments 50, 51, 52, 53 and 56 in the name of my noble friend Lady Scott, as noble Lords are aware, whenever making new legislation, it is of the utmost importance that we review any consequential amendments required to be made, including to other Acts of Parliament. We have therefore conducted a thorough review of how the reforms brought forward in this Bill will require necessary changes. The following amendments focus specifically on consequential changes resulting from Part 2 of the Bill.
Government Amendment 52 is a minor and technical amendment which reflects the movement of material from Section 175 of the Housing Act 1985 into the new Section 7A of the 1967 Act. The amendment preserves a part of the current law which deals with a number of exemptions for the valuation of a freehold acquisition under Section 9(1) of the 1967 Act which will still be available under a “preserved law claim”. This will make sure that the Bill retains the current restrictions and will remove any potential for unintentionally expanding the number of tenants who qualify for a Section 9(1) valuation and consequently for a preserved law claim. Right-to-buy tenants who qualify for enfranchisement rights will be no worse off and benefit in the same way from the new valuation scheme as other leaseholders.
Government Amendment 53 inserts a new clause, which acts as a paving amendment to introduce a new schedule. This new schedule brings together the consequential amendments to other legislation. As a result of this new schedule, government Amendments 50 and 51 remove consequential amendments to the Housing and Planning Act 1986, which are currently contained in Schedule 8; these are now addressed in the new schedule.
Amendment 56 inserts the new schedule, entitled “Part 2: consequential amendments to other legislation”. This new schedule is extensive and brings together the consequential amendments across 19 other Acts into a single place. None of the amendments makes separate, substantive changes, but, rather, the new schedule allows this Bill to mesh with and integrate seamlessly with other legislation. These consequential amendments will: remove provisions which will become obsolete as a result of the changes made by the Bill; enable freehold acquisition claims of houses under Section 9(1) of the Leasehold Reform Act 1967 to continue to operate as they do currently, while making sure that provisions in other legislation do not override our new valuation scheme; make clear how to treat the valuation of freehold acquisitions for right-to-buy tenants; preserve the current law so that non-litigation costs payable on enfranchisement do not attract stamp duty land tax, allowing the operations of stamp duty land tax to continue as intended; and make sure that provisions of other Acts governing shared ownership leases will still function properly following the repeal of some shared ownership provisions in the 1967 Act.
Government Amendments 88 and 89 are tidying-up amendments to align the terminology in Clause 77 with terminology used elsewhere in Part 5.
Finally, with sincere thanks to noble Lords for bearing with me and for their patience, I turn to government Amendment 90. This is a clarificatory amendment which seeks to deal with any potential confusion over the extent to which the Bill applies to event fees. As noble Lords may know, some leases require the leaseholder to pay a fee on certain events, such as the sale of the premises or a change of occupancy. These so-called event fees are common in specialist housing for older people. How event fee terms are drafted varies from one lease to the next, as does what the money is used for. This amendment is not concerned with the regulation of event fees; the Government have committed to making event fees fairer and more transparent and will implement agreed Law Commission recommendations when parliamentary time allows. There is a risk in the current drafting of the Bill that the specific nature and purpose of event fees may be regarded as an administration charge under Clause 81. That would, in turn, mean that they are subject to the test of reasonableness, which we do not consider appropriate for a fee of this nature. The amendment therefore sets out a definition of an event fee and makes it clear, for the avoidance of doubt, that any event fee is not to be regarded as an administration charge. I beg to move.
Lord Khan of Burnley (Lab)
I thank my fellow east Lancastrian, the Minister, for introducing these technical, tidying-up and clarificatory amendments.
Lord Gascoigne (Con)
I have spoken ad nauseam about many of these amendments. I too thank my long-lost brother from east Lancashire, the noble Lord, Lord Khan, and say what a pleasure it is to follow him.
Lord Gascoigne
Member's explanatory statement
This amendment would reflect that the Development Board for Rural Wales has been abolished.
“(ma) any clinical commissioning group;(mb) any Strategic Health Authority;(mc) any Primary Care Trust;”Member's explanatory statement
This amendment would ensure that the bodies listed are “local authorities” for the purpose of section 57 of the Landlord and Tenant Act 1954.
Member's explanatory statement
This amendment would replace reference to the National Rivers Authority with reference to its successor body, the Environment Agency.
Leasehold and Freehold Reform Bill
Wednesday 24th April 2024
(7 months, 4 weeks ago)
Lords ChamberRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 50-II(b) Amendments for Committee (Supplementary to the Second Marshalled List) - (24 Apr 2024)
Baroness Andrews
Member's explanatory statement
This amendment is related to another amendment in the name of Baroness Andrews inserting a new Clause (LRHUDA 1993: Non-development Guarantee).
Baroness Andrews (Lab)
My Lords, in moving this amendment I shall also speak to Amendment 24. These might seem to be rather arcane amendments; Amendment 23 is a technical amendment and Amendment 24 is the substantial point and a proposed new clause. This might look like an arcane point but it is a very significant one and it is simple to correct. The amendment asks the Government to act on a promise to remove a significant blockage, which at the moment increases the cost of enfranchisement to leaseholders who are threatened with upward extensions to blocks of flats and have to pay the freeholder extra for the possible profit he might have made had he chosen to develop. The proposed new clause, although detailed— I apologise for the length of my speaking note—would remove the blockage. I am extremely grateful to noble Lords around the Committee for supporting this, and to the Minister, who has already met me. We all agreed that this is something that must be put right in the Bill.
I declare an interest as a leaseholder in a block of flats that has been under threat of an upward extension for not two years but five years. The consequent blight and anxiety have been considerable. Asking for compensation for not extending upward is now an accessible and popular option for freeholders looking for more profit, especially when it falls under the relaxed requirements of permitted development. That means that there would be no automatic planning hearing, and often what would count as a major development slips by for determination simply by planning officers. There is no requirement for affordable housing, friendly accommodation that would help disabled people, or considerations of planning issues such as the impact on structural stability or protection from massive disturbance for residents.
Given that upward extension can be authorised in wider circumstances than the normal planning rule, it is estimated that there are about 2.2 million custom-built private sector leasehold flats in blocks where development value—for example, for upward extension—could be an issue, and therefore where leaseholders might face this additional obstacle to enfranchisement. There are certainly many people already affected by upward development in London alone.
The current key legislation is paragraph (5) of Schedule 6 to the Leasehold Reform, Housing and Urban Development Act 1993. It defines development value in relation to premises to be enfranchised as an
“increase in the value of the freeholder’s interest in the premises which is attributable to the possibility of demolishing, reconstructing, or carrying out substantial works of construction on, the whole or a substantial part of the premises”.
To give a graphic illustration, in our own situation in my block of flats, when faced with a development we were not consulted on and did not want, we sought to enfranchise ourselves. The cost was originally estimated at £750,000 for 103 flats. Now the development value has been added, that has shot up to £1.75 million. We can no longer raise the funds and we cannot buy the freehold. What has shocked me most as I have pursued the Government on this point is that the impact assessment on upward extension of permitted development shows that the Government actually knew that this would happen. They anticipated that upward extensions would generate freeholder profits to the tune of £530 million in land value uplift, even without any actual development. Moreover, the impact statement recognised that this may make it more expensive for leaseholders to enfranchise.
To their credit, the Government realised that there was something wrong, especially since it would contradict the policy intentions of this Bill to make enfranchisement cheaper. So they referred it to the Law Commission, which reported in 2020 on options to make enfranchisement cheaper and easier. In option 9, it said that:
“When exercising enfranchisement rights, and in order to reduce the premium payable where there is development value, leaseholders could be given the ability to elect to take a restriction on future development of the property”.
The Government accepted the option. On 11 January 2021, in the House of Commons, Robert Jenrick promised in a Written Statement:
“Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’”.—[Official Report, Commons, 11/1/21; col. 10WS.]
Nothing would give us more pleasure in my block than a promise not to develop.
Even more to their credit, this solution was signposted in the impact statement on this Bill, in Annex 2, at paragraph 12, which recognises that the prospect of paying development value can make enfranchisement “prohibitively expensive”, and contemplates that there will be a new right for an option not to pay development value on the condition that leaseholders guarantee not to develop themselves. So I must ask the Minister this: with all these assurances having been given, where is this new clause? What has happened to the policy commitment?
Lord Best (CB)
My Lords, I support Amendments 23 and 24 in the name of the noble Baroness, Lady Andrews. I can imagine the anguish that must be felt by leaseholders in blocks of flats who are facing the disruption of one or even two new storeys being built on the roof of their flats. With freeholders now having permitted development rights for upward extensions, residents face the disruption, noise and hassle of builders, lorries, cranes, skips, scaffolding and so on for months—and now they face the prospect of being unable to buy the freehold of the block because development, or the possibility of upward development, adds to the value of the block and can make enfranchisement prohibitively expensive. The extra value of adding new storeys, or the compensation demanded for not developing where there is potential to add them, generates additional freeholder profits but makes enfranchisement unaffordable, yet the Leasehold and Freehold Reform Bill is all about giving leaseholders a better deal and easier access to enfranchisement.
I note that the previous Secretary of State promised to fix this specific problem through a clause in the Bill enabling leaseholders in a block to agree together that no upward extension should take place. In this way, they remove the extra value for the freeholder. It seems that in the drafting of the Bill the promised new clause, originally an option proposed by the Law Commission, has got lost. So, on behalf of the 2 million-plus lease- holders who could be affected, I strongly support the amendments from the noble Baroness, Lady Andrews, which would fulfil the Government’s earlier promise.
Baroness Thornhill (LD)
My Lords, I suppose I could say “#UsToo”. I support these amendments, which are simple in purpose, in the name of the noble Baroness, Lady Andrews, who summed them up thoroughly, clearly and personally. As things stand under PDR, a freeholder can add two storeys to their existing building as a matter of right, with no planning permission needed: as I look round Watford, I can see evidence of that with my own eyes. But I also know that that can have very serious consequences. As well as the inconvenience of the building work going on for as long as it takes, you also discover that the top-floor flat that you paid a premium for is now worth less as you are a middle-floor flat. Then there is the pressure on communal space and amenities, including the dreaded bin store and the state thereof.
Adding two more storeys to a presumably well-planned block of flats, for a set number of residents, is not consequence-free. But the consequences are absolutely trivial compared with the knock-on effects of such development on the Government’s own stated aim, which is to encourage more leaseholders to buy their freehold. This is an additional and often insurmountable obstacle. It significantly raises the cost of enfranchisement, as has been said. The value of the block will have gone up. The leaseholders are now required to pay more for their freehold. In many parts of the country, this takes it way out of reach, as in the noble Baroness’s case.
The noble Baroness, Lady Andrews, very thoroughly cited a positive trail of support: all the right noises from the Secretary of State in 2021, the Government’s complete recognition of the dilemma and a real promise of the ability to look into some restriction.
It is clear that there is a policy conflict here: the need for more homes, which we all agree on, versus the enfranchisement of leaseholders. As things stand, the homes policy is top trumps. Can the Minister advise on whether there will be a review of PDRs in general, including focusing on unintended consequences such as this and whether there is a way to sort this out in the leaseholder’s favour in the Bill? At the moment, it feels as if the freeholders are still very much holding all the aces and current residents have no voice at all in this significant change to their environment and, possibly, their life chances and finances.
Baroness Taylor of Stevenage (Lab)
My Lords, I am very grateful to my noble friend Lady Andrews for the collaborative way in which she has prepared and worked on her amendment, and drawn the attention of the House to what seems to be an omission from the Bill. We believe this needs to be rectified and my noble friend has not only set out, with her usual thorough approach and eloquence, exactly what the issue is, but has also proposed a straightforward and elegant solution, which we support.
My noble friend describes the Law Commission report as adopted by the Government in January 2021. Indeed, the government press release of January 2021 indicated that the Bill would strongly take account of this government commitment to release leaseholders from the straitjacket of hope of future development value. I quote from that press release:
“Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’”.
This is based on a Law Commission suggestion, which clearly indicates the direction of travel and which we believe the Government have accepted. To quote from the Law Commission recommendation:
“Premiums would be reduced at the date of the freehold acquisition claim. If leaseholders subsequently decided that they wanted to develop, they would pay a portion of any profit received on a subsequent development to the landlord, rather than (as at present) having to pay development value in respect of a speculative future possibility of development”.
The Law Commission also set out clearly the principle that leaseholders should not need to have to negotiate on a piecemeal basis for this restriction but should be granted it by right. The commission refers to leaseholders of flats acquiring the freehold to their block and states that,
“as they would not be required to pay the landlord an additional sum to reflect the potential to develop their properties, leaseholders would no longer be required to negotiate with the landlord to create such a restriction; rather, they would be entitled to demand such a restriction be included”
and
“disputes, negotiation and litigation about development value would be reduced”.
The Law Commission clearly believed that the election to take a restriction on development outweighed the disadvantages put forward by other consultees and that such an election was eminently possible to implement where there was agreement among leaseholders.
I also point out that this issue arises, in part, from yet another unintended consequence of the permitted development regime—a point mentioned by the noble Baroness, Lady Thornhill—on which I have made my views clear in your Lordships’ House in the past. I am not an unequivocal fan of PD. Permitted development removes the step of local accountability through the planning system, often the contribution to local community infrastructure and almost always the contribution to local affordable housing which would be required through traditional planning applications.
At its worst, permitted development drives a coach and horses through local plans, resulting in residential property in inappropriate areas and buildings, and in taking buildings out of commercial use where it may not be appropriate to do so. In the case of the subject of this amendment, its very existence can create an added financial pressure on those wishing to exercise their enfranchisement rights. That is another reason why we believe that the solution proposed by my noble friend Lady Andrews delivers an equal and justifiable right to leaseholders.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, I thank the noble Baroness, Lady Andrews, for her Amendments 23 and 24 on development value. I also thank her very much for meeting me on this subject.
The amendments would introduce a scheme where enfranchising leaseholders would not pay development value if they guaranteed that they would not develop for a period of 10 years. Under the current law, lease- holders are sometimes required to pay development value when collectively enfranchising a block of flats. This is the value of the potential future development of the property, such as through adding another storey to the building, as we have heard. We recognise that development value can make the cost of enfranchisement prohibitively high.
We are committed to bringing forward a workable scheme and are exploring this area further. It is, as we have found, however, an area fraught with loopholes and technical detail. To be honest, it will take us time to get this right.
Before I finish, I want to bring up permitted development, because all noble Lords have brought this up. As noble Lords probably know, the Government have recently consulted on making changes to various permitted development rights. The consultation ran for eight weeks from 13 February to 9 April. We are considering the responses and I am sure we will have a debate on those in this House in due course.
The noble Baroness, Lady Andrews, is right about this issue. We know about it and we support her, but it is difficult. I would like to meet her again, and anybody else who would like to come, to go through her amendments in detail and take things forward in that way.
Baroness Pinnock (LD)
Could the Minister tell the Committee whether the problem that the noble Baroness, Lady Andrews, has defined could be resolved by removing permitted development rights altogether on these blocks of flats? This goes back to what was the case. If any development was proposed, it had to go through the normal application to the local planning authority.
Baroness Scott of Bybrook (Con)
I do not think that would be a sensible solution, because there might be times when permitted development might be the correct thing to do and everybody might be happy about it, including those leaseholders who have enfranchised. We need to take this steadily because it is fraught with complexity.
Baroness Andrews (Lab)
I am extremely grateful to everyone who has supported the amendment, especially the noble Baroness on my Front Bench. I am also particularly grateful to the Minister. I understood her to say that the Government are committed to bringing forward a workable scheme to deal with this problem, which is exactly what I wanted to hear. I know it must be fraught with difficulties. There are lots of rights and planning issues involved. There is a whole nest of issues that would have to be addressed. The important thing is that it be in line with the timetable for the Bill. Perhaps she will be able to say more about this when we meet, but I hope that it will be either aligned in the timetable, so that there is no more confusion and we can get this tracked as soon as possible, or, if it requires legislation, in the Bill. I take the point, and I would be very happy to meet her—and to take in with me an army, and its advisers.
I have one further reflection on the PDR review. I did my homework—I did what the Minister said, and I saw whether I could use the current PDR review as a way of raising this, but it does not allow me to do that; it is too narrow in scope. Therefore, in fact we need a proper review of PDR, because the implications are so varied and wide. If the Government could commit to that, there would be a lot of political capital in it. In the meantime, I am happy to leave this amendment, and we will see and wait on progress.
Baroness Scott of Bybrook
“(1A) If section 3(3) of the LRA 1967 applies to the current lease (successive leases treated as a single lease), sub-paragraph (1) is to apply only if the one of those leases which is in effect at the valuation date is a market rack rent lease.”Member's explanatory statement
This modifies the application of paragraph 8 where successive leases are “chained” to constitute a long lease under the LRA 1967.
Lord Howard of Rising
Lord Howard of Rising (Con)
I speak to Amendments 26 and 27 in my name, focusing on the measures in this Bill relating to marriage value which, as it stands, would allow leaseholders with leases of 80 years or fewer to acquire freeholder rights without paying a fair share of the marriage value to the existing freeholder.
Marriage value, in relation to leasehold enfranchisement, is set out in the Leasehold Reform, Housing and Urban Development Act 1993, and defined as the financial benefit that results from merging the freeholders’ and leaseholders’ interests in a residential property. Under the 1993 Act, and reaffirmed in the Commonhold and Leasehold Reform Act 2002, 50% of the marriage value is payable by the leaseholder to the freeholder when the unexpired term of an existing lease is under 80 years.
Handing over the full benefit of marriage value to leaseholders without due compensation will have wide-ranging effects, but the most damaging and significant is the threat to property rights. Our economy is built on property rights. If the ownership of property is no longer secure, because it can be taken away without compensation, where does that leave us? If the Bill goes through unamended, it will set a dangerous precedent for Governments to transfer wealth arbitrarily. What we are looking at today could be the thin end of the wedge. I am not suggesting that government actions would escalate immediately, but any power given to government will be used to its full extent sooner or later, however benign the original intention. Do not forget that income tax started out as a temporary measure at 2.5p in the pound, and has reached as high as 100%
On top of the principled concerns that I have set out, there are a number of practical ones. The assets set to be transferred as a result of these measures have a value of £7.1 billion, and it is likely that some of that value is being used as security for loans. Do His Majesty’s Government know how much of the affected property is tied up in this way, and do they know how the banking regulatory authority feels about, what would become, unsecured loans, or the possible consequent impact on banks’ capital requirements?
The Government’s impact assessment states there are 4.8 million leasehold properties in England, of which only 385,400 have leases under 80 years. Of those 385,400 leases, the bulk of the value is located in London and the south-east. Despite the Government’s noble ambition to support aspirational home owners, I understand that in London, 60% of leaseholders benefiting from this change in policy would be private investors, of which 10% to 25% are based overseas. At the same time, many of the freeholders whose assets would be removed are charities or pension funds which have invested to cover their long-term liabilities.
There is also a significant impact on the Exchequer. Under the status quo, any financial gain made by freeholders when leases are sold is taxable. If all the financial gain is given to the leaseholder, a good proportion of the tax that would have been due will be sheltered by the exemption of disposal of a principal private residence. The loss to the Exchequer under this consequence alone has been calculated at £l billion.
Finally, there is the problem with human rights legislation. One of the founding principles of the European Convention on Human Rights is the protection of property. The lack of compensation for freeholders under the processes set out in the Bill challenges the expectation that parties should be fairly compensated for losses resulting from expropriation or state control of use. Whatever government lawyers say, there is bound to be a difference of opinion. In fact, the Government’s own legal advice described it as “finely balanced”. Do your Lordships imagine for a moment that this arbitrary transfer of property without proper compensation being paid will not be fought through the courts to the highest level? It will cost the Government a small fortune and freeze the market in leasehold properties, as present leaseholders will be reluctant to sell while there is a chance of greater value in the future.
My amendments are simple. They preserve the existing arrangements only for leases with an unexpired term under 80 years, leaving the 95% of leaseholders who have leases of more than 80 years to benefit from the Government’s proposals, even when their term drops below 80 years. This is a fair balance. I hope my noble friend the Minister will consider my amendments carefully and from a point of principle. I would welcome further discussions to fine-tune the details so that we can ensure that this policy works for everyone. I beg to move.
Baroness Deech (CB)
My Lords, I am pleased to lend my support to the noble Lord, Lord Howard, and have put my name to these amendments. I have three short points to make. One is that phasing out in this area must be right. The second is that we should treat retrospective legislation very suspiciously. Thirdly, it cannot be right to deprive people of their property without compensation.
Lord Moylan (Con)
My Lords, it is a privilege to speak after the noble Baroness, with her depth of knowledge about this subject, and my noble friend Lord Howard of Rising, who did me a number of favours. First, he saved me from any obligation to explain the meaning of marriage value. Secondly, he made a moderate and temperate case for his amendment when my argument might be expressed in a somewhat less moderate and well-tempered manner, because I feel a real sense of outrage about what is being proposed.
As my noble friend has explained, marriage value is a real financial asset. His Majesty’s Government say that they are abolishing it. They are not abolishing it; they are, in effect, transferring, at the stroke of a pen, value from the freeholder to the leaseholder without any compensation. It is, simply, expropriation. My amendment, which is a probing amendment—I would not expect it to be part of the Bill—obliges the Secretary of State to pay compensation to those who have lost out as a result. Of course, I really want the Government to scrap the provision itself, rather than for compensation to be paid, and I would not expect my amendment to be a practical policy. It is a probing amendment to raise the question about expropriation without compensation.
I want to make three broad points. There are genuine evils in the leasehold system. I made it clear at Second Reading that there were things that I support in the Bill. For example, it was scandalous that in recent years some housebuilders sold leasehold houses with rapidly escalating ground rents, which they then securitised in order to increase their capital receipts. Also, it is scandalous the way that many freeholders are implementing their obligations in relation to the cladding crisis; people are genuinely suffering as a result.
However, how many of these evils are actually being addressed by removing marriage value from the calculation of the enfranchisement premium, or the premium paid for extending a lease? It is not germane to the main evils that the Bill has been advanced as addressing.
Expropriation of this character implies some wrongdoing on the part of the person whose assets are being expropriated. It requires a high test. Noble Lords will have noticed that even in the case of the friends of Putin, we have been sensitive and careful about expropriation. We have frozen assets, but when it comes to whether we should expropriate them and give them to Ukraine or do whatever useful stuff we might do with that money, we all draw back from it because of the legal consequences. Here, we are perfectly happy to expropriate assets and hand them around the market without any consideration, and with very few people rising to protest about it, even in your Lordships’ House.
I believe that the Secretary of State said that he sees this as an act of justice, but what justice is involved in transferring wealth from a group of people who include, as my noble friend has said, charities and pension funds to leaseholders, who in many cases are frightfully rich? We will shortly come to amendments in the name of the right reverend Prelate the Bishop of Manchester which deal specifically with charities, which I have put my name to. I live in Kensington, and as I declared at Second Reading, I live in a flat on a long leasehold. However, there are many people around Kensington with very expensive properties who are salivating at the prospect of this going through. This is not substantially helping the poor and middle classes; it is going to transfer huge amounts of wealth to people with long leases. The more valuable the flat, the bigger the benefit that they are going to get from it. Where is the justice in all this? I simply do not understand how that point can be made.
My second point relates to the European Convention on Human Rights, on which I do not claim to be an expert. I have a suspicion that my noble friend, when she rises to answer, will say that in respect of Article 1 of the first protocol—to which the noble Baroness, Lady Deech, has referred with such learning—similar cases in the past have been taken to the court, and that the landowners, the freeholders, have lost. Therefore, the Government are certain that this will pass that test. I am, of course, wholly unqualified to comment on the legal merits of the case in either way. However, even if it did pass that test, is this something that should pass the test in England, as far as the older rights that we have inherited are concerned? This is principally England that we are talking about, with its tradition of respect for private property and not implementing retrospective law or seizure of assets without very good reason. I would suggest that it does not pass the test. Even the Law Society—the “leftie lawyers”, as they are often referred to, which is not a phrase that I would use, and I hope Hansard will put that in quotation marks—is concerned about the damage that this will do to the reputation of English law.
My final point is addressed to my fellows on these Benches, who take the Conservative Whip. Are we and our noble friends on the Front Bench here to expropriate property without compensation, without justice, without an argument, or without there being serious wrongdoing on the part of the person whose assets are seized? Is this what we came into this House to do? I do not think it is. This is something that the Government need to take away and rethink very seriously, because it is wrong, it smells, and it is something that we should have nothing to do with.
Lord Truscott (Non-Afl)
My Lords, I declare an interest as a long-standing leaseholder, as I have done before. I support the expressed view of His Majesty’s Government on abolishing marriage values—I take a somewhat different view from that of the noble Lord, Lord Moylan—so making lease extensions cheaper and easier. I therefore oppose all the amendments in the names of the noble Lord, Lord Howard of Rising, the noble Baroness, Lady Deech, and others, the subsequent amendment in the names of the right reverend Prelate the Bishop of Manchester and the noble Lord, Lord Moylan, plus the amendment from the noble Lord, Lord Borwick, which we will come to later.
All these amendments impact on the issue of marriage value. I know that your Lordships’ House debated marriage value to some extent at Second Reading, but it is clear to me that reform is long overdue. I will not repeat the discussion that we had at Second Reading about the definition of marriage value. I must tell your Lordships’ House that, as a long-standing leaseholder, I have extended the lease of two properties in two different apartment blocks. I do not know how many noble Lords have gone through the process, but it is quite something to go through.
The current process is a farce—a piece of theatre designed to enrich everyone but the leaseholder, who pays all the costs. First, the freeholder comes up with an imagined figure of the future value of a property which bears no resemblance whatever to market reality. Basically, think of a figure and double it, and that is what your freeholder comes up with. The hapless leaseholder then employs a valuer and solicitor, and so does the freeholder, and the negotiation dance begins. The leaseholder ends up paying much less than the original premium—the original figure—but an awful lot of money in fees.
For the leaseholder, the whole process is uncertain, expensive and stressful. For the freeholder and associated professionals, it is lucrative, and their bread and butter. The current lease extension process is designed to protect the freeholder’s long-term interests at the expense of the leaseholder. It is nothing to do with transferring wealth—we keep hearing this figure of £7 billion being transferred—and everything to do with retaining it, as understandable as that may be.
Several of London’s great estates have maintained their property empires over hundreds of years by exploiting the system and making leasehold extension, or enfranchisement, extremely difficult, opaque and tedious. Leaseholders’ insecurity and uncertainty provide freeholder security. The more freeholders keep control of leases, and discourage extensions, the more they can protect their accrued wealth, and that is really what the debate is about today.
I do not intend to repeat what I said a couple of days ago in your Lordships’ House about the Church of England’s feudal property empire, and the work that it does with charities, except to say that it is a multi-billion-pound business, and, like all businesses, the Church will fight to protect its interests as one of the country’s leading landowners. Abolishing marriage value could, of course, affect all that.
I do not accept all the doom-laden warnings that we have heard from, for example, the noble Lord, Lord Howard of Rising. We have heard such dire warnings before about the impact this could have. We heard the same from the pension funds—remember that they were saying that the abolition of ground rent would cost them tens of billions of pounds. Well, just today, the Society of Pension Professionals and its chair have said that this is exaggerated and overplayed. In fact, the scale, relative to total assets, is probably not that significant in the long run. I think we will find the same when it comes to marriage value.
I know that a lot of people, including the noble Baroness, Lady Deech, who is very experienced legally in these matters, mentioned the European Convention on Human Rights. A number of major estates and property owners are citing that. I had a hedge fund lobby me, saying that their human rights would be breached under the ECHR were marriage value to be abolished. I do not think the great British public will be awfully sympathetic about hedge funds’ human rights being breached because some people want to reform leasehold and marriage value. In fact, I heard today from noble Lords, including the noble Lord, Lord Moylan, a wonderful case for an opt-out from the ECHR. If billionaires and hedge funds are going to hide behind the ECHR to prevent reform, I think it is a good idea to opt out—maybe some of the noble Lord’s colleagues in GB News would support that as a proposal.
Some say that there will just be a transfer of wealth from one group of rich people to another. There is obviously a certain amount of truth in that—the properties owned by people in central London, whether they are local or foreigners, are expensive—but if you abolish marriage value you will make the housing market more transparent and bring many more properties on to the market, thereby providing more homes. The problem with short-lease properties—I have found this myself—is that they are often unsaleable and un-mortgageable. That means that they can be purchased only by cash. Often, they remain short-lease properties because, as I have already described, extending the lease is a complicated process, lacks transparency and is prohibitively expensive, so they clog up the market. There are an awful lot of short-lease properties, which could be opened up to the market as a whole.
Baroness Fox of Buckley (Non-Afl)
My Lords, the noble Lord, Lord Truscott, explained very well what I would have liked to say, so “hear, hear” to that. I was beginning to worry that the debate might be getting a bit dull—until the noble Lord, Lord Moylan, spoke. He so infuriated me that I feel I have to say something. I am not able to stay for the rest of the evening, but I wanted to clarify a number of things.
It is true that there are some people who own lease- hold flats who are not poverty stricken, but the characterisation of the 5 million leaseholders in this country as wealthy is ludicrous. The main reason why people—certainly me—are forced to buy leasehold flats is that they are cheaper than non-leasehold flats. As I will indicate in an amendment to be discussed on the next day in Committee, very few of us were originally aware of what a leasehold meant. We thought that we were entering into the housing market and buying a house, having saved up very hard to do so, without realising that we were, in effect, pseudo-tenants with very few rights. That has all been discussed often in this House.
The other thing that I wanted to clarify—I hinted at it, and it will come up again—is the notion that any charity that is a freeholder is doing good in the world; that strikes me as at least open to question. Many of the problems that leaseholders face are due to their being local authority—local authorities are not charities, but there are real problems with local authority flats. Also, housing association leaseholders have endured incredible problems with how the leasehold is set up. It is not appropriate to assume that, because charities say that they are doing charitable work, they are not accountable for some of the uncharitable consequences of the fact that they are, in effect, freeholders making a huge amount of money out of leaseholders.
In that sense, what really wound me up was the idea of this being a limitless expropriation scheme. Leaseholders have felt for some time that they are on the receiving end of a limitless expropriation scheme. The reason why this Bill is here and why people across the political parties, from right to left and in between, are so committed to tackling leasehold is that the inequity is in that capacity to expropriate, via the service charge, ground rent and so on. It means that leaseholders feel there is no way to defend themselves against a freeholder who can just take, take, take. Having paid quite a lot in service charges, I know that you do not necessarily get a service and there is not very much you can do about it, which is what the Bill is trying to address. I am pleased that the Government are addressing this, although they are not going far enough.
This is whipping up a climate of fear, and the notion that mad socialists are going around stealing property from freeholders is absolutely mythical. It is very important that we do not allow myths to emerge in the midst of this discussion, and that we have a proportionate sense of how to respond. I do not think that all freeholders are evil, but the system is iniquitous. I mentioned before that it has taken a few years of me being here to hear so much enthusiasm for feudalism, but it seems to be coming up again. It might make it difficult to untangle the law—as the noble Baroness, Lady Deech, explained, this goes back many hundreds of years—and I am not trying to be glib, but there have been a lot of commissions looking into this. However, it is not appropriate to sing the virtues of feudalism, either. Feudal property rights are not in the interest of modern democrats, whether they are on the left or the right. The idea that this is the equivalent of the difficulties of expropriating from Putin does not make any sense.
As to the European Court of Human Rights: the irony of the position of Conservative Peers! By the way, I am one of the people who would leave the ECHR— I know everyone here will hiss and boo when I say that —because I do not think it should determine the decisions we make in this or the other House. But Conservative Peers, who would otherwise say that the European Court of Human Rights is unreliable, defending it for hedge fund managers is ludicrous. Freeholders are not necessarily virtuous, benevolent, benign landowners; some are, but most are money-making rentiers. It is actually a criticism of the failures of capitalism that the only way anyone thinks they can make money is by ripping off leaseholders—and then describing them as rich, just because they have got a decent flat. Noble Lords get the gist.
Lord Sentamu (CB)
My Lords, I remind the noble Baroness, in light of what she has just said, that it was in this place in 1215 that the barons said to the King, “This is the Magna Carta”. This principle was established and made very clear that a person’s property could not be seized by the King, except by the lawful judgment of his Peers over the law of the land. The assumption is that if you take the property, compensation must follow, even if you are taking such property because you want to convert some or all of it into leaseholds, so that they too can become owners. The Magna Carta will tell you, “Have you forgotten your history? Have you forgotten your law?” The rule of law in this country is what gives us liberty. It is not just a question of the European Court of Human Rights; it is also Magna Carta, which is really the foundation of all these things. To seize somebody’s property, even by an Act of Parliament, would go against the whole reason why Magna Carta came out and gave us the rule of law, in the end.
Let us be very careful in this Bill. If you take away somebody’s property without compensating them, those barons from 1215 will be rising up and saying, “Remember your history, remember your law, remember the tradition that it has created, and safeguard it”.
I do not think that freeholders are simply wanting to hold on to things, in the way that the noble Baroness described some of them, or are not doing any good charitable thing. I live in Berwick in Northumberland, and the duke there has plenty of other things. I have also seen some of the charity work that is being done.
Let us not use language and words because we are enthusiastic in one direction or another and ignore the Magna Carta. It is what has given freedom and liberty even to newcomers such as me. My friends, the rule of law cannot ever simply be brushed aside because of a desire to correct a particular question. The rule of law matters. The Magna Carta matters.
Lord Thurlow (CB)
My Lords, I support each of the three amendments in this group. I was going to say that the amendment from the noble Lord, Lord Moylan, concerning compensation, was so articulate that it really needed no reinforcement, but I was not expecting the fine history lesson just now, which has reinforced it with great skill and humour. The noble Baroness, Lady Deech, explained that she taught property law for many years. I studied property law for many years, and I am sure that, if I had studied under her—which would of course not have been appropriate at all in age terms—it would not have taken me so many years.
The expropriation is bad enough, but to add the retrospective characteristic in this legislation is shameful. My principal interest in contributing is the 80-year rule referred to by the noble Lord, Lord Howard of Rising, because that is a very sensible, intelligent compromise to the sledgehammer of absolute abolition of marriage value and hope value in the calculation being entirely reserved to the lessees. Many of the highest-value elements of this paragraph are, indeed, in central London and the south-east, and many are non-resident.
This clause would save the Treasury billions, in addition to earning it some billions, which we heard referred to by the noble Lord. There is logic to the 80 years proposed in his clause. That is the threshold below which mortgagees such as banks and building societies are very reluctant to lend on property. Lessees therefore have no choice but to negotiate an extension if they want to use borrowed money—and, of course, nearly all do. The 80-year rule is a compromise between the very long leases and those moving into the unmortgageable zone. It makes a great deal of sense to cut the pack in this way because it excludes those freeholders of over 80 years but encapsulates the value of the expiring leases. It should be supported.
The Earl of Lytton (CB)
My Lords, like the noble Baroness, Lady Deech, I come to this from a professional viewpoint. I am a chartered surveyor and, until recently, I was a registered valuer with my professional body. Coming from my background, I see the balance to be struck. When I was in the public sector, I was dealing with matters of compulsory purchase and compensation. Later on, after the passing of the Leasehold Reform, Housing and Urban Development Act 1993, I became the first chairman of the Leasehold Advisory Service. Although I was not a practitioner in the matter of leasehold enfranchisement, I had a very close up and personal involvement with what was happening there.
Baroness Pinnock (LD)
My Lords, the debate on this group of amendments has taken an interesting turn. I was not expecting to be discussing expropriation or to hear reference to the European Court of Human Rights, particularly from those who have in the past criticised it. I was not expecting the debate to hinge on the rule of law, of which I had thought we had a good example in previous days.
Lord Moylan (Con)
I am very grateful to the noble Baroness for giving way. If there is any suggestion that I have been critical of the European Convention on Human Rights, if that remark was addressed to me, I should be glad to know when that was the case because I have never said that we should withdraw from that convention. I do not know whether the remark was addressed to my noble friend Lord Howard of Rising and not me. If that was the case, I apologise for intervening.
Baroness Pinnock (LD)
There was, of course, no mention of or reference to any noble Lord in this Chamber. It was a general reference to criticisms of that court under the human rights legislation. We have heard in debates in your Lordships’ House over the past weeks that have hinged on the rule of law. So it is most interesting, for those of us who have felt that the rule of law had been breached in the decisions that have been made, that it is now being raised in defence of these amendments. The debate has become emotive on this issue.
I hope that we can draw back from that rather, because what we have here is the Government’s intention to rebalance the rights of leaseholders as against the rights of freeholders. From these Benches, we support the rebalancing of those rights. In many cases, we think that the Government are not going far enough, but there ought to be a rebalancing of those rights. That is not referencing in this case the fact that there seems to be an argument among those who have moved or supported the amendment, that the loss of value can be defined as an expropriation. I find that difficult to accept because all along, in changes to legislation on major infrastructure projects, property is infringed and property holders feel abused. But it is for the state to make those decisions. So I am not sure why we are going to the barricades on this issue.
Lord Moylan (Con)
I am grateful to the noble Baroness for giving way. In the case of infrastructure, it is certainly true that private property owners can have their property taken away from them to allow infrastructure to be built. But this is under a compulsory purchase regime whereby they receive something approaching the market value, normally plus a premium of so many per cent on top. My amendment would ensure that those expropriated of their marriage value would receive that. Is the noble Baroness, in fact, swinging in behind my amendment? There is a clear difference between what is proposed today and the compulsory purchase regime.
Baroness Pinnock (LD)
I thank the noble Lord for his intervention. To me, the issue here is quite simple. We expect leaseholders to fund the enfranchisement of their lease—to pay the costs of the enfranchisement—and then to share the increased value of the lease with the freeholder, who has made no financial input to the extension of the lease. From a leaseholder’s point of view—although I do not have a leasehold myself—that seems to me to be the wrong balance. This is what the proposals in the Bill are attempting to put right. From that perspective, we would want to agree with that.
We are constantly warned that no investments can be regarded as safeguarded for all time. That must be true for property as it is for any other investments. We have heard arguments this afternoon about protecting freeholders, seemingly for ever. I accept the argument of the noble Baroness, Lady Deech, that phasing might be an answer to freeholders’ difficulties, but you cannot keep things in aspic for ever. Change is on the move and the Government are right to try to provide a better balance of rights and responsibilities between freeholders and leaseholders.
We on these Benches would prefer to move entirely to commonhold—but that argument has yet to be completed. I accept that the situation is very complex. Whenever we have a substantial change in legal rights, there is a loss on one side and arguments about that, and benefits on the other. Nobody can be absolutely clear and certain how the balance will be reset.
The Earl of Lytton (CB)
I take the noble Baroness’s point about things changing, but I ask her to cast her mind back—although she was not there at the time, any more than I was—to the great reforms in the Law of Property Act 1925. There was a big discussion about all sorts of matters to do with tenure and getting rid of things such as entails, and modernising the system. If we are to make a seismic change—and I think this Bill will produce something of a wobble—there ought to have been that big discussion about the fundamentals of property law. Does the noble Baroness not agree that, instead of tinkering around piecemeal with this and trying to shoehorn it into the unfortunate focal point of leasehold reform and the balance between leasehold and freehold, that discussion should have taken place first?
Baroness Pinnock (LD)
I thank the noble Earl for that intervention, because he is right in many cases. I am not a lawyer, but I know that the 1925 property Act made a huge change away from the old system, which was feudal at that point, and modernised property legislation. This Bill may do the same. In some instances, as we have heard this afternoon, it will have big consequences—for freeholders, in the context of this set of amendments. I accept that maybe there ought to have been—as we heard on Monday from the noble Lord, Lord Young of Cookham—a draft Bill on commonhold. Maybe it requires an in-depth, cross-House, cross-party committee to get into the detail, rather than the 300 or so pages of the Bill that we have in front of us, in order to get to grips with the consequences of what is being proposed.
I go back to the principle, and the principle has to be right. We are trying to rebalance the rights between freehold and leasehold. There is frequent talk on the Conservative Benches that the basis of Conservative philosophy is a property-owning democracy, but leaseholders will not be full participants in that until these changes are made. So it will be interesting to hear what the Minister has to say with regard to this very challenging debate.
Lord Khan of Burnley (Lab)
My Lords, this has been a more wide-ranging debate than was anticipated at the beginning of the group. The noble Lords, Lord Howard and Lord Moylan, made some interesting points in introducing their amendments, and it is for the Minister to clarify and address her noble friends’ concerns. All three amendments in this group attempt to make changes to Schedule 4, which is where the market- value element of the premium for any enfranchisement claim is determined.
I listened to the noble Baroness, Lady Fox of Buckley, in relation to the European Convention on Human Rights. Although we have differing views on that, it is interesting how legislation and the regard for international law are debated in different debates in this House—without pinpointing any noble Lord in particular.
The noble Baroness, Lady Deech, laid out and stipulated the complexity of the issue as a teacher in property law, while the noble Lord, Lord Thurlow, as a student of property law, made some interesting points about complexity and about working and bringing change in a fair manner.
In conclusion, I ask the Minister what consideration the Government have given to the principles of grandfathering for leases of various lengths and other conditions when developing the Bill? For example, in the instance of a lease of a very short length, when the Bill becomes law, what are the ramifications of the Bill as it is written? Do the Government think that some shorter leases are going to be treated in a way that may be fairer on wider principle but do not seem appropriate, given the shorter lengths? If so, did they consider any mitigation?
I finish by referring to my noble friend Lord Truscott, who advocated in a diligent manner the ending of marriage value and talked about the wider unfairness in leasehold properties. I look forward to the Minister’s response.
Baroness Scott of Bybrook (Con)
My Lords, I thank my noble friends Lord Howard and Lord Moylan for their amendments in this group. Amendments 26 and 27 would require marriage value or possible hope value to be payable by a leaseholder who has fewer than 80 years remaining on their lease on the passage of the Act.
The Government’s stated objective is to make it cheaper and easier for leaseholders to extend their lease or acquire their freehold. We want them to attain greater security of tenure. The amendments are directly counter to our objective. In particular, they would prevent us from helping the trapped leaseholder—that is, a leaseholder with a short lease who is unable to afford to extend because of the prohibitive marriage value payable, and so is trapped with an asset of diminishing value.
We do not believe that the leaseholder should have to pay marriage value. For the freeholder, the marriage value that is payable under the current law is a windfall created by the freehold and leasehold interests being married earlier than they otherwise would have been—namely, at the end of the lease. It is a sum that the freeholder would not receive if the lease ran its course. Parliament has previously determined that the value should be split equally and the leaseholder should pay half of it to the freeholder on enfranchisement, but we do not believe that freeholders should continue to receive that windfall.
The leaseholder needs to enfranchise, because by its very nature a lease is a wasting asset. Without either extending their lease or buying their freehold, they will suffer financial loss as the lease runs down or lose possession when it has fully run down. Nor has the lease- holder meaningfully chosen to enter such an arrangement, since leasehold is very often the only available form of tenure outside the rented sector at certain price points or in certain locations. The lease- holder’s need to enfranchise is born out of their insecurity of tenure; that is, out of the inherent injustice of the leasehold system. Our objective is to enable them to obtain greater security and to address that inherent injustice. By not having to pay marriage value to the freeholder, the leaseholder’s ability to obtain security of tenure is much improved.
A third party who bought the landowner’s interest would not pay marriage value, and we do not think it is right that the leaseholder should pay more than that same interest. Requiring leaseholders to pay more than a third party—or, in other words, enabling the freeholder to profit from the sale to a leaseholder by comparison to a third party—is to punish the leaseholder for their need to enfranchise, and therefore to affirm the very injustice we are trying to address.
The noble Earl, Lord Lytton, and many other noble Lords brought up compensation. Under our valuation scheme, the freeholder is compensated as if the lease simply ran its course. We believe that this is adequate compensation; it is sufficient to reflect their legitimate property interests.
Amendments 26 and 27 would also further complicate an already complex system. They would create a new two-tier system, with different rules for leases that were under 80 years at the time of the Act and those that fell under 80 years thereafter. This is undesirable, as it runs contrary to our stated aim to simplify this complex tenure.
Before I move on to Amendment 29, I will answer one or two specifics. First, the issue of human rights has been brought up by a number of noble Lords. The Government consider that all provisions in the Bill are compatible with the relevant convention rights and that in the case of the provisions engaging Article 8 and A1P1 any interference is justified and proportionate. There is a GOV.UK page where noble Lords can read further information on that should they wish.
The noble Baroness, Lady Deech, also brought up phasing, which is important. Following Royal Assent, we will allow time for a smooth transition to a new system, while making sure that leaseholders and freehold home owners on private and mixed-tenure estates— which is an issue—can benefit from it as soon as reasonably possible. We will also support leaseholders, freeholders, landlords and agents to adjust to and understand the new rules. We will work with delivery partners to make sure that the necessary support is in place, including through the publication of appropriate guidance.
Baroness Deech (CB)
I am grateful to the Minister for those comments. It reminds me that in the case of the 1925 legislation, the centenary of which approaches us, there were six different statutes with a long lead-in time. Apparently, many solicitors gave up practice entirely because they could not cope with the new law, so it is good to know this will be gently introduced.
On human rights, I am all in favour of the European convention; I would not want to drop it. I just find it rather dismaying that if the possible claimant were a hedge fund manager or a rich freeholder then we should not worry about them. The point about the European Convention on Human Rights is, whether you like the claimant or not, the thing must be taken as a whole; we cannot pick and choose. I would like some disassociation from the notion that hedge fund managers and rich freeholders should not have their rights considered under that convention.
Baroness Scott of Bybrook (Con)
I do not think that I will comment on that from the Dispatch Box, but the noble Baroness is absolutely right: we will make sure that it is phased in and that everybody understands it. Let us hope we do not lose too many solicitors in that journey.
Amendment 29, tabled by my noble friend Lord Moylan, would address the removal of marriage value far beyond that of a specific carve-out for charities, for example, which we are going to address specifically in the next group. The amendment would transfer the requirement to pay marriage value to freeholders in all enfranchisement claims on to the public purse. That would be unfair to hard-working taxpayers.
For the reasons I have outlined, I hope that my noble friends Lord Howard of Rising and Lord Moylan will withdraw or not press their amendments. Of course, I am always happy to meet noble Lords to discuss this further before Report.
Lord Howard of Rising (Con)
I thank the Minister for her comments. On human rights, I neither supported nor did not support them; I commented that human rights will prove a fortune for lawyers, as they argue for years and years over whether assets have been expropriated fairly or unfairly. The Minister referred to complexity; that really will bring complexity to what is at present a relatively simple situation.
When everybody is talking about this and how unfair it is on leaseholders, we should also remember that all a leasehold is is a discount on the freehold value. Somebody has paid less for that asset than they would have done had it been a freehold. If you take that logic to its full extension, why not go to the motor car industry, for example, and say that everybody who has bought their car on hire purchase should be able to have it without having to pay any more? They bought it under certain terms, as the leaseholder did—
Baroness Fox of Buckley (Non-Afl)
I suggest that one of the problems is that those who buy cars under hire purchase do not think that they are buying the car to own it. One clarification that has emerged only recently is that most people did not know when they bought a home, advertised as being sold to them, that the lease was a hire-purchase arrangement. I hope that is one of the things being clarified by this law.
Lord Howard of Rising (Con)
Sorry, but when you buy a car under hire purchase, you buy it that way: that is why it is called purchase. You are just deferring your payment over a period. That is what happened when I was in the motor industry.
I thank all those who have supported my amendment. I hope that, as the Minister said, we can return to discuss this further. In the meantime, I withdraw my amendment.
“(3A) But in a case where the freeholder is a charity and the freehold interest was vested in that charity immediately before the passing of this Act—(a) assumption 2 must not be made, and(b) accordingly, marriage and hope value are payable.”Member's explanatory statement
This amendment would provide that, where the freeholder in the case of a lease extension or freehold enfranchisement is a charity which had owned the freehold interest since before the passing of the Bill, marriage and hope value are payable.
The Lord Bishop of Manchester
My Lords, while I thoroughly enjoyed that previous group, I hope this one will not prove quite so wide-ranging. In tabling these amendments, my aim is to deal with an issue that in the charity world is specific to a small number of bodies but would severely impact the work that they do. First, I am a leaseholder myself, as it happens, as set out in the register of interests. I have been through the process of extending my lease; my flat is not in London, and it was quite a simple and cheap process. Secondly, although I am no longer on the board of governors of the Church Commissioners, it is the body that pays my stipend, owns my home and covers my working expenses, so I declare that interest too.
The commissioners are directly affected by the proposals in the Bill. They would indeed benefit from my amendments but, as has already been mentioned by the noble Lord, Lord Truscott, in the previous group, that charity is large enough to withstand the adverse impact. Smaller charities would struggle much harder to maintain their work, and it is their case I seek to plead today.
As I said at Second Reading, I wholeheartedly support the central thrust of the Bill, which is to protect leaseholders from freeholders who exploit them as a cash cow. I also agree that leasehold is ripe for bold reform. I have spoken repeatedly in your Lordships’ House on behalf of victims of the cladding scandal, as well as joining them on public platforms in Manchester. My lifelong commitment to those in housing need is well known in this House and that commitment remains undiminished.
I was unable to be in my seat on Monday and I am grateful that my right reverend friend the Bishop of Derby spoke to an amendment in my name that day. Having carefully read the report of that debate in Hansard, I have informed the Whips’ Office that I no longer intend to oppose the question that Clause 47 stand part of the Bill, nor does my co-signatory, the noble Lord, Lord Thurlow. I have taken that step as I believe my efforts at this stage are best focused on the specific issue of charities and marriage value. I apologise to noble Lords for the lateness of that decision but hope that they will take it as a sign that even a bishop can be penitent.
To focus on the subject of this group, in England there are a small number of charities, probably no more than a dozen, all of them with long and distinguished histories, which, in centuries far past, came into the possession of land lying largely within just a few miles of this House. As London grew and the land increased in value, rather than simply selling it and seeking to invest elsewhere—remember that back then there were far fewer opportunities for investment—the charities stuck with the business they knew and understood. They kept the freeholds and have used them as regular and predictable sources of income to drive their work. The charities, apart from the commissioners, of which I am aware, are John Lyon’s Charity, the Portal Trust, the Dulwich Estate, the London Diocesan Fund, Merchant Taylors’ Boone’s Charity, and Campden Charities —not a large number.
John Lyon’s Charity was gifted its land in St John’s Wood about 500 years ago. Income from being the freeholder, principally through marriage value, provides it with about £4 million per annum, which is one-quarter of its total income. Marriage value is not a matter, as we have heard, in which the freeholder can set their own arbitrary figure. It is not open to the abuses that have been associated with ground rents. It is also the case that around 80% of all marriage value is in or around the capital. This is a very London-focused issue.
The money that John Lyon’s Charity receives enables it to be one of the principal providers of youth services to some of London’s most needy children. Properties on its holdings sell for around £5 million. The leaseholders who purchase them are not London’s poor and needy. Many are not resident in the premises, which are let out to tenants. A typical leaseholder on such an estate is, as we have heard in previous debates, more than likely to be a wealthy overseas investor or corporation. I have nothing against them, but the Bill, in its present form, will transfer money used presently for youth work to these very rich organisations and individuals. It will present them with an entirely unearned windfall, hence my comments at Second Reading about this being a “reverse Robin Hood”.
I have been told that the Bill needs to be kept simple, and that making any exceptions will unnecessarily complicate it. Of course, there is already an exception for the National Trust, but I will not debate that any further. However, the simplest solution to a problem is not always the right one. In any battle between simplicity and justice, justice must always prevail.
I have also been told that it would be wrong for some leaseholders not to profit from the abolition of marriage value when others, whose freeholders are not charities, do. I will not go back as far as my good friend, the noble and right reverend Lord, Lord Sentamu, did when citing Magna Carta in the previous debate, but there is another principle that is long established: the assets of a charity should not be alienated from it at anything less than full market value, except where those assets are being applied directly to the purposes set out in the charity’s objects clause. That principle has been applied even to such flagship Conservative projects as tenants’ right to buy, in which charitable housing associations were excepted as not being forced to sell properties at a discounted value, unless that discount was being made up from elsewhere. I have not heard any case, not even an unconvincing one, as to why leaseholders of charity-owned freeholds should be treated more favourably than charity tenants.
My amendments in this group offer one way forward. They stipulate that marriage value should continue to apply in cases where the charity owned the freehold before the Act came into effect. There would be no loophole allowing charities to purchase freeholds and apply marriage value in future, nor any opportunity for other bodies to seek to register as charities thereafter. From day one, those leaseholders with charity freeholders should know exactly who they are.
We could tighten it up even further—this is still just Committee stage. It would make little difference if the exemptions applied only to charities, or their predecessors, which owned the freehold prior to 1950, which would of course exclude most housing association leasehold properties. Given how few they are, we could even name them in a schedule. We could explore how marriage value for charities might be phased out over a period of some decades, as was referred to more generally in the previous group, instead of the impact hitting in full in the first year. We can also look at ways of compensating charities in full for the loss of assets—again, an issue referred to in the previous group. I note the Minister’s comments that to fully compensate all freeholders would be an unfair burden on the taxpayer. We are talking here about something much smaller—a small number of charities severely impacted—and I beg to suggest that that can be afforded. None of this needs to slow down the progress of this much-needed Bill through your Lordships’ House.
I am grateful to the Minister, who has already met me and representatives of some of the affected charities, written to us setting out the Government’s current position, and assured us that she remains ready to meet again. I greatly appreciate her openness to such conversations. I also appreciate the Opposition Front Bench for similarly listening to our concerns. I look forward to hearing the views of other Members of your Lordships’ House, so that the charities impacted can have a better sense of where we might find ways forward to tackle this problem. In the meantime, I beg to move.
Lord Moylan (Con)
My Lords, it is a pleasure to follow the right reverend Prelate the Bishop of Manchester, and I have added my name to his amendments.
There is a great deal that I could say on this issue but, since I said most of it in the debate on the last group, I shall keep my remarks fairly short. I can add a little personal knowledge of one charity to which the right reverend Prelate refers, because it is very Kensington-based. I have no connection with it and no interest to declare—but Campden Charities was started in the 17th century by Count Campden, a devout Puritan. When he died, he left a charitable endowment, naturally in the shape of land that he owned, for the benefit of the poor youth of Kensington. His widow, when she died, did likewise with her property—hence the plural. It is Campden Charities: technically, they are two separate endowments, but they are run as one. They own land in Kensington to this day from which they have an income, and they continue to support the poor youth of Kensington—and there are poor youths in Kensington—giving them grants to allow them to continue their education and apprenticeships, and work of that sort. Their income is now going to be, to some extent by this measure, reduced and expropriated.
As I say, apparently as Conservatives we feel no embarrassment in doing this—we feel no constraint on us. We are too tender and too ginger to feel that we can expropriate the assets of ill-doers such as Putin’s friends—they are sacrosanct. But those who do good, such as charities, can have their money taken away with very little debate and handed to leaseholders who may or may not be poor and meritorious. Who knows? What is it next, I wonder, for my noble friends on the Front Bench? Shall we be stealing the widow’s mite from the poor box?
Lord Bailey of Paddington (Con)
My Lords, I want to pay tribute to Campden Charities, as I am a beneficiary of the activities of Campden Charities. I came from a community where the likelihood of one of us appearing in the Lords was next to zero, and Campden Charities is an important part of my arrival in your Lordships’ House. I point out that removing the ability of charities countrywide to provide such services would be devastating to some of the poorest communities in this country. Again, I stand here as a witness to the effectiveness of some of the work that they do.
Lord Thurlow (CB)
My Lords, it is not on the list but I did put my name to this amendment and I am very keen to support the right reverend Prelate. Much of the debate we have had so far this afternoon seems to be focused on the rich, greedy landlords versus the impoverished tenants. If we strip this away from the debate and focus on these landlords, those addressed in this amendment are charities; they do good. They are not bad actors. Their managing agents, in the case of their property investments, are not bad actors. They are responsible to the Church and they thoroughly deserve this exemption, as we were reminded very eloquently in the excellent few words of the previous speech. I proudly add my name to the amendment.
The Earl of Lytton (CB)
My Lords, I am very pleased to be able to speak to this amendment and very grateful to the right reverend Prelate for tabling it. His office asked me whether I would add my name, and I am afraid I neglected to do so. Implicit in what the right reverend Prelate and the noble Lord, Lord Moylan, said is that we have within the Bill a carve-out for the National Trust as a charity that does not apply to other charities. My understanding, and I think noble Lords will know the principle, is that this touches on and concerns the question of hybridity of a Bill. That is dangerous territory for somebody who is a non-lawyer, but none the less I raise the question, because public Bills should apply equally to all citizens and entities. If you single out one, you have to face the consequences of having a hybrid Bill.
I scanned around earlier to see how many legal minds there might be sitting around the Chamber, because I am not one and I stand to be shot down, not being a lawyer, but the matter did crop up on the levelling-up Bill and I had reason to look into that in some detail, although it was not debated in the Chamber. So I hope I am reasonably up to date in believing that the only workaround here is if the entity singled out in the legislation is what is known in the jargon of the legislator as “a class of one”. I have seen the letter dated 22 April to the right reverend Prelate from the Minister. She appears to allude to the uniqueness of the National Trust in that its lands are inalienable. I looked at the world wide web at lunchtime to see just how inalienable things actually are, because as I will explain, I am not sure that is necessarily a correct point on which to rest the case.
What I discovered, among other things, was “Battle over National Trust sale to developer”, which was a question of three acres of a meadow near Bovey Tracey in Devon in 2021. There was another freehold property on the market, and I think it was described as being a former National Trust property. I therefore assume that the National Trust is doing what other charities normally do—namely, that it gets property bequeathed to it, or it acquires property by public subscription, and that may contain bits that it wants and considers rightly inalienable, and other bits that it considers expendable. Any charitable organisation having property is required by the Charity Commissioners to make best use of its assets, and that means not having bits of deadwood floating around. It has to be organised, and that happens in any management process. So to what extent inalienability cuts into this, I am absolutely not sure.
Lord Berkeley (Lab)
I am grateful to the noble Lord for giving way. Can he explain what the word “inalienable” actually means?
The Earl of Lytton (CB)
I believe it means that it cannot be disposed of away from the purposes of the charity. I am not a lawyer and I am afraid I do not know exactly, but I understood it to be the term contained in the Minister’s letter to the right reverend Prelate, which is why I used it.
I want to make it clear that the organisation of a charity is necessarily of a commercial nature but devoted, ultimately, to its charitable purposes. It cannot be otherwise; it must use its assets optimally, and it is required to do so. I can see no discernible difference between something like the National Trust and an organisation such as the Church of England. Any such charity acquires, disposes and otherwise deals with its land assets as a matter of course. It is required to do so if it is disposing according to a set of rules, with which I am familiar, under the Charity Commission: CC 28, which state that you have to get best value for the asset, or words to that effect.
I am concerned about the potential hybridity aspect of the Bill, to which the right reverend Prelate did not refer, but it is implicit in what he is asking. It is a question that needs to be raised and is a procedural one for this House. I would very much like to know the answer, and if the Minister, who has not had any warning, cannot give it today perhaps she would be kind enough to write and copy in other noble Lords who are listening.
Baroness Pinnock (LD)
My Lords, I thank the right reverend Prelate the Bishop of Manchester for drawing our attention to the fact that when you make complex changes, the consequences cannot always be predicted and may not be ones we would wish to support.
The issue is one I hope the Minister will be able to help us resolve. The right reverend Prelate cited the balance between justice and simplicity. He said to always come down on the side of justice, and so would I. However, in this case, we have competing justices. The principle being advocated throughout the Bill is the justice of rebalancing the rights and responsibilities between freeholders and leaseholders to the benefit of leaseholders—a principle most of us support. The difficulty is that the justice we support has a consequence we would not support: reducing the funds available to charities whose income is based on freehold property. So, there is a conundrum for us.
The right reverend Prelate listed the charities that he thought were affected by these changes. I noted they were all London-based, no doubt because of land values in London. It is important for us to know whether this is a more extensive problem, or a London-based one. The first question we need to ask is, what other charities will be affected?
I do not have an answer to the next question: is there a workaround that mitigates the effect of the principal changes the Bill seeks to implement? I am sure the bright young things in the department could come up with a way of mitigating the outcome, so that charities do not lose their income, which is in nobody’s interest. I am confident that somebody will come up with a great way of overcoming this problem, while retaining the other justice: fairness towards leaseholders.
So, there are questions but no answers, and I look forward to hearing what the Government might be able to do.
Baroness Taylor of Stevenage (Lab)
My Lords, this debate has again outlined what a huge benefit it would be to have proper, detailed pre-legislative scrutiny of Bills such as this. I hope that will take place when we get a commonhold Bill, whoever brings it forward.
In principle, I am in much of the same mind as my noble friend Lord Truscott when it comes to special pleading on marriage value. I fear that the amendments in the name of the right reverend Prelate the Bishop of Manchester are in danger of being an almighty sledge- hammer to crack not a very big nut, and my comments are made on that basis.
First, I thank the right reverend Prelate and Lynne Guyton, from John Lyon’s Charity, for meeting me yesterday to explain the issue in more detail. The issues set out by the right reverend Prelate affect a very small number of charities, such as the ones in central London that he has outlined. They have been in place for centuries and, as was explained to me, use marriage value on lease extensions as a critical contribution to the funding of their charitable work. The leaseholders of these properties are largely offshore companies or non-residential wealthy owners, so the argument put forward by the charities is that, in this case, the benefit of marriage value has what the right reverend Prelate described as the “reverse Robin Hood effect”. The benefit currently accrues to the beneficiaries of the charity, such as youth clubs, arts projects, emotional well-being initiatives, supplementary schools, parental support schemes, sports programmes, academic bursaries and similar projects. I thank the noble Lord, Lord Bailey, for his personal testimony in this respect.
The fear is that, after the Bill has passed, the benefits will then accrue to the said wealthy offshore companies and leaseholders. I believe the Government have been in conversation with the charities concerned and have promised to look at what can be done to ensure that a very limited exception is considered. However, it is our understanding that this has not been forthcoming, and I hope the Minister will tell us where the Government have got to. Have the Government carried out any impact assessment of the way the Bill will affect charities that have long-standing property endowments solely for the purpose of enabling their charitable aims?
However, as with group 2, these amendments would amend Schedule 4, which is where the market value element of the premium for any enfranchisement claim is determined. The second amendment tabled by the right reverend Prelate the Bishop of Manchester has also applied it to the later section on loss suffered, in paragraph 32, which refers back to assumption 2. Straightforwardly, these amendments would disapply assumption 2 for charities, and thereby include marriage and hope values in determining market value.
As I said during the first Committee sitting on the Bill, we genuinely appreciate the intention behind supporting what is argued to be the unique circumstances of this small group of charities. However—and it is a big “however”—the amendment as drafted is almost certainly far too broad to encompass only their very unusual circumstances. Perhaps the Government will continue to work with right reverend Prelate and the charities concerned to see what can be done to support them; otherwise, we fear that a general amendment such as the one tabled could open a big Pandora’s box and encourage those wishing to avoid the new system of enfranchisement—which we support, of course—and there may be plenty who wish to do so, to misuse charitable status for that purpose.
The noble Earl, Lord Lytton, referred to exemptions created for the National Trust, which the Government felt were justified. Presumably, the Government feel that some exemptions are justified.
While we do not feel that the amendment as tabled would avoid some of the obvious pitfalls of creating a loophole in the stated aims of the Bill—with which we agree—I look forward to the response of the Minister about whether any progress can be made in this respect.
Lord Gascoigne (Con)
My Lords, I thank the right reverend Prelate the Bishop of Manchester, and my noble—and actual—friend Lord Moylan for their valuable contributions at Second Reading, and for the amendments that they have put forward which seek to alter the Government’s current position on marriage value and hope value. I say on behalf of my noble friend the Minister that we are grateful for all the time and engagement with the right reverend Prelate on this issue, along with the Church Commissioners and the charities which she has spoken to today.
In addition, we are grateful to all noble Lords who have spoken on this group and on the somewhat excited group previously. As has been noted, a lot of the points that I will speak to were covered in the previous discussion. I also say to the right reverend Prelate that we are always happy to meet. In answer to the noble Baronesses, Lady Taylor and Lady Pinnock, the Minister is more than happy to engage with any noble Lord who is impacted by this, as well as charities, to discuss it further.
Amendments 28 and 46 would exempt freeholders who are charities at the time of the Bill receiving Royal Assent from the removal of the requirement for leaseholders to pay marriage value, and for hope value to be payable. Before I go into detail, I reiterate the Government’s wholehearted recognition of the vital role and work that charities provide in our communities up and down the land, as has been noted by my noble friend Lord Bailey.
However, as the noble Baroness, Lady Scott, explained previously, we do not believe that leaseholders should pay marriage value. The leaseholder needs to enfranchise to prevent financial loss from the running down of their lease, and to prevent their losing possession when it ends. As has been said, we do not believe that their position, which concerns their security in their home, should be used as a basis for requiring them to pay more than a third party to enfranchise, nor that the freeholder should profit by way of windfall by selling to the leaseholder as compared to a third party. Under our valuation scheme, the freeholder is compensated as if the lease ran its course.
The good work of a charity is separable from its funding. Requiring leaseholders of charities, for no other reason than the coincidence of the nature of their freeholder, to pay marriage value when other leaseholders do not have to would be, I am afraid to say, unfair. Granting exemptions would also create an unbalanced two-tier system. By removing marriage value across the board, we will level the playing field and ensure that we are widening access to enfranchisement for all leaseholders, both now and in the future.
There have been a couple of references to the National Trust. Briefly—as I know it has been covered previously in this debate—it is a different scenario given that its land is inalienable and cannot be sold, yet it is not exempt from the removal of marriage value. I am not aware of the case that the noble Earl, Lord Lytton, mentioned, but I am certainly more than happy to look into it for him. I assume—and it is only my assumption—that it is because it is for the National Trust as an entity to decide, but I assure the noble Earl that I will look into it.
The noble Baroness, Lady Pinnock, asked about other charities that may be impacted by this beyond those that we have discussed. Again, I am not aware of any, but I am sure that that work has been done by the department. I will certainly take it back and investigate. Further to the point made by the noble Baroness, Lady Taylor, it is something on which we will continue to engage with any noble Lord or any charity that is impacted, as we have done with the right reverend Prelate.
For these reasons, I respectfully hope that the right reverend Prelate the Bishop of Manchester and my noble friend Lord Moylan will understand and therefore not press their amendments.
Lord Moylan (Con)
Before my noble friend sits down, perhaps I may address a point he made earlier which was made also by my noble friend Lady Scott of Bybrook. The idea that the Government are peddling, that if a landowner sells a leasehold or freehold interest to a third party, they do not receive marriage value, is to assume gross inefficiency of markets and complete ignorance of market participants. It is of course true that the purchaser would not pay marriage value as a separate sum, but the purchaser is perfectly aware of the potential for marriage value and will pay a price that incorporates that. To assume anything else is to assume that all those clever and evil hedge fund managers are too dim to notice what is going on. It simply is not the case. The line the Government are peddling is simply unfounded in fact and reality.
Lord Gascoigne (Con)
Obviously, I completely respect my noble friend, but I think I have answered that point.
The Lord Bishop of Manchester
My Lords, I thank all noble Lords who have taken part in this debate, which has been somewhat less emotive than the previous one. I am grateful to the noble Lord, Lord Moylan, for his support, and for his description of the good work that is done by the Campden Charities for young people in Kensington. I am particularly grateful to the noble Lord, Lord Bailey of Paddington, who spoke movingly of how that same charity has been part of what has enabled him to become the great asset he is to your Lordships’ House today, and to the noble Earl, Lord Lytton, for his helpful and insightful questions.
I am grateful to the noble Baroness, Lady Pinnock, for asking whether other charities, including those outside London, are affected. While I cannot guarantee that my list is exhaustive, I am pretty sure that if there are any that we have missed, they would quickly come forward, but I do not think that there are many.
I thank the noble Baroness, Lady Taylor of Stevenage, both for her meeting yesterday and for her support for the matter being further considered. Can we find a workaround that does not disapply the whole principles of the Bill, but which deals with the problem that these particularly good causes are going to suffer as things stand? I am very happy to look at some tighter drafting, as she suggested. I am grateful to the noble Lord, Lord Gascoigne, for his response, and for his willingness, and that of the noble Baroness, Lady Scott, to continue to engage with us on this matter.
In the previous debate, we were told that compensation for loss of marriage value would be too much of a strain on the taxpayer. We are talking about a very much smaller amount here, and I wonder whether that would be a course that we could continue to pursue in further conversations before Report. For now, I beg leave to withdraw my amendment.
Baroness Scott of Bybrook
(a) the relevant freehold on the transfer of a freehold house under the LRA 1967, or(b) the notional lease on”Member's explanatory statement
This amendment would correct the references in paragraph 18 to what is being valued under Schedule 4.
Member's explanatory statement
This changes the terminology used in paragraph 21(2)(a) so that the correct defined term is used.
Member's explanatory statement
This amendment would avoid the “current lease” (the terminology otherwise used in Schedule 4) being referred to by a different term (“lease being valued”) in paragraph 25.
Member's explanatory statement
This amendment would avoid the “current lease” (the terminology otherwise used in Schedule 4) being referred to by a different term (“lease being valued”) in paragraph 25.
Member's explanatory statement
This amendment would avoid the “current lease” (the terminology otherwise used in Schedule 4) being referred to by a different term (“lease being valued”) in paragraph 25.
Member's explanatory statement
This amendment would avoid the “current lease” (the terminology otherwise used in Schedule 4) being referred to by a different term (“lease being valued”) in paragraph 25.
Member's explanatory statement
This amendment would avoid the “current lease” (the terminology otherwise used in Schedule 4) being referred to by a different term (“lease being valued”) in paragraph 25.
Member's explanatory statement
This amendment would avoid the “current lease” (the terminology otherwise used in Schedule 4) being referred to by a different term (“lease being valued”) in paragraph 25.
Member's explanatory statement
This amendment would avoid the “current lease” (the terminology otherwise used in Schedule 4) being referred to by a different term (“lease being valued”) in paragraph 25.
“(10A) If section 3(3) of the LRA 1967 applies to the current lease (successive leases treated as a single lease), sub-paragraph (9) is to apply only if the one of those leases which is in effect at the valuation date meets the condition in sub-paragraph (9)(a) or (b).”Member's explanatory statement
This modifies the application of paragraph 25 where successive leases are “chained” to constitute a long lease under the LRA 1967.
Member's explanatory statement
This amendment would avoid the “current lease” (the terminology otherwise used in Schedule 4) being referred to by a different term (“lease being valued”) in paragraph 25.
Lord Borwick
Bank Rate at the time that the notice of intention to enfranchise is served + 5 %
Member's explanatory statement
This amendment seeks to make the process for setting the deferment rate more efficient through using a fixed formula based on Bank Rate, rather than requiring the Secretary of State to set the deferment rate in regulations.
Lord Borwick (Con)
My Lords, I first declare my interest in my home, which is a long-leasehold property in London. It would not normally be declarable, but in the case of this Bill, this should be an exception. I also declare my interests as in the register in property companies, some of which are developing or have developed houses.
While I am not a great fan of a Conservative Government forcing freeholders to sell land to lease- holders, that principle sailed many years ago, and my Amendments 41, 43, 44 and 45 are designed to simplify the process in this Bill, reducing the costs for the department. They would speed up the process, perhaps by as much as 18 months, making it quicker and cheaper for the Government.
The present structure of the Bill has the price of the enfranchisement calculated by a system laid out in Schedule 4, under which the single most important factor is the deferment rate. I believe that the deferment rate is more important to the size of the actual price than the abolition of marriage value or any other factor.
What is the deferment rate? Some noble Lords believed that it must be in the Bill, but that is not so. The deferment rate, an interest rate by another name, is to be decided by the Secretary of State for DLUHC by way of statutory instrument. When will this be published? We do not know. Departments take a different time for SIs, and some take as long as five years. I have been criticised in the past for being acidic about the Department for Transport taking as long as five years to bring forward an SI on disability matters. The point is that it is certainly not instantaneous.
The interest rate is to be set by the Secretary of State at a date to be announced in due course. I could be rather difficult and quote my right honourable friend from another place, Michael Gove, on the subject of setting interest rates. He has been a supporter of the principle that interest rates should be set not by the Chancellor but by the independent Bank of England. For many years we have had that as a common policy between all parties, yet the Bill reverses that policy, at least in respect of the deferment rate.
The Minister has said that the rate will be a market rate for about 10 years, amended only by another SI. I am afraid that markets do not work like that—they alter fast and furiously. Over the last 10 years, the national rate has varied quite widely, between 0.1% and today’s 5.25%. Yet the department will fix it for the next 10 years, subject only to review at about a year’s notice. If the department was that good, it could make a fortune in the markets rather than create legislation. It cannot be done accurately, but the department still wants to do it.
I submit that my solution is better: there should be a variable rate, varying automatically as a simple margin over base rate. We can have a debate about what that margin should be. I have proposed 5% as a probing amendment. The leaseholder will, in almost all cases, be a worse credit risk than the freeholder, and I have asked several banks about their prospective price for a loan to finance an enfranchisement. I have had a variety of suggestions, as each price will of course depend on the particular circumstances, but a margin of 5% over base rates seems to be a reasonable guess.
There are occasions when leaseholders of flats in a block have enfranchised but one in 100, say, has not come up with their share. It is not unknown for the freeholder himself to provide the finance, and I am told that a margin of 5% over base is considered reasonable by freeholders when they are the lenders.
The first thing would be to agree that the rate should be variable, to take account of current financial circumstances. My Amendment 41 achieves this. The second thing is to agree that the margin on the rate over bank rate should reflect the leaseholder’s cost of borrowing, which is consistent with the rest of the terms of the Bill, but at present I am not entirely certain what that margin should be. I look forward to other noble Lords expressing their opinions.
Amendments 43 to 45 are either consequential or the equivalent measure for leaseholds to be extended rather than enfranchised. My noble friend Lord Forsyth, who is not in his place, was going to support this proposal and may put his name to it later, if it comes forward on Report.
The noble Lord, Lord Truscott, mentioned this amendment at an earlier stage. I did not know whether I should stand at that moment or wait. I hope he will forgive me for replying to his point now. The current rate set by the tribunal is 4.75% or 5%—the noble Earl, Lord Lytton, can immediately correct me if I am wrong—so 10.25% may be wrong, but so is 4.75% or 5%. The noble Lord, Lord Truscott, asked whether a return of 10.25% is available, but the question should be whether any lenders charge as much as 10.25%. I believe that they do, so his argument is actually an argument for variable rates. I beg to move my amendment.
Lord Moylan (Con)
My Lords, I rise to support, in general, the principle of what my noble friend Lord Borwick has said, but I am not entirely sure that we need to go into this new world that he is creating when we have a perfectly satisfactory world that already exists. I hasten to add that I am not a chartered surveyor, and everything I say is subject to correction by Members of this Committee who understand these matters better than I.
Lord Young of Cookham (Con)
My Lords, I am grateful to my noble friend Lord Borwick for allowing what I hope will be a short debate on the deferment rate. I am conscious that I am a very inadequate substitute for the noble Lord, Lord Forsyth.
The deferment rate is very important, as my noble friend Lord Moylan explained. It is the current value of the vacant possession of a flat when the lease expires. According to what deferment rate you choose, it affects the premium that is paid by the leaseholder. My understanding is that the current deferment rate was set in a Court of Appeal case in 2007—the so-called Sportelli case—which ended up with the two rates that I think my noble friend Lord Moylan referred to: 4.75% for houses and 5% for flats. That was fixed nearly 20 years ago. There was a recent appeal decision in a Welsh court—I have the name in front of me but, like many Welsh names, it has a large number of consonants and very few vowels, so I am afraid that I cannot pronounce it. The appeal failed because the land valuer was not an economist, but it opened the way to an appeal to alter the rate. My noble friend Lord Moylan touched on my first question: when will the Secretary of State come to a decision? It affects what leaseholders do at the moment: whether they should wait for a preferential rate, which might be fixed by the Secretary of State, or whether they should try now, in case it moves the wrong way.
I want to raise a totally different point. At the moment, there already is a deferment rate set by the Government under the personal damages Act 1996. Using exactly the same basis as a deferment rate for leasehold, the Lord Chancellor sets the deferment rate for personal injury damages. Unlike what is proposed in this Bill, that rate changes quite often. In 2017, the rate was changed, and it was a negative rate for some time. It was changed again in 2019, and then again in 2023. It is now 0.5% for short-term cases and 3% for long-term cases. My question for the Government is: will we have two separate Secretaries of State fixing deferment rates at different times and coming up with different rates, or is there a case for rationalising the Government’s view as to what is an appropriate deferment rate?
One opportunity would be for the Secretary of State simply to replicate what the Lord Chancellor does. The Lord Chancellor has recently had a consultation on how to fix deferment rates and has come up with a short-term rate and a long-term rate. It seems odd to me to have two totally separate systems in the Government for basically coming to the same decision—that is, deciding what the long-term rate is on a risk-free investment. I wonder whether my noble friend the Minister has had discussions with the Lord Chancellor’s department to see whether we can have a common approach to this important issue.
Baroness Pinnock (LD)
My Lords, for me, this is a very technical set of amendments, but they are very important. As we have heard, this issue can have significant implications.
I always go back to first principles. One of the aims of the Bill is to make enfranchisement cheaper than it is currently, and so more readily available. However, as we have heard, that will entirely depend on the deferment rate and how it is set. My understanding was that the current deferment rate was set by the Court of Appeal in 2007, as the noble Lord, Lord Young of Cookham, said. The debate is around whether it is right for that to continue; whether another process should be used, such as that proposed by the noble Lord, Lord Borwick, in his amendment about using the bank rate as a base for setting a deferment rate; or whether, as in the Bill, the responsibility is passed to the Secretary of State to determine the deferment rate. I have to agree with the noble Lords, Lord Moylan and Lord Young of Cookham, that the latter does not seem right.
When I was investigating the deferment rate issue, I noticed that Homehold Services Ltd gave evidence to the Commons Public Bill Committee that was very telling. It criticised the fact that the “applicable deferment rate” was referenced throughout the Bill
“without specifying what this will be”.
It provided an example of what effect a change in the deferment rate could have on the cost of enfranchisement. It said:
“A lease extension … on a £200k flat with 80 years unexpired and no ground rent would be c. £4,000”.
That is the example given by Homehold Services Ltd; as it is one of the experts, I thought it might be right. It continues:
“If the deferment rate was reduced from 5% to 4%, the premium would increase to c. £8,500. At 3.5% it would be … £12,000”.
Those small changes in percentages have very high consequences for the leaseholders. This is important—that is what the evidence told me when I read it.
The argument from Homehold Services Ltd was that the deferment rate must be set no lower than that set by the appeal judgment in 2007. Otherwise, the consequence is that the rate can escalate considerably, as the noble Lord, Lord Moylan, pointed out. The cost of enfranchisement would increase, removing the ability of many leaseholders to continue with the process—contrary to one of the objectives of the Bill. Can the Minister say what consideration the Government have given to the deferment rate?
The noble Lord, Lord Young of Cookham, said that the Chancellor’s department has had a consultation on this and come up with some figures. Why are those not being adopted in this instance to set the rate in the Bill? As we have heard, it is very important to know exactly what the deferment rate will be. I do not believe that it is satisfactory to leave the applicable deferment rate to be set by a statutory instrument some time in the future. Surely, if the Government’s intentions are as they are set out in the Bill—to make it cheaper for leaseholders to enfranchise—one of the key rates must be this one. Therefore, I would have thought that we would want to see it set during the course of this Bill, rather than wait for a statutory instrument.
I have a lot of sympathy with the arguments that have been made by the mover of the amendment and others about the need for certainty here, rather than a principle and uncertainty as to the exact figure at which the deferment rate will be set.
Lord Khan of Burnley (Lab)
My Lords, I will speak to Amendment 42 in the name of my noble friend Lady Taylor of Stevenage, which was well supported by my noble friend Lord Truscott in his earlier remarks.
Deferment rates are a phenomenally complex area to understand, and the standard valuation method in Schedule 4 is extremely technical. The Law Commission set out options. It did not make recommendations, but the Government have chosen to allow the Secretary of State to prescribe the applicable deferment rate. I thank the noble Lord, Lord Borwick, for his contribution and for seeking to make the process for setting the deferment rate more efficient and asking for more clarity and certainty.
Our amendment is clear and would ensure that, when determining the applicable deferment rate,
“the Secretary of State must have regard to the desirability of encouraging leaseholders to acquire their freehold at the lowest possible cost”.
We understand that the 2007 Cadogan v Sportelli judgment, which has broadly set deferment rates, was made in the context of 0.5% interest rates. If the Government are minded to remain of the view that the Secretary of State should fix the deferment rates, how best should they do that? Although it may work in London, what would need to be taken into account for other parts of the country? Is there a need to set multiple rates for different parts of the country to deal with the variations?
Baroness Scott of Bybrook (Con)
My Lords, I thank the noble Baroness, Lady Taylor, and my noble friend Lord Borwick for Amendments 41 to 45 in this group. I turn first to the series of amendments tabled by my noble friend, and I thank him for his constructive engagement with me and for the time he spent in trying to address this vital matter.
Amendments 41 and 43 to 45 would seek to replace the current provisions in the Bill, which will allow the Secretary of State to set the deferment rate used in enfranchisement valuation calculations, as well as removing a requirement to review these rates every 10 years. Instead, these amendments would require the deferment rate to be prescribed by a formula, which would be based on the Bank of England’s base rate plus 5%. The specific deferment rate would then be calculated based on the date of the leaseholder’s enfranchisement claim.
As I have discussed with my noble friend Lord Borwick, this is one potential solution for setting the deferment rate, but it is not the only one. I am aware of the importance of the deferment rate to both leaseholders and freeholders, and it is important that we take the time to take this decision carefully. There are serious consequences with any attempt to prescribe the methodology for setting the deferment rate in the Bill; this would tie the hands of this Government, and successive ones, in terms of adapting the approach if the need were to arise. It is also important that the Government retain their role in providing balance between market stability and the need to review the rates. It is the Government’s view that the proposals in the Bill enable this balance, and it would therefore be inappropriate, at this stage, to prescribe in the Bill the methodology for setting the deferment rate.
These deferment rates are a really important part of the Bill. At the moment, it is difficult for leaseholders to understand how much they may have to pay to the landlord when they enfranchise. Different rates are used across the country and across the industry on a case-by-case basis. The deferment rate is used to calculate the reversion value, and this provides the landlord with the compensation for the value of the freehold property with vacant possession in the future; that is, at the end of the lease. Prescribing these rates and using them to develop an online calculator, which will help leaseholders understand what they may have to pay, is also important. These rates will be prescribed at a market value to ensure that the amount that landlords are compensated reflects their legitimate property interests. These are important decisions.
The noble Lord, Lord Moylan, asked about the timing; this could take years and years, but we do expect the majority of these reforms to come into effect in 2025-26, as set out in the Bill’s impact assessment. Obviously, this may change, but that is what we expect. We will continue to carefully review all the information and views shared on the setting of rates, and I welcome any further thoughts that the Committee has on this matter.
Lord Moylan (Con)
Does my noble friend the Minister have a moment to give a response to my query about whether the Government regard the deferment rate as a real interest rate or one that incorporates inflation? I ask because the calculation, as I understand it, assumes zero inflation in the value of the asset over the time to the point at which it is being valued, and that a real interest rate is therefore appropriate. Is that her assumption or is she assuming an inflation-based interest rate, which, I suggest, would have consequences for how the asset is valued at the end of the term during which it is assessed? Does she have any comments on that?
Baroness Scott of Bybrook (Con)
I reiterate that this is why we would like the Secretary of State to be involved because it is complex and there needs to be a balance. I will come back to the noble Lord with any further comments, but this is why we would prefer the Secretary of State to have this role, to make sure that we are balancing the market at the time with leaseholders’ representation.
I turn to Amendment 42 from the noble Baroness, Lady Taylor, which would require the Secretary of State, when prescribing the deferment rate used in the enfranchisement valuation calculations, to set this at a level that would encourage
“leaseholders to acquire their freehold at the lowest possible cost”.
I assure the noble Baroness and the Committee that the Government are committed to making enfranchisement cheaper and easier and that these reforms will achieve that aim.
I understand how vital setting rates is for enfranchisement premiums. This very proposal was discussed in the other place, and I reiterate the importance of not constraining the Secretary of State via the Bill when making such important decisions. We have been clear that we will set the rates at the market value and recognise that many different elements need to be considered when setting them, as I have just reflected to my noble friend. We continue to have conversations with all relevant stakeholders. As I said, I welcome members of the Committee sharing their views on this matter so that the Government can take them into consideration when making a final decision. For these reasons, I ask my noble friend—
Lord Borwick (Con)
I am sorry to interrupt my noble friend again. One of the problems I see with this is the great difficulty in making a change except through statutory instruments, and the amount of time this takes. Whenever the Secretary of State decides that a change must happen, it must happen more quickly than through the route laid down in the Bill. At present, the amount of time doing the statutory instrument, and the fact that we cannot debate its details or change it, makes the whole thing very unfortunate.
There is something to be said for the point, made by my noble friend Lord Young of Cookham, that there is a route through that is used by the Lord Chancellor. I had not appreciated that the deferment rate had so many different implications. I am sure we could call it something different for this purpose, and thus carve out the rate for property matters. But, with a delay of one year or more between a decision and taking action, it is a very difficult subject to structure using the statutory instrument route.
Baroness Scott of Bybrook (Con)
My noble friend is absolutely right, and that is why we have not made this decision. We want to get it right, and that is why we listened to everything everybody said in this place and the other place. We will come back to my noble friend with our deliberations. This is important, and speed will also be important: you cannot take a year to change things that need changing, because of the market. They have to be dealt with in a timely manner.
Regarding my noble friend Lord Young’s point about the Lord Chancellor, I will take it back to the department and see whether any discussions have been had on a common approach, and if not, why not, and whether we should have those discussions.
For the reasons I have given, I ask my noble friend to withdraw the amendment.
Lord Borwick (Con)
My Lords, I thank everybody for their constructive points and for the education that I have received through this process. I beg leave to withdraw my amendment.
Member's explanatory statement
This amendment would leave out the proposed new section 19C of the Leasehold Reform Act 1967, and so ensure that leaseholders are not liable to pay their landlord’s non-litigation costs in cases where a low value enfranchisement or extension claim is successful.
Baroness Taylor of Stevenage (Lab)
My Lords, we welcome the new costs regime provided for by provisions in the Bill, because, as things stand, there is no balance of power: the playing field is tilted very much in favour of landlords rather than leaseholders, and that needs to be addressed. Under the current law, leaseholders are required to pay for certain non-litigation costs incurred by their landlord when responding to an enfranchisement or lease extension claim. That obviously does not reflect normal practice in residential conveyancing, where each party bears their own costs. I hope that noble Lords will forgive me for explaining our rationale for this amendment in a bit more detail than is customary for me, but it is a point of real principle, and some technical detail is warranted.
Noble Lords will remember that I quoted from a letter I had received from elderly leaseholders on the first day of Committee. I have received further representations in relation to excessive charges for non-litigation costs, which I will read out as they are a perfect illustration of the problem these amendments seek to address. I appreciate that this example relates to a ground rent dispute, but it would be the same issue for an enfranchisement or extension claim.
“After the Freeholder asks a ridiculous sum in increased ground rent with their ground rent review (every 4 years) this causes the leaseholder to then employ both a Solicitor and Surveyor to counter this high valuation which incidentally had no calculations to back it up. Therefore so far this year having paid £3,000 for a surveyor to dispute this figure and a lawyer costing so far £3,600, the freeholders haven’t even tried to justify their huge increase and valuation. Now after 4 months having passed and the 3-month negotiation ended and the Freeholders have made no effort to take part, negotiate or even contact our surveyor they now say this increase is NOT agreed …
If we lose with the third-party surveyor’s estimate and the increase is even only minimal we still have to pay the third-party surveyor’s fees plus the freeholder’s lawyer’s fees and our own lawyer’s fees, therefore it could end up costing as much as £15,000. Plus if they look to backdate the increase over the past 6 years’ Ground Rent charges this could amount to who knows what?
Even if we win we still lose a great amount of costs and fees plus we cannot look forward to a reduction in Ground Rent as the lease states an ‘Upward Only Revision’. Therefore freeholders know they can put in totally unrealistic figures for rent increase of whatever they want as the leaseholders are on a hiding to nothing … until they throw in the towel.
Additionally, to lodge a dispute at the 1st Tier Tribunal for any high unreasonable charges it is necessary to not pay the bill in question otherwise it is deemed you have agreed to this payment but then withholding payment runs the risk of forfeiture”,
which we will discuss later today. My correspondent goes on to plead that the issue of ground rent increases finally be resolved by the Bill, but their case illustrates the financial and legal minefield that leaseholders face.
The argument for imposing non-litigation costs has always been that, in enfranchisement or lease extension claims, a landlord is being forced to sell his or her asset, which would justify a departure from the practice in open market sales of residential property. However, when it comes to lease extensions or freehold purchases, a landlord is obviously not simply being compensated for the value of the asset they are being compelled to sell. They are instead securing, through the payable premium, a share of the profit to be made from selling to the leaseholders in question. In addition, as things stand, through capitalised ground rents, they are extracting funds from leaseholders over long periods—often decades —prior to securing that profit share, for no explicit services in return.
The valuations of lease extensions and freehold acquisitions under the existing statutory regime rely on prices agreed via an open market transaction, but those valuations do not account for the fact that leaseholders are expected to pay their landlord’s non-litigation costs. Therefore, landlords in enfranchisement or extension transactions receive the price for the asset being sold, which reflects the market rate without non-litigation costs factored in, and their reasonably incurred non-litigation costs on top.
In its 2020 final report on enfranchisement, the Law Commission is very clear that the effects of law and current market practice are that
“the landlord is over-compensated for the non-litigation costs that he or she has had to incur in order to transfer the interest to the leaseholder”.
In addition, many of those who are better resourced could use the fact that such costs are borne by leaseholders as leverage in negotiations on the price of the lease extension or freehold acquisition, confident that the expense of challenging those costs in a tribunal would dissuade many leaseholders from doing so.
The Opposition are clear that freeholders should not receive compensation in respect of non-litigation costs. A landlord selling his or her asset and receiving a share of the profit as a result is not sufficient justification for departing from an arrangement in which reasonable non-litigation costs are factored into the ultimate price. The decision to enfranchise or extend a lease is often not discretionary; it is often a requirement brought about by the fact that a lease is due to expire, because the payable premium is rising as the lease shortens, or as a result of the decision to move or remortgage.
We therefore fully support the intention in the Bill to provide for a new regime based on the principle that leaseholders are not required to pay the freeholder’s non-litigation costs in these circumstances. We note the Law Society’s concern that landlords are being asked to bear their own non-litigation costs, despite the fact that the proposed standard valuation method provided for by Schedule 2 will lead to payable premiums below full open market value because it caps the capitalisation rate. However—and this point touches on one of our previous debates—political decisions set the rules of the game for market competition. In our view, it is simply not the case that there is some kind of inherent market value for premiums entirely independent of legislation in this area. Every sale of a flat and every lease extension process relating to a flat since 1993 has been undertaken against the backdrop of the 1993 Act, which reduced ground rents to a peppercorn.
The market value for premiums is shaped by the laws that the House passes. It is right in principle that, to achieve the Bill’s objectives of making it cheaper and easier for leaseholders in houses and flats to extend their lease or buy their freehold, leaseholders do not pay non-litigation costs in addition to the payment of a premium, as determined by the new method proposed in Schedules 2 and 3. We believe that leaseholders should not be liable for these costs as a result of an enfranchisement or lease extension claim on principle, irrespective of the method by which the premium is calculated. That is why we take issue with the clause as drafted, because it does not protect all leaseholders from liability for costs incurred.
The clause as drafted entails only a selective extension of rights in this area, because it does not ensure that all leaseholders will no longer have to pay their freeholder’s costs when making a claim. Instead, it makes exceptions to the general rule, whereby the price payable for the freehold or extended lease is below an amount to be prescribed in regulations.
We understand the rationale—namely, that leaseholders should pay a freeholder’s non-litigation costs in such circumstances, so that low-value claims do not cost the freeholder money. The Minister has been very clear that the Government believe that this must happen to ensure that the process is fair for both sides. We also appreciate that there are risks in prohibiting a landlord from passing on non-litigation costs to leaseholders in cases where they would be required to spend more in carrying out the transaction than they received for the asset. The Law Commission highlighted a number of those risks, including the incentive created for landlords not to co-operate with a claim, or for them to transfer the low-value freehold into the name of a shell company and then liquidate the company.
However, we are concerned that exempting claims below a certain value will create a different set of practical problems. These include costly and time-consuming disputes in cases in which the price payable is close to the level of the non-litigation costs in question for low-value claims, and the potential for landlords to game the system by arguing for a price payable below the threshold in order to secure both it and associated non-litigation costs because of the burden of disputing the amount.
Taking a step back, we fail to see the logic in the Government’s position. On the one hand, they seem to be ignoring the Law Commission’s recommendations in relation to costs; they have chosen to provide for a general rule that leaseholders are not required to make a contribution to their landlord’s non-litigation costs, but have not chosen to adopt a valuation methodology that seeks to reflect open market value, which was the commission’s stated prerequisite for such a rule. On the other hand, they are following strictly the commission’s recommendations in respect of low-value claims.
Put simply, we believe that, by means of this Bill, we should take the political decision to remove any exception to the general rule that leaseholders are not required to pay the freeholder’s non- litigation costs in such circumstances. I hope the Minister will give this careful consideration; otherwise, this section of the Bill has the potential to undermine the stated aim to increase, simplify and reduce the cost of enfranchisement. I beg to move.
Baroness Thornhill (LD)
My Lords, when we started the debate today, I felt like I was wading in mud. I feel I am still in the mud—it has got thicker, and the fog has come down. This is a complex and complicated Bill. I have really enjoyed listening to the arguments and the debate; I have already learned a lot. Report will be a lot better—certainly for me.
I will try to keep my remarks short and my questions simple in order to seek clarification. The noble Baroness, Lady Taylor, has, in her own style, ably illustrated the issue and set out the case for her amendments in great detail. I will not repeat those—some paragraphs have already been knocked out of my speech.
The newly inserted Sections 19A and 89A set out the general rule that neither a current nor a former tenant is liable for any costs incurred by another person because of enfranchisement or a lease extension claim. However, new Sections 19C and 89C set out the exceptions to this rule. The debate is around whether these exceptions are justified. We are seeking the Government’s justification for this variance. Amendments 47 and 48 from the noble Baroness, Lady Taylor, would delete these exceptions, so that leaseholders would not be liable to pay their landlord’s non-litigation costs under any circumstances. We agree. Each side should pay its own costs; we are unsure as to why this is not the case.
When this was debated in the Commons, the Government argued that, while the main aim of the changes to the costs regime was to address the imbalance of power that has existed between the landlord and tenant, they had a desire to ensure fairness on both sides. Sections 19C and 89C prevent the landlord incurring a net financial loss when leaseholders exercise their rights to enfranchisement and lease extension, thus acknowledging that this really is a balancing act. We look forward to the Minister’s comments as to how the Government have managed to keep the scales level.
I agree with the comments made in the debates on the last two groups. Some of the problems are because much too much is being left for later regulations, in either guidance or SIs. I believe that we should have had a clear government position on issues as important as landlord costs, deferment and capitalisation rates. This is still too vague. Such uncertainty is bad, not only for the leaseholders but for us parliamentarians who would hope to scrutinise and improve the legislation. However, I note the explanation from the Minister in the last group.
The Law Commission’s report highlights that the current law means that the landlord is overcompensated for these non-litigation costs. We support the Government in saying that costs should be balanced. It has to be said that these amendments raise important questions as to whether new Sections 19C and 89C undermine this aim. The noble Baroness, Lady Taylor, has made a good case to that effect.
Lord Gascoigne (Con)
My Lords, I thank the noble Baroness, Lady Taylor, for her Amendments 47 and 48, which seek to remove the exception on costs arising from low-value lease extension or freehold acquisition claims. While the Bill includes a new general rule that each side will bear its own costs, we believe that there need to be exceptions in certain circumstances so that the regime is fair for both sides. The low-value cost exception entitles landlords to receive a portion of their process costs from leaseholders in low-value enfranchisement and lease extension claims for flats and houses respectively. We believe that these are necessary provisions that protect landlords from unfair costs.
Baroness Taylor of Stevenage (Lab)
I thank the noble Lord for that reply to my amendments. I am grateful for his reassurance about the costs relating to the difference between the low-value claim and where it ends up. That is a useful clarification. However, we will think through the possible implications of this before we get to Report. It seems iniquitous that the leaseholder is taking all the burden of any reduction in the value of the property and in the value of the lease, while the freeholder is exempted from that because they will then get their costs paid if that happens to be the case when the transaction takes place. We will give that some more thought before Report, but for now I am happy to withdraw my amendment.
Baroness Scott of Bybrook
Member’s explanatory statement
This amendment would correct an error.
Baroness Scott of Bybrook
Member’s explanatory statement
This amendment is consequential on the removal of the amendment to the Housing and Planning Act 1986 in paragraph 16 of Schedule 8.
Member’s explanatory statement
This amendment is consequential on alternative amendments to the Housing and Planning Act 1986 being made in the new Schedule of consequential amendments to be inserted after Schedule 8.
Baroness Scott of Bybrook
“(4) Subsection (1) does not apply in any of the following cases— (a) the tenancy was created by the grant of a lease under Part 5 of the Housing Act 1985 (a “right to buy lease”);(b) the tenancy is, by virtue of section 3(3), treated as a single tenancy with a tenancy created by the grant of a right to buy lease;(c) the tenancy is a sub-tenancy directly or indirectly derived out of a tenancy falling within paragraph (a) or (b);(d) the tenancy was granted under this Part in substitution for a tenancy or sub-tenancy falling within paragraph (a), (b) or (c).”Member’s explanatory statement
This amendment would prevent the tenants listed from exercising the right in new section 7A of the LRA 1967 to have that Act apply without the amendments in the Bill.
Baroness Scott of Bybrook
“Part 2: consequential amendments to other legislationSchedule (Part 2: consequential amendments to other legislation) contains amendments to other legislation that are consequential on this Part.”Member’s explanatory statement
This new Clause would introduce the new Schedule on consequential amendments to be inserted before Schedule 9.
Lord Young of Cookham
“Crown Application(1) For section 33 of the LRA 1967, substitute—“33A Crown land(1) References in this Act to “Landlord”, include the Crown Estate and the Crown where the Crown Estate or the Crown hold freehold land subject to long leases, howsoever such freehold land is held or acquired, including land falling to the Crown as demesne, or by Escheat.(2) The prevailing standard method of dealing with lease enfranchisement in the market, is the method of valuation and calculation of fees for enfranchisement, the extension of leases, or grant of a new freehold title for Escheat land held by the Crown Estate, the Crown, in accordance with this Act, and applies to all leaseholders seeking to enfranchise their leases.”(2) LRHUDA 1993 is amended as follows.(3) Omit section 88.(4) For section 94, substitute—“94A Crown Application(1) References in this Act to “Reversioner” and “Landlord”, include the Crown Estate and the Crown where the Crown Estate or the Crown hold freehold land subject to long leases, howsoever such freehold land is held or acquired, including land falling to the Crown as demesne, or by Escheat. (2) The prevailing standard method of dealing with lease enfranchisement in the market, is the method of valuation and calculation of fees for enfranchisement, the extension of leases, or grant of a new freehold title for Escheat land held by the Crown Estate, the Crown, in accordance with this Act, and applies to all leaseholders seeking to enfranchise their leases.””
Lord Young of Cookham (Con)
My Lords, this amendment deals with the obscure but important issue of escheat, which I suspect will empty the Chamber. When I was a Minister and put the 1993 leasehold Bill on the statute book, I made a statement to Parliament that, although the Crown was not bound by the various leasehold reform Acts, it would in practice follow the provision of such Acts relating to enfranchisement, lease extensions and collective freehold purchases.
However, there is a difference between where the Crown holds a freehold and accepts the responsibility of a landlord and where the Crown holds the land in escheat. William the Conqueror decreed that, henceforth, all land in the realm belonged to the Crown. The Crown would grant fee simple—freehold interests held from the Crown—on the one hand and leasehold interests on the other. Thus, where a freeholder dies without a beneficiary who can inherit the land, or where a freeholder company is liquidated, the asset falls back to the Crown. If the Treasury Solicitor disclaims the land, it falls into escheat and the original title is extinguished.
This creates a problem, and I apologise for talking legalese. If a non-escheat freehold is vested in the bona vacantia division of the Treasury Solicitor, existing tenants can, as per my statement to Parliament, serve notice on the Treasury Solicitor of their intent to enfranchise their leases, collectively or otherwise. The current government guidelines, set out on GOV.UK, then apply. That is form BVC4. The premium payable is calculated by a straightforward multiplier of the ground rent, plus a contribution to the Treasury Solicitor’s legal costs.
However, where land falling into escheat previously comprised a freehold subject to long leases, the Crown accepts no responsibility as the landlord. It neither collects the rent nor complies with the landlord covenants under the long leases. More importantly, with reference to escheat land, the Crown does not currently accept any responsibility under the leasehold reform Acts. This gives no opportunity for the long lease holders affected to extend their leases or purchase the freehold, pursuant to the provision of the leasehold reform Acts. They are left in limbo. It is worth remembering that, where properties are owned freehold by private individuals or companies, qualifying leasehold owners in those properties have a legal right under the Acts to enfranchise, unlike where the freehold is held in escheat.
The Crown can offer the sale of a new title, subject to the existing leases, or respond to an application by tenants to enfranchise but, crucially, it is not bound by any guidelines or formula, as would be the case under the said Acts. It arbitrarily sets its own legal and valuation fees without any mechanism for control. Equally, there is no formula for calculating the price, so in practice the Crown can ask what it wants, plus the costly fees of the private consultant lawyers and valuers, on a take-it-or-leave-it basis. This is at odds with its stated policy to return assets it controls to private ownership quickly and efficiently.
The impact of what I have just described clearly conflicts with the stated intent of the Bill—namely,
“to amend the rights of tenants under long residential leases to acquire the freeholds of their houses, to extend the leases of their houses or flats, and to collectively enfranchise or manage the buildings containing their flats”.
By way of illustration, I have been made aware of a case where the Crown Estate is demanding an inflated premium, plus expensive private consultant lawyers’ and valuers’ fees, which total four times the total cost of what the premium and fees for an enfranchisement would be under the BVC4 formula that I mentioned a few moments ago. This is not justifiable or equitable, and it is wrong that, where the asset is effectively controlled by the state, namely through part of the same government department, the Treasury, this behaviour should take place.
As the unexpired term of the leases becomes shorter, it becomes increasingly difficult and costly for these leaseholders to raise capital on the asset. The inevitable result is that many leasehold owners are unable to afford the inflated premium and the fees demanded by the Crown to ensure that the housing stock is compliant and fit for purpose. So long lease holders where escheat applies are left powerless and exposed to the whim of the Crown’s legal consultants and surveyor representatives. These anomalies need to be brought into the 21st century to keep in step with the intent of the Bill.
My amendment is designed to provide a level and equitable playing field for all long leasehold owners. The Crown must accept that all Crown land, whether held in escheat or otherwise, must be subject to the provisions of the various leasehold reform Acts, subject to specific exceptions only where land is of a nationally sensitive nature.
To conclude, I hope that my noble friend will undertake to get those assurances that I have just referred to from the Crown Estate and the Treasury. I beg to move.
Lord Berkeley (Lab)
My Lords, I follow that interesting speech by the noble Lord, Lord Young of Cookham, which explained his amendment clearly. It may be that the amendments in my name in this group, Amendments 93A and 106, are not necessary—but I am not certain yet, because it is a complicated subject, shrouded in mystery and secrecy sometimes. So I should like to speak to those two amendments as well and hope that we can have some good discussions, meetings and so on, between now and Report with the noble Baroness the Minister to see whether there is a solution.
My amendments refer only to the Duchy of Cornwall: let us be quite clear about that. That is partly because I do not think that the other two members of the Crown need it in the way that I am speaking, because they do not have lots of residential properties. Secondly, if one reads the Law Commission report, which went into some detail, one sees that the Crown Estates and the Duchy of Lancaster both agreed to comply with what the Law Commission recommended, whereas the Duchy of Cornwall did not. So we need to we need to consider some special legislation to cover just the Duchy of Cornwall’s ownership of land.
The other reason for saying this is that the Duchy of Cornwall, unlike the other two Crown groups, is in the private sector. It states quite clearly on its website that it is in the private sector. The argument is that it should be treated differently from other big estates, such as Cadogan, Richmond, Devonshire, and so on. They are all in the private sector and my understanding is that, whether they like it or not, they are going to go along with whatever happens with this legislation when it is accepted. But the Duchy of Cornwall will not do so.
I live in the Isles of Scilly, as noble Lords probably know, and I have a number of friends who have been trying to enfranchise and have been turned down. It is not a question of them looking for a 99-year or 999-year lease. Some of them want 50-year leases and they cannot have them, either, because the Duchy does not like it. So nobody who leases from the Duchy of Cornwall at the moment can enfranchise. That is unfair on the people who live there. The population is about 2,500 and they should be treated like everyone else in this country. Whatever the legislation says, they should do it.
The duchy’s argument, which goes to some length and is repeated in the Law Commission’s report, states all the wonderful things that the duchy does as a kind of landlord in Scilly. Well, it is not really true. The Scillies have a council, a local authority, like any other area. They have a Member of Parliament, water services and national landscape designation. I could go on with a long list of all the organisations, but the environmental concerns are properly looked after and there are even marine protected areas around there. I think the people of the Isles of Scilly would say that they are well set up to manage themselves, just like any other part of the UK. I am grateful to the Minister for meeting me and for the correspondence we have had, but trying to find some solutions is important.
Lord Mann (Non-Afl)
My Lords, I shall make a brief contribution to support the amendment moved by the noble Lord, Lord Young of Cookham. I want to make one additional point to add to the problems he clearly outlined for a person in this situation—to quote him unfairly—and the impact that has on them.
I have not been an elected representative for some years, but I took on many cases involving every kind of issue, and I have dealt with these issues. My files were rightly shredded some years ago when I entered this House, so I do not have the precise detail available, only my vague memories. However, I have one distinct memory. There are two types of people who have this kind of problem—those who have solicitors and are used to dealing with solicitors, and those who do not.
Occasionally those who had solicitors would come to me, normally when they were wondering whether there was a way of minimising the costs. I always used to listen for the mention of counsel’s opinion having been suggested: the thousands then started to ring up on the till instantly, because not all solicitors had quite the expertise in such matters as others might have had.
The more concerning cases were the people who came to see me who were not familiar with dealing with solicitors, and who were horrified at the predicament they were in, and the potential costs—not just the costs from the other side, but they costs that they might have to bear. The prospect was one of an unlimited amount of costs, well beyond their comprehension, their budget and their expectations. The psychological impact of that, as well as the risk, would lead to an incredible feeling of relief if someone like me, in an amateur but persistent way, was prepared to take on their case. That I remember distinctly, in precisely this kind of case. So the common sense that has been suggested is worthy not just of consideration but of enactment, by all sides of the House. I commend the amendment, which is highly appropriate.
Baroness Pinnock (LD)
My Lords, I congratulate the noble Lords, Lord Young of Cookham and Lord Berkeley, on exposing and exploring the exceptions to the general rule in the legislation and its application. If we live in a democracy, the rule of law should apply to everyone without heed or hindrance, so I am grateful to both noble Lords for bringing this to the attention of the House. I hope that when the Minister responds she will be able to confirm that the Bill will apply to the Crown Estate and the Duchy of Cornwall, because it ought to.
Lord Khan of Burnley (Lab)
My Lords, I rise briefly to thank the noble Lord, Lord Young of Cookham, and my noble friend Lord Berkeley for providing the detail, with diligence and eloquence, in calling for what the noble Lord, Lord Young, called a level and equitable playing field for all leaseholders in that situation, particularly in relation to Crown land. I want to press the Minister on getting information from the Government about to what extent Crown and Duchy of Cornwall land would be affected by the amendments, and on providing clarification on the important and pertinent points that both noble Lords raised.
Baroness Scott of Bybrook (Con)
My Lords, I will briefly speak to the amendments in my name before turning to the amendments in the names of my noble friend Lord Young of Cookham and the noble Lord, Lord Berkeley. Government Amendment 83 is a clarificatory amendment. Clause 67 outlines that all of Sections 18 to 30P of the Landlord and Tenant Act 1985 bind the Crown, and that the relevant provisions bind the Crown whether or not they relate to Crown land.
As a result, Section 172(1)(a) of the Commonhold and Leasehold Reform Act 2002 will be repealed. Since subsections (4) and (7) of Section 112 of the Building Safety Act 2022 amend the 2002 Act, these subsections are no longer necessary.
I now turn to the amendments in the names of my noble friend Lord Young, and the noble Lord, Lord Berkeley. I thank my noble friend Lord Young for his Amendment 54, which seeks to bind the Crown to the enfranchisement measures in the Bill and to apply those measures to properties subject to escheat. It is a long-established principle that legislation does not bind Crown lands, including the Duchies of Lancaster and Cornwall, unless the Act expressly states so or by necessary implication. Where an Act, or a part of an Act, does not bind the Crown, the Crown can and often does agree to act in accordance with the legislation.
The current position is that most Crown leaseholders enjoy the same lease extension and enfranchisement opportunities as other leaseholders, by virtue of the Crown’s undertaking given to Parliament to act by analogy with the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993, which are not directly binding on the Crown. We also expect that the Crown will agree to act by analogy with the Bill before us. The effect will be that most leaseholders of the Crown will have the same opportunity to extend their lease or buy their freehold as any other leaseholder would, except in certain special circumstances set out in an undertaking we expect to be given by the Crown. Therefore, the outcomes the Government want to see can be achieved without legislation, and the amendment is unnecessary.
I would also like to thank my noble friend for raising an important point in his amendment about properties subject to escheat. The Government recognise that when the freehold becomes ownerless, it can cause problems for some of those leaseholders. However, the amendment would not achieve its intended aim because when a property escheats to the Crown the freehold no longer exists, and the Bill is not the appropriate place for a review of the complex law surrounding ownerless land. When a property becomes ownerless the land and buildings escheat to the Crown. If a purchaser is interested, the Crown can sell it so that it goes back into private ownership.
Lord Berkeley (Lab)
My Lords, I am grateful to the Minister for a very detailed reply, and I thank her for her interest in this project. I have one question: will we be able to see a draft or a copy of the undertaking from the Crown, which she has mentioned several times, before Report?
Baroness Scott of Bybrook (Con)
My answer is that I am not sure, but I will make sure that I let the noble Lord know. If we can do that, obviously we will.
Lord Young of Cookham (Con)
My Lords, I am grateful to all noble Lords who have taken part in this short debate. I am grateful to the noble Lord, Lord Mann, for reminding us that it is often a rather one-sided battle, with leaseholders confronted by freeholders with massive resources. I am grateful to the noble Baroness, Lady Pinnock, for her support for my amendment.
As far as the noble Lord, Lord Berkeley, is concerned, I have happy memories of replying when I was on the Front Bench to his Duchy of Cornwall Bill. He spoke at somewhat greater length on that occasion about the need for major reform of the Duchy.
On the specific issue that I raised, I am not expecting any legislative change because my noble friend said, quite rightly, that the Crown is not bound by legislation, but she said on several occasions that the Crown would act by analogy with the terms of the leasehold Acts. I think that gives me what I want, so long as it covers the Crown acting as freeholder as well as the Crown acting as owner of land in escheat. At the moment, that is not the case. At the end of my remarks, I asked whether my noble friend would be good enough to get the necessary assurance from the Crown Estate and the Treasury that they would deal with escheat applications in the same way as applications for where they are the freeholder.
I am grateful to my noble friend for her sympathetic reply. I think I can build on the undertaking that she has given to make some progress. I do not want to wait until the Law Commission has gone round the course all over again, whenever that may be. The leases that I referred to are coming towards the end of their time, and each delay adds to the potential cost for the leaseholders.
I hope we can make progress without waiting for a Law Commission report. It is simply a case of the Crown acting equitably and doing exactly what my noble friend has said: acting by analogy and delivering the laws that have been passed by Parliament. On that basis, I am happy to withdraw the amendment at this stage.
Leasehold and Freehold Reform Bill
Wednesday 24th April 2024
(7 months, 4 weeks ago)
Lords ChamberRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 50-II(b) Amendments for Committee (Supplementary to the Second Marshalled List) - (24 Apr 2024)
“Abolition of forfeiture of a long lease(1) This section applies to any right of forfeiture or re-entry in relation to a dwelling held on a long lease which arises either—(a) under the terms of that lease, or(b) under or in consequence of section 146(1) of the Law of Property Act 1925.(2) The rights referred to in subsection (1) are abolished.(3) In this section— “dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;“lease” means a lease at law or in equity and includes a sub-lease, but does not include a mortgage term;“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002.”Member’s explanatory statement
This new Clause would abolish the right of forfeiture in relation to residential long leases in instances where the leaseholder is in breach of covenant.
Baroness Taylor of Stevenage (Lab)
My Lords, our amendments in this group go to the heart of one of the current serious injustices relating to leasehold: that of forfeiture. It is quite simply anachronistic, wholly disproportionate and complete imbalance in the relationship between leaseholders and landlords. In some circumstances, a debt of a few hundred pounds can trigger the ability to take possession of the property. What my honourable friend the shadow Minister for Housing in the other place called
“the chilling effect that results from its mere existence”.—[Official Report, Commons, 27/2/24; col. 203.]
puts landlords in a nearly unassailable position of strength in disputes with leaseholders, as I hope I illustrated in my earlier quote from an elderly leaseholder. Unfortunately, the threat of forfeiture is too often used routinely by landlords as a first resort when seeking to recover alleged arrears in payments from leaseholders, and so often invoked to deter leaseholders from disputing any unreasonable costs and defending claims.
Our first amendment is reasonably straightforward: it is basically a matter of disproportionality and consistency. A real estate solicitor summed it up very neatly in his evidence to the Commons committee. He said:
“It is extremely welcome to see the government’s proposed clause 59 and amendment NC4 relating to the abolition of remedies relating to rentcharges. It is also very welcome to see the proposed amendment NC1 which would abolish forfeiture in long residential leases, which is long-overdue. However, there is a key point that does not seem to be addressed: forfeiture in relation to rentcharges. Rentcharge deeds often reserve a right of forfeiture for non-payment which operates in the same manner as a forfeiture clause in a lease. The Committee clearly recognises that the expropriation of somebody’s property as a remedy for breaches of a lease on an extra-judicial basis is entirely inappropriate and unfair. Therefore, it should equally concern the Committee that the same remedy is available in many cases in relation to rentcharges. Therefore, I would ask that the Committee either add to proposed amendment NC1 or propose an additional clause to abolish any right of forfeiture under a rentcharge”.
This amendment would ensure that leaseholders are in no worse a position than anyone else subject to a challenge to ownership would come under. So, while we accept the principle that legal remedies should be available, we do not believe that forfeiture provides adequately for leaseholders to challenge or defend themselves from repossession.
Our other amendments are a bit more complicated on paper, as they would replace Clause 111, which currently provides remedies for arrears of rent charges where the rent charge remains unpaid for a period of 40 days, one of which is the ability for a rent charge owner to take possession of a freehold property in instances where a freehold homeowner fails to pay a rent charge. But in essence it is very simple. It would simply mean that debts have to be sued for, as you would for any other kind of debt. In short, the 1925 Act provides for the power to seize freehold houses for non-payment of a rent charge, even if the arrears are merely a few pounds, and allows the rent charge holder to retain possession or render it, in effect, worthless by means of maintaining a 99-year lease over it.
In our view, the remedies provided in the 1925 Act are a wholly disproportionate and draconian legacy of Victorian-era property law. The 1977 Act prohibited the creation of new rent charges and provided for existing rent charges to be abolished in 2037, but 13 years from now is still a long time away and any lease granted prior to the abolition will remain in force. Rent charges are therefore an area of law in respect of which legislative reform is long overdue and the need to protect rent payers from what amounts essentially to a particularly severe form of freehold forfeiture as a result of the relevant remedies provided by the 1925 Act is pressing.
We understand that the Minister in the Commons called this argument “reasonable” and implied that it could be revisited if the Government were able to consider the potential consequences of such a change, so I press the Minister that, if we are asked to withdraw our amendment today, she will at least consider whether the Government can deliver the effect we all want to see via a government amendment. We feel very strongly about this issue and I hope it will not be necessary to continue to press this point through to Report. I beg to move.
Lord Truscott (Non-Afl)
My Lords, I wish to address the issue of forfeiture and support Amendment 55 in the name of the noble Baronesses, Lady Taylor of Stevenage and Lady Pinnock, and Amendment 95 in the name of the noble Baroness, Lady Taylor. I absolutely agree that leaseholders should not be subject to forfeiture in the case of a debt of a few hundred pounds or a temporary breach of covenant. Indebtedness can be dealt with by the county court and bailiffs. For that reason, I support Amendment 95 in the name of the noble Baroness, Lady Taylor of Stevenage. However— I know this may be controversial with some noble Lords—I am concerned that a blanket ban on forfeiture would remove an effective deterrent preventing some leaseholders persistently and wilfully breaching their leases by, for example, anti-social behaviour.
Let me give three practical examples I have come across in my years as a leaseholder. The first concerns a landlord who was letting out his flat on Airbnb, in breach of his lease. He knew he could make more money doing this than letting it on a long lease. As noble Lords know, Airbnb can cause a serious nuisance in blocks of permanent residents, due to excessive noise, wear and tear and lack of security impacting on quiet enjoyment. The landlord/leaseholder in question stopped only when threatened with forfeiture for breaching the lease.
The second involved a leaseholder putting a hot tub under a neighbour’s window, in clear breach of the lease, as only patio furniture was allowed to be displayed on the terrace, and threatening their quiet enjoyment. When challenged, their approach was dumb insolence. “What are you going to do about it?” was their approach. The threat of forfeiture ensured its removal.
The third example is more personal. My wife was attacked in our own garden by a neighbour’s tenant’s large dog, which was in a flat in breach of the lease. The gardens are open, with no boundaries, so dogs wandering around under no control are a problem. Let me be clear, I am a dog lover—I had two dogs as a child—but I am also conscious that there has been a massive increase in dog attacks in recent years. Official NHS figures reveal that, in the year to March 2023, there were 9,277 hospital admissions in which the patient had been bitten or struck by a dog. The number of people killed by dogs has also risen dramatically. In the last 20 years or so, the number of fatal dog bites has averaged about three per year; however, by 2022, it had risen to 10 fatalities and is still climbing. These cases are horrific and worrying.
Many blame the owners, not the dogs. Too many owners seem unwilling or unable to control their dogs and this behaviour is unfortunately widespread, as I have witnessed myself on a number of occasions. The dog in our block stayed, but when the leaseholder/landlord tried to introduce another tenant with another large dog, after the first attack, again in breach of the lease, it was only the threat of forfeiture that resolved the situation. Dogs may be appropriate in many surroundings, but in others they are excluded in leases for a reason.
Thus there are occasions when the mere threat of forfeiture, rarely used in practice, is useful to ensure compliance with lease obligations. Other legal routes can be extremely costly, lengthy and ineffective. So I ask the supporters of a complete ban on forfeiture how they propose to enforce compliance with leases and prevent breaches in the future if this proposal is carried.
Baroness Pinnock (LD)
My Lords, I have added my name to Amendment 55, in the name of the noble Baroness, Lady Taylor of Stevenage, because it seems to me, as it does to the noble Baroness, that this is one of the clear injustices in the current leaseholder-freeholder relationship. The amendment is rightly restricted to the abolition of forfeiture of a long lease.
I thought it was straightforward until I heard the noble Lord, Lord Truscott, outline some of the issues that he believed could be addressed only through forfeiture. I was surprised that we have to go to such draconian ends to deal with a fairly straightforward neighbour dispute.
Lord Truscott (Non-Afl)
The problem is that, if you try to enforce a lease, what is your route? The only other route would be to go to the High Court, and that would be a very lengthy process. I am saying that the threat of forfeiture is often enough for people to see sense. I have never come across a case in which people have actually gone through the whole process of forfeiture.
Baroness Pinnock (LD)
I thank the noble Lord for expanding on that.
It would be interesting to hear from the Minister whether there are any statistics regarding freeholders using the forfeiture system to address not the issues that are normally referenced—failure to pay ground rent or an accumulation of three years or more of debt—but breaches of the lease. It would be helpful to understand all that.
As the noble Baroness, Lady Taylor, has said, if the payment in lieu is more than £350, or is outstanding for more than three years, the freeholder is entitled to claim repossession—and then all the equity in the property is lost, of course. When I first looked at this, I could not see how it could possibly be right. I remember that, at Second Reading—I was just trying to find it in Hansard—the Minister said that the Government were considering bringing forward an amendment to address this issue. It is unfortunate that that has not been forthcoming in the time that has elapsed between Second Reading and Committee. Perhaps in her reply, the Minister can say whether the Government intend to bring an amendment on Report. It would help us resolve what is, on the face of it, a complete injustice. It would be sufficient if the Minister said that that is going to happen, and maybe those of us who have signed the amendments could have a meeting with her to discuss it, if necessary.
Lord Bailey of Paddington (Con)
I support this amendment. Although in his intervention the noble Lord talked about how to control peoples’ behaviour when they have misbehaved and breached their lease, it should be taken into account that the threat of forfeiture is held over leaseholders, in a very draconian fashion, for the smallest infraction. More importantly, it is used to enforce such things as the flagrant and inequitable boosting of service charges. If you are in dispute in this situation, you are told you will end up having to pay court fees. You are told that, if you do not pay—
Lord Truscott (Non-Afl)
To clarify, I said specifically that people should not have their leases forfeited as a result of rent arrears. The threat of forfeiture can ensure that lease compliance occurs. If you remove the threat of forfeiture, how do you achieve compliance with other terms of the lease?
Lord Bailey of Paddington (Con)
There are ways and means within our court system to reclaim any money that may be owed to the freeholder for service charges, ground rent and so on. Let us be very clear that forfeiture is used as a tool to threaten, bully and cajole leaseholders into compliance. When your freeholder invents a new reason as to why you have to pay more, you are warned that, if you do not do so, you could be taken to court for forfeiture. You are then told by the system that, if you do pay more, it is seen as agreeing with the bill that was presented to you.
Lord Truscott (Non-Afl)
I am not talking about freeholders taking action against other leaseholders; I am talking about how one leaseholder may want to enforce a lease against another leaseholder. In that case, you are saying that they would have to go to the High Court to enforce the lease, and that is a very lengthy and protracted process. I am not talking about the relationship with the freeholder or indebtedness; I am talking about how to enforce the lease between leaseholders, and I gave the example of Airbnb using a block of flats.
Lord Bailey of Paddington (Con)
It would be extraordinary, though possible, if fellow leaseholders could invoke forfeiture but the freeholder could not. That would be incredible, and I am sure it would have all its own problems.
The point remains that, if you keep some kind of forfeiture, freeholders will want to keep hold of that power, because it is exactly that: an unfettered, threatening power, which leaseholders speak about as though it is mythical, like a dragon that will burn you if you stand up to the freeholder. Words fail me when I try to describe how forfeiture must go. We have had many conversations in which the word “feudal” has been bandied about. This is one occasion where it has real meaning. Forfeiture should and must go.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, first, I declare a number of interests to the House. I am a vice-president of the Local Government Association, the chair of the Heart of Medway Housing Association, a non-executive director at MHS Homes Group, and a leaseholder.
Before the Bill arrived, it promised a lot. As it stands it is doing much less than that, so in a sense it is a fairly timid Bill. However, some of the things it does are actually very useful. I support the amendment of my noble friend Lady Taylor of Stevenage on forfeiture; it needs to be abolished. I have also listened to the noble Lords, Lord Truscott and Lord Bailey, and both make very valid points. The Government should listen and bring an amendment that addresses the points they made. That is not impossible, as far as I can see; it is absolutely right that there should be some remedy to deal with this.
Equally, we cannot have people being bullied into paying the service charge or ground rent; that it totally wrong. There must be remedies to deal with those things: if someone is owed money, they should get it, but forfeiture—losing their entire asset—is ridiculous. I hope that, on both points, which are extremely valid, the Government say to us that they hear what people are saying and that they will look at this issue and come back with amendments.
I want to ensure that people can enjoy their property without being annoyed by parties, noise and other trouble, and that there is a remedy to enforce that if need be. Equally, if someone has a freeholder coming after them, they could actually lose their property, or, worse, the freeholder could use their service charge or ground rent to take them to court. We need to deal with all these things.
I hope that, at the end of what will probably be a fairly short debate, the Government will recognise that there is a problem here and will help us by bringing back an amendment to deal with these issues; or, as the noble Baroness, Lady Pinnock, said, that they will get people together around the table to try to sort this out. The Bill is not doing much, but this is something very positive it could do.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, I thank the noble Baroness, Lady Taylor, for her amendments in this group, which seek to remove forfeiture from the leasehold and freehold estate.
Amendment 55 seeks to address one of the ways in which leasehold law is tilted in favour of landlords. I know that noble Lords from all sides of the House are sympathetic to this intention, as are Members from the other place, where this same clause has already been debated.
Forfeiture is widely recognised as a draconian and unfair measure which is open to abuse. The main objection to the current law is that, should the landlord forfeit the lease and go on to sell the property, this allows them to make a large windfall gain at the expense of the leaseholder, who loses everything. Abolishing forfeiture would reduce the risk to the leaseholder of losing their home and would prevent abuses.
Abolishing forfeiture without replacing it with an alternative enforcement mechanism would mean that landlords would have recourse only to ordinary civil debt recovery and injunction proceedings, which, as we have heard, can be lengthy and are not always effective. In the absence of forfeiture or an alternative, there is a danger that a greater number of leaseholders may refuse to pay their fair share of the cost of maintaining their block or estate, and we have to take this all into account.
Noble Lords asked how many cases there are. We do not have the exact number, but stakeholders give us estimates of between 90 and 120 cases per year. It is not a big issue, but it is a very important one for those people.
Lord Bailey of Paddington (Con)
The number of cases will not indicate the use of forfeiture, because forfeiture is wielded as a fiery dragon. Leaseholders speak about it as the dog that bites. The number of cases may be small, but I would argue that the use of forfeiture is probably far greater.
Baroness Scott of Bybrook (Con)
I have said that it is not the right way of doing it, and we want a different way. That is exactly what the Government are looking at.
We have to be clear that the upkeep and safety of buildings is also paramount. Landlords, be they third parties or resident management companies, need effective mechanisms for securing prompt payment to ensure that those properties are insured and maintained in the interests of everybody else in the block.
We recognise that there is the potential for significant inequity at hand where a landlord stands to gain a windfall when a lease is forfeited. However, I reassure the noble Baroness, Lady Taylor, and the Committee that the Government have been listening to calls for us to act. The Government continue to work through the detail and we will report to the House shortly with more information. In the meantime, I welcome members of the Committee sharing their views on this matter, which the Government will reflect on when formulating their position.
In addition, I thank the noble Baroness, Lady Taylor, for Amendment 95, which seeks to abolish Section 121 of the Law of Property Act 1925 in respect of all rent charges. Let me be clear: the Government are sympathetic to the issue raised by the noble Baroness. We recognise that forfeiture is an extreme measure and should be used only as a last resort. Any changes will require careful consideration of the rights and responsibilities of all interested parties.
Clause 111 already seeks to abolish forfeiture for income-supporting rent charges, which are still in existence, even though the creation of new charges of this nature has been banned since 1977. However, some types of rent charges may still be created, including estate rent charges, which are used for the provision of services on managed estates.
Where they are created, estate management companies need a means to recover sums owed to them. Failure to do so means that costs may fall on other home owners, or the upkeep of an estate will worsen, to the detriment of everyone living on that estate. The problem may be particularly acute for resident-led management companies which do not have alternative sources of funding.
It is important that we fully understand any unintended consequences. This is an issue that we are carefully considering. I hope that, with those assurances, the noble Baroness will withdraw her amendment.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, before the Minister sits down, most of what she said was very welcome. The acceptance that forfeiture is draconian, unfair and open to abuse—we agree with that. It is not the right way to do things, as the Minister said.
Specifically on inequality, we all agree with that, and it was good to hear the Government say that. A bit more disappointing was that I did not hear the Minister say, “I want to meet colleagues”; nor, “We hope to bring an amendment back on Report to address this”. All we got was, “We will formulate our position”.
There is agreement around the Chamber that what we need to see is an amendment that addresses all these issues. We would like a commitment to get us all together, and to hear from the Minister that she hopes there will be an amendment on Report. If we do not do that, there have been lots of warm words here but not much else has been achieved.
Baroness Scott of Bybrook (Con)
My Lords, I thought the Committee was probably fed up with me saying that I am always very happy to meet any group of noble Lords, on any subject, at any time. I apologise for not saying it in this group, and I will never ever forget to say it in any group in the future. Also, I said that we will report back to the House shortly with more details. I think the noble Lord needs to look at those words—they are quite positive.
Lord Kennedy of Southwark (Lab Co-op)
I am not saying they are not positive. At the end of the day, to make progress we need a government amendment, or an amendment that somebody else tables that the Government will support, at the next stage. That is progress; that is what I am trying to push. I know the Minister is very generous with her time, and wants to get this right, and wants to meet colleagues. I am just trying to get it on the record, that is all. I know the Minister has been good every time that colleagues have raised this issue in the House, and I have a Question on it again on, I think, 22 May. I thank her very much.
Baroness Taylor of Stevenage (Lab)
My Lords, I thank the Minister for her response. I thank the noble Baroness, Lady Pinnock, for supporting these amendments and the noble Lords, Lord Truscott, Lord Kennedy and Lord Bailey, for their comments.
In relation to the Minister’s comments about the time it takes to do this, I repeat that the Conservative Party has had this in its manifesto since 2017, so there has been quite a lot of time to think this through and have a look at this. It is a bit disappointing that we are in Committee in the House of Lords with some of these key issues still unresolved.
I ask your Lordships to reflect on, first, the example I gave in the earlier debate, of the elderly couple who told me they have a dispute with their landlord and are being threatened with forfeiture. They potentially have a £15,000 bill for the costs. If they pay that charge it is taken as agreement, but failure to pay it means that the landlord can invoke forfeiture, so where do they go? That is an awful position to put people in.
My second example is a young lady who I was out with the other day doing our political work. She lives in a leasehold flat; she put a political poster up in her window and then, almost immediately, received a letter from the landlord threatening her with forfeiture because that breached the terms of her lease. That seems an onerous way of dealing with a relatively small issue.
I listened carefully to the noble Lord, Lord Truscott, and he is right that there needs to be some form of resolution to this that means it does not need to go to the High Court—but it should certainly not be forfeiture, which is totally disproportionate. There may be a need to consider remedies other than the big sledgehammer of the High Court. Threatening to repossess people’s homes is certainly not an answer to technical breaches of lease.
Regarding rent charges, they will still be in place until 2037. We have to look at this and see whether we can find some way of getting rid of them before then.
As the noble Lord, Lord Kennedy, said, if we have to bring this amendment back again, we will, but I would rather the Government did so. That said, I withdraw the amendment.
Baroness Scott of Bybrook
“Schedule Part 2: consequential amendments to other legislationParliamentary Commissioner Act 1967
1 In Schedule 4 to the Parliamentary Commissioner Act 1967 (relevant tribunals), in the entry relating to rent assessment committees, omit “and also known as leasehold valuation tribunals for the purpose of determinations pursuant to section 21(1), (2) and (3) of the Leasehold Reform Act 1967”.Leasehold Reform Act 1979
2 In section 1 of the Leasehold Reform Act 1979 (price of enfranchisement under the LRA 1967 not to be made less favourable by reference to superior interest), in subsection (1), after “the price payable on a conveyance for giving effect to that section” insert “, in a case where the price payable is determined under section 9(1) of that Act by virtue of section 7A of that Act,”.Local Government Act 1985
3 In Schedule 13 to the Local Government Act 1985 (residuary bodies)—(a) in paragraph 14(aa), at the end insert “, where it applies by virtue of section 7A or 32(5) of that Act”;(b) omit paragraph 17.Housing Act 1985
4 In the Housing Act 1985—(a) in section 115 (meaning of “long tenancy”)—(i) for subsection (2)(c) substitute—“(c) at the time it is granted, it complies with the specified requirements.”;(ii) after subsection (2) insert—“(3) The “specified requirements” are—(a) in the case of a tenancy granted before 11 December 1987, the requirements of the Housing (Exclusion of Shared Ownership Tenancies from the Leasehold Reform Act 1967) Regulations 1982 (S.I. 1982/62) (including where the tenancy was granted before those regulations came into force);(b) in the case of a tenancy granted on or after 11 December 1987 and before the 2024 Act commencement day, the requirements in paragraph 2 of Schedule 2 to the Housing Association Shared Ownership Leases (Exclusion from Leasehold Reform Act 1967 and Rent Act 1977) Regulations 1987 (S.I. 1987/1940);(c) in the case of a tenancy granted on or after the 2024 Act commencement day, requirements specified in regulations made by the appropriate authority.(4) The “2024 Act commencement day” is the day on which paragraph 11 of Schedule 8 to the Leasehold and Freehold Reform Act 2024 comes into force.(5) “The appropriate authority” means—(a) in relation to England, the Secretary of State;(b) in relation to Wales, the Welsh Ministers.(6) Regulations under subsection (3)(c)—(a) are to be made by statutory instrument;(b) may make provision generally or only in relation to specific cases;(c) may make different provision for different purposes or different areas;(d) may include supplementary, incidental, transitional or saving provision.(7) A statutory instrument containing regulations under this section is subject to annulment in pursuance of—(a) where it contains regulations made by the Secretary of State, a resolution of either House of Parliament; (b) where it contains regulations made by the Welsh Ministers, a resolution of Senedd Cymru.”;(b) omit section 175 (determination of price payable on enfranchisement under LRA 1967 where tenancy created under right to buy).Landlord and Tenant Act 1985
5 In section 26 of the LTA 1985 (exception to service charge restrictions for public authority tenants)—(a) for subsection (3)(c) substitute—“(c) at the time it is granted it complies with the specified requirements.”;(b) after subsection (3) insert—“(4) The “specified requirements” are—(a) in the case of a tenancy granted before 11 December 1987, the requirements of the Housing (Exclusion of Shared Ownership Tenancies from the Leasehold Reform Act 1967) Regulations 1982 (S.I. 1982/62) (including where the tenancy was granted before those regulations came into force);(b) in the case of a tenancy granted on or after 11 December 1987 and before the 2024 Act commencement day, the requirements in paragraph 2 of Schedule 2 to the Housing Association Shared Ownership Leases (Exclusion from Leasehold Reform Act 1967 and Rent Act 1977) Regulations 1987 (S.I. 1987/1940);(c) in the case of a tenancy granted on or after the 2024 Act commencement day, requirements specified in regulations made by the appropriate authority.(5) The “2024 Act commencement day” is the day on which paragraph 11 of Schedule 8 to the Leasehold and Freehold Reform Act 2024 comes into force.(6) Regulations under subsection (4)(c)—(a) are to be made by statutory instrument;(b) may make provision generally or only in relation to specific cases;(c) may make different provision for different purposes or different areas;(d) may include supplementary, incidental, transitional or saving provision.(7) A statutory instrument containing regulations under this section is subject to the negative procedure.”Housing and Planning Act 1986
6 In Schedule 4 to the Housing and Planning Act 1986 (shared ownership leases), in paragraph 11 (transitional provisions and savings)—(a) in sub-paragraph (1), at the end insert “, subject to sub-paragraphs (1A) and (2)”;(b) for sub-paragraph (2) substitute—“(1A) The amendment made by paragraph 7 (repeal of section 140 of the Housing Act 1980) also applies in relation to leases granted before the commencement of this Schedule, except in cases where, under section 7A or 32(5) of the Leasehold Reform Act 1967, the Leasehold Reform Act 1967 has effect without the amendments made by the Leasehold and Freehold Reform Act 2024.(2) In those cases, this Schedule does not affect the operation of section 140 of the Housing Act 1980, the enactments applying that section or regulations made under it.”Housing Act 1988
7 In Schedule 17 to the Housing Act 1988 (minor and consequential amendments)—(a) omit paragraph 40;(b) omit paragraph 68. Local Government and Housing Act 1989
8 In paragraph 5 of Schedule 10 to the Local Government and Housing Act 1989 (security of tenure for long residential leases)—(a) in sub-paragraph (4), for the words from “unless” to the end substitute “unless—(a) the landlord is a relevant authority, and(b) the premises are required for relevant development.”;(b) after sub-paragraph (4) insert—“(4A) For those purposes—(a) “relevant authority” means a person referred to in any paragraph of section 38(2) of the Leasehold Reform Act 1967;(b) “relevant development”—(i) in relation to a relevant authority other than a health authority, means development for the purposes (other than investment purposes) of that body;(ii) in relation to a relevant authority that is a health authority, means development for the purposes of the National Health Service Act 2006 or the National Health Service (Wales) Act 2006;(iii) in relation to a relevant authority that is a university body, also includes development for the purposes of any related university body;(iv) in relation to a relevant authority that is a local authority, also includes area development;(c) “health authority” means—(i) NHS England;(ii) any integrated care board;(iii) any Local Health Board;(iv) any Special Health Authority;(v) any National Health Service trust;(vi) any NHS foundation trust;(vii) any clinical commissioning group;(viii) any Strategic Health Authority;(ix) any Primary Care Trust;(d) “university body” and “related university body” have the same meaning as in section 29(6ZA) of the Leasehold Reform Act 1967;(e) “local authority” has the same meaning as in section 29(5) of the Leasehold Reform Act 1967;(f) “area development” means any development to be undertaken, whether or not by a local authority, in order to secure—(i) the development or redevelopment of an area defined by a development plan under the Planning and Compulsory Purchase Act 2004 as an area of comprehensive development;(ii) the treatment as a whole, by development, redevelopment or improvement, or partly by one and partly by another method, of any area in which the premises are situated.”Local Government (Wales) Act 1994
9 In Schedule 13 to the Local Government (Wales) Act 1994, in paragraph 24—(a) omit paragraph (b);(b) in paragraph (c), at the end insert “, where it applies by virtue of section 7A or 32(5) of that Act”.Housing Act 1996
10 In the Housing Act 1996—(a) omit section 109 (collective enfranchisement: valuation);(b) omit section 110 (lease extension for flats: valuation);(c) in Schedule 10 (consequential amendments)— (i) in paragraph 6, omit sub-paragraph (4); (ii) omit paragraph 18;(d) in Schedule 11 (compensation for postponement of termination in connection with ineffective claims)—(i) in paragraph 2, omit sub-paragraph (2);(ii) in paragraph 3, omit sub-paragraph (2).Commonhold and Leasehold Reform Act 2002
11 In the CLRA 2002—(a) omit section 126 (collective enfranchisement: valuation date);(b) omit section 127 (collective enfranchisement: freeholder’s share of marriage value);(c) omit section 128 (collective enfranchisement: disregard of marriage value for very long leases);(d) in section 130 (lease extension for flats: residence test), omit subsection (2);(e) omit section 132 (lease extension for flats: personal representatives);(f) omit section 134 (lease extension for flats: valuation date);(g) omit section 135 (lease extension for flats: freeholder’s share of marriage value);(h) omit section 136 (lease extension for flats: disregard of marriage value for very long leases);(i) in Schedule 13 (leasehold valuation tribunals), omit paragraph 15.Finance Act 2003
12 In the Finance Act 2003—(a) in Schedule 4 (stamp duty land tax: chargeable consideration), for paragraph 16C substitute—“16C The following do not count as chargeable consideration—(a) costs borne by the purchaser under section 9(4) of the Leasehold Reform Act 1967, where it applies by virtue of section 7A of that Act;(b) any amount payable by the purchaser under section 19C of the Leasehold Reform Act 1967;(c) any amount payable by the purchaser under section 89C or 89D of the Leasehold Reform, Housing and Urban Development Act 1993.”(b) in Schedule 17A (leases: further provision), in paragraph 10 (tenants’ obligations etc that do not count as chargeable consideration), for sub-paragraph (1)(f) substitute—“(f) any liability of the tenant for costs under section 14(2) of the Leasehold Reform Act 1967, where it applies by virtue of section 32(5) of that Act;(fa) any amount payable by the tenant under section 19C of the Leasehold Reform Act 1967 or section 89F of the Leasehold Reform, Housing and Urban Development Act 1993;”Companies Act 2006
13 In section 1181 of the Companies Act 2006 (access to constitutional documents of RTE and RTM companies)—(a) in the heading, omit “RTE and”;(b) in subsection (1), omit paragraph (a);(c) in subsection (4), omit the definition of “RTE companies”.Enterprise and Regulatory Reform Act 2013
14 In section 84 of the Enterprise and Regulatory Reform Act 2013 (redress schemes: property management work), in subsection (10), omit the words from “or which” to the end. Immigration Act 2014
15 In Schedule 3 to the Immigration Act 2014 (excluded residential tenancy agreements), in paragraph 13(2)(a), omit the words from “or which” to the end.Consumer Rights Act 2015
16 In section 88 of the Consumer Rights Act 2015 (duty of letting agents to publicise fees: supplementary provisions), in subsection (1), in the definition of “long lease”, omit paragraph (a)(ii) and the “or” preceding it.Housing and Planning Act 2016
17 In Schedule 10 to the Housing and Planning Act 2016 (leasehold enfranchisement and extension: calculations)—(a) omit paragraph 4;(b) omit paragraph 5.Tenant Fees Act 2019
18 In section 28 of the Tenant Fees Act 2019 (interpretation), in subsection (1), in the definition of “long lease”, omit paragraph (b) and the “or” preceding it.Building Safety Act 2022
19 In Schedule 8 to the BSA 2022 (remediation costs), in paragraph 6 (permitted maximum)—(a) in sub-paragraph (5), omit “total” in each place it occurs;(b) in sub-paragraph (8)—(i) for “total” substitute “tenant’s”;(ii) for “section 7” substitute “section 101(1)”.”Member's explanatory statement
This new Schedule would make amendments to other legislation in consequence of Part 2.
Lord Khan of Burnley
Member's explanatory statement
This amendment would ensure that all leaseholders, not just those with residential leases of 150 years or over, have the right to vary their lease to replace rent with peppercorn rent.
Lord Khan of Burnley (Lab)
My Lords, I will speak to Amendment 57 in the name of my noble friend Lady Taylor of Stevenage. Schedule 9 makes provision for a new enfranchisement right to buy out the ground rent and to vary it permanently to replace the relevant part of the rent with a peppercorn rent, without having to extend the lease. We welcome the intent of the schedule. The reform will ensure that leaseholders can enjoy reduced premiums and secure nominal ground rent ownership of their properties, without the need to go through the challenge and expense of repeated lease extensions.
The schedule implements the Law Commission’s recommendation for the right to extinguish the ground rent only. However, we have brought an amendment that would delete the Government’s proposed 150-year threshold, to press the Minister on the reason for which the Government have decided to confer that right only on leaseholders with leases with an unexpired term of more than 150 years.
The Law Commission recommended that the threshold should be set at 250 years on the basis that the reversion is of negligible value at that lease length. The Government chose not to accept that recommendation and, instead, are proposing a threshold of 150 years. The Minister may provide us with a different answer in due course, but we assume the reason that they did so is simply that this will make the new right to extinguish a ground- rent available to many more leaseholders. However, if that is the case, it obviously follows that setting a threshold of, say, 125 or 100 years would make it available to even more of them.
As my honourable friend Matthew Pennycook MP stipulated in the other place,
“any long lease threshold for the new right is ultimately entirely arbitrary, as evidenced by the fact that the Government chose a different threshold from the one recommended by the Law Commission”.—[Official Report, Commons, 27/02/2024; col. 201.]
There is a principled argument that we should trust leaseholders to make decisions based on what is right for them and their individual circumstances, rather than denying a broad category of leaseholders a new statutory right on the basis that Ministers know best what is in their interests.
If unamended, Schedule 9 will ensure that some leaseholders can enjoy reduced premiums and secure nominal ground rent ownership of their properties, without the need to go through the challenge and expense of repeated lease extensions. However, we remain unconvinced by the Government’s proposed conferral of this new right only on leaseholders with leases with an unexpired term of more than 150 years. There could be all sorts of reasons why someone with a lease shorter than 150 years might want to buy out only the ground rent, including simply that they are unable to afford the premium required to secure a 990-year lease. Denying them that right on the grounds that other leaseholders might advertently or inadvertently disadvantage themselves, by using the new right to extinguish only the ground rent, strikes us as overly paternalistic and misguided.
We remain of the view that there is a strong case for simply deleting the 150-year threshold entirely, given that the remaining years test that applies is arbitrary and the most common forms of lease are 90, 99 and 125 years. Amendment 57 would do that, thereby making the new right to replace rent with a peppercorn rent available to all existing leaseholders. I beg to move.
Baroness Thornhill (LD)
My Lords, I support Amendment 57 in the name of the noble Baroness, Lady Taylor of Stevenage. As has been said, Schedule 9 confers on a qualifying tenant the right to buy out the ground rent and replace it with a peppercorn rent. Instead of the extended leases that are paid for each time, it is a decision to make a one-off payment—job done once and for all.
This is a welcome measure. However, as has been said, under paragraph 2 of Schedule 9, the tenant must have at least 150 years left on their lease to qualify. Amendment 57 from the noble Baroness, Lady Taylor of Stevenage, would ensure that all leaseholders, not just those with residential leases of 150 years or over, have the right to vary their lease in this way and replace it with a peppercorn rent.
The provisions on the variation of leases and removal of ground rent are complex, but they are based on the principle of granting leaseholders flexibility and a recognition that different solutions might be preferable for the different situations that they are in. The argument has been put forward that these provisions should apply to leases that are sufficiently long, with the Law Commission recommending a very long length of 250 years and the Government settling on 150. Therefore, Amendment 57 rightly probes that length. If not 250 years, why not 125 years, 90 years or indeed no threshold for length at all?
Data on this was hard to find, but DLUHC’s English Housing Survey of owner-occupier leaseholders for the year 2020-21 found that 45% of leaseholders had a leasehold term between 71 and 120 years, and that the median length of leases was 112 years. This suggests that there could be lots of leaseholders with reasonably long leases who would not be given these rights in relation to ground rent.
I would also like colleagues to note that mortgage lenders are now getting very active on ground rent terms and taking an ever more conservative view on ground rent clauses. They are refusing to lend on leasehold homes where the ground rent is seen as onerous—the definition of that might be that it continues to double or that there are other strictures in place. This means that some leaseholders will be left with flats that are difficult to sell, as well as an escalating ground rent.
We would therefore welcome further information from the Minister about whether these provisions could be extended to cover more leaseholders, especially given their own figures.
Baroness Scott of Bybrook (Con)
My Lords, I will speak to government Amendments 58 and 59 in my name. Government Amendment 59 changes “premium” to “price”, referring to the sum paid for a ground rent buyout, to make the language consistent with the rest of the Bill. Government Amendment 58 makes a minor wording change to clarify that it is “the appropriate tribunal” that may make an order to appoint a person to vary a lease on behalf of the landlord or tenant in the case of a commutation following a ground rent buyout. I hope noble Lords will therefore support these amendments.
I turn to Amendment 57 from the noble Baroness, Lady Taylor, and moved by the noble Lord, Lord Khan of Burnley. This seeks to remove the threshold for the ground rent buyout right. I appreciate the concerns that lie behind this amendment and understand that the noble Baroness is seeking to ensure that as many leaseholders as possible can benefit from the new right. First, it is very important to note that all leaseholders, regardless of their term remaining, have the means to buy out their ground rent. They do so whenever they extend their lease or buy their freehold. It is only the right to buy out the ground rent without extending the lease or buying the freehold that is limited to leaseholders with 150 years or more remaining. The 150-year threshold exists to protect those leaseholders with shorter leases who will, at some point, require an extension from being financially disadvantaged by first buying out their rent, only having to extend later and paying more in total for doing so. However, we understand the argument that all leaseholders should be able to buy out their rent without extending their lease or buying their freehold if they want to, and we are listening carefully to that argument.
The Law Commission recommended 250 years, but it noted that the department might want to set the threshold lower. The department’s analysis showed that 150 years would enable more leaseholders to take advantage of the ground rent buyout right, while still being a long enough term remaining that the leaseholder does not need to extend if they do not want to. A lower minimum term would create a risk that poorly advised leaseholders might buy out the ground rent when an extension is in their best interest, then find out that they need to extend later and have to pay a higher premium, except for the extension, and two sets of transaction costs. We believe this is helping the leaseholder.
I hope that the noble Baroness will appreciate the reasons we have given for the existence of the threshold, and those assurances, and withdraw her amendment.
Lord Khan of Burnley (Lab)
My Lords, I rise very briefly to thank the Minister for her response. I appreciate the comments made by the noble Baroness, Lady Thornhill. In the future, we will look to work with colleagues across the House to see where we are on this. In the meantime, I beg leave to withdraw my amendment.
Baroness Scott of Bybrook
Member's explanatory statement
This amendment would correct an error.
Member's explanatory statement
This amendment would reflect other amendments in the Bill to change references to the premium to references to the price.
Member's explanatory statement
This amendment would leave out the proposed new section 87B of the Commonhold and Leasehold Reform Act 2002 and so ensure that RTM companies cannot incur costs in instances where claims cease.
Baroness Taylor of Stevenage (Lab)
My Lords, our amendment in this group refers to the fact that the Bill currently makes an exception to litigation costs being borne by landlords in the case where right-to-manage claims have been withdrawn or otherwise ceased early and the right-to-management company has acted unreasonably in bringing the right-to-management claim, allowing the landlord to apply to the tribunal for any reasonable costs.
The key arguments for the amendment are that, first, leaseholders should not be put at risk of having to pay costs simply for exercising statutory rights, in this case the right to seek to acquire and exercise rights in relation to the management of premises in which one has a leasehold interest. There is also concern that unscrupulous landlords might use the rights provided for in new Section 87B of the Commonhold and Leasehold Reform Act 2002 as a means of recovering costs from right-to-manage companies that act reasonably and in good faith and, by implication, that it would discourage right-to-manage companies from initiating a claim because of the financial risk it still entails for individual participating leaseholders. Put simply, the fear is that new Section 87B will incentivise unscrupulous landlords to fight claims on the basis that they are defective in the hope of recovering costs by means of it. Our main concern regarding Clause 48 is that the use of the words “reasonable fee” and “reasonable costs” would not allow either of the above situations to occur. I ask the Minister: who will determine the definition of “reasonable”, and how?
I will comment on other amendments. We think that the amendments tabled by the noble Lord, Lord Bailey, are very reasonable, and we support his aims here. In fact, colleagues in the other place submitted similar amendments in Committee.
I also look forward to hearing the noble Lord, Lord Moylan, introduce his amendments, which would incorporate local authorities and their properties, both within the HRA and without, but I ask whether he had discussions about this proposal with the Local Government Association or local authority stockholders. Most good local authority landlords already have substantial arrangements in place for liaison with leaseholders and tenants around the management of property, and there is certainly no issue with improving that through more effective right-to-manage arrangements. However, as much local authority property will be occupied by a mixture of local authority tenants and leaseholders, it would be important to ensure that there were no unintended consequences. I urge that that level of consultation takes place before any proposal such as this proceeds further. The noble Lord, Lord Moylan, will forgive me if he has already done that consultation, but it was not clear from the amendments. With that, I beg to move Amendment 60.
Lord Moylan (Con)
My Lords, it is a privilege to speak after the noble Baroness. I will come to answering her question. To give a blunt answer, I have not undertaken the consultation that she refers to, but I will explain when I get to that part of my introduction why I think that this stands on its own.
As I said at Second Reading, I strongly support those parts of the Bill which facilitate the exercise of the right to manage on the part of leaseholders in residential blocks. There are several measures in the Bill which do that. The right to manage is, in some ways, the crucial key to unlocking the levels of dissatisfaction which some leaseholders have with the way in which their blocks are managed. I strongly support it.
There is a particular issue which the Bill does not address. As a consequence of my general support for this—contrary to my remarks in earlier debates— I hope that the Government will give me a softer and more welcoming answer. As a result of my proposal, perhaps my noble friend on the Front Bench will even give me one of those answers which invites me to attend a meeting. In fact, I have had a meeting with my noble friend about this, though she may not recall it. We met last summer to discuss this issue with officials, and she was very sympathetic to it. That gives me additional reasons for thinking that this might be a welcome amendment.
The amendment arises from a particular case, but it raises questions of general importance. I shall refer to the case later, but I want to address the question of general importance first. When the right to manage was introduced through the Commonhold and Leasehold Reform Act 2002, certain exceptions were placed on it. The Government intend to ease some of those restrictions, and I welcome that. One restriction was that the right to manage did not apply where the landlord of the building was a local housing authority.
I have tabled two alternative amendments—this is my point about consultation. Both amendments would reverse that assumption. One would eliminate it entirely. It would bring within the ambit of right to manage all blocks where the local housing authority was the landlord, including those within the housing revenue account. The noble Baroness, Lady Taylor of Stevenage, said that this could raise certain difficulties in cases where a block had so many long lease holders that it could exercise the right to manage but would be left with certain local authority tenants in the block. I have experience of local government, as does the noble Baroness. I recognise that she is correct in saying that there might be certain sensitivities about this. I think it could be managed. Indeed, it would be liberating for all the tenants of the block in many ways. The local authority tenants would also have a say in the management of the block. They would not be excluded from it simply because they were local authority tenants.
Recognising that this is a slightly daring proposition, I have suggested an alternative which would simply take out of the provision local housing authority-owned blocks where they were owned simply as an investment. I have left it vague as to whether that is a commercial investment or one held in the local authority’s pension fund. These are probing amendments. I should be happy to discuss these issues with my noble friend the Minister.
I come now to a particular case. There are blocks where local authorities have acquired property as an investment. Doing so immediately extinguishes the right of the long lease holders to exercise their right to manage—there are no local authority tenants. I think that is wrong. The case I am thinking of concerns a block acquired by a London local authority from a commercial property investment trust, bought at market value as an investment. The local authority, the new owner, was dissatisfied with the accounts inherited from the previous manager—it had their own manager for the block. As a result, it has not been able to put satisfactory accounts together for the last three years. As a consequence, it has not had the legal standing to issue invoices to its tenants for its service charges. It has been running the building’s operating costs out of the capital sums that had been set aside as a sinking fund to pay for future improvements to the building. It is all very unsatisfactory.
That is a classic situation in which long leaseholders would normally exercise the right to manage but, completely arbitrarily, are precluded from doing so. That is wrong. We should facilitate this.
At the very least, my noble friend should welcome my second amendment, Amendment 62, and say that where a local authority acquires a property for commercial purposes—not for the housing of its tenants but as an investment, either in its own name or as part of its pension fund—the right to manage would be restored. The financial interests of the local authority would be preserved, as they are under the current arrangements. It is simply that the right to manage the building would be taken over by the long leaseholders, as elsewhere, and they would manage it in just the same way as in all the other right-to-manage arrangements we are so much in favour of.
I will stop at that point because I have simply made my case, but this is a strange omission from the current arrangements, and one that we now have an opportunity to correct. I would be very happy to attend the meeting.
Lord Bailey of Paddington (Con)
My Lords, I will speak to my Amendments 65A and 65B. The Government should be applauded for their ambitions as laid out in the Bill. Let us hope that we can achieve them all. I put on record that I am pleased with the Government’s direction of travel, because some of my interventions up until now may have seemed slightly belligerent, but can my noble friend the Minister provide some reassurance around the Government’s stated aim of a revolution in the right to manage? That would help to address what, for me, is at the heart of what I consider the leasehold scandal, which is really about control. Leaseholders in England and Wales are unique in the lack of control that they have. Worldwide, leaseholders and those with commonhold and many other types of tenure have much more control. I believe that is something the Bill can address, and the Government have to demonstrate that they want to deliver on it. Indeed, it was our own Secretary of State who said that he wants to see a revolution in the right to manage.
I put on record my colleagues Nickie Aiken and Barry Gardiner, who brought a very similar amendment in the other place. Amendment 65A seeks to ensure that leaseholders in mixed-use property who would otherwise qualify for the right to manage because 50% or more of the floorspace is residential, but because of a technicality—a boiler or an underground car park—are prevented from having that management given to them, still have that right. The current test means that you have to demonstrate that your building is self-contained or that the residential part is partly self-contained, but the layout of the building might suggest that it is not self-contained due to an underground car park or boiler room, when actually it is.
The Law Commission saw these two tests as too strict. It suggested that a third test could be set whereby, if it could be demonstrated that people are reasonably capable of managing the residential area fully independently, they should be given access to this power. As I have stated in most of the debate, the thing that most drives me is the potential for the abuse of service charging. Giving residents control over their assets is clearly the answer to that.
The amendment does not mean that leaseholders can take over the management of shops, hotels or commercial premises. That is not the idea of the amendment. The right to manage applies exclusively to the residential parts, such as corridors and lift lobbies —parts of the building used only by residents. The amendment does not seek to change that position.
At Second Reading, I made the point that even the leading freeholder lobby group pointed out that free- holders own, at best, only 2.5% of the capital interest in the buildings they have the freehold of. That leads me to my other amendment, Amendment 65B. We must lower the threshold at which a group of people can take over the management of that lease. It is currently at 50%. I suggest that it should be at around 35%—again, to help the Government achieve their stated aim of a revolution in right to manage.
Baroness Thornhill (LD)
My Lords, I have asked to speak to the amendments in this group, which is a bit shorter than it would have been had the Clause 47 stand part notice remained. That was certainly something on which I would have urged the Government to stand firm.
We strongly support Amendment 60 in the name of the noble Baroness, Lady Taylor of Stevenage. Anyone who has done a bit of googling on the right to manage can see that right-to-manage claims by leaseholders are often fiercely opposed by freeholders. What is meant to be a so-called no-fault process can involve costly and stressful litigation for leaseholders, as freeholders drag the right to manage claim into the tribunal system. Freeholders gameplay and try to block RTM bids, because the right to manage signifies loss of their control and ability to rip off leaseholders in perpetuity.
Against this backdrop of right-to-manage cases going to tribunal and becoming the subject of “lawfare” by freeholders, it is surely reasonable to ensure that right-to-manage companies cannot incur costs in instances where claims cease. The way things stand, it is clearly intended to be a disincentive to leaseholders to seek the right to manage, and that imbalance cannot be right. Some noble Lords may remember the Canary Gateway case: it took an outrageous four years for the shared-ownership leaseholders to secure their right to manage, with the freeholder-driven litigation going as far as the Court of Appeal.
Turning to Amendments 61 and 62 in the name of the noble Lord, Lord Moylan, we on these Benches would support them in principle as they are increasingly sold as access to the right to manage. However, they stand in stark contrast to the noble Lord’s other amendments, which sought to reduce leaseholder access to collective enfranchisement and right to manage.
Baroness Thornhill (LD)
I hesitated and thought about cutting that bit out, but go on.
Lord Moylan (Con)
The noble Baroness could not expect to get away with that. Any attempt to cast me as a as a poodle of freeholders and opposed to leaseholders is bound to be foiled because it is untrue. I have made it clear throughout that I strongly support the right to manage and its extension. This is very different from expropriation of somebody else’s property. This is simply a technique for managing a building and managing it well.
I should also say while I am on my feet that when we exercised the right to manage in the block in which I live, many years ago, the freeholder was highly supportive because they were sick to death of the managing agent as well, and realised that their building would be managed a great deal better by us, as it has been. They have an interest in the building being well managed: they want the roof to be repaired; they want the facade not to fall off in chunks in the street because, after all, they, too, whatever else is said, have a long-term interest in the building.
Baroness Thornhill (LD)
My comments were not about right to manage. That was a good segue into another short speech by the noble Lord.
However, we are conscious that expanding right to manage to leaseholders under local authority landlords was never considered by the Law Commission, nor put out to public consultation. We are unsure whether the Government have done policy work in this area. It is a whole other ball game and will be challenging. But, in principle, given that many local authorities have been guilty of significant and tragic failures of service, to put it mildly, this should be a right of local authority tenants too. But it will be complex, for many of the reasons that were well outlined by the noble Baroness, Lady Taylor.
It is also worth reminding ourselves that local authority leaseholders have, since 1994, been able to take over management through tenant management organisations. I do not believe any work has been done regarding their success or otherwise. But such a review could ignite and inform this topic on another occasion. We welcome the probe by the noble Lord, Lord Moylan, and also the subtleties of his alternative proposals, and will certainly attend the said—and very popular —meeting.
Finally, I come to Amendments 65A and 65B, in the name of Lord Bailey of Paddington. The aim of Amendment 65A is a good one: to ensure that leaseholders in mixed-use buildings can avail themselves of the right to manage. At the House of Commons Public Bill Committee in January, MPs heard that many leaseholders in mixed-use buildings would still be unable to benefit from the reforms in the Bill to take over management—because, as the noble Lord said, of the existence of, say, a shared plant room or car park, under rules regarding structural dependency and self-containment. The existence of a plant room or other infrastructure is something decided by the original developer and leaseholders have no control over these factors, so it feels unfair to exclude them from right to manage based on the way a block has been designed, especially if they qualify under the new 50% non-residential premises limit.
Amendment 65B would put rocket boosters under the right to manage, opening it up to far more leaseholders. We on these Benches support the amendment and the intent behind it. Members in the other place have raised concerns that the 50% trigger is too high. The 50% participation limit on right to manage was also flagged as an issue by leaseholder campaigners at the Commons Public Bill Committee in January.
There may be concerns about 50% being less than a majority, but, as the noble Lord said, many leaseholders will never be able to obtain 50% support because of the high levels of buy to let in their block. But ultimately the Committee was persuaded of the case to bring down the 50% threshold. It is not right that just one person—the freeholder or landlord—has such control over leaseholders and can impact almost at will on their finances. As the noble Lord’s amendment suggests, 35% of leaseholders triggering a right to manage, with a right to participate for remaining leaseholders who did not originally get involved, is a far better situation than rule by one freeholder, whose interests, as the Law Commission concluded, are diametrically opposed to that of the leaseholder. Leaseholder self-rule with right to manage and a 35% participation threshold is a much more democratic state of affairs. Let us be honest: many councillors and MPs are elected to govern on much less than 50% of the vote—in fact, usually around 35%.
Baroness Scott of Bybrook (Con)
My Lords, I thank the noble Baroness, Lady Taylor of Stevenage, for Amendment 60, which would leave new Section 87B out of the Commonhold and Leasehold Reform Act 2002. This is a new power, inserted into the 2002 Act by the Bill, for the tribunal to order the repayment of a landlord’s process costs for right to manage claims which are withdrawn or cease to have effect in circumstances where a right to manage company has acted unreasonably.
The noble Baroness asked who would decide what was reasonable or unreasonable and the level of reasonableness. The costs will be determined by the tribunal, as is the case with other kinds of litigation or court proceedings.
While we strive to reduce costs for leaseholders, we do not believe it is right to do so where the right to manage company acts unreasonably in bringing a claim and the claim also fails. For example, landlords should not have to meet their own wasted process costs where leaseholders clearly make an unfeasible claim or fail to bring the claim to an end at an earlier stage.
The noble Baroness should be assured that the new power for the tribunal does not automatically entitle landlords to repayment. If the tribunal does not consider that costs should be payable, it can decline to make an order. Removing new Section 87B would expose landlords to unfair costs. For these reasons, I ask the noble Baroness kindly to withdraw her amendment.
I thank my noble friend Lord Moylan for his Amendments 61 and 62. The amendments seek to remove or amend the existing exception to the right to manage for local authority premises so that the right can be used by their long lease holders. I should explain that there is a separate right to manage scheme for local authority secure tenants and leaseholders under the Housing Act 1985 and its relevant regulations. The Commonhold and Leasehold Reform Act 2002 therefore excepted local authority leaseholders from the long-leasehold right to manage to avoid creating conflicting schemes.
The Bill delivers the most impactful of the Law Commission’s recommendations on the right to manage, including increasing the non-residential limit to 50% to give more leaseholders the right to take over management, and changing the rules to make each party pay their own process and litigation costs, saving leaseholders many thousands of pounds.
An alternative route to management is available in some local authority blocks that contain a mixture of tenants and leaseholders, where a prescribed number and proportion of secure tenants are in support of exercising the right. This involves setting up a tenant management organisation. It would complicate a system that we are trying to simplify if two separate routes were to apply to a single block, and the Law Commission made no recommendations on local authority leaseholders.
Lord Moylan (Con)
My Lords, I have some familiarity with the Housing Act 1985 from my time in local government. I am reasonably well aware of the obligation to create tenant management organisations, which are often not block-specific but estate-wide or, in many cases, spread across the entire local authority council housing stock. It seems a strange way to go about trying to exercise the right to manage if we are discussing a block held as an investment that has no local authority tenants. Can my noble friend assure me that the Housing Act 1985 is an effective means for leaseholders in the circumstances I describe to exercise their right to manage, when in fact it is an obligation on a local authority rather than a right granted to long lease holders?
Baroness Scott of Bybrook (Con)
We believe this is the correct way of doing it. I would be very happy to meet my noble friend to discuss this further but, with the evidence we have, we agree this is the correct way forward. But I really am very happy to meet with the noble Lord.
Lord Bailey of Paddington (Con)
I have heard what my noble friend the Minister has had to say and I am minded to do as she asks—if I could get one of those meetings that she has to offer. I am sure then that we could come to an accommodation.
Baroness Scott of Bybrook (Con)
I will be very happy to spend a week in here so that noble Lords can come in and out and speak to me as they like—and I would love to meet my noble friend to talk about this further. He talked also about transparency and it not being terribly necessary. The problem is that, if you do not have transparency, sometimes you do not know you are being ripped off, because you do not have the required information—so I think transparency is actually really important.
Lord Bailey of Paddington (Con)
My Lords, it was not that I do not like transparency. I agree with my noble friend that transparency is very useful so you know whether you are being ripped off. I was making an appeal for the ability to intervene in the process of being ripped off. I have been on the other end of this situation, where people have quite happily told us what they are overcharging us for, but we had no mechanism to interfere in that. That is what I was more concerned with.
Baroness Scott of Bybrook (Con)
I thank my noble friend for that but, for the reasons I have put forward, I kindly ask him not to press his amendments.
Baroness Taylor of Stevenage (Lab)
My Lords, I am grateful, as ever, to the Minister for her responses. It seems she is going to be very busy over the next few weeks, having all these meetings with all of us. I thank the noble Baroness, Lady Thornhill, for reminding me that, had the right reverend Prelate been here, I too would have objected strongly to the proposals he was making on Clause 47, because they would simply have opened the door to retaining the 25% limit, virtually across the property sector. I believe that would have gone against the intentions of the Bill, so she was right in what she said there and I thank her for her support for my amendment.
From this side of the House, I say to the noble Lord, Lord Bailey, that we welcome belligerent interventions from either side, but especially from the Benches opposite, so just keep going with those. We particularly agree with his Amendment 65B. If his meeting does not achieve the desired effect and he chooses to pursue this, he will certainly have our support.
I thank the noble Lord, Lord Moylan, very much for his explanation. I had not realised that these were either/or amendments, but I understand his point about property owned as an investment by a local authority or pension fund. I agree with his point about the principle of right to manage being extended as far as possible. That is absolutely right, although anything affecting local authorities needs to have some consultation with the sector, because we just do not know what any unintended consequence of that might mean. I hope he will consider that if he chooses to pursue this amendment, but perhaps the meeting with the Minister might allay his concerns in that regard. That said, I beg leave to withdraw my amendment.
Baroness Pinnock
“Report: restrictions around ground rent investments(1) Within six months of the day on which this Act is passed the Secretary of State must lay before Parliament a report outlining the impact of this Act on ground rent investments.(2) The report in subsection (1) must also make an assessment of the impact of—(a) prohibiting future ground rent investments, and(b) encouraging divestment from existing ground rent investmentson leaseholders and freeholders.(3) In this section “ground rent investment” means investment by a pension fund or other type of fund in leaseholds for the purpose of collecting ground rent.”Member’s explanatory statement
This is a probing amendment that would require the Government report on the impact of this Act on ground rent investments, and the impact of prohibiting future ground rent investments and encouraging divestment from existing ground rent investments on leaseholders and freeholders.
Baroness Pinnock (LD)
My Lords, Amendment 63 in my name was tabled to probe the impact of the proposals in the Bill on ground rent investments, and the effect of prohibiting future ground rent investments, and encouraging divestment from existing ground rent investments, on leaseholders and freeholders. The Government’s intentions appeared to be clear. In 2022, the Leasehold Reform (Ground Rent) Act effectively set the ground rent on new leases at zero, so the direction of travel seemed set. Further, last November, the Government launched a consultation on ground rents, which included capping the charge at a peppercorn rate for existing leaseholders.
The Secretary of State said at the time that the aim was to help protect those leaseholders who
“can be faced with ground rent clauses in their leases which result in spiralling payments with no benefit in return”.
Now, apparently, the Government have backed off from a fundamental reform and seem set on phasing out ground rents over a period of 20 years and setting a cap on ground rents at £250 per annum.
The fundamental question we have to ask is: what benefit do leaseholders accrue from paying a ground rent of, for example, £250 a year? The answer, is, of course, that ground rents really are a something-for-nothing payment—I bet you would not get away with this in Yorkshire. If the Government are determined, as they initially said they were, to bring fairness to leaseholders, then ground rents would be consigned to history.
However, on the other hand, ground rents provide a steady income for institutions as well as individual freeholders. It seems that the pressure on the Government to row back from abolition or peppercorn was sufficient to cause considerable backpedalling.
The Society of Pension Professionals—which the noble Lord, Lord Truscott, referred to six hours ago—has examined this issue as a result of much being made about the potential impact on pension funds of reducing ground rents to either £250 or zero. The following is a statement from the Society of Pension Professionals:
“Freeholders are already prevented from charging ground rents on new long leases (of more than 21 years), so it’s perhaps understandable that the government wants something similar for existing long leaseholders. The government estimates that capping ground rents at £250 a year would decrease the value of affected property assets by £14.6 bn or £27.3 bn if rents are reduced to a peppercorn. If these proposals become law, there may be some short-term impact on pension fund investors through asset values being written down. Certain pension funds may also be impacted where they own freehold titles directly, although that will be less common. The effect of these proposed adjustments is likely to be more significant for such investors than the loss of annual ground rent income over the term of the lease”—
I emphasise this next part—
“but the scale relative to total assets is probably not that significant for most in the long-run”
That is an authoritative statement, and I would like to hear a full response from the Minister—probably in writing given the late stage of the evening—as this reform is a critical part of leasehold reform. Before Report, we need to see the detailed proposals from the Government and a full explanation of their reasons.
In conclusion, these Benches want the iniquitous system of ground rents to be abolished or at least reduced by introducing a peppercorn as the set fee. I beg to move.
Lord Khan of Burnley (Lab)
My Lords, at this late stage of the evening, I will be brief in speaking to Amendment 65 in the name of my noble friend Lady Taylor of Stevenage. The amendment would require the Government to publish their response to their consultation on a cap on ground rents and set out its implementation within a month of the Bill passing. It is a pleasure to follow the noble Baroness, Lady Pinnock. She described ground rent as something for nothing and something that you would not get away with in Yorkshire. Let me assure her that the noble Lord opposite can confirm that you would not get away with it in Lancashire either.
In the past five or six days we have seen a lot of press in relation to the new £250 yearly ground rent cap for 20 years. However, we still have not had confirmation here at this stage of the Bill from the Government. I want to press the Minister on the comments of the Secretary of State, who said in November that the
“consultation was launched to help protect those leaseholders who can be faced with ground rent clauses in their leases, which result in spiralling payments with no benefit in return”.
How are those press announcements happening, when we have not had a consultation analysis and we have not had feedback on the findings of the consultation? We find out in the media what the Government are thinking, and that is not right; we challenge that operation and procedure as a way of working, whereby we find in the media numerous reports about the Government’s intentions.
Lord Truscott (Non-Afl)
My Lords, I support Amendments 63 and 65 in the names of the noble Baronesses, Lady Taylor of Stevenage and Lady Pinnock, who outlined again the position on pension funds. I wanted to support what has been said by the noble Baroness, Lady Pinnock, and the noble Lord, Lord Khan of Burnley. There has been a lot of scaremongering recently about the impact on pension funds, and I wanted to reinforce that with the Minister. Quite frankly, all this talk of pension funds and pensioners being hammered by low or peppercorn ground rents is rubbish, and it should be called out for what it is.
Baroness Scott of Bybrook (Con)
My Lords, I shall take Amendments 63 and 65 together, if noble Lords do not mind, as they both concern ground rents. Amendment 63 would require a report to be laid before Parliament, and Amendment 65 would require the publication of the Government’s response to the recent ground rent consultation and the laying of a Statement before Parliament. Before I move into what I am going to say, I want to say that I am not making any comment on any media speculation, as I said on Monday.
These amendments relate to the issues considered in the Government’s recent consultation entitled Modern Leasehold: Restricting Ground Rent for Existing Leases, which was published on 9 November 2023 and closed on 17 January this year. It sought views on limiting the level of ground rent that residential leaseholders can be required to pay in England and Wales. Noble Lords will be aware that the Government do not believe that it is appropriate that many leaseholders face unregulated ground rents for no clear service in return. There is no requirement for ground rents to be reasonable, and they can cause problems when people want to sell, buy or mortgage their properties.
The Government have already legislated to put an end to ground rents for most new residential properties in England and Wales through the Leasehold Reform (Ground Rent) Act 2022. We have also encouraged work, led by the Competition and Markets Authority, to investigate abuses of the system such as mis-sold “doubling” ground rent leases, securing commitments from freeholders to remove these costly terms, benefitting more than 20,000 leaseholders.
It is not right that many existing leaseholders are still facing these charges for no discernible service in return, which is why we have just consulted on a range of options to cap ground rents for existing residential leases. The Government are currently considering the responses to the consultation and we will set out our policy in due course. I hope noble Lords will understand that it would be inappropriate for me at this point to comment on or pre-empt any decision of the Government before a formal response to the consultation has been published, and that, given where we are, it would be premature to impose the requirements proposed in these two amendments.
The noble Lord, Lord Truscott, is right: we do not think it is appropriate that many leaseholders face these unregulated ground rents for no clear service in return. We recognise that our proposals would have some impact on the freehold market and explored this impact through our consultation. This impact is obviously being factored into the considerations of the options and is being taken into account in reaching our final policy position. The noble Lord has some very clear views on this, which I think we agree with.
At this late hour, I therefore ask the noble Baronesses, Lady Pinnock and Lady Taylor, for their continued patience as we consider what is a very complex issue. I trust that, in the light of the assurances I have given, they will be content not to press their amendments.
Baroness Taylor of Stevenage (Lab)
I am sure the Minister understands that this has dragged on and on, and we are now at a very late stage of a Bill that has already gone all the way through the Commons. Quite frankly, the degree of uncertainty and instability that is being caused to leaseholders—and to freeholders, to be fair to them—is unacceptable. Yet again in this Chamber, we hear the phrase, “in due course”. I do not know what that means; it can mean anything from tomorrow to in three years’ time when we get round to sorting it out. That is not acceptable either.
We had a very detailed report from the Competition and Markets Authority, which roundly condemned the use of ground rents as a mechanism. We have heard in this Chamber over and again that this is money for nothing and that it has resulted in the most dreadful exploitation. The example I gave in Committee on Monday of an elderly couple virtually being held to ransom by the freeholder is absolutely shocking. That will be going on in millions of homes across the country. This is just not acceptable any longer. I hope that the Secretary of State will very rapidly make up his mind as to what he is going to do about this, stop being bulldozed by freeholder interests in his own party, make a decision and get rid of ground rents, once and for all. This would let people sleep easy in their beds, which they have not been able to do while this debate has been going on.
Baroness Scott of Bybrook (Con)
I think there was a question there, and my response is that we went out, quite rightly, to consult, and the consultation did not finish until towards the end of January. This is a complex issue. If we do it badly or wrong then we will make mistakes and these people will potentially be in a more difficult situation. From the end of January to April is not a long time. We are doing it as fast as we can, and we will come back to the House with further details.
Lord Khan of Burnley (Lab)
I understand the response the Minister has given, but she has to understand that this consultation has its own process and in due course we will look at the analysis. I do not know whether I am accidentally calling for another meeting here, but how did we end up with reports in the newspapers? That causes more uncertainty and instability for people in their homes who are getting their information from the media. Surely there needs to be a statement or some clarification through the next stages of the Bill, so that, very early on, we can look at getting a clear, certain message out to the millions of leaseholders who have been adversely affected by the ground rent situation.
Baroness Scott of Bybrook (Con)
The Government have no control over what goes into the media, and it is something that the Government have to accept.
Baroness Pinnock (LD)
Let us end on a positive. I thank the Minister for her response. There is agreement that unregulated ground rents are unacceptable, and that some freeholders are unscrupulous and exploit their leaseholders, holding them to ransom, as the noble Baroness, Lady Taylor of Stevenage, said.
However, it would be really helpful if, as we complete the various stages of the Bill, the Minister could confirm that the Government will be able to bring forward a detailed amendment regarding ground rents before Report; otherwise, those of us who raised this issue in Committee will raise it again on Report. Unfortunately, this will put the Minister in a difficult position, one in which she has to say, “In due course, something is going to turn up”. Let us send a message to the department that “in due course” means “before Report”.
Leasehold and Freehold Reform Bill
Monday 29th April 2024
(7 months, 3 weeks ago)
Lords ChamberRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 50-III(a) Amendments for Committee (Supplementary to the Third Marshalled List) - (26 Apr 2024)
“Power to establish a Right to Manage regime for freeholders on private or mixed-use estatesIn Section 71 of the CLRA 2002, after subsection (2) insert—“(3) The Secretary of State may by regulations make provision to enable freeholder owners of dwellings to exercise a right to manage in a way which corresponds with or is similar to this Part.(4) A statutory instrument containing regulations under subsection (3) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.””Member's explanatory statement
This new Clause would permit the Secretary of State to establish a Right to Manage regime for freeholders of residential property on private or mixed-use estates.
Baroness Taylor of Stevenage (Lab)
My Lords, the amendments in this group concentrate on yet another aspect of the regime that fleeces home owners with unexpected and extortionate charges, but in this case, they are levied on residential freeholders living on private and mixed-tenure estates.
I had one or two such encounters as a councillor. In one case, there was a five-year battle to get an estate through-road adopted as a public highway because the residents were facing extraordinary and unaffordable costs for highway repairs; and in another, a series of children’s play spaces were abandoned by developers as soon as their sales were completed, with no provision made for maintenance, health and safety checks or upgrading to meet the latest safety standards. But it was not until I campaigned for my honourable friend Alistair Strathern, now the excellent MP for Mid Bedfordshire, that I saw the volume of housebuilding that had gone on with the assumption that new residents would be responsible for a wide range of maintenance to highways and public spaces, and other exceptional costs that had clearly not been set out in a transparent way at the time of purchase.
As my honourable friend put it,
“Across the country, homeowners in a state of adoption limbo are being left exposed to exploitative and often unaccountable management companies. Despite their warm words, sadly the Government did not take any of the actions that the Competition and Markets Authority urged them to take in order to end the issue of fleecehold once and for all”.—[Official Report, Commons, 4/3/24; col. 631.]
My honourable friend pointed out that residents of estates across the constituency are trapped in extortive relationships with unaccountable private management companies, while their estates go unadopted.
Of course, this sharp practice is not limited to Bedfordshire. The Conservative MP Neil O’Brien has written of this:
“Across the country many people are moving into new build homes, only to discover something nasty which they didn’t expect.
Often the first they know of it is when a large bill comes through the door, from an obscure company they’ve never heard of.
The bill demands that they pay a large sum for the maintenance of their new estate, and warns them that they could lose their house if they don’t pay up.
These bills can be of a scary size, and the bills often escalate sharply over time.
To add insult to injury, residents often find that the work they are paying for isn’t actually done, and then find that trying to get any redress is impossible: the firm sending the bills is opaque and uncontactable. People are sometimes billed for baffling things”.
Mr O’Brien went on to look at the large numbers of those affected. The estimate is about 20,000 housing estates, so this could affect up to 1.5 million home owners. The Competition and Markets Authority has examined this in great detail, and commented on the fact that
“over the last five years 80% of the freehold properties built by the 11 largest housebuilders … are likely to be subject to such charges”.
Our amendments in this group seek to address the fleecehold issues still outstanding, which we believe the Bill must address to avoid a continuation of this escalating trend, which is simply providing another method of extorting money from hard-pressed home owners, effectively making them leaseholders of the public space on their estates. As my honourable friend the shadow Secretary of State for housing said in the other place,
“Underpinning all those issues of concern is a fundamental absence of adequate regulation or oversight of the practices of estate management companies”.—[Official Report, Commons, 13/7/23; col. 193WH.]
and the fact that residential freeholders currently do not enjoy statutory rights equivalent to those held by leaseholders.
There was cross-party support for the fact that this situation is untenable, so I hope the Minister will be able to respond positively to amendments in this group so that we can make some progress. Our Amendment 64 would give residential freeholders on private and mixed-tenure estates the same right to challenge the reasonableness of estate management companies and their charges as leaseholders have. As Matthew Pennycook said in Committee:
“We also believe that it is right in principle that there is parity between residential leaseholders and freeholders when it comes to the right to manage”.—[Official Report, Commons, Leasehold and Freehold Reform Bill Committee, 30/1/24; col. 436.]
Our Amendment 87 would prevent developers building to a lower standard. The government amendment would remove estate charge costs that should be borne by local authorities, and then expect private management companies to pay for them themselves, as they can no longer pass the costs on to the occupants. However, this would motivate developers to leave degradation of buildings rather than repairing them. Further, our amendment would put the onus on the developer to ensure high standards are in place from the moment they pass the estate over.
Amendment 93 asks the Government to carry out a review of such non-standard terms and charges included in freehold deeds, including those relating to estate management companies. The alternative is that the Government implement the recommendations so clearly set out in the report of the Competition and Markets Authority.
We support the other amendments in this group tabled by the noble Baroness, Lady Thornhill, which are essentially driving at the same issue of tightening up on those dreadful fleecehold practices. The amendments in the name of the noble Baroness, Lady Finn, relate to the kind of issue I mentioned earlier, when developers sometimes provide public amenities that are not of an adoptable standard. It is not reasonable for leaseholders to be required to make up the difference. The noble Baroness’s second amendment refers to the money-for-nothing culture of leaseholders being charged for services that they do not receive. We would support both of those amendments, and we look forward to hearing from the noble Baroness, Lady Thornhill, and the noble Baroness, Lady Finn, and to hearing the Minister’s reply. I beg to move.
Baroness Finn (Con)
My Lords, it is a pleasure to follow the noble Baroness, Lady Taylor. I shall speak to Amendments 87A and 87B, in my name. The first amendment seeks to prohibit future freehold “fleecehold” estates, where freehold home owners can be tied into expensive maintenance costs for public amenities and open space, without recourse. I recognise and welcome the provisions in the Bill that currently provide additional redress for people trapped in fleecehold, but it is important to make sure that no more people become accidental fleeceholders. Fleecehold has become prevalent not because of any policy decision by an elected Government but rather as a way for developers and managing agents to make more money at the expense of unsuspecting home owners. My honourable friend Neil O’Brien has spoken out many times about the fleecehold estate scandal. He has compared it to the Post Office scandal, in that it is an injustice that has ruined so many people’s lives, yet nothing has been done.
The way that the fleecehold system works is now well known. In recent decades, the builder would normally build a new estate, make sure that the roads and other facilities were up to spec and pay a Section 106 charge, and the council would then take over the running of it. Under the fleecehold model, however, the developer agrees to hand over the company to another company, which it may or may not own, to run many parts of the estate, such as roads, open spaces, play areas and even sewers. The developer thus pays less in Section 106 charges and the council abdicates the responsibility to maintain the road and other amenities but not, of course, council tax. The developer and council, in essence, split the profits while the residents and new tenants get the bill. This is not only collusion between the council and the developer but an extremely inefficient way to run things. Many of the people on these estates end up with a huge bill to sort problems that have arisen because the amenities were not sorted properly in the first place.
Baroness Thornhill (LD)
I am pleased to say the good news is that we are all on the same page in this regard. The noble Baronesses, Lady Taylor of Stevenage and Lady Finn, have set out the context and the evidence for this. Like the noble Baroness, Lady Taylor, I too had many meetings in my former role about the fact that this issue affected individuals, whether with regard to roads or, in one particular acrimonious case, to playgrounds. So I think we all know which way we are going.
I shall speak to the amendments in my name and make a few general comments about this whole set-up. Amendments 86 and 91 deal with what we now know as the fleecehold issue. As has been said, we all know exactly what that entails. The commercial substance of the arrangement that is eventually arrived at really is a leasehold. Homeowners are often fleeced by the management company, which charges exorbitant fees for maintenance, and may be unable to force directors to hold annual general meetings or provide proper accounts, which I feel should be a basic right. However, leaseholders do not want to publicise the issue because it will reduce their ability to sell the property when they leave, a matter that has not been touched on. You do not want to tell a potential buyer what they are letting themselves in for, which is why the transparency measures in the Bill are important.
Management companies are often non-profit-making, passing on costs of maintenance to owners of homes, but are controlled by the original developer and outsource maintenance work to businesses connected to that developer. There is a body of evidence showing that that leads to increased costs, as local companies could often do the work far more cheaply. A significant problem is that homeowners do not have the resources to take the company to court or force it to hold meetings or to get competitive quotes for required work. In many cases their conveyancing solicitor was recommended by the developer, so the initial advice given was not truly independent.
Amendment 91 would ensure that residents could take ownership of an estate management company if the company had not provided residents with a copy of its annual budget, invited residents to an annual general meeting or acknowledged correspondence from residents. There are existing provisions that allow leaseholders to gain control of their freehold or the right to manage their own lease, but freeholders are assumed not to need that kind of provision. This amendment seeks to address circumstances where freeholders are trapped in a situation where they are being taken advantage of. Crucially, it would allow them to take control of the assets that are vital for the proper enjoyment of their homes.
I say to the Minister that I note the Government are bringing forward the appointment of a substitute manager, which I think is very similar, beginning in Clause 88. However, the householders in that situation would have to prove to a tribunal that the existing management was at fault, which can be difficult. It is the complexities in getting a substitute manager appointed that my amendment highlights. They may be up against the other side’s lawyer, and it is not unusual for KCs to be brought into tribunals in circumstances like this. It is indeed a fault-based policy, and it is a very complex matter to get redress. You cannot just sack the company if you want to take control with your own residents’ management company. Simply put, the amendment is a short cut to being able to take control without such complexities and is less adversarial.
Similarly, Amendment 86 would mean that services or works that would ordinarily be provided by local authorities were not relevant costs for the purpose of estate management charges. I make no apology for saying that this amendment is our statement of principle; we believe it is a matter of principle. The amendment would prevent freeholders being charged twice, first through council tax and then through their management company, for essential services such as roads and pavements. We are aware that there are significant issues as to how and why this situation has arisen, and we urge the Government to look into it further.
Among the other amendments, I single out Amendment 87 from the noble Baroness, Lady Taylor, which seems entirely sensible. It seeks to ensure that householders are not bailing out private developers for shoddy construction or defective homes. It is not right that someone who has paid a premium for their home is then expected to pay maintenance costs to sort out the mess left by the original developer cutting corners or, in some instances, breaching building regulations.
On the other amendments in this group, the Minister is well aware of the thrust and direction that we are all pushing in. I am aware that the business models for development are predicated on whether or not these assets remain the responsibility of the freeholder, the developer or the local authorities. The arguments for this are very varied, ranging from—and I have heard this said—“Local authorities are strapped for cash and we do not want to maintain these amenities” to “Local authorities are asking for impossible standards that are not set centrally and that will add to our costs”, or “Local authorities set standards that mitigate against creating decent workplaces that people want to live in”. A similar example that I had to deal with was there being no trees on the pavements because the local authority felt that they were too difficult to maintain and added cost for looking after both the pavements and the trees. Who wants to live on an estate with no trees?
We need to return to this issue on Report, as the noble Baroness, Lady Finn, said—otherwise, we are piling up problems for tomorrow.
The Earl of Lytton (CB)
My Lords, the themes that have been touched on by the three noble Baronesses who have spoken to this group are familiar to me as a professional. They all pivot around these common realm assets—if I can call them that—that are left behind or, at any rate, put into some sort of park mode when the rest of the estate has been built out. These are things that have not been adopted and are placed in the care of an estate management company.
Local authorities may have all sorts of good reasons, within their own scope, for not wanting to adopt novel surfacing, additional lighting, planters or special features. But alongside this there are allied issues because, if they do not adopt, the construction cannot be guaranteed to meet adoption standards—by that I mean roads, drains and all the other things that would normally meet standards that are very often laid down in legislation.
This is an open goal for corner-cutting, which goes on. I cannot tell your Lordships how many times I have been asked to advise on the fact that there are defective drains outside the property, somewhere in the common realm—under the road, common parking areas or landscaped areas—and nobody knows what has happened. It can be not only drains and road construction but engineered embankments, landscaping and ponds: these do not necessarily get constructed to the right standards either, but it can be hugely expensive to try to fix them after the event, and that is where the problem is. The question of just parking them in a management company that then charges whatever it likes goes to the heart of standards, responsibility and the funding of the maintenance of them.
The accountability of management companies seems to be in many instances next to zero. The burden on the freeholders, where the costs charged to them reach that magic figure at which lenders start putting their ears back and question whether they want to lend, results in the sort of lock-in that we well know affects leasehold flats subject to remediation.
I very much support this group of amendments, although they probably need to go further in establishing responsibility and funding. That is something of which the Government really need to take notice, because this is an absolute scandal—not just for the fact that it has gained this moniker of “fleecehold” but because it affects people in their own homes and cannot be allowed to persist.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, I thank noble Lords for their various amendments on the freehold estates and for the thoughtful debate.
Amendments 86 and 87 tabled by the noble Baronesses, Lady Thornhill and Lady Taylor of Stevenage, seek to prevent costs being passed over to home owners. Amendment 87 from the noble Baroness, Lady Taylor, seeks to prevent home owners having to pay any contribution towards the costs where work is required to rectify defects during the estate’s original construction. I fully agree that it is important that communal areas, whether a new road, a playground or open space, are built out to a proper and reasonable standard.
In some cases, elements of construction and maintenance that are subject to an estate management charge may have been delivered via a Section 106 planning obligation or through a planning condition. The local planning authority has enforcement powers to ensure that the relevant infrastructure is built out to the required standard, and it will discharge the obligation when it is satisfied that it has been properly delivered. Some Section 106 agreements may have in them a remediation clause, which will confer responsibility to rectify any problems back to the developer. When there is no remediation clause and management of the estate has been transferred to an estate manager, it will be for that manager to resolve the issue and take legal advice as to the best way forward, when appropriate. This may involve recourse to legal challenge in the courts.
In some cases, it may be relevant if the estate manager has an extant insurance policy that covers the particular issue—for example, subsidence—in which case the insurer might pay for the remediation works then pursue the developer itself. There may be some facts and circumstances where the home owner is not directly liable even though the costs of insurance, for example, may ultimately be passed on to the home owner. However, in cases where remediation or construction issues are not dealt with in a Section 106 obligation and this is not covered by building insurance, it will be for the home owners to pursue any claim for negligent construction through the courts. Furthermore, the potential financial and reputational damage of being challenged through the courts should provide a deterrent so that the developer delivers construction of the site to the required standard.
There are also some unintended consequences that mean I will not be able to accept this amendment. The first concern is the burden of proof. It may be very difficult to prove that the construction defect is the responsibility of the construction company, especially if it has been signed off by the local authority. Secondly, during the period of a dispute, what is expected to happen to the alleged defect? Without any means to raise funds to remedy it, there is a risk of those defects remaining unattended to until the estate manager has concluded the dispute with the construction company. While this litigation is under way, it could mean that the defects on the estate are not being rectified, potentially pushing the estate into further disrepair. This in turn could intensify the problem, creating more disputes between the home owner and the estate manager over whether costs are payable, because they are not relevant costs.
We also need to consider the safety of all those who use the estate. There may be a higher risk of injury to members of the public during a period in which defects are not resolved and, in the event of an incident, the estate manager may be liable. This liability could also sit with the residents themselves where they are members or directors of an estate management company. I recognise that there are, sadly, cases in which initial work is not of the expected quality. However, I hope that the noble Baroness, Lady Taylor, is aware that there are significant challenges to consider with regard to preventing estate managers reclaiming costs from home owners.
Amendment 86 from the noble Baroness, Lady Thornhill, would clarify that an estate management charge is a relevant cost only if it covers services or works that ordinarily would not be provided by the local authority. The impact of this amendment is that home owners on a new or existing managed estate would not be liable for any costs that a local authority would normally carry out. This might include maintenance and the improvement of roads and public open spaces. However, this term is difficult to define. For example, would it include insurance costs of the local authority?
I recognise the many concerns expressed here and in the other place about the fact that local authorities are not required to adopt new developments. I know that mandating adoption of new estates is a key recommendation of the Competition and Markets Authority as part of its recent market study into housebuilding. The question of adoption is very important, but unfortunately it is not something that this Bill can fully address. This is because legislation governing public amenities, such as roads, drainage and open space, is covered by other legislation outside the scope of the Bill.
Furthermore, on its own this amendment has considerable implications. For example, while it may stop payments by existing home owners, it does not take away responsibility for the upkeep of the area under the terms of the property deeds. These home owners would not have any means of raising funds to pay for such upkeep, because they would cease to be treated as relevant costs. This would prevent home owners complying with their legal obligations.
It would also be detrimental to existing home owners, as the condition and upkeep of communal areas may rapidly diminish, impacting on the condition of the area and the well-being of all the residents. This could make it very hard to buy or sell these properties. I should also stress that there would be no contractual obligation for local authorities to take on the management of an existing estate. They are extremely unlikely to do so unless they can ensure that they have sufficient finances to manage and maintain it.
Amendments 64 and 91 from the noble Baronesses, Lady Taylor and Lady Thornhill, seek to achieve the laudable aim of empowering home owners to take over management of the estates on which they live. While I support every effort to drive up the accountability of estate managers and empower home owners on existing estates, I hope I can persuade the noble Baronesses not to press these amendments.
We recognise the benefits of Amendment 64 from the noble Baroness, Lady Taylor. It would mean that a new right for home owners on freehold estates could be introduced in legislation to take on the obligations and liabilities associated with running an estate. There would, though, be many detailed practical issues to work through to deliver a right-to-manage type regime, particularly as estates contain different tenure types, such as leasehold and freehold houses, leasehold flats and commercial units. These issues would all require careful handling as they affect not only property rights but existing contract law.
I would like to reassure Members that we are listening carefully to the arguments being made for the Bill to go further to empower residents on existing freehold estates and, before Report, I would welcome further contributions on this, if noble Lords have them.
Amendment 91, tabled by the noble Baroness, Lady Thornhill, would enable residents to take ownership and possession of the estate management company where an inadequate service is being provided. The grounds presented to invoke this, although well-intentioned, seem unreasonably narrow. Many of these failures are company law issues or are already being dealt with through the Bill. Furthermore, there would need to be solutions for important issues, such as how to address the legal costs of transfer, as well as consequences for the company’s solvency if its equity is removed and it is assessed at a nominal value.
I do not consider that the reasons set out in the proposal from the noble Baroness, Lady Thornhill, provide sufficient basis for a nil-cost transfer. We are concerned that this very simple and broad power is not an appropriate way to address the significant substantive policy issues involved in transferring responsibility. As Members of the Committee will know, we are introducing measures in the Bill to empower home owners and make estate management companies more accountable to them for how their money is spent, including the ability to apply to the appropriate tribunal to replace a failing managing agent.
Amendment 93 from the noble Baroness, Lady Taylor of Stevenage, would require the Government to carry out a review of the extent and impact of non-standard terms and charges imposed by estate managers in property deeds and leases. We are aware that there are many different types of language in deeds and leases, but I do not think this review is necessary. First, home owners will face different obligations depending on what amenities the local authority is or is not responsible for. Secondly, where home owners are responsible, we are driving up the accountability of estate management companies with regard to how they spend the money they charge home owners. These reforms bring in significant protections to prevent exploitation of home owners, and we will of course keep these arrangements under review. I fully recognise the noble Baroness’s desire to provide further support to help home owners living on these estates, particularly in light of the Competition and Markets Authority’s recent report. However, I do not believe that these amendments are the right way of delivering the desired outcome, for the reasons I have explained, and I ask the noble Baronesses not to press them.
My noble friend Lady Finn’s Amendment 87A seeks to deliver the recommendation in the Competition and Markets Authority report that the Government prepare common adoption standards and mandate local authorities to take over responsibility for these public amenities once these standards are met. These are very important issues that must be carefully considered, but, as I mentioned previously, they are not things the Bill can fully address. Legislation on planning considerations and liability for governing public amenities are covered elsewhere and are outside the scope of the Bill. The Government’s thinking on this issue will be set out in our response to the CMA report.
On Amendment 87B, also tabled by my noble friend Lady Finn, it is right that estate managers should be held accountable for the poor delivery of services they provide. However, I do not think this amendment is necessary, as the Bill already contains adequate protections for home owners. Clause 72 makes it clear that any estate management costs must be reasonable and that services or works should be of a reasonable standard. Clause 75 grants home owners the right to apply to the appropriate tribunal for a determination on whether those charges are reasonable. Taken together, these clauses will incentivise estate management companies to charge the correct fees from the outset, thereby reducing the number of home owners being overcharged for works and services on their estate. However, I understand my noble friend’s concerns and those of other noble Lords who have spoken in this debate, and I can reassure them, as I said before, that we are carefully listening to these arguments. Given these considerations, I ask my noble friend not to press her amendments.
Baroness Taylor of Stevenage (Lab)
My Lords, I listened carefully to the Minister’s response, and I am grateful to her for going through each amendment in detail. However, having spent many hours in this Chamber debating what is now the Levelling-up and Regeneration Act before this Bill, we hear the same refrain again: things are either too complex to deal with, they are the subject of another Bill or they need further work.
Today’s debate has indicated yet again—and I am sure there will be later debates in a similar vein—that these types of Bills need very effective pre-legislative scrutiny so that the great expertise contained within this Chamber can be used to make the Bill better before it comes to the House. It would mean that we are not faced with being told something should be in another Bill or needs further work. The subject of this Bill has been a manifesto commitment of the Government since 2017, so there has been plenty of time to do the other work before the Bill came before the House. That said, I beg leave to withdraw the amendment.
Baroness Scott of Bybrook
Member’s explanatory statement
This amendment is consequential on the other Government amendment to this clause.
Baroness Scott of Bybrook (Con)
My Lords, I will now speak to Amendments 66, 68 and 70 in my name. I start by noting that I fully recognise the challenges facing leaseholders, with rising service charges caused by the increased costs in managing and maintaining buildings. The Government are clear, however, that any increase in charges must always be reasonable. We also recognise that the existing statutory protections leaseholders have do not go far enough, which is why we are introducing measures in the Bill to empower leaseholders and help them better scrutinise and challenge the costs they are asked to pay.
Amendment 68 is a technical amendment to Clause 51. It provides further clarification on which parts of the regulatory regime should continue to apply only to landlords who charge and leaseholders who pay variable service charges. These are charges which will vary year on year, depending on the actual cost of providing services.
As currently drafted, the Bill provides such clarity only in respect of measures in the Landlord and Tenant Act 1985. This amendment makes it clear that certain measures and protections in the Landlord and Tenant Act 1987 and the Commonhold and Leasehold Reform Act 2002 should also apply only to leaseholders who pay variable service charges. These include, for example, the ability to appoint a manager and the requirement to hold service charge contributions in trust. Amendments 66 and 70 are minor consequential amendments because of these further changes to Clause 51.
I turn to Amendments 71 to 75 in my name. Amendment 71 clarifies what steps are required to ensure that the written statement of accounts is prepared properly. It follows feedback from and discussions with expert stakeholders after publication of the Bill. We are grateful for their observations. The amendment places an obligation on landlords to provide leaseholders with a report prepared in line with specified standards for the review of financial information. This report must also include a statement by the accountant that the report is a faithful representation of what the report purports to represent.
The amendment also makes it clear, for the avoidance of doubt, that leaseholders must make a fair and reasonable contribution towards the costs of the report. This permits landlords who are unable under the terms of the lease to recover such costs through the service charge to do so, to avoid financial difficulties. This may include right to manage or resident management companies.
Amendment 72 implies a term into the lease where the cost of the preparation of the report is to be payable through the variable service charge. Amendment 73 is a consequential amendment required because of the change to new Section 21D(2)(b).
Amendment 74 allows for the appropriate authority to expand the definition of
“the necessary qualification”
in Section 28(2) of the Landlord and Tenant Act 1985. This will allow the Secretary of State and Welsh Ministers to widen the description of people who are deemed capable of preparing the written report. Amendment 75 makes it clear that any regulations made will be subject to the affirmative procedure.
We will work closely with leaseholders, landlords and professional bodies to ensure we prescribe the right standards to be applied and the right level of detail. I beg to move Amendment 66 and hope noble Lords will support the other technical and essential amendments in my name. I look forward to hearing from noble Lords on their amendments relating to service charges.
The Earl of Lytton (CB)
My Lords, I do not think I am actually the next in line to speak on this, but I have Amendments 78C to 78G and 80A and 80B standing in my name. The intentions behind the Bill in relation to greater transparency and fairness are welcome, but, in my view, they do not go far or fast enough to deal with the current crop of egregious monetising schemes, where there seems to be no end to the inventiveness of the worst offenders.
My amendments go further than the Government’s proposals, for this reason. Some of what is in the Bill will take time to work through and, during that time, the same old abuses—or variants of them—will continue. I want the worst ones to stop immediately the Bill receives Royal Assent. It is part of an essential consumer protection package.
Amendments 78C to 78G, which I will deal with first, seek to close loopholes in the current law, require landlords to achieve value for money in the management of their buildings, promote competition in the property management sector and clamp down on the charging of unnecessary ancillary fees. Amendment 78C clarifies that the costs are to be treated as incurred as soon as there is an unconditional obligation to pay them, even if the whole or part of the cost is not required to be paid until a later date.
The moment when costs are incurred is particularly important in relation to Section 20B of the Landlord and Tenant Act 1985. That section prevented tenants being charged costs incurred more than 18 months before a demand for payment was made, unless they were informed that costs had been incurred and therefore would be payable.
Surprising as it may seem to your Lordships, there are conflicting decisions as to when costs are incurred for the purposes of Section 20B. In Jean-Paul v Southwark London Borough Council in 2011 in the UK Upper Tribunal, Lands Chamber, reference 178, it was held that costs are incurred only when payment is made; but, in OM Property Management Ltd v Burr in 2012, in the UK Upper Tribunal, Lands Chamber, reference 2, it was held that costs are incurred on the presentation of an invoice or on payment. Both leave it open to landlords to ask a supplier to delay the presentation of an invoice, or themselves to delay payment, to postpone the commencement of the 18-month time limit. I do not see this amendment as controversial, as it prevents abuse of the system and brings landlord and tenant law into line with accepted accounting practice.
Amendment 78D covers a situation under Section 19(1)(a) of the Landlord and Tenant Act 1985, where service charge costs are payable
“only to the extent that they are reasonably incurred”.
This amendment replaces the “reasonably incurred” test in relation to service charges with a stricter one of providing “value for money”.
It is established case law that, if a landlord has chosen a course of action that has led to a reasonable outcome, the costs of pursuing that course of action are reasonably incurred even if there was another cheaper outcome that was also reasonable. This wide margin of appreciation leaves leaseholders at risk of overcharging. A value for money test would require landlords to interrogate all options before spending leaseholders’ money. It is not an unreasonable test; it is one that most people use in daily life when considering any significant purchase.
Amendment 78E requires landlords to provide tenants with a range of information, and to update it regularly. It goes further than the Government’s Clause 55, under which landlords are required to provide information only on request. If leaseholders are to be encouraged to take greater interest in the management of their buildings, I do not think we should place obstacles in their way. It should not be difficult for a landlord of a well-manged building automatically to provide and keep up to date a data room of information.
Amendments 78F and 78G continue the consumer protection theme of these amendments by promoting competition in the property-management sector. Amendment 78F prevents landlords contracting with related parties or connected purposes, thus removing an obvious conflict of interest. The danger for leaseholders if a landlord company places contracts with its subsidiary is well illustrated by the Charter Quay case, in which the managing agent, which happened to be owned by the landlord company, was roundly criticised by the tribunal for placing onerous service contracts with other subsidiaries.
In the same vein, to promote competition through regular retendering, Amendment 78G places a maximum contract duration of five years. Although under current law landlords must consult leaseholders before entering into a qualifying long-term agreement—that is, a contract of more than 12 months—there is no limit on its duration. In practice, even limited consultation requirements are relatively easily avoided. Contracts between a holding company and one or more of its subsidiaries, or two or more subsidiaries of the same company, are not qualifying long-term agreements; neither are contracts for a year or less, even if they have been regularly renewed.
Amendment 78H seeks to reduce costs on leaseholders by setting out in statute details of cosmetic works that can be undertaken without approval from a landlord. Most leases contain very tightly drawn provisions in this respect, which are against undertaking virtually any type of work, no matter how insignificant, without the landlord’s consent. Provisions such as a prohibition of the
“cutting, maiming or injuring, or suffering to be cut, maimed or injured, any roof, wall or ceiling”,
are very common. The fees for consenting to some minor works often run into hundreds of pounds, so this amendment attempts to find a way to streamline that.
One may debate at length the areas where a more relaxed regime might impair the amenity of other residents, but I seek to establish the principle of getting away from the monetisation of consent for every mortal thing—from pets to paint colour, and light fittings to lino floors—and putting it in the past. There ought to be greater freedoms for leaseholders but, in noting that the Law Commission report implied that consent for floor coverings should be relaxed, I would only observe from experience that engineered timber floor finishes in particular are often a potent source of noise transmission affecting other residents—so the matter is nuanced. At this stage, I simply wish to sound out the Government’s willingness to draw up, say, a code of practice, or otherwise take steps to free up this area.
I now turn to Amendments 80A and 80B, which are really rather different. I would have had them disaggregated had I been a bit more alert on Friday afternoon, because they relate to insurance moneys. Amendment 80A requires landlords to pay the proceeds of a building insurance policy into a separate fund that is held on trust for leaseholders. It also requires landlords, on receipt of insurance proceeds, to begin immediately to repair or rebuild a building, as far as reasonably practicable.
Service charge funds already have to be held on trust for leaseholders and I contend that building insurance payouts should be treated in the same way. As noble Lords are aware, I have raised my concerns about the risk of landlord insolvency. It has been suggested to me that, if a landlord became insolvent, any insurance proceeds held by the landlord on entering insolvency would form part of the company’s insolvent estate, leaving leaseholders in a damaged or destroyed building as unsecured creditors. Holding insurance proceeds on trust would go some way to protect them from risks relating to landlord borrowings—of which more in relation to Amendment 80B.
Most leases require landlords to reinstate damaged buildings—as, I think, does statute in the case of damage caused by fire. Subsection (3) of the proposed new clause in Amendment 80B places that duty beyond doubt. It requires landlords to move quickly to repair or rebuild the damaged or destroyed building. It goes some way to closing a loophole commonly found in leases that gives landlords the right to terminate where it is not possible to reinstate a building within a certain period. That is often three years, which is likely to be insufficient time to effect reinstatement of a larger or complex building.
Amendment 80B closes what I consider to be another loophole for insurance. Most leases require that the landlord insures the building, with the cost charged to leaseholders. However, what concerns me is the ability of landlords to assign the proceeds of insurance policies as security for their borrowings.
The Earl of Lytton (CB)
I will be very brief. Some of the costs that have arisen are as a result of Fire Safety Act and Building Safety Act provisions set up by the Government. Some time ago, I asked the people I work with to set up an online resource, which I commend to noble Lords. It is www.buildingsafetyscheme.org. I hope that it will help a number of people to unpick what is a very complex situation.
Baroness Jones of Moulsecoomb (GP)
My Lords, the number of amendments discussed today highlights just how many issues there are with the exploitation of leaseholders. The noble Baroness, Lady Taylor, mentioned the option of some pre-scrutiny with people who have expertise in this area—although I am not suggesting that I am one of them. That might have benefited this legislation.
Normally, with leasehold properties, people think that they are buying a house or a flat, but then they are laden with decades of financial obligations to a landlord who can charge a ridiculously long list of things to the leaseholders. That does not seem to be a very fair system. There are far more problems than your Lordships’ Committee will be able to resolve, so there is clearly a need for further legislation when a new Government come to power. I hope that the new Government will consider the issues raised in Committee, including my Amendment 78B, which shines a light on the growing trend of public assets being funded by leaseholders. For example, green spaces, play areas and roads are often being charged to leaseholders, even when they are freely accessed by the wider community.
These leaseholders are facing a double taxation: they are paying their council tax, which is used to fund play areas and roads provided by the local authority, and they are also being charged by their landlord for play areas and roads that are within the estate. There seems to a case for these publicly available assets to be brought into local authority management, ownership and funding. I would appreciate it if the Minister, and any budding future Ministers, could give their thoughts on the issue and perhaps undertake to look at it further.
Lord Bailey of Paddington (Con)
My Lords, my main focus so far has been boosting leaseholder control over service charges by removing barriers to the right to manage. However, we must dramatically reform the law for leaseholders who cannot gain this control and who wish to stand up to their freeholder on service charges. It is positive that the Government are enforcing service charge transparency and disclosure with the new right-to-inform scheme in Part 4, Clause 55, which makes changes to the Landlord and Tenant Act 1985, but I believe we need to go further and make it easier for leaseholders to challenge rip-off freeholders with their service charge.
Tribunals are very stressful: they take a long time and often do not have the power to enforce their decisions. This leaves leaseholders in a very strong predicament. Leaseholders normally have to file another application with the county court to get their money back for any overcharging, at least as they see it. My Amendment 78A is all about enforcement and giving teeth to tribunals’ decisions, where it has been determined that the service charges that the leaseholders have paid were not payable or were unreasonably incurred.
Various rules in Parliament have been passed in an attempt to regulate this behaviour of freeholders; again, I mean poor freeholders—the whole market is not like this. Often, these work only when leaseholders have the time, money and energy to enforce them at tribunal, which then is not always guaranteed when residents are up against armies of layers. Freeholders often hold many freeholds and have a big financial backing behind them and can just tire out leaseholders—they can work them into the ground and threaten them with forfeiture, for instance, should something go wrong. The Secretary of State was right to say that we need to put the squeeze on freeholders, but that means making freeholders actually fear leaseholders bringing cases against them at tribunal.
In my Second Reading speech, I mentioned that research from Hamptons has shown that leaseholders paid £7.6 billion in service charges. Many of those service charges were overcharge, and we want to create a situation where leaseholders can fight back. The annual service charge for flats in England and Wales has increased by 8.4% since the beginning quarter of 2023. Around 270,000 leaseholders are now paying more than £5,000 a year in service charges, which could quickly become a second mortgage for many leaseholders.
My Amendment 78A seeks to amend the Landlord and Tenant Act 1985 regime for service charge disputes to try to make service charge tribunals against freeholders more serious by taking three important steps. One is by providing an opt-out. At the moment, leaseholders have to sign up for a case to benefit. Even if the tribunal determines that they have been overcharged, unless they have signed up their neighbour may receive a payment but they will not because they did not sign up. That is unfair in modern life: you could be elderly; you could have children; you could just be away when all these things are going on. Your neighbour would receive benefit and you would not, even though you would also have overpaid. That is why we need an opt-out, not an opt-in, to make it more serious.
Secondly, after a successful Section 27A challenge by any leaseholder in a block, the freeholder would be under a duty to account to all leaseholders within a two-month period of the decision being handed down. This means that any money overpaid would have to be paid back within two months, because leaseholders—many of them owning a place for the first time, many of them young people, many of them elderly people on fixed incomes—have paid out this money which they often could not afford. They should get it back in a speedy fashion.
Thirdly, there should be interest after a two-month period if the freeholder has not paid back money owed to the leaseholders. This is to give the sanction some bite and to make sure that a freeholder does not just wait out hapless leaseholders because they have all the power and the financial power.
I would like to see some more action in this Bill to deter and punish bad behaviour by freeholders and ensure that leaseholders can swiftly get their money back where overcharging has been determined by a tribunal. My Amendment 78A gets us closer to that position.
Baroness Fox of Buckley (Non-Afl)
My Lords, Amendment 78 is about one part of service charges that sometimes gets neglected: the lack of consultation about major works that remain uncapped, opaque and difficult to challenge. This mainly affects those who have brought homes where the landlord or freeholder is a council. The amendment is also about the failed attempts by the law to help them in the past and whether we can use the Bill to rectify that.
In Committee last Wednesday it was implied that leaseholders are mainly wealthy home owners of luxury flats. These leaseholders deserve fair treatment, however wealthy they are, and they should not be ripped off, but many leaseholders do not fall into that category, with 49% of leaseholders being first-time buyers. We also have right-to-buy leaseholders who bought their own council homes, and leaseholders who bought former council homes because they were cheaper and therefore home ownership was within their grasp, rather than them being priced out of the market. I declare an interest as one of those people.
Leaseholders living in former council homes now face enormous refurbishment bills of tens of thousands of pounds, despite a legal cap being introduced 10 years ago, which is being circumvented by local authorities. The reason for major works is no doubt exacerbated by years of weak investment and cuts. Social housing estates do need to be maintained, and I understand that councils have difficulty doing that. However, neglect builds up and leaseholders end up being the ones who pay the price. The bill for entire blocks has been divided between the local authority and individual leaseholders because council tenants cannot be charged. Therefore, we end up with situations such as that of George and Alma, a couple who were suddenly landed with a £45,000 bill for windows in the roof of the estate, which do not even affect them, making them sick with worry. As has already been discussed, the disrepair that accumulates on estates ends up not just increasing service charges but coming as one large bill. George said, “I pay a service charge and I have not seen any work being done on a yearly basis—then suddenly we get this big bill”.
I am a Haringey leaseholder of a maisonette. I noted one extreme case that came to light during lockdown, when 76 leaseholders in Wood Green were told to find between £56,000 and £118,000 to cover Haringey repairs and improvements. One young woman, when she bought her maisonette in 2015, was told that major works planned would cost £15,000. Instead, after losing her job because of lockdown, she ended up with a bill of £110,000. Another couple, when buying their property, were given an estimated bill for major works of £12,500. Mid-completing buying their house, that had swelled to £25,000 with no explanation whatsoever for the increase, and they could not find out why. There was then stalling for five years, again with no explanation. Haringey then added in some other major works—roofs, windows and door replacements—so now the final bill is a whopping £108,450. To quote them, “We will be ruined”. The bill will be a third of what they paid for their home.
This is happening all over London, and councils’ responses have been complacent. Lambeth Council said: “We appreciate that major works can place a financial burden on leaseholders, which is why we offer a number of repayment options”. However, even those which break it down over five years, for example, which is one of the options available, can almost double some people’s mortgage, and this is even beyond increasing service charges.
Lord Thurlow (CB)
My Lords, I congratulate the noble Earl, Lord Lytton, on his high-speed gallop through a large number of his Friday afternoon amendments. They were quite technical, and anyone who managed to keep up with them all deserves a prize. It was very good indeed. I will address one of them, Amendment 78F. It is very short but very important.
Much of this Bill is designed to protect leaseholders from freeholders and their managing agents acting in concert in any attempt to inflate service charges. These in-house relationships are ripe breeding territory for dishonest behaviour and abuse, of which the noble Earl gave an example, in the opaque realm of service charges—something we look forward to being reversed or changed by this Bill. It is a money-making business model, albeit morally and actually dishonest. We should ban any close links of this kind between managing agents and their freehold clients, and inflict suitable penalties that are strong enough, or high enough in financial terms, to be a deterrent. If the Government really want to protect leaseholders, connected relationships giving rise to such potential abuse must be banned.
Baroness Thornhill (LD)
My Lords, I will speak to my Amendment 77 and make a few brief comments on other amendments. Amendment 77 would allow leaseholders to apply to the appropriate tribunal to ensure that freeholders who do not provide the agreed estate management services and allow a block to become run-down can be subject to a penalty at the sale of the freehold. There is clearly an issue of absent freeholders and little penalty when a managing agent is not appointed or adequate estate management services are not provided. The amendment would create a mechanism by which a penalty could be placed on the enfranchisement value and mean that leaseholders who have suffered from freeholder failures and consequently had to take the step towards acquiring the freehold should pay a lower cost for the collective enfranchisement of that freehold. This would reflect the freeholder’s dereliction of duty if a tribunal deemed it was warranted.
The Bill aims to remove barriers and rebalance legal costs for leaseholders to challenge freeholders at tribunal. Clause 56 addresses the enforcement of freeholders’ duties relating to service charges, and it includes provisions for tenants to make an application to the appropriate tribunal and the measures tribunals may put in place. As such, the amendment would just add to that. As well as having a power to make a landlord pay damages to a tenant for failure to carry out duties related to service charges, a tribunal would also have the power to apply a penalty to the enfranchisement value at the sale of the freehold to leaseholders. It does not seem fair, after having taken action to gain control of the freehold due to an absent freeholder, that leaseholders then have to compensate the freeholder with no penalty for that dereliction of duty. This is a modest amendment that would leave the judgment in the hands of the appropriate tribunal as to whether a penalty was warranted.
On Amendments 67 and 69, in the name of the noble Baroness, Lady Taylor of Stevenage, it is only right that leaseholders with old leases that have fixed service charges can challenge the reasonableness of those fees at tribunal. Evidence of costs being passed on in service charges is evident. This also ties in with Amendment 98D from the noble Earl, Lord Lytton.
We on these Benches support Amendment 69. We do not agree with the Government having a power to remove certain landlords from being subject to basic service charge transparency rules; all leaseholders are owed clarity on what they are paying for. We do not understand why that should not be the case.
I turn to Amendment 78 from the noble Baroness, Lady Fox of Buckley. We agree that leaseholders should be fully consulted on major works that they pay for; the noble Baroness showed that some of these costs are eye-watering. We agree with her proposal to restore the major works scheme in the Commonhold and Leasehold Reform Act 2002, which was eviscerated by the Daejan ruling by the Supreme Court in 2013, which the noble Baroness mentioned. We agree with the dissenting Lord Wilson in that decision, who said that the majority had subverted the intention of Parliament. It is not right that landlords no longer have to involve leaseholders in the decision-making process. We should use this Bill to at least restore the position to pre-Daejan so that transparency and accountability on major works are increased for leaseholders.
Amendment 78A, from the noble Lord, Lord Bailey of Paddington, would require a landlord who had lost a service charge determination, and who was meant to return the money to the leaseholders, to pay up in two months or else face compound interest. While Section 19(2) of the 1985 Act requires that overcharges be returned to leaseholders, landlords can and do ignore this. The same applies to similar provisions in leases. Where a tribunal has determined that a service charge or portion of it has been excessive, it should be relatively straightforward for leaseholders to get that money back. We on these Benches support that part of the thrust of the amendment—to ensure that landlords are under pressure to account to leaseholders in a timely manner, or otherwise experience financial penalties, as debtors in other parts of our economy do.
I turn to the mighty avalanche of amendments from the noble Earl, Lord Lytton. For us, Amendments 78D and 78E stand out. Amendment 78D provides for a new, tighter and more objective test of value for money to replace the current test of “reasonably incurred”, which could be open to a wide range of interpretation—obviously, this is in relation to service group charge costs. Amendment 78E pushes the Government to go further in the entitlement of leaseholders to have more and better information. Given the rationale behind the amendments from the noble Earl, Lord Lytton, we believe it is worth the Government giving them serious consideration.
Finally, although we have not yet heard from the noble Lord, Lord Moylan, we are minded to agree with his amendments, as right-to-manage and residential management companies are thinly capitalised. Unlike big freeholders, they will not have lending facilities, so would be unable to pay legal costs up front to take non-paying leaseholders to tribunal or county court. Right-to-manage and residential management companies are non-trading companies and have nothing except the service charges in their coffers. I look forward to the Minister’s responses.
Lord Khan of Burnley (Lab)
My Lords, I rise to speak to Amendments 67, 69, 76, 78I and 78J, in the name of my noble friend Lady Taylor of Stevenage. Noble Lords across the House have been emailed and briefed in relation to some very troubling real-life examples in the area of service charges—in fact, we heard earlier from the noble Baroness, Lady Fox of Buckley, about an unscrupulous situation.
In the other place, honourable friends have shared some horrific casework examples which clearly expose the unfit and unjust system leaseholders have been subject to. My honourable friend Matthew Pennycook MP, said:
“Soaring service charges are placing an intolerable financial strain on leaseholders and those with shared ownership across the country. Among the main drivers of the eye-watering demands with which many have been served over recent months are staggering rises in buildings insurance premiums and the passing on of significant costs relating to the functioning of the new building safety regime. Given that many leaseholders are being pushed to the very limits of what they can afford, do the Government now accept that the service charge transparency provisions in the Leasehold and Freehold Reform Bill … are not enough, and that Ministers should explore with urgency what further measures could be included to protect leaseholders better from unreasonable charges and give them more control over their buildings?”—[Official Report, Commons, 22/4/24; col. 636.]
Baroness Thornhill (LD)
My Lords, before the noble Baroness takes the Dispatch Box, I apologise to the Committee and to the noble Lord, Lord Moylan, in particular. Due to lots of pieces of paper, I commented on two amendments that are actually in group 4, so I reassure the Committee that I will not be repeating those comments.
Baroness Scott of Bybrook (Con)
My Lords, I apologise in advance for the length of my response. This is a large group so I might go on for quite a long time. I apologise for that, but I think it is important that I respond to all the amendments.
I thank the noble Lord, Lord Khan of Burnley, who spoke to the amendments from the noble Baroness, Lady Taylor. Amendment 67 seeks to give the right to challenge the reasonableness of a service charge to leaseholders who pay a fixed service charge. I recognise that leaseholders who pay fixed service charges do not have the same right to challenge the reasonableness of their service charges as leaseholders who pay a variable service charge. However, there are good reasons for that. The main sectors where fixed service charges exist are the retirement and social housing sectors, where households are often on limited or fixed incomes; certainty over bills is paramount for these homeowners. Leaseholders, especially on low incomes, who pay a fixed service charge have more certainty over the amount of their service charge compared with those who pay a variable service charge. They will know about and understand the level of the charge before they enter into an agreement.
Landlords benefit from not having to consider tribunal applications, but in return they have a clear imperative to provide value for money: if they underestimate the costs, they will have to fund the difference themselves. They will still need to provide the quality of service as set out in the lease since, if they do not, they may be taken to court for breach of that lease.
By giving the right to challenge fixed service charges in a similar way to how variable service charges can be challenged, there would likely be operational and practical challenges. For example, if landlords underestimate costs in one year but overestimate them in another, it is feasible and reasonable to be able to challenge the unreasonableness only in the year when costs are overestimated. It is not proposed to give the landlord an equivalent right to apply to seek to recover the balance of an underestimated cost on the basis that it would be reasonable to do so. There is a possibility that landlords may move to variable service charges, and that could have unintended and undesirable consequences for leaseholders with a fixed income who benefit from the certainty of fixed service charges.
Through the Bill, leaseholders who pay a fixed service charge will be given additional rights. Landlords will be required to provide the minimum prescribed information to all leaseholders. I consider that the additional rights given to leaseholders who pay fixed service charges will allow them to better understand what their service charges pay for, and to hold their landlord to account. I hope that, with that reassurance, the noble Lord will not move the noble Baroness’s amendments.
I thank the noble Lord for Amendment 69 in the name of the noble Baroness, Lady Taylor, which seeks to remove the provision that enables the appropriate authority to exempt certain categories of landlords from the requirement to provide a standardised service charge demand form to the leaseholder. I recognise the importance of all leaseholders receiving sufficient information from their landlord to enable them to understand what they are paying for through their service charge. Requiring landlords to provide leaseholders with a standardised service charge demand form contributes to increased understanding. However, I am aware that there could be instances now or in the future where it is necessary to exempt landlords from that requirement. It could be too costly or disproportionate to expect certain categories of landlords to provide that level of information. As the Minister for Housing mentioned in the other place, one example might be the Tyneside leases.
Prior to any exemptions being agreed, we will consult with stakeholders to determine whether an exemption is justified. I emphasise that the list of exemptions is expected to be small—if it is needed at all, in fact—and full justification will be required for any agreed exemptions. I note the noble Baroness’s concerns but I hope that, with this reassurance, the noble Lord will not move the amendment.
I also thank the noble Lord, Lord Khan of Burnley, for Amendment 76, which would create a power for the appropriate authority to prescribe the maximum costs that landlords may pass on to leaseholders for providing information. I recognise that leaseholders can face increasing service charge costs and that not capping costs for providing information could drive landlords to charge unreasonable amounts.
Lord Khan of Burnley (Lab)
My Lords, I know that the Minister has been speaking for a while, but I want to press her on this important point as we are talking about charges. There is a huge, fundamental area of concern in that the ground rent consultation has yet to be published. I know that it is unreasonable for me to ask the Minister to talk about any leaks or media announcements. However, how will this House be able to scrutinise it at this late stage of the Bill’s passage?
Baroness Scott of Bybrook (Con)
We debated ground rents last week, and I do not have anything to add. If there are any changes to the Bill, we will give sufficient time for all noble Lords to consider them.
Baroness Scott of Bybrook
“(7) The Landlord and Tenant Act 1987 (“the LTA 1987”) is amended in accordance with subsections (8) to (10).(8) In the provisions referred to in subsection (9), in each place they occur—(a) for “service charge” substitute “variable service charge”; (b) for “service charges” substitute “variable service charges”.(9) The provisions are—(a) in section 24 (appointment of manager by tribunal), subsections (2) and (2A);(b) in section 35 (application by party to lease for variation of lease), subsections (2) and (4);(c) in section 42 (service charge contributions to be held in trust), the heading and subsections (1), (2), (3), (4), (6), and (8).(10) In section 35(8), for ““service charge” has the meaning” substitute ““service charge” and “variable service charge” have the meaning”.(11) In section 167 of the CLRA 2002 (failure to pay small amount for short period)—(a) in subsection (1), for “service charges” substitute “variable service charges”;(b) in subsection (5), for “service charge” substitute “variable service charge”.”Member’s explanatory statement
This amendment would, in light of the amended definition of “service charges” in section 18 of the LTA 1985, make amendments to provisions in the LTA 1987 and CLRA 2002 that use that definition so that they refer to “variable service charges” (and accordingly preserve the current effect of those provisions).
Baroness Scott of Bybrook
Member’s explanatory statement
This amendment is consequential on the Government amendments to clause 51.
Baroness Scott of Bybrook
“(b) that, on or before the account date for an accounting period in respect of which a statement of account is provided, the landlord must provide the tenant with a written report about the statement prepared by a qualified accountant, which—(i) is prepared in accordance with specified standards for the review of financial information, and(ii) includes a statement by the accountant, in a specified form and manner, that the report is a faithful representation of what it purports to represent;(c) that the landlord must provide adequate accounts, receipts or other documents or explanations to the accountant to enable them to provide the report; (d) that, if the landlord incurs costs in obtaining the report, the tenant must pay the landlord a fair and reasonable contribution to those costs.”Member’s explanatory statement
This amendment would clarify that the obligations of the landlord are to obtain a report from a qualified accountant as to the accuracy of the statement of account and to provide adequate documents to the accountant, and would require the tenant to contribute towards the costs of the report.
“(4A) An amount payable under the term implied by subsection (2)(d)—(a) is a variable service charge for the purposes of section 18, and the provisions of this Act relating to service charges apply accordingly;(b) is payable irrespective of whether a lease, contract or other arrangement provides for it to be payable as a service charge.”Member’s explanatory statement
This amendment would subject any costs payable under the new section 21D(2)(d) to the restrictions relating to variable service charges.
Member’s explanatory statement
This amendment is consequential on the amendment to new section 21D(2)(b).
“(aa) for subsection (2) substitute—“(2) A person has the necessary qualification if the person—(a) is eligible for appointment as a statutory auditor under Part 42 of the Companies Act 2006, or(b) satisfies such other requirement or requirements as may be specified in regulations made by the appropriate authority.”;”Member’s explanatory statement
This amendment would allow an appropriate authority to expand the meaning of “the necessary qualification” in section 28(2) of the LTA 1985.
“(c) after subsection (6) insert—“(7) Regulations under this section—(a) are to be made by statutory instrument;(b) may make provision generally or only in relation to specific cases;(c) may make different provision for different purposes;(d) may include supplementary, incidental, transitional or saving provision.(8) A statutory instrument containing regulations under this section (whether alone or with other provision) is subject to the affirmative procedure.””Member’s explanatory statement
This amendment would make provision about regulations about the meaning of “the necessary qualification” in section 28(2) of the LTA 1985.
Lord Bailey of Paddington
“(2) In section 26(1) (Exception: tenants of certain public authorities), omit the words “but section 25 (offence of failure to comply) does not”.”Member’s explanatory statement
This amendment seeks to preserve the ability to crowdfund private prosecutions of rogue landlords, which should help get section 24 orders for abused blocks. It also extends the protection of the criminal sanction to council leaseholders.
Lord Bailey of Paddington (Con)
At Second Reading, I said that leaseholders should not be expected to become serial litigators in the same manner that the sub-postmasters had to in order to get some justice for themselves. We should seek to increase the rights of leaseholders, not strip them of existing rights and protections.
My amendment seeks to preserve the criminal sanctions against landlords withholding critical information about service charges. The Bill in its current form does away with these sanctions, which function as a backstop for the current scheme of service charge accountability. The Bill instead introduces a new scheme of service charge regulation, superior in many respects but lacking the critical ability for leaseholders to prosecute landlords who refuse to provide evidence that the services they have charged for were actually delivered.
Currently, under Section 25 of the Landlord and Tenant Act 1985, leaseholders have the right to pursue a private prosecution against their landlord if their request for service charge accounts or receipts has been refused or the landlord denies them the ability to inspect and copy the relevant documents. Without criminal sanctions, landlords will comply with the law only if it suits their financial interests to do so. A Bill capped at £5,000 of damages will not deter many and may mean that leaseholders now have to spend time and effort proving how much money they have lost.
I am not precious about this amendment, but I want to probe the Government on this and urge them to ensure that leaseholders will continue to have the right to bring private prosecutions against perpetually bad landlords under this legislation. I have mentioned Section 25 of the Landlord and Tenant Act 1985 a few times; it criminalises breaches of Sections 21, 22 and 23 of the same Act. These Sections 21, 22 and 23 are repealed by the present Bill, so my amendment would make a practical difference only until these repeals were brought into force.
Baroness Thornhill (LD)
We fully understand the passion expressed by the noble Lord, Lord Bailey of Paddington, about criminality and having a last resort. We must think of it in regard to the worst rogue landlord offences, of which there are many, and I am sure several noble Lords have seen things worthy of that description. While we do not entirely go along with the noble Lord, we are interested to understand why the Government are using the Leasehold and Freehold Reform Bill to do away with a long-standing leaseholder right to bring a private prosecution against a landlord who has refused service charge and accounts transparency; it is surely a sign that they are trying to hide something.
The Government are bringing forward a new regime for service charges, under which landlords’ failure to comply with the requirement will be subject to damages of no more than £5,000 per leaseholder, which to us feels too low. Why does this policy have to strip leaseholders of a right to pursue a persistently abusive landlord with a private criminal prosecution? If the right was poorly drafted in the first place, surely it should be retained and made effective in the Bill?
We agree to a certain extent with the amendment’s attempt to bring local authorities into scope. As we know from past tragedies, local authorities are often treated far too leniently by leaseholder legislation, receiving exemptions from basic requirements. We broadly agree, but I look forward to the Minister’s response to the amendment.
Baroness Taylor of Stevenage (Lab)
My Lords, I thank the noble Lord, Lord Bailey, for his passion on this matter, as the noble Baroness, Lady Thornhill, said. It is appropriate to bring a probing amendment on this, to seek out some clarification from the Government about their intentions. It is clear that service charge accountability sits right at the heart of much of the Bill, and we would not want to do anything against that. It does seem a little odd that part of the Bill’s intention is to remove that right of private prosecution, so I look forward to the Minister’s reply.
The other point raised by the noble Lord was that we are going to have a hiatus when the Bill is passed, because it is not going to come into force until 2025-26. Can the Minister comment on what leaseholders can resort to in that interim period, in order to get matters justified if they have a persistent rogue landlord? Otherwise, we will have a gap where the original provisions are repealed and these ones have not yet come into force.
I agree with the noble Baroness, Lady Thornhill, about council leaseholders. There are other protections in force for council leaseholders. The health and safety Act and its provisions should sit there to protect council leaseholders from any poor landlord practice from councils—I know they have not always done so, but they should.
I am interested to hear the Minister’s response to this very good probing amendment.
Lord Gascoigne (Con)
I thank my noble friend Lord Bailey of Paddington for Amendment 76A, which seeks to retain the existing enforcement provisions concerning a landlord’s failure to provide information to leaseholders. I am grateful to other noble Lords who took part in this very brief discussion.
I fully agree with my noble friend that it is important to have effective enforcement measures in place where a landlord fails to provide relevant information to leaseholders. The existing measures, including the statutory offence under existing Section 25 of the Landlord and Tenant Act 1985, have historically proven to be ineffective. Local housing authorities, as the enforcement body, are reluctant to bring prosecutions against landlords, and the cost and complexity of doing so are a significant barrier to leaseholders bringing a private prosecution. That is why we are omitting Section 25 and replacing it with the more effective and proportionate proposals set out in Clause 56 of the Bill. Therefore, I am afraid that we cannot accept the amendment. Not only does it require—
Lord Bailey of Paddington (Con)
In regard to the cost of leaseholders bringing a case, people are now using modern technology, such as crowdsourcing, to raise the funds to take on a landlord. When you have a persistently rogue landlord, this could be your last roll of the dice. It is not an entirely strong argument to talk about leaseholders not having the means; that is often the case, and what most of the discussion has been based on. For leaseholders in these very extreme cases—and they are extreme—this is a last resort, and that is why the word “backstop” was used, but people can club together to deal with these situations.
Lord Gascoigne (Con)
I am very grateful to my noble friend. I will address the rest of the issues, and hopefully I will pick up some the points he made. Like others, I am grateful for the passion with which the noble Lord speaks about this issue and his own experience of it.
I am afraid we cannot accept this amendment. Not only does it require us to return to the previous arrangements; I would respectfully say that it is not workable. This is because a local housing authority cannot take action against itself; they are one body. That said, I can assure my noble friend and others in the Chamber that there are very strong merits in his argument about the appropriate tribunal not being able to make an order for damages where the landlord is a non-compliant local authority. As has been said, it is not right that local authorities should be exempt from the same standards expected of other landlords. Both the department and the Minister are carefully considering this issue.
I will respond to a couple of points raised by noble Lords, including my noble friend. He raised the issue of damages; we believe that £5,000 strikes the right balance between a deterrent and an effective incentive. I believe it is higher than the existing provisions that a court can award on a summary conviction. The noble Baronesses, Lady Taylor and Lady Thornhill, asked about the hiatus, or interim, period; I assure noble Lords that it will not change until the new regime is ready. Therefore, with these reassurances, I ask my noble friend to withdraw his amendment.
Lord Bailey of Paddington
“(5A) The regulations must specify a broker’s reasonable remuneration at market rates as a permitted insurance payment.(5B) The regulations must exclude any payment which arises, directly or indirectly, from any breach of trust, fiduciary obligation or failure to act in the best interests of the tenant.”Member’s explanatory statement
This amendment would require “permitted insurance payment” to include payment of a reasonable sum to a broker at market rates for placing the cover, and to exclude any payments which have arisen from wrongdoing.
Lord Bailey of Paddington (Con)
A lot of the Bill relies on secondary legislation coming through at a later date, meaning that we must all wait for many of the details of individual policies and cannot fully scrutinise them now. Last week we heard from the Minister that the commencement will be in 2025-26. In January last year, the Secretary of State, Michael Gove, announced his intention to ban freeholder and managing agent insurance commissions—or “kickbacks”, as they are colloquially known—that fatten leaseholders’ insurance premiums and pad their service charges. He was right to do so.
In recent years, there has been a series of truly horrific stories about leasehold building insurance, including bribes, kickbacks and commissions galore. When the Financial Conduct Authority did its investigation into this recently, it found that broker remuneration had increased by nearly 40% in three years, with at least 80 million leaseholder-funded commissions going to other parties. Brokers passed on more than half the commission to the freeholder, or the managing agent in 39% of cases. Brokers could not provide any evidence to support the claim that those payments were fair value. The FCA says:
“The level of commission is high, with typical commissions of 30%-49%, and … up to 62%. We have also seen that remuneration is shared with the freeholder or property managing agent (PMA) in many cases, with 37-42% of commission being paid away”.
That is damning. The commissions are clearly excessive and totally out of kilter with other classes of business.
The total commission going to freeholders or managing agents can be as high as 60% of the cost of the premium paid by leaseholders. This comes back to my core problem with leasehold: the people paying the bills do not have control over those bills and lack the ability to fire the rip-off companies they have to deal with—unlike flat owners under different arrangements almost worldwide, who have far more power and control. As the FCA observed, policies are being
“selected on the basis of commission rather than product quality. There is a lack of pressure on freeholders, PMAs and insurance brokers to search for the policy that offers the best value-for-money or to switch to better-value policies which may benefit leaseholders. This is because they can recover costs from leaseholders. We have seen instances of freeholders, property managing agents and insurance brokers having commercial arrangements with particular insurers which benefit them but not leaseholders”.
That brings me to my concern. I am doing this on behalf of leaseholders countrywide and campaigning for insurance professionals who have a conscience. The crux of this matter is: are the Government not inadvertently entrenching commissions by rebadging them as “transparent fees” and having them disclosed?
I am no lawyer, but I understand that if a secret profit has been made, every penny is owed to the wronged party—the principal under the law of agency. If the Government were to force all the kickbacks to be disclosed, as the Bill proposes, would that not just weaken the position of leaseholders, because they would no longer be secret profits? Another point is that freeholders hold money on trust for leaseholders, so if they have made a secret profit they open themselves up to legal challenge on breach of fiduciary duty.
How will the Government decide the level at which the permitted insurance payment is set? How will that be set and who will be in charge? What will be the mechanism? Will it be someone’s will, or will we have an algorithm that does that? Is this not just a backdoor for freeholders to extract more money from hapless leaseholders?
The Deputy Chairman of Committees (Lord Ashton of Hyde) (Con)
Does the noble Lord wish to move his amendment?
Lord Bailey of Paddington (Con)
I beg to move. Excuse me—I am dyslexic, and procedure is massively hard for me. One day I will get it all right—and all at the same time.
Baroness Thornhill (LD)
The problem is evident and not disputed, but the solutions are clearly debatable.
We support the amendment from the noble Lord, Lord Bailey of Paddington, as we share his concerns. The insurance scheme in the Bill, without the permitted insurance payment being set at something nominal such as £5 or £10 a year, could become another cost centre for freeholders. We know how difficult it is for freeholders, especially on larger developments, to get like-for-like quotes. Often, brokers will not even quote, which makes challenging at tribunal very difficult, especially when the freeholder claims that their fees are for works done and not pure commission. It is good for there to be a backstop in the insurance scheme in the Bill, so that brokers are fairly remunerated, while ensuring that other parties in the distribution chain, including freeholders, are banned from profiteering from the captive leaseholders who pay but do not get to choose the policy.
Amendment 82 in the name of the noble Baroness, Lady Taylor of Stevenage, and signed by my noble friend Lady Pinnock,
“would prohibit landlords from claiming litigation costs from tenants other than under limited circumstances determined by the Secretary of State”.
Clause 60 puts limits on the right of landlords to claim litigation costs from tenants. When the Bill was in the Commons, the Minister said that
“unjust litigation costs should not be incurred”—[Official Report, Commons, Leasehold and Freehold Reform Bill Committee, 25/1/2024; col. 347.]
by leaseholders—and we agree—but the Bill as drafted does not go far enough in preventing that happening. There will be circumstances in which it is appropriate for leaseholders to bear those costs, but we believe that Amendment 82 makes provision for that. The presumption should be that the costs are not borne by the leaseholder, unless in circumstances specified by the Secretary of State.
My noble friend Lady Pinnock’s Amendment 80 would require the Financial Conduct Authority
“to report on the impact of the provisions in the bill around insurance costs in order to monitor progress on reducing costs passed on to leaseholders”.
I am pleased to say that the Law Society also supports the amendment. Rising insurance premiums have sent service charges soaring in the last few years, mostly due to the costs associated with remediation works following the tragedy of the Grenfell Tower fire. That means that even the leaseholders who can access funding to help them pay for vital works to their buildings are still paying the price to remedy a problem that they did not cause.
Clause 57 places a limitation on the ability of landlords to charge insurance costs to leaseholders. This is a very welcome step in the right direction. It is essential that this provision works as intended to protect leaseholders from extortionate costs. The Financial Conduct Authority’s report into insurance for multi-occupancy buildings, published in September 2022, found not only that premiums were rising, with mean prices increasing by 125% in the period from 2016 to 2021, but that the level of commission rates for brokers was
“an area of significant concern”,
with eye-watering rates of up to 60% being seen.
The FCA also found that brokers were sharing commission with the freeholder or the property management agent, meaning that they were unfairly profiting from leaseholders. Commission—and not cover or costs—was therefore the driving factor in the choice of policy. The provisions in the Bill to limit the ability of landlords to charge insurance costs to leaseholders, alongside the Bill’s increased transparency requirement, should—one hopes—go a long way to protect leaseholders. We also note that as of 1 January this year, the regulator will force insurance firms to act in leaseholders’ best interests and to treat them as a customer when designing products. They will be banned from recommending an insurance policy based on commission or remuneration level. It is clearly very early days, but we hope to see some improvement from that.
There is, of course, the argument that the Government should go further. A cap on service charges for leaseholds, especially at a fixed amount rather than as a percentage, has been suggested as a way to properly protect leaseholders from unreasonable costs. We would, therefore, want to place a requirement on the FCA, whose thorough report provided the impetus for these provisions, to assess whether it has had an impact in reducing costs for leaseholders and preventing freeholders and managing agents profiting off them. We hope that the provisions of the Bill will provide the necessary relief for leaseholders, who are clearly facing exorbitant costs. It will, however, be essential that the Government keep a close eye on the impact of Clause 57 and take action if it is not going far enough.
Finally, the noble Lord, Lord Moylan, does have some amendments in this group—I looked very worriedly at this point. On the surface, they appear to be about making the process simpler and easier, which is probably a good thing and worth consideration. I look forward to hearing what the noble Lord says.
Lord Moylan (Con)
My Lords, I had assumed that the noble Baroness had risen to speak to the amendment standing in the name of her noble friend Lady Pinnock. I will speak to the amendments in my name in this group. Although there are eight of them, they fall into three broad topics, so I hope to dispose of them fairly quickly.
The first are Amendments 81 and 81A. These relate to the ability of right-to-manage companies to bring legal proceedings and charge the costs to the service charge. The effect of the Bill is that freeholders will not be able to charge legal costs to the service charge unless they obtain a ruling from a tribunal. In the case of right-to-manage companies exercising the functions of the freeholder, they have no source of income apart from the service charge. If they are not able to charge their legal costs to the service charge, then they will not be able to bring legal action at all. In fact, without that ability, they would not even be able to initiate legal action unless the directors of the company were willing to fund the preliminary legal activities from their own pockets. If they were willing to do that, and they proceeded to court, they might find that the court or tribunal did not find that they were entitled to recover their costs or find that they could recover only part of their costs as a result. Again, they would have no recourse to any source of funds apart from their own individual pockets in such circumstances.
The second amendment, Amendment 81A, would extend this provision not just to right-to-manage companies but to residential management companies. Right-to-manage companies were established under the Commonhold and Leasehold Reform Act 2002, but there are other residential management companies that exist that are not right-to-manage companies under that Act. These two amendments are alternatives; they are both probing.
I have heard that the Government are aware that this is a problem and are willing to do something to address it, so I hope that this particular probe will find a positive response from my noble friend on the Front Bench, because it cannot seriously be the Government’s intention to make it virtually impossible for anyone to become a director of a right-to-manage company without having to face serious personal financial risks that were never envisaged when RTM companies were established in 2002.
Amendments 81B, 81C, 81D and 81E all work together. They relate to a different problem, which is that the Bill allows a court or tribunal to award costs to a freeholder in certain circumstances specified in the Bill. However, if these costs are not paid, the only recourse the freeholder has is to go back to the court and seek a new judgment to have the costs awarded to them, whereas the normal method of dealing with such a matter is to make a simple online claim for a judgment in default. That course of action is precluded, as I understand the Bill, in the case of freeholders seeking to recover the legal costs that have been awarded to them. All this will do is burden the courts with more applications, which can and should be, and are normally, dealt with through an online process that takes a few weeks to go through. That surely should be available to freeholders.
The third topic in this group relates to Amendments 82A and 82B. These, again, are probing amendments to understand why the Government are extending the protection in relation to legal costs to all leaseholders, when surely the intention must be to extend it to those leaseholders who are home owners—that is, who own the property that is the subject of the legal dispute. The Bill has the effect of giving this protection also to investor leaseholders—those who hold the property entirely as an investment. I do not understand the Government’s logic in doing this, and these amendments probe that by suggesting that it should benefit home owners only.
Lord Khan of Burnley (Lab)
My Lords, I thank the noble Lord, Lord Bailey of Paddington, for introducing this group, setting the context for this debate about insurance payments and asking for clarity in relation to his amendment, which I am sure was also the intention of the noble Lord, Lord Moylan, in asking for clarity with one of his amendments and probing efficiency in his other amendments. I agree with the noble Baroness, Lady Thornhill, about the extortionate increases in insurance charges passed on to leaseholders. We found that the risk price that insurers charged between 2016 and 2021 pretty much doubled. The brokerage charge increased by more than three times. The service charges added on increased by about 160%, so they more than doubled, and those charges were passed on to leaseholders.
I will quickly speak to Amendment 82, in the name of my noble friend Lady Taylor of Stevenage. This new clause would prohibit landlords from claiming litigation costs from tenants other than in limited circumstances determined by the Secretary of State.
Lord Gascoigne (Con)
My Lords, I thank my noble friends Lord Bailey of Paddington and Lord Moylan, and the noble Baronesses, Lady Thornhill and Lady Taylor of Stevenage, for their amendments in this group. I will take them in turn.
Amendment 79, moved by my noble friend Lord Bailey, aims to ensure that insurance brokers’ remuneration is linked to market rates. It also aims to prevent wrongdoing. We share the intent of this amendment and are committed to introducing a fair, transparent and enforceable approach to insurance remuneration. We also recognise that insurance brokers are an important party in the provision of insurance. Given that, this amendment pre-empts the content of secondary legislation. Following Royal Assent, we will consult on what would constitute a permitted insurance payment, then lay the necessary secondary legislation before Parliament. This will clarify what remuneration will be permitted by those involved in the arranging and managing of insurance. My noble friend Lord Bailey spoke with his customary passion. We continue to welcome his views and the Minister remains keen to meet. I hope that, with that reassurance, my noble friend will withdraw his amendment.
Amendment 80 was tabled by the noble Baroness, Lady Pinnock, and spoken to by the noble Baroness, Lady Thornhill. I assure all noble Lords that this Government are committed to banning building insurance commissions for landlords and managing agents and replacing these with transparent handling fees, to address excessive and opaque commissions being charged to leaseholders. The amendment seeks that within one year of the day on which Clause 57 comes into force, the FCA conducts a report into the impact of this clause in reducing instances of unreasonable insurance costs being passed on to leaseholders.
We agree in principle with monitoring the impact of the clause and, more widely, that insurance costs must be reasonable. The FCA has been closely monitoring the multi-occupancy buildings insurance market in recent years, has strengthened its rules on fair value, and provides regular updates. The most recent update to the Secretary of State was published on 29 February. We will continue to work closely with the FCA and other stakeholders to develop our secondary legislation and in monitoring buildings insurance. Please be assured that this is an area on which we, and the FCA, are keeping a close eye. I hope that with this reassurance, the noble Baroness will not move this amendment.
Amendments 81 and 81A were tabled by my noble friend Lord Moylan; I will take them together. Amendment 81 seeks to exempt right-to-manage companies from the requirement for landlords to apply to the relevant court or tribunal to recover their litigation costs from leaseholders through the service charge. This amendment would apply where the right-to-manage company is exercising the functions of the landlord. Amendment 81A seeks to exempt “non-profit entities” from the requirement for landlords to apply to the relevant court or tribunal in order to recover their litigation costs from leaseholders through the service charge. The amendment provides examples of types of “non-profit entities”, including resident management companies and right-to-manage companies.
Clause 60 seeks to protect leaseholders from being charged unjust litigation costs from their landlord. It does this by requiring landlords to successfully apply to the relevant court or tribunal in order to recover their litigation costs, either through the service charge or as an administration charge. The court or tribunal will make an order that it considers just and equitable in the circumstances.
We understand the intention behind my noble friend’s amendments. The Government recognise the position of resident-led buildings. That is why the reforms also include provision to set out in regulations those matters which the relevant court or tribunal must consider when making an order on an application. The Government will carefully consider the detail of these matters with stakeholders and the tribunal, including where a building is resident-led. We would be concerned that the exemption provided by Amendments 81 and 81A would leave leaseholders with little protection from paying unjust litigation costs where a resident management company or a right-to-manage company is in place. I ask my noble friend not to move his amendments. However, it goes without saying that this is a complex area of reform and we are considering the issue carefully.
Lord Moylan (Con)
It is unsatisfactory if this is to be left to secondary legislation. Bearing in mind that the directors of the right-to-manage company are elected by the leaseholders, and can be replaced by them, and that they are really one entity, what is to happen if the tribunal decides not to make an award of costs? How are the directors to recover that money and who would become a director in those circumstances if they did not have that assurance in advance?
Lord Gascoigne (Con)
I will have to pick that up at a later date. There are a number of variables in that circumstance. I hope that my noble friend will forgive me for not having an answer to hand. I will certainly take this up with the department, rather than saying something that is incorrect at the Dispatch Box. My noble friend is absolutely right to raise it as an issue. It is under certain circumstances that those individuals find themselves in that situation, but I am more than happy to take that away and then write to my noble friend.
I turn to Amendments 81B to 81E, also in the name of my noble friend Lord Moylan. As I have previously said, Clause 60 seeks to protect leaseholders from unjustified litigation costs by requiring landlords to successfully apply to the court or tribunal to recover their litigation costs from leaseholders. This replaces the right that leaseholders currently have to apply to the courts to limit their liability for landlords’ litigation costs. The relevant court or tribunal will make an order on a landlord’s application that is just and equitable in the circumstances.
Amendments 81B and 81D seek to amend the provision that allows the court or tribunal to make a decision on the landlord’s application for their litigation costs that it considers
“just and equitable in the circumstances”.
Instead, the amendment stipulates that where a landlord is successful in relevant proceedings, the court or tribunal will allow the landlord to recover their litigation costs from leaseholders—unless the landlord has acted unreasonably. We understand the intention behind my noble friend’s amendments—to minimise the amount of court or tribunal hearings. However, the Government have a few concerns with the amendment.
The amendment would mean that the court or tribunal would always need to make an order that the landlord can recover their litigation costs from leaseholders where the landlord had been successful in proceedings in whole or in part. The only exception is where the landlord has acted unreasonably. Of course, where a landlord is successful in bringing or defending a claim, we would expect that the court or tribunal would allow them to recover their litigation costs from leaseholders. However, there may be a range of variables and nuances that occur in disputes which need consideration on a case-by-case basis.
The Government think the relevant court or tribunal is best placed to assess applications for costs, taking into account the circumstances of each case. In addition, the measures currently provide for regulations to set matters which the court or tribunal will consider when making a decision on costs applications, which we will consider carefully with stakeholders and the tribunal.
Amendments 81C and 81E seek to allow landlords to recover their litigation costs, where allowed under the lease, without needing to make an application to the relevant court or tribunal in certain circumstances. These circumstances include where proceedings before the county court are subject to a judgment in default, where litigation costs have been incurred in relation to forfeiture proceedings or where proceedings against a landlord have been struck out or are settled before the first hearing. Again, the Government have concerns about these amendments. For example, if a landlord is unsuccessful in proceedings of forfeiture against a leaseholder, this amendment would allow them to recover their litigation costs from a leaseholder regardless. These amendments would also make the provisions more complex, with different rules applying to different scenarios. We completely understand the intention behind my noble friend’s amendments. However, for these reasons, I ask that he does not press them.
Amendment 82, tabled by the noble Baronesses, Lady Taylor and Lady Pinnock, and spoken to by the noble Lord, Lord Khan of Burnley, seeks to prohibit landlords from recovering their litigation costs from leaseholders apart from in excepted circumstances to be set out in regulations. Clauses 60 and 61 already seek to rebalance the litigation costs regime for leaseholders in an effective and proportionate way. As I have previously noted, Clause 60 will require a landlord to successfully apply to the relevant court or tribunal in order to recover their litigation costs from a leaseholder. This applies whether the landlord is seeking to recover their litigation costs as a service charge or an administration charge. I also note that Clause 61 gives leaseholders a new right to apply to the relevant court or tribunal to claim their litigation costs from their landlord. For both landlord and leaseholder applications, the relevant court or tribunal will make a decision on costs in the circumstances of each case. Taken together, these measures will rebalance the litigation costs regime and remove barriers to leaseholders challenging their landlord. We believe the Government’s approach strikes the balance of being robust but proportionate. Therefore, I respectfully ask that they do not press this amendment.
Finally, I turn to Amendments 82A and 82B from my noble friend Lord Moylan. Currently, in the tribunal and for particular court tracks, leaseholders can claim their litigation costs from their landlord only in very limited circumstances even when they win. This may deter leaseholders from being legally represented or from challenging their landlord in the first place. As I have previously said, Clause 61 gives leaseholders a new right to apply to the court or tribunal to claim their litigation costs from their landlord where appropriate. As with the landlord application for costs, the court or tribunal will make an order that it considers just and equitable in the circumstances.
Amendments 82A and 82B seek to amend the new leaseholder right so that it applies only to home owners rather than investor leaseholders. Amendment 82B provides the definition of a “homeowner lease” so that the leaseholder right applies only to a leaseholder of a dwelling which is their only or principal home. Exempting certain leaseholders from this right would restrict access to redress where we are seeking to remove barriers. For example, there may be instances where a leaseholder who privately lets their flat needs to take their landlord to court because they are failing to maintain the building, which is impacting their property. In these circumstances, we would want the leaseholder to feel able to hold their landlord to account. Providing leaseholders with rights, regardless of whether they are home owners or investors, is in line with the approach we have taken throughout the Bill. Such an exemption would be out of step and will add complexity to the measures. Therefore, I ask my noble friend not to press his amendments.
Lord Moylan (Con)
May I ask the indulgence of the Committee? I should have declared when I spoke—as I did earlier in debate—that I live in a building which is run by a right-to-manage company of which I am a director, as is shown in the register of interests. I should have said that in my opening remarks, but I hope I will be forgiven for adding it now.
The Earl of Lytton
“Building trustee(1) A prescribed building must have a building trustee.(2) In this section a prescribed building is—(a) a higher-risk building as defined by section 65 of the Building Safety Act 2022, or(b) a building where—(i) 50 per cent or more of the internal floor of the building (taken as a whole) is not occupied for residential purposes, and(ii) the total service charge payable for the building exceeded £250,000 in the last financial year, or(c) a building where a recognised tenants’ association has requested the appointment of building trustee, or(d) a building where a court or tribunal has ordered the appointment of a building trustee.(3) The Secretary of State may by regulations amend the definition of prescribed building.(4) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.(5) In this section—“building” means a self-contained building, or self-contained part of a building, in England that contains at least two dwellings;“prescribed” means prescribed in regulations made by the Secretary of State;“recognised tenants’ association” has the same meaning as in section 29 of the Landlord and Tenant Act 1985.”Member's explanatory statement
This amendment requires higher-risk buildings (over 18m), and buildings where 50% or more of the floor space is not residential and with a total service charge of more than £250,000 to have a building trustee. A building trustee may also be appointed at the request of recognised tenants’ association, or by a court or tribunal.
The Earl of Lytton (CB)
My Lords, I move Amendment 82C and will speak to Amendments 82D to 82M standing in my name. These draw on good practice in the management of multiunit developments in Australia, Europe and North America and seek to replicate best practice here. They are also designed to address some of the concerns raised in earlier debates, particularly in the context of the proposed change to the threshold for enfranchisement in mixed-use developments from 25% to 50%. I suggest that similar amendments to a future commonhold Bill would go some way to meeting concerns that have been expressed about the risks associated with a wholesale move to that tenure.
The amendments provide for the appointment of a building trustee. It is proposed that this should apply in the largest and most complex developments. Building trustees might also be appointed at the request of a recognised tenants association or by the courts. The building trustee will be an independent and impartial figure whose primary role of auditing performance would ensure that interest rights, responsibilities and performance of the landlord were properly balanced with those of leaseholders and, more importantly, that the building is properly maintained and the service charge provides value for money. I noted in our earlier discussions the Minister’s comments to me about value for money, but it is the benchmark used by the National Audit Office for local authority finance, I believe—I eyeball noble Lords who have experience in that line of business.
Amendment 82C sets out the buildings this would apply to, and Amendment 82D outlines the trustee duties—I will rattle through the amendments at some speed. Amendment 82E is about the appointment process of the building trustee. Amendment 82F sets out the trustee entitlement to documents and information.
There is, of course, the question of who pays for the building trustee. It would be unreasonable—particularly during a cost of living crisis—to burden leaseholders, especially as many of the buildings covered by Amendment 82C are already facing increased service charges owing to the new safety requirements under the Building Safety Act. Instead, Amendment 82G provides that the costs of building trustees would be covered by a levy on providers of commercial and residential mortgages and block landlords, excluding enfranchised building and tenant right-to-manage companies.
Amendment 82H sets out what would be the baseline value-for-money benchmark. This is necessary because there is a risk of inevitable bias in the management under the auspices of a party to the leasehold arrangements. This might be perfectly reasonable in terms of the person instructing the management, but still fall well short of the optimal.
One of the Bill’s key aims is to make it cheaper and easier for leaseholders to enfranchise. I welcome that. My amendments are designed to augment these plans by providing a light-touch oversight to ensure effective, efficient and economic management of a building. This backstop would require reassurance to lenders, leaseholders and other stakeholders that a freeholder-managed or resident-managed building will be properly looked after.
The reassurance offered by the building trustee is needed, as there is strong evidence that, monetising policies by a few freeholders apart, leaseholders themselves are often reluctant, unable or lack the skills to take on the responsibility and liabilities for the management of increasingly complex buildings, or to direct the professional managers adequately. Indeed, some complaints reaching my mailbox are about residents’ own management companies, and the Government’s own research found that leaseholders were concerned about issues of working with neighbours, lack of time and reluctance to take on additional responsibilities beyond those necessary as a home owner.
That touches on a point raised by the noble Lord, Lord Moylan, in a previous group, because although most leaseholders will appoint a managing agent to undertake the day-to-day running of a building, they themselves remain responsible for key decisions and setting priorities, such as service charge levels, authorising maintenance schedules and dealing with arrears. It can be difficult to get collective agreement on these issues, with resultant detriment to the management of the building fabric. According to data from the Scottish House Condition Survey, half of all housing is in what it describes as “critical disrepair”, and almost half demands “urgent attention”. The situation is most acute in tenements, so I appreciate that this probably relates to older buildings, but paying for common repairs or maintenance was the most frequent cause of disputes in these buildings.
By taking a whole-life view of the building, the building trustee can seek to avoid that Scottish experience by providing an independent assessment of maintenance needs and condition, and ensuring sufficient provision is put aside to maintain the building properly. Amendments 82I and 82J would require landlords to provide a 10-year plan of anticipated expenditure on capital works and building maintenance, and to establish a sinking fund to avoid leaseholders facing large, unanticipated bills. The plan and the fund would be subject to an independent audit and assessment by the building trustee to ensure that necessary works, and only necessary works, were planned for and adequately funded.
In an open letter to lenders on taking commonhold as a security, dated 21 July 2020, the Law Commission recognised that
“the value of a lender’s security is inherently linked to the management and maintenance of the building in which a flat is located. A failure to keep the building in repair, to insure it properly, or to keep sound finances all have significant potential to jeopardise the value of a lender’s security”.
The same is, of course, true for leasehold buildings. That is why I believe that professional landlords and lenders should cover the cost. It is the banks and the building societies whose capital is at risk. The building trustee should provide a cost-effective way of reassuring them that the flats they have lent on are being properly managed, and of maintaining the value of the security. The same is true of commercial lenders on mixed-use developments. I envisage that the Secretary of State would outsource the appointing of building trustees to an external body, as provided for in Amendment 82E.
Two significant further powers would be conferred on the building trustee through Amendments 82H and 82K. Amendment 82H would allow the building trustee to apply to the tribunal on behalf of leaseholders to seek refunds of expenditure that does not provide value for money. Amendment 82K would allow the building trustee to adjudicate in disputes between landlord and leaseholder, and between leaseholders. One of the main areas where I see this provision being used is service charge arrears. It is particularly important in leaseholder-managed blocks that do not have the wider financial resources of the major landlord groups that service charges are paid promptly. Failure to do so prevents a building being managed properly, and in extreme cases places all residents at unnecessary risk. If essential safety works could not be undertaken or building insurance obtained, that would create real problems.
Evidence from other parts of the world suggests that condominium statutes do not have sharp enough teeth to recoup outstanding contributions efficiently and effectively. In England and Wales, we currently fall between two extremes. I have sympathy with those noble Lords who argued in a previous debate that forfeiture, with the exorbitant windfall that it can offer landlords, is inherently unreasonable. Equally, I recognise the point the Minister made in previous discussions that civil debt recovery proceedings can be lengthy. The building trustee’s power to adjudicate offers a faster and less formal route of dispute resolution than the court, and supports the building’s cash flow.
Amendment 82L would provide for the building trustee to take over the management of a building if its landlord becomes insolvent. Historically, this has happened to very few landlords. However, the Committee will recall that I have previously raised concerns that not all landlord groups have the funds needed to meet the building safety remediation liabilities and could therefore become insolvent. The financial position of these groups may get significantly worse, depending on the Government’s decision on ground rents. Some of the country’s largest landlord groups—I refer to E&J Estates, which is landlord to around 40,000 homes, Long Harbour, which is landlord to around 193,000 homes, and Regis Group, which is landlord to around 30,000 homes—have significant borrowings that are due to be repaid from ground rent income over the next 40 to 60 years.
To the best of my knowledge, the Government’s final position is still unknown but, based on press comments on the Secretary of State’s own preference, it is reasonable to assume that the finances of landlord groups dependent on ground rent income to repay their borrowings will come under further, if not fatal, stress. This is not just my view; it is also that of the Government, whose own impact assessment states that
“there may be potential insolvencies/forfeiture and associated costs where the freeholder defaults on contractual obligations as a result of the cap”.
However, it does not seem that there has been further assessment of just exactly what this would mean in practice.
The collapse of a major landlord group would be without precedent and could cause tens of thousands of leaseholders in hundreds of buildings to be in serious trouble. In blocks subject to intermediate leases, it is likely that contracts covering everyday management and maintenance would be at risk because there would be no landlord to provide instructions. Conveyancing and lending transactions, which are already under stress, would be paused as there would be no one to process essential documents such as notices, deeds of covenant, landlord certificates and leaseholder deeds of certificate. The ability of the building trustee to assume the management of a building in such circumstances, and prevention of possible management contract termination, is an essential backstop that prevents leaseholders being left in limbo for months while they try to set up an alternative arrangement for managing their buildings and/or await the outcome of the administration or liquidation.
Finally, Amendment 82M would simply ensure that the building trustee has relevant qualifications for the task.
I hope your Lordships will see the merit in these arrangements, and that the Minister will be able to agree that measures such as this are a necessary complement to the Bill’s intentions. While I commend these amendments to the Committee, I simply say that I am not set on this particular structure, but the principle needs further examination to provide the point that I have constantly been on about—namely, consumer protection. On that basis, I beg to move.
Lord Foster of Bath (LD)
My Lords, I will speak to Amendment 95A. The Long Title of the Bill is very clear. It includes the phrase
“in connection with the remediation of building defects”.
Much of the debate has been on the management and funding of remediation and maintenance, but the early identification of defects is clearly really important in order to avoid some of the problems that can occur, as, tragically, we have seen, for instance, in the Grenfell Tower fire.
That fire was caused by a faulty electrical appliance, but there is also a large number of fires caused by faulty electrical installations. Indeed, the charity Electrical Safety First has calculated that there are around nine such fires every single day in England and Wales. On average, they cost about £32,500, but they have in many cases ruined lives, and on a few occasions have meant, tragically, that people have lost their lives. Quite clearly, it makes a great deal of sense to identify faults at the earliest possible opportunity.
Baroness Fox of Buckley (Non-Afl)
My Lords, my Amendment 104 is very much part of the amendments I have—both today and on other days—that look at the way the law, as it was previously made, might not be doing what it is intended to. I am interested in restoring Section 24 management for leaseholders suffering at the hands of some predatory freeholders, suffering sky-high service charges and run-down buildings—some of the things we have been talking about.
Like many other noble Lords here, I still have the scars from scrutinising the Building Safety Bill when I first arrived here. It was the most hugely complicated piece of legislation, but it went through the House relatively quickly because of the importance of the topic. As I think we are all aware now, that speed probably led to a number of unintended consequences that have since come to light. One surely unintended consequence of the Building Safety Act is the way that its accountable person regime undermined Section 24 of the Landlord and Tenant Act 1987. Due to the wording of the Act’s accountable person policy, Section 24 court-appointed managers are barred from assuming their duty-holder role. Until that point, these tribunal-backed managers would be entrusted with all of the building’s management, when it was determined that the freeholder could not be trusted to remain in control of a development and leaseholder service charges.
I am not commenting in general on the accountable person policy per se, although there are problems with it. But it is odd that there is such a wide range of entities that can be the accountable person, including leaseholder-controlled resident management companies and right-to-manage companies, yet strangely, the Act prohibits a Section 24 manager from taking on the role, despite the fact that a Section 24 manager would have been appointed by a tribunal panel, which was satisfied that they had the credentials and experience needed to steward a development that had fallen foul of a poor freeholder. I do not understand how this happened, or why.
It is important to note that Section 24 has been a lifeline right for ripped-off leaseholders unable to buy their freehold or claim the right to manage because of costs or strict qualifying criteria. This is an attempt to ensure that Section 24, which is the ultimate backstop scheme, is restored in the Bill, to give leaseholders a clear route to remove freeholders and their management agents if it has been shown that they have actually been ripped off and it is the only route open to them.
This issue came to my attention in February, when Melissa York in the Times reported a devastating story of Canary Riverside in Tower Hamlets. This story really made an impact on me, because there the leaseholders have benefited from court protection, with Section 24 management, since 2016. A Section 24 manager was installed because the freeholder, a Monaco-based billionaire, John Christodoulou, had lost the confidence of the tribunal due to his company’s seeming financial mismanagement and poor estate maintenance. After years of fighting by the leaseholders, in March this year the Upper Tribunal found that the freeholder had used a related firm to overcharge the development by £1 million in secret insurance commissions—the kinds of issues we were discussing earlier today.
Yet despite this and other well-evidenced service charge abuses, and the fact that the leaseholders have benefited from independent Section 24 management, The Times reports that
“an oversight in the new Building Safety Act means the same court that removed his management company could put Christodoulou back in control of service charge moneys and safety works, including £20 million for cladding remediation”.
It seems to me that the Building Safety Act’s seemingly arbitrary exclusion of Section 24 managers from its accountable person regime did not intend to do this, but its effect is that those Canary Riverside leaseholders, among others, are faced with the prospect of their landlord staging a comeback and regaining control over block management, even though the leaseholders’ work over years, accumulating evidence to prove fault, has been accepted at tribunal level. That work is now undermined because a statutory right that leaseholders relied on for years is now blocked by the Act.
This is so frustrating, and it needs to be tackled in Parliament, as the courts are bound by the laws we make here. In December, in the first test case on this—Canary Riverside—the First-tier Tribunal confirmed that the Building Safety Act does not allow a Section 24 manager to be the accountable person. In March the Upper Tribunal agreed. Despite those tribunal decisions going against them, I commend the leaseholders at Canary Riverside, and say all power to them. They are still appealing in order to keep their Section 24 protection.
This is heroic work, which should remind us all of the real-life toll of the sort of issues leaseholders have to take on. They are ordinary people who bought leasehold flats, and who have ended up going in and out of court regularly—and there is not just the toll, but the costs. Nearly £200,000 has been committed in legal fees already. This is a sharp reminder that the unintended consequences of laws we make here can have wide-reaching, even devastating, effects on real people’s real lives.
We need to put right this wrong, here in Parliament, and to use the Bill to do so. The Section 24-accountable persons clash was raised in January with MPs on the Public Bill Committee by Free Leaseholders, End Our Cladding Scandal and Philip Rainey KC, who all drew this to our attention. As a consequence, the MPs Nickie Aiken and Barry Gardiner moved amendments on this issue in the other place. I would really appreciate it if the Minister looked into fixing this, because I do not think it is what we ever intended to do with the Building Safety Act. It is a loophole, and it has the most devastating consequences for leaseholders, which I am sure we could simply put right.
Baroness Thornhill (LD)
My Lords, I admire the persistence of my noble friend Lord Foster of Bath in his indefatigable pursuit of the perhaps unsexy but very important issue of electrical safety defects, as evidenced in his Amendment 95A.
The first group of amendments relates to building safety—a subject that we have debated many times in this Chamber in recent years, following the tragic events of the Grenfell Tower fire. Amendments 82C to 82M, in the name of the noble Earl, Lord Lytton, relate to a proposal that higher-risk buildings should have a building trustee. The trustee would be an impartial figure, whose role would be to ensure that the interests, rights and responsibilities of the landlord and leaseholders were balanced, that the building was properly maintained, and that the service charge provided value for money—a practice that exists elsewhere. We find the noble Earl’s proposal interesting, and certainly worthy of consideration in the future. However, it is quite a detailed proposal which may not have the chance to be scrutinised further in the context of the Bill.
Baroness Taylor of Stevenage (Lab)
My Lords, I shall speak to our Amendment 103, and comment on others in this group. I thank the noble Earl, Lord Lytton, for his careful and thoughtful consideration of how we might use the Bill to rectify some of the glaring building safety omissions that are an unfortunate legacy of the Building Safety Act. His proposals on building trustees warrant close consideration, especially as he has carefully set out how they might be funded. Taken together with proposals in later amendments for a property regulator, this could deal with a number of the loopholes that have caused an overall descent into property chaos, which has been the subject of much debate in this House, by matching independent local oversight with a national property regulator.
The noble Earl set out in his customary forensic way his justification for the amendments. I respect his professional expertise in this area, and I do not think I need to say any more than to welcome the issues he has covered. As the noble Baroness, Lady Thornhill, said, those could have been subject to pre-legislative scrutiny—but sadly, they were not. As was said earlier today, it is a mark of how your Lordships’ House can contribute to legislation that we have them before us today. It is a shame they could not have been incorporated at an earlier stage, because it is late now to debate such detailed proposals. I look forward to the Minister’s response, and I hope she will, as she always does, take the amendments seriously and tell us what the Government are going to do when they consider them.
Noble Lords would have received the excellent briefing, as I did this morning, from the National Residential Landlords Association. It says that “it is more critical than ever, in the context of the Government’s Leasehold and Freehold Reform Bill” that the building safety remediation scheme “is implemented without further delay to resolve the failings of the Building Safety Act’s leaseholder protections”. The noble Earl, Lord Lytton, said that he is not particular precious about this structure but, if we do not have it, what will the Government put in its place to do that?
We are now seven years on from the dreadful tragedy at Grenfell. It is shameful that so many leaseholders are still living with the fear of fire risks and the unbelievable pressure from the uncertainty around the financial commitments that they will face for their building remediation. It is the most terrible indictment of this Government’s failure to recognise the unconscionable impact on the lives of those affected, let alone the issues raised so many times in this Chamber of those who live in non-qualifying buildings but, nevertheless, have the leasehold sword of Damocles hanging over them.
The noble Baroness, Lady Thornhill, already mentioned the excoriating article in the Times this weekend. Martina Lees gives an incredibly thorough and well-researched account of the impact of the cladding scandal. Her investigation points out that
“15,000 residents have been forced to leave homes due to fire or fire safety defects”,
and that escalated last year with the evacuation of at least 21 buildings. She also says:
“Despite £9.1 billion of government grants being set aside to help fix homes, only £2.1 billion has been spent. The building safety crisis has trapped 700,000 people in dangerous homes and left almost three million owners with flats they cannot sell. Almost all are properties built or refurbished since 2000, with defects such as flammable cladding systems, combustible balconies and faulty fire barriers”.
I am familiar with faulty fire barriers from Vista Tower in Stevenage. She also points to government manipulation of figures, in that they
“cite a total of 4,329 buildings or 248,000 flats over 11 metres high with unsafe cladding. Of these, 23 per cent have been fixed”.
However, as Ms Lees points out,
“previous government data added up to 375,000 flats over 11m, making the number fixed just 8 per cent. The new total excludes more than 1,000 buildings where the developer must pay for repairs but does not know whether work is needed. It also precludes hundreds of blocks that did not get taxpayer help because they had the wrong type of fire risks … or were deemed below 18m … It leaves out up to 7,283 mid-rise buildings that the government had previously estimated to be unsafe”.
I am sure that the Minister will tell us that she does not respond to press stories in the Chamber, but the headline issues raised here are that affected leaseholders continue to endure this misery, with some having to pay rent for properties that they have been evacuated to, on top of the thousands of pounds of service charges that they face. Amendments in this group would at least provide some longer-term solutions to these issues.
My Amendment 103 seeks to recognise that financial pressure and ensure that there is at least a cap on the charges that leaseholders are expected to bear. Our preference going forward would be that developers are held ultimately accountable for any fire or other safety defect remediation in the buildings. In future, we hope that even greater consideration is given to how that might be achieved.
We also support the amendment of the noble Lord, Lord Foster; it is surprising only in that it is not already the case that buildings with electrical defects cannot be sold. If that is the case, surely this should be urgently rectified through the building regulations regime. I hope that we do not have to wait another two years to implement that.
Amendment 101 is in the name of the noble Lord, Lord Young, although he did not speak to it. It seeks to impose a deadline of June 2027 for remediation of fire safety defects. That is not an unreasonable target, as it would mean that an entire decade had passed since the Grenfell tragedy.
The noble Baroness, Lady Fox, made a very powerful case for the unintended consequence of the removal of the Section 24 manager. Her amendment and that of the noble Lord, Lord Bailey, seek to improve accountability. As this is one of the stated aims of the Bill, we look forward to the Minister’s response to their proposals.
Baroness Scott of Bybrook (Con)
I thank noble Lords for their various amendments on building safety and for the debate. I will respond to the amendments in turn.
I thank the noble Earl, Lord Lytton, for his amendments relating to a building trustee. Amendment 82C requires some buildings to have a building trustee, while Amendments 82D to 82M cover the process of appointment, duties, rights to information and how these trustees will be funded. The building safety trustee will either replace or complement the functions carried out by the landlord or a managing agent. I fully agree with the view that landlords and managing agents must manage and maintain buildings for which they are responsible and provide a good-quality service to tenants. However, I believe that this proposal would create additional complexity with little relative gain. The proposed mechanisms for funding these trustees increase the risk of pushing more landlords into escheat and it is hard to see how the levy proposals can be delivered. Secondly, we consider that there are better ways to deliver the desired outcome. As I have previously mentioned, we are bringing measures forward in the Bill that will drive up the accountability of landlords and their agents, so we do not agree with the noble Earl’s amendments.
I thank the noble Lord, Lord Foster of Bath, for his amendment, which seeks to improve electrical safety standards in buildings by identifying whether there is an electrical defect prior to sale, and for his continued interest in this very important issue for housing safety. This amendment would require a specified person to acquire an electrical installation condition report or electrical installation certificate prior to marketing the property, unless it is being sold for demolition or a full electrical rewire has been completed in the last five years. This is an important issue; we know that improving electrical safety is paramount to helping prevent fires and making sure that occupants feel safe in their homes.
As the noble Lord said, the Government have already taken firm action in the private rented sector by requiring PRS landlords to acquire an EICR at least every five years and to organise remediation works where necessary. We have also consulted on equivalent electrical safety standards in the social housing sector through our 2022 consultation and call for evidence. Here, we examined proposals to require social landlords to obtain an EICR for their rental tenants at least every five years and then to carry out remedial works within a set timescale. Our call for evidence also explored extending the proposed requirements to owner-occupier leaseholders within social housing blocks, so that the whole block is subject to these increased standards. We are aware of the noble Lord’s concerns about the sector that we have not yet hit—the owner-occupied sector. The Government are still considering responses to the consultation and the call for evidence, and we will update this House in due course.
I thank the noble Baroness, Lady Fox of Buckley, and the noble Lord, Lord Bailey of Paddington, for their Amendments 104 and 105B—I will also speak to Amendment 98, although my noble friend Lord Young of Cookham is not here—relating to changes of the definition of accountable persons under Section 72 of the Building Safety Act 2022 and other changes protecting the position of managers appointed under Section 24 of the Landlord and Tenant Act 1987.
I trust that noble Lords will understand that the Government cannot accept the proposed amendments. First, defining a Section 24 manager as an accountable person would move financial and criminal liabilities away from the existing accountable person to the Section 24 manager. It was the intent of the Building Safety Act that financial and criminal responsibilities for certain aspects of maintaining the building should always remain with the accountable person, and the accountable persons cannot delegate this responsibility to a third party. As drafted, the amendments could also mean that Section 24 managers would not be able to recover funds from the accountable person for the incidents of remediation works. I assure noble Lords that the Government are looking closely at this issue and at options to ensure that Section 24 managers can take forward building safety duties and get funding, where needed, from the accountable persons.
The Earl of Lytton (CB)
My Lords, it is my privilege to thank all noble Lords for their contributions to the debate on this group. I pay tribute to the noble Lord, Lord Foster of Bath, for his contribution. As the noble Baroness, Lady Thornhill, said, he has been a doughty campaigner on this issue without pause for breath. It is absolutely right to consider electrical safety in buildings.
I also particularly mention the noble Baroness, Lady Fox of Buckley, for her important contribution. It raised something that has bothered me for a long time—namely, that I do not see a long queue of people wishing to be the accountable person. Indeed, I do not think this has been correctly thought out. There is an assumption in the Building Safety Act 2022, and again in this Bill, that somehow these things are going to be accepted and fall into place. When it comes to liabilities, they do not automatically happen and they do not just fall into place.
I thank the Minister very much for her comments on my amendments. She said they would create additional complexity for very little gain and that there were better ways to deliver the outcomes. I am not sure what she thinks those better ways are, given that we are dealing with a situation that is a legacy of the Building Safety Act—which is getting on for two years old—but has not been fixed, and meanwhile people are in great difficulties in their homes as a result. There needs to be legal responsibility, proper accountability without gaps and resource in terms of funding, from wherever that will come. There is a necessity to identify that secure and adequate resource, but we do not have that at present.
I will very likely return to these amendments—or these subjects, anyway—at later stages on the Bill. In the meantime, I beg leave to withdraw the amendment.
Baroness Scott of Bybrook
Member’s explanatory statement
This amendment is consequential on clause 67 repealing section 172(1)(a) of the CLRA 2002, which is amended by section 112(7) of the BSA 2022.
Baroness Fox of Buckley
“Marketing of residential leasehold property(1) Within six months of the day on which this Act is passed, the Secretary of State must make regulations to regulate the marketing of residential leasehold property.(2) Regulations under subsection (1) may—(a) require residential leasehold property without a share of the freehold to be marketed and sold as “lease-rental”,(b) require that residential leasehold property without a share of the freehold be advertised with a disclaimer containing the words that “leasehold is a lesser title and management and service charges at this property are controlled by a third-party entity that is not subject to democratic resident control”,(c) provide information about the rights and responsibilities of leaseholders and landlords under a long lease to be given to prospective home buyers by sellers and property agents in the form of a document produced by the Secretary of State or another person,(d) require sellers and property agents to clearly state material information, including lease length, ground rent and service charge, in the marketing of residential leasehold property,(e) define “prospective home buyers”, “sellers” and “property agents”,(f) provide that the document to be given is the version that has effect at the time the requirement applies, and(g) specify cases where the regulations do not apply.(3) Regulations under subsection (1) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”Member’s explanatory statement
This amendment would provide for a scheme to regulate the marketing of residential leasehold property. The scheme involves requiring leasehold homes without a share of the freehold to be marketed and sold as “lease-rental”, which adopts a key recommendation of the leasehold report by the House of Commons’ Levelling Up, Housing and Communities Committee, published on 11 March 2019.
Baroness Fox of Buckley (Non-Afl)
Last week, after I spoke in the debate, I received a message from someone I know quite well. It said:
“I’m currently in the final stages of trying to buy a leasehold flat and am pretty worried about what I’m getting myself into. The freeholder, a Housing Association, has increased the service charge by 27% since I had my offer accepted and there seems to be nothing to stop them doing so again. They claim they just do it to cover costs … I get the impression this is a rentier business pretending to be something else”.
The aim of the amendment, which in some ways might appear to be quite glib, is that everyone should stop pretending this is something it is not. When you become a leaseholder you are not actually buying a home, and I want to clarify that to say so is mis-selling.
Of course, I am hopeful that the Government will accept my earlier amendment for a sunset clause on leasehold and that commonhold will become the new normal, but in the meantime those buying homes on leasehold should be frankly told what they are buying into. I have noticed in this Committee, and in the wider debate on the issue, that developers and big freehold often defensively retort when we complain about treatment of leaseholders, “You knew you were buying a leasehold property. You knew the rules. Why didn’t you read the small print?” It is a form of victim blaming—“This is what leasehold is”—but it is disingenuous.
I want to tackle that by regulating the marketing of residential leasehold properties so that they are sold as lease rentals, which in fact was a key recommendation of the leasehold report by the House of Commons Levelling Up, Housing and Communities Committee that was published in March 2019. I stress that when you buy a leasehold property, you think you are buying a house or entering into the home-owning classes. That is how it is sold to us by politicians. For example, a DLUHC spokesperson, defending the mess that is shared ownership, stated:
“Shared ownership has a vital role to play in helping people onto the property ladder, and since 2010 we have delivered 156,800 new shared ownership homes”.
The whole idea, when you buy into shared ownership or you buy a leasehold flat, is that you are joining the property-owning classes. You think of it as the aspiration to own your own home, and all that that entails. That is what you are buying.
We need to consider the ideology of home ownership. I thought about that particularly when watching an excellent lecture entitled “Making our homes our own” by Professor Nicholas Hopkins, a Law Commissioner for property, family and trust law. When you are renting somewhere to live, there is a sense of dependence on a landlord. You have no conception that you own the property, and it is all very clear. I remember my father saying to me, “It’s time to grow up and stop renting”, and eventually I bought a flat—not until I was 40, mind. It was a leasehold flat, and I thought, “I’m all grown up now. I’m taking responsibility. No landlord—it’s up to me”. Little did I know.
When you buy a home, you think you are buying independence, autonomy and control. Yes, it provides greater security, stability and permanence, but what about what Professor Hopkins calls the “x-factor” benefits—the idea that you buy a property, make it your own and personalise it? Do noble Lords remember those symbolic new front doors that everyone put on their council flats after right to buy came in? It was like saying, “I bought mine, so I’ve got a red door”—it meant something. I am not saying that in a sniffy way; it did mean something. It was about saying, “I’m going to take pride in maintaining this. I’m going to improve it”. People were in control over their houses, how and when to dispose of them, and so on—they had taken that grown-up responsibility. The notion that there is no landlord controlling your home is very important, but it is an illusion in relation to leasehold.
When the Commons Select Committee did an inquiry into leasehold in 2018 to 2019, it
“found a system which stacked the odds in the favour of developers, freeholders and managing agents, leaving leaseholders with all the financial responsibilities and without matching safeguards to protect them. Leaseholders were too often treated not as homeowners or customers, but as a source of steady profit”.
That is exactly what it feels like, but they do not tell you that at the estate agents. They do not say that the leasehold form of home ownership means that, while you pay for the maintenance of your home, you have no control over the amount, quality or cost of work undertaken. The whole experience is disempowering. You are being done to—the object of other people’s decisions.
I will give an example. When Storm Eunice battered Britain a few years ago, the roof of one lady’s top-floor two-bedroom leasehold flat started to leak badly. She said that rain was coming down through the light sockets and switches. Most home owners would try to get someone in as soon as possible to identify the leaks and get the problem fixed urgently via a claim on their buildings insurance—there is a storm, there are leaks and it is dangerous, so you get it fixed properly. But, because Liz’s flat is leasehold, she had to rely on a managing agent to sort things out. Despite countless calls and emails, she could not get anything done. Eventually, the water stopped—they stemmed the flow—but that failed and mould started to grow in the increasingly sodden flat, so Liz had to move out. There was more pleading with the managing agent to find suitable temporary accommodation, and eventually they did, albeit to a dodgy area in which Liz said she did not feel safe.
The Minister said earlier that one reason she was nervous about giving consultation rights to leaseholders in relation to local authorities was that the leaseholders might hold up works and that, somehow, the freeholders would be rushing to get them done. Is there a historic example of that ever happening? Generally, what has happened is that leaseholders are in a rush to sort out problems in their own homes and would know how to do so, but the freeholders, or their managing agents, are less inclined to.
Mis-selling leasehold properties as property ownership is, in my opinion, a con in so many ways. People who save hard for a deposit, and who budget and work hard to get a mortgage, see their new home as a financial asset: a home to pass on. But, as Professor Hopkins explains, the effect of leasehold, in essence, is to put financial value in the landlord’s hands at the expense of the leaseholders, and
“the more a person’s home is used as a financial asset to benefit their landlord, the less it is an investment for the individual. The more a leaseholder’s money is providing an investment for their landlord, the less their money is providing an investment for their own future, their family and their next generation”.
So, for leaseholders, the question is: would they buy that flat if their home was actually a source of investment for someone else—a profit for someone else—and not even something they could easily pass on to their family?
When you look in an estate agent’s window, there are two sections: for sale and for rent. There is no mention, under “for sale”, that there is a two-tier system of property and that leaseholders do not get sold their homes outright but are tenants of a freeholder who owns the land. Would-be buyers may hear their solicitors mumble the word “leasehold”, but the implications are not spelled out. For example, Natalie Walton explained in an article that, when she bought her new-build two-bedroom flat in Wakefield for £105,000, she had no idea that, on top of her £1,600 annual service charge—uncapped—her ground rent would be increased every 20 years. She said:
“It’s not easy when you’re a first-time buyer to understand all of the implications of ground rents. I had a copy of the lease but the solicitor didn’t go through any of it with me”.
So, yes, I know that the paperwork exists, but, without signposting it, and a regulated demand for honesty and frankness through the buying and selling process, many more people will be hoodwinked until we get rid of leasehold for good.
Baroness Thornhill (LD)
My Lords, I support Amendment 84, in the name of the noble Baroness, Lady Fox of Buckley. There is no doubt that mis-selling of leasehold homes is going on. Indeed, some developers insist that you can buy a flat from them only if you go with one of their approved solicitors. These solicitors will most likely not alert you to the negative aspects of that lease. Public awareness and understanding are low, as the noble Baroness showed from personal experience. The noble Baroness mentioned estate agents. I went on to Rightmove’s website and found that it provides buyers no search function to differentiate between freehold and leasehold homes, which I mention because, apart from this feeling disingenuous, it highlights that the problem starts at the very beginning of the process.
As has been mentioned, the Levelling Up, Housing and Communities Committee did an inquiry into leasehold in 2018-19. Its report said:
“Many leaseholders reported that they were surprised to learn that they did not own the properties they had purchased in the same way as they might have owned a freehold property. One leaseholder, Jo Darbyshire of the National Leasehold Campaign, told us there was ‘a fundamental lack of understanding about what leasehold tenure means to consumers out there.’ Shula Rich, from the Federation of Private Residents’ Associations, described leasehold as ‘the fag end of a timeshare … it is not owning anything’ and called for greater clarity from the Government and industry that purchasing a leasehold should not be sold as the ‘ownership’ of a property in the same way as freehold”.
They are leaseholders, not home owners, and they did not get help to buy or anything other than the right to live in a building for the term of the lease.
It is important that key information is provided in ways that are accessible and easily understandable for consumers. We believe that managing agents and landlords should provide key information about leasehold properties at the marketing stage in a standardised format. The information should include the lease length, estimates of enfranchisement costs, the ground rent and service charging information, as required by National Trading Standards for marketing a property.
There are clearly significant differences between freehold and leasehold tenures, but these are not always apparent to prospective purchasers at the point of sale. It has been mooted that it would be more appropriate to refer to this tenure as “lease rental”. We agree with that—it would at least be honest.
Lord Khan of Burnley (Lab)
My Lords, I rise briefly to thank the noble Baroness, Lady Fox of Buckley, for introducing Amendment 84. The arguments that the noble Baroness made were the very reason why we should end leasehold and move towards commonhold. I hope the Minister can clarify some of the important concerns that she has raised.
Lord Gascoigne (Con)
My Lords, I thank the noble Baroness, Lady Fox of Buckley, for her Amendment 84, which seeks to ensure that potential property purchasers understand the ongoing obligations of a leasehold property they are thinking of purchasing. I share the noble Baroness’s concern that purchasers should know about service charges and ground rent before they move into their home. Speaking personally, I completely understand the stress and frustration when you receive a bill that you knew nothing about.
The National Trading Standards Estate and Letting Agency Team has developed guidance for property agents on what constitutes material information when marketing a property. This information should be included within property listings to meet their obligations under the Consumer Protection from Unfair Trading Regulations 2008. The guidance specifies that tenure and the length of the lease are material and therefore should be included in the property listing. Ongoing charges, such as service charges and ground rent, are also considered material, as they will impact on the decision to purchase. This means that purchasers get information on the lease and expected level of ongoing financial obligations when they see the property particulars, so before they have even viewed the property, let alone made an offer. In addition, the measures that we are including in this Bill to require leasehold sales information to be provided to potential sellers mean that conveyancers acting on behalf of sellers will be able to quickly get the detailed information they need to provide to potential purchasers. This would include information about service charges and ground rent, as well as other information to help a purchaser make a decision, such as previous accounts.
The Government support significant provision of advice for leaseholders through the Leasehold Advisory Service, an arm’s-length body providing free, high-quality advice to leaseholders and other tenures by legally trained advisers. The Government have also published a How to Lease guide aimed at those thinking of purchasing a leasehold property, to help them to understand their rights and responsibilities, providing suggested questions to ask and suggesting how to get help if things go wrong. This guide will be updated to reflect the provisions in this Bill.
Lord Bailey of Paddington (Con)
Is my noble friend the Minister comfortable that that information is freely distributed? It would take only a very cursory conversation with leaseholders to find out that they know nothing of most of leasehold law—anything from ground rent to the fact that your service charge can be changed from underneath you. That means that the information that is there has clearly not been absorbed. What attempt will be made to make that information universal? People are talking about changing what leasehold is called, but this is the first time that I have heard that. I think it is a good idea—but all that information is good for nought if people are not compulsorily seeing it before they sign to buy the property.
Lord Gascoigne (Con)
My noble friend asks for clarity. I can completely understand some of the circumstances that people face; that is something on which we share the concerns of the noble Baroness in what she is trying to do, and it is something that we will continue to look at—ways of ensuring that people are aware of the information when they are purchasing a property. We will continue to look forward to engaging with all noble Lords in this House. With that reassurance in mind, I hope that the noble Baroness, Lady Fox, will agree with me that this proposed new clause is not necessary, and I respectfully ask that it is withdrawn.
Baroness Fox of Buckley (Non-Afl)
My Lords, the proposed new clause is totally necessary—I disagree with the Minister on that—but I understand the need to withdraw. The only thing that I would just clarify is that all the organisations that are run for leaseholders are no good to people who do not know what a leaseholder is when they buy their flat and then find out that they are leaseholders. You do not think of yourself as a leaseholder; you think that you are a home owner. The only people who call themselves leaseholders any more are activists who have discovered how awful it is to be a leaseholder, who then get a different identity. That is what I am getting at.
The Government’s information is very good, and they should make more of it. That is what the noble Lord, Lord Bailey, was saying—why do they not plaster it around a bit? It is not fair on first-time buyers, who are the people who are being sold out by this. I know that the Government do not want to do that, but they should do something about it. I beg leave to withdraw.
Baroness Fox of Buckley
“Prevention of leaseholder abuse in retirement housing(1) Within one year of the passing of this Act, a Minister of the Crown must publish a report assessing the state of the United Kingdom’s retirement leasehold sector with special regard to the treatment of elderly and vulnerable leaseholders.(2) The report must consider whether the government should introduce legislation on retirement housing to address consumer detriment while encouraging downsizing, a larger, healthier retirement housing sector and a better functioning property market.(3) The report must also include—(a) an assessment of the extent to which the following factors harm leaseholders in retirement housing—(i) service charges not subject to resident control;(ii) inability to easily switch managing agents to remove predatory or poorly performing service providers;(iii) license and permission fees;(iv) short leases;(v) shared ownership structures;(vi) exit and event fees;(vii) resale values, and(b) an update on the government’s implementation of the recommendations in the Law Commission report “Event Fees in Retirement Properties”, published on 30 March 2017,(c) the Older People’s Housing Taskforce report and a statement on the government’s implementation of its findings,(d) legislative options to address the significant financial loss and emotional distress of leaseholders in retirement housing and those of their families, and(e) a recommendation as to whether the housing-with-care model, license to occupy schemes and commonhold developments should be promoted by the government as preferred alternatives to leasehold tenure in the retirement sector.”Member's explanatory statement
This new Clause would require a Minister of the Crown to publish a report to establish the experience of leaseholders in retirement housing and to outline legislative options to improve consumer outcomes in this sector.
Baroness Fox of Buckley (Non-Afl)
My Lords, I am bored of my own voice, too, so bear with me. It is just that I think that this is an important issue. Through this amendment, I am asking the Government to bring out a review of the specific leasehold property market for pensioners and the elderly, which I would have thought would be of particular interest to all of us in this House who might be looking in that market area.
To be serious about it, I became interested in the issue after watching a “Pensioners Against Leasehold” video, one excellent example in a series of investigative campaign films produced by Free Leaseholders. Jane, who presented the video, made me realise that leasehold is especially devastating for those selling their family home and downsizing into a flat then realising that, rather than doing the sensible thing, they have potentially bought into a debt trap. I have just been talking about first-time buyers, and I am now talking about buyers who are very experienced home owners but who are buying into a new type of home. For example, there is Nick from Bournemouth, who is in the film, who bought into a retirement block of 61 flats and who described having a toxic relationship with management agents.
The other reason why I raised this was that the mother of a friend of mine made that big decision to move later in life and into an Anchor property—and Anchor’s motto is “later life is for living”. All I can say is, “If only”. Having made that big decision to move into a special category of living accommodation and selling up her house, she is faced suddenly with huge service charges and the burden of worry. One resident facing all this said, “We just feel as though they’re waiting for us to die, because we’ve become a nuisance”. Somebody else made the point, “The whole point of selling up and moving into this retirement home was because I didn’t want the burden of worrying about things—and now we spend all of our time checking on our management committee, because they keep ripping us off”. So I think there is something going on.
Retirement properties in Britain are typically made up of individual flats with communal areas and access to emergency health support. They are almost always sold as leaseholds by builders, who then sell the freehold to a management company. Those companies are entitled to charge leaseholders fees for upkeep along with ground rent. They are a novel form of tenure, which I am quite enthusiastic about in some ways, but the system is open to misuse—and, over recent years, there have been a number of scandals, suggesting that we need a close look at this sector. It is taken as a given that retirement homes should be granted exemptions from leasehold reforms in a lot of the discussions, but actually a lot of the problems in this sector are created in exactly the same way as leasehold creates problems.
Newspapers have been full of tales of exploitation of those buying retirement homes. They are sometimes seen as easy targets, perhaps because they are older and suffering bereavement or illness. They certainly see these homes as appropriate for the latter part of their life, and we would be scandalised in any other circumstances if older people were being exploited.
Lord Best (CB)
My Lords, I support Amendment 85 in the name of the noble Baroness, Lady Fox. This amendment calls for a government review of the retirement leasehold sector, covering a range of issues of special relevance to elderly and vulnerable leaseholders.
It is possible that some of the questions raised in this amendment will be covered by the forthcoming report from the Older People’s Housing Taskforce referenced in the amendment. This report is expected to be published in the summer, but I understand that it will be ready for Ministers to consider in the next few days. This government-initiated report, which fulfilled a promise to the All-Party Parliamentary Group on Housing and Care for Older People, which I co-chair with Peter Aldous MP, may answer some of the questions implicit in the noble Baroness’s amendment.
The amendment enables us to put on record the need for special support for leasehold housing designed and managed exclusively for older people. For example, I am hoping to see a recommendation in the task force report to tighten up on consumer protection for older people’s shared ownership leasehold schemes. Our APPG has heard horrifying stories of leaseholders, and their heirs and successors, finding themselves trapped into liability for fees and charges that make sales of the property impossible.
It would also be good to hear this evening of any news the Minister can bring us on implementing the recommendations of the Law Commission’s 2017 report Event Fees in Retirement Properties, aimed at developers which have been less than transparent in informing leaseholders of the exorbitant charges for which they would be liable.
A number of the issues highlighted by the amendment could be addressed by my later amendment on the regulation of property agents. The need for a regulator is of particular relevance to leasehold schemes for older people, who may be especially vulnerable to bad behaviour and incompetence of property agents. For all existing leaseholders, creating a properly regulated managing agent sector would weed out cases of poor conduct and ineptitude. The list of factors within Amendment 85, listing possible harms for older leaseholders, provides a helpful checklist for the issues which should be covered by a new regulator.
Meanwhile, those working in this field see a need to go further than the establishment of a regulator of property agents. ARCO—the Associated Retirement Community Operators organisation—which we heard about earlier, points to the different legislative structures in other countries. A Bill to switch future schemes from leasehold to what might be termed commonhold plus would enable new models of retirement housing to flourish; for example, there is a system of licences to occupy that has worked well in New Zealand, Australia and several US states. Indeed, an arrangement of this kind has worked extremely well for the retirement village in York created 25 years ago by the Joseph Rowntree Foundation, for which I had some responsibility.
After the Retirement Villages Act in New Zealand, which heralded a new framework for older people’s housing and care, production rose threefold, achieving all the well-known benefits from encouraging rightsizing: bringing previously underoccupied family homes into use for the next generation and providing an environment for older people that is sociable, affordable, safe and secure. Similar legislation in this country could achieve comparable results.
Sadly, at present, progress towards a major expansion of older people’s housing, preferably with care services on tap, is moving very slowly in the UK. Potential demand is estimated by Professor Les Mayhew at up to 50,000 homes per annum; but actual output is around 7,000 homes this year. The Older People’s Housing Taskforce should raise the profile of the relevant issues, and the review recommended in the amendment of the noble Baroness, Lady Fox, would take the matter forward. It would be great to hear from the Minister that, in the context of this Bill, elderly leaseholders can expect positive and specific changes for the better in the months ahead.
Baroness Thornhill (LD)
In the interests of time, I shall be very brief. I agree with much that has been said by the noble Baroness, Lady Fox, and, of course, by the noble Lord, Lord Best, who has, as always, put his finger right on the key issues with his considerable expertise. We look forward to the task force report he mentioned. Successive Governments have, quite rightly, promoted downsizing: the freeing up of a house for families who desperately need a larger family property. However, we have not done anything like enough to investigate the state of retirement housing in this country and certainly not yet got policies right.
Many of the problems in the retirement housing sector have already been mentioned: high service charges and management fees actually hit elderly residents hardest. They are also suffering withdrawal or reduction of the in-house resident manager, who is frequently now off-site. Their property is more difficult to sell because prospective buyers are obviously a smaller target group, but mainly because of the so-called exit fees or event fees charged when the house is sold. So people can find themselves in a position where a retiree’s heirs are locked in to paying for the flat years after their parent has died, because they simply cannot sell it. Ultimately, all this is related to the iniquities of leasehold tenure, which should and must be abolished.
Baroness Taylor of Stevenage (Lab)
My Lords, I agree with the noble Baroness, Lady Thornhill, that this will not finally be resolved until we get rid of this leasehold regime. Some of the most heart-rending cases I dealt with as a councillor were from older leaseholders, often on fixed incomes and subject to the most extraordinary hikes in service charges, ground rents and all sorts of other charges that were imposed on them. I have cited cases in previous debates in your Lordships’ House. The experience of the 90 year-old cited by my noble friend Lord Khan earlier today was from Hitchin in my local area.
Baroness Scott of Bybrook (Con)
My Lords, I thank the noble Baroness, Lady Fox of Buckley, for her Amendment 85, which seeks to commit a Minister of the Crown to publishing a report assessing the state of the UK’s retirement leasehold sector within one year of the passing of this Act.
The Government recognise that leaseholders make up a significant proportion of the retirement sector, and are committed to ensuring that older people have access to the right homes in the right places to suit their needs. That is why the independent Older People’s Housing Taskforce was established in May 2023. The task force has been asked to look at the current supply of older people’s housing, to examine enablers to increase supply and to improve housing options for older people later in life. The task force has been commissioned to run for up to 12 months, and over this period has undertaken extensive engagement with stakeholders and gathered a great deal of evidence to inform its thinking and recommendations. The task force, as we have heard, will make final recommendations to Ministers this summer. I say to noble Lords who say we already have the review that I am not aware of that.
In addition, the Government have previously agreed to implement the majority of the recommendations in the Law Commission’s leasehold retirement event fees report. This includes approving a code of practice as soon as parliamentary time allows, to make event fees fairer and more transparent. The code will set out that these fees should not be charged unexpectedly, and developers and estate agents should make all such fees clear to people before they buy, so that prospective buyers can make an informed decision before forming a financial or emotional attachment to a property.
More widely, the Bill already introduces many elements that will help leaseholders, including those who live in retirement properties. As we move forward, the Government will continue to be mindful of the needs of leaseholders in retirement properties. The Government’s aim is to make sure that older people can live in the homes that suit their needs, help them live healthier lives for longer and, crucially, preserve their independence and their connections to the communities and places they hold dear. To reiterate, we have committed to making event fees fairer and more transparent and will bring forward legislation as soon as parliamentary time allows. With these reassurances in mind, I hope the noble Baroness, Lady Fox, will agree with me that this proposed new clause is no longer necessary, and I ask that the amendment be withdrawn.
Baroness Fox of Buckley (Non-Afl)
Briefly, I thank those who have spoken, as it is the last group of the day. The noble Baroness, Lady Thornhill, has made some excellent contributions throughout, but really summed up why I tabled this amendment in the first place. The noble Baroness, Lady Taylor of Stevenage, has obviously been reflecting on this issue too, as has the Minister. Particular thanks go to the noble Lord, Lord Best, who made the speech I wish I had made and obviously understands the issue in far greater depth than I do: I appreciate it. I hope that, none the less, the amendment has been useful in raising the profile of the issue.
I want to clarify one other thing. There is always a danger when we talk about the elderly as vulnerable people who might be preyed upon. We here are in a situation in which we might notice that people who are older can be the most ferocious and active, and not remotely vulnerable. In the film from the Free Leaseholders I was talking about, it was more that the elderly people interviewed said they had made a decision to be less active in fighting for their rights and maybe relax a bit and go into a lovely flat. They then found themselves in a situation where they had to become civil liberties fighters all over again, or lawyers or whatever, and that took up all their time and drained them. I do not want to want in any way to sound patronising. I want the sector to grow, but I do not think it will with leasehold. I beg leave to withdraw my amendment.
Baroness Scott of Bybrook
Member's explanatory statement
This amendment would align the terminology used with terminology used elsewhere in Part 5.
Member's explanatory statement
This amendment would align the terminology used with terminology used elsewhere in Part 5.
Baroness Scott of Bybrook
“(1A) But “administration charge” does not include an amount payable by a tenant of a dwelling in a case where all of the following conditions are met—(a) the tenant’s lease specifies that only a person who has attained a minimum age may occupy the dwelling;(b) the amount is payable under a term of the tenant’s lease or is otherwise payable in connection with the tenant’s lease;(c) the amount is payable if—(i) the tenant’s lease is granted, assigned or terminated,(ii) a lease of the dwelling which is inferior to the tenant’s lease is granted, assigned or terminated, or(iii) there is a change in the person or persons occupying the dwelling; (d) the amount is fixed or is calculated by a method determinable in advance;(e) any other conditions specified in regulations made by the appropriate authority.”Member's explanatory statement
This amendment would provide for “administration charge” in clause 81 to exclude “event fees” (which will generally be “fixed” service charges subject to the provisions regulating those charges inserted by Part 4).
Leasehold and Freehold Reform Bill
Wednesday 1st May 2024
(7 months, 3 weeks ago)
Lords ChamberRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 50-IV Fourth marshalled list for Committee - (30 Apr 2024)
Lord Khan of Burnley
“Requirement to establish and operate a management company under leaseholder control(1) The Secretary of State may by regulations make provision—(a) requiring any long lease of a dwelling to include a residents management company (“RMC”) as a party to that lease, and(b) for that company to discharge under the long lease such management functions as may be prescribed by the regulations.(2) Regulations under subsection (1) must provide—(a) for the RMC to be a company limited by share (with each share to have a value not to exceed £1), and(b) for such shares to be allocated (for no consideration) to the leaseholder of the dwelling for the time being.(3) Regulations under subsection (1) must prescribe the content and form of the articles of association of an RMC.(4) The content and form of articles prescribed in accordance with subsection (3) have effect in relation to an RMC whether or not such articles are adopted by the company.(5) A provision of the articles of an RMC has no effect to the extent that it is inconsistent with the content or form of articles prescribed in accordance with subsection (3).(6) Section 20 of the Companies Act 2006 (default application of model articles) does not apply to an RMC.(7) The Secretary of State may by regulations make such provision as the Secretary of State sees fit for the enforcement of regulations made under subsection (1), and such provision may (among other things) include provision—(a) conferring power on the First-Tier Tribunal to order that leases be varied to give effect to this section;(b) providing for terms to be implied into leases without the need for any order of any court or tribunal.(8) The Secretary of State may by regulations prescribe descriptions of buildings in respect of which regulations may be made under subsection (1).(9) In this section—“dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002;“management function” has the meaning given by section 96(5) of the Commonhold and Leasehold Reform Act 2002.(10) The Secretary of State may by regulations amend the definition of “management function” for the purposes of this section.”Member's explanatory statement
This new Clause would ensure that leases on new flats include a requirement to establish and operate a residents’ management company responsible for all service charge matters, with each leaseholder given a share.
Lord Khan of Burnley (Lab)
My Lords, I will speak to Amendment 92 on behalf of my noble friend Lady Taylor of Stevenage. This new clause would ensure that leases on new flats included a requirement to establish and operate a residents’ management company responsible for all service charge matters, with each leaseholder given a share. The amendment has dual purposes. It would remedy two significant current flaws in the leasehold system that the Bill does not address, and it would provide a step forward to commonhold, without doing so in a piecemeal way.
I turn to the current flaws. First, unless leaseholders in blocks of flats acquire the right to manage, collectively enfranchise and then establish a residents’ management company, or buy a property in a development where a residents’ management company has already been set up, they have no control whatever over how their money is spent. This is despite having to pay all the costs to maintain and manage their buildings. Secondly, the rights that leaseholders do have to exercise control over how their buildings are managed—whether through a tribunal, the appointment of a manager or the right to manage—are locked behind difficult and often costly legal processes to which many will not have access.
Our amendment would address both these problems by requiring that when a new residential block of flats was constructed and its units sold the development should be a three-way lease between the freeholder, the leaseholder and the new residents’ management company. Each leaseholder in the block would then own a share of the residents’ management company, and it would be under their exclusive control, giving them full responsibility for services, repairs, maintenance, improvements, insurance and the cost of managing their building. This would give them control over how their money was spent. This ability to influence the management of their building would come at no additional cost.
The Minister will no doubt say that our amendment leaves no space either for limited cases in which a mandatory residents’ management company is not appropriate or where leaseholders simply do not want this responsibility. The Government have said many times that they are keen to give more home owners control over the management of their buildings, and we welcome that the Bill is moving in the right direction. Would it not make sense to have leaseholder management of their buildings to be the default?
Where mandatory residents’ management companies are not appropriate, could the Government not put forward such cases to be incorporated as exceptions? In the case of leaseholders not wanting to be compelled to manage their buildings, could there not be a provision for leaseholders to use the power of the management company to appoint a manager or simply return management to the freeholder? I would be keen to hear the Minister’s thoughts on these alternative options.
The real importance of this clause, however, comes from it being a key way of laying the groundwork for a future where commonhold is the default and leasehold becomes obsolete. It would help to create a cohort of leaseholders who have experience in running their buildings, as they would under a commonhold arrangement, even if that experience is limited both in time and the extent to which they have carried it out.
This is certainly not a perfect solution. It would do little for leaseholders who have already purchased their flats and do not currently have a residents’ management company. We need other solutions, building on measures already in the Bill to address the challenges they will continue to face. I look forward to the Minister’s response and beg to move Amendment 92.
Baroness Thornhill (LD)
My Lords, I support Amendment 92 in the name of the noble Baroness, Lady Taylor of Stevenage, and explained so well by the noble Lord, Lord Khan of Burnley. The right to manage was first introduced in the leasehold reform Act of 2002. From the start, it was, as the noble Lord said, intended as a simple and cost-effective alternative to collective enfranchisement, but, despite the happy intentions of that Act, the reality was quite different. Take-up has not been what we would all have hoped for or expected, because the right to manage has proved incredibly problematic in practice.
These problems culminated in the Law Commission’s final report in 2020—time has marched on—on exercising the right to manage. It summarises the difficulties as follows:
“The ‘simple’ RTM process envisaged in the original consultation which led to the 2002 Act has not come to pass. The requirement for strict compliance with the statutory procedures, such as the service of certain notices on particular parties, can be unforgiving to leaseholders. In many cases, small mistakes made by the RTM company have afforded landlords opportunities to frustrate or delay otherwise valid claims. The Court of Appeal has noted that while the procedures ‘should be as simple as possible to reduce the potential for challenges by an obstructive landlord’, in fact they ‘contain traps for the unwary’”.
This is not a good advert for anyone seeking to exercise the right to manage, which we believe is fundamental to the change we need. The Law Commission subsequently made 101 recommendations, of which the then Government adopted two.
Whole swathes of actions could be happening to make this process simpler and to encourage residents to take this up. We have no doubt that the process is not an easy one and that the provisions in the Bill as it stands are actually quite limited. The uplift from 25% to 50% is welcome, as are the beneficial changes in cost provision, and minor changes to courts and tribunals. They are all positive but underwhelming—a far cry from the 101 recommendations.
In debates throughout the course of the Bill we have heard numerous instances of excessive charges and unfair practices, from both Houses. The Law Commission summed it up best when it said that
“the landlord and leaseholder have opposing financial interests—generally speaking, any financial gain for the landlord will be at the expense of the leaseholder, and vice versa …Their interests are diametrically opposed, and consensus will be impossible to achieve”.
This amendment is quite realistic: it is starting only with new build, but what it does is symbolic, in that it draws a line under the past and clearly points the way forward. Noble Lords will notice that I am not wearing rose-coloured spectacles, and we are not saying that the residents’ right to manage will be any easier—but it will be fairer. Those paying the bills control the bills and can remove any poorly performing providers. We believe that a leaseholder-controlled resident management company with an elected board, accountable to all leaseholders, is a far more democratic arrangement than one middleman freeholder controlling block management, spending leaseholders’ money freely and not involving them in the decision-making processes. It is fundamentally a better way to go, and there seems to be widespread support for it.
We support this amendment because we believe that it is a step in the right direction and could reinvigorate right to manage with the right support. It seems that the Government are finding reasons not to do something instead of working to enable something better to happen.
Lord Gascoigne (Con)
My Lords, I thank the noble Lord, Lord Khan of Burnley, for speaking to Amendment 92 in the name of the noble Baroness, Lady Taylor of Stevenage, and I am grateful for both contributions in this brief discussion.
The amendment seeks to require the establishment of leaseholder-owned management companies for all leasehold flats. I understand the intention to ensure that, by default, all leaseholders of new flats would be responsible for the management of their buildings. The Government support the desire to give more home owners control over the management of their buildings. This Bill is intended to do just that, and will make it cheaper and easier for more leaseholders to own and manage their homes should they wish to.
In some cases, developers have voluntarily set up residents’ management companies to transfer management responsibility to leaseholders. We welcome this, and encourage the industry to adopt this model where appropriate. However, we believe that the best way in which to achieve resident-led management for new buildings is not for government to mandate change to leasehold but to reinvigorate and improve the uptake of commonhold. Commonhold does not require involvement from a third party.
We will reinvigorate commonhold so that it is a genuine alternative to leasehold for new flats. However, there are limitations in the current legal design of commonhold which can limit its use in some settings. We must get any changes right, and preparing the market for the widespread uptake of commonhold will take time. Existing leaseholders can already use the right to manage to take over management responsibility for their building. This is an established, no-fault right that allows leaseholders to take over management responsibility when a majority of leaseholders wish to do so.
There are some situations where the right to manage is not available because leaseholder-led management is not considered appropriate—for example, in largely commercial buildings or where there are social tenants. We believe that it would not be appropriate to apply a blanket provision requiring residents’ management companies for all new buildings without considering where equivalent protections should apply.
Further practical challenges include determining at what point during development and the sale of units management responsibility would be transferred; what position the freeholder would have in the management company if they retained non-residential units or those on short leases; and what protections would be required should leaseholders not wish to take up management responsibilities. Answering these questions would require significant additional consideration—consideration that is ultimately unnecessary because a reinvigorated commonhold is the answer for new buildings, and the right to manage for existing leaseholders makes sure that home owners can already control the management of their building.
Lord Khan of Burnley (Lab)
My Lords, I thank the Minister for his response, although it does not satisfy exactly the issues that we have raised. I thank the noble Baroness, Lady Thornhill, for saying that this
“draws a line under the past”
and is a
“step in the right direction”.
It is a fairer process when those who are paying the bills have control of the bills.
We would not need this amendment if the Government had followed the Law Commission recommendations to move to a commonhold system now. This is a missed opportunity. That is why we have argued that this is a limited Bill. I wish that the noble and Lancastrian Lord had gone for the Lancastrian approach and been absolutely candid and answered the questions. In the meantime, I accept his reasoning and beg leave to withdraw the amendment.
The Earl of Lytton
“SCHEDULEBUILDING SAFETY REMEDIATION SCHEMEDuty to establish the scheme
1 (1) The Secretary of State must establish, or make arrangements for the establishment of, a Building Safety Remediation Scheme (“the BSRS”).(2) The purpose of the BSRS must be to ensure that residential blocks of flats with building safety risks are made safe, mortgageable and insurable at no cost to leaseholders or landlords. (3) For the purposes of this Schedule “building safety remediation principle” is the principle that—(a) so far as reasonably practicable, remediation costs for relevant buildings with building safety risks arising from defective construction or additional building work should be met by the developer, the principal contractor or both, and(b) where that is not reasonably practicable, or where building safety risks do not arise from defective construction or additional building work, costs should be met by the building industry.Scope of the scheme
2 The BSRS must be framed so as to apply to relevant buildings which—(a) were constructed, or subject to additional building work, on or after 1 June 1992, and(b) present building safety risks.Operation of the scheme
3 (1) The BSRS must provide for persons (including freeholders and leaseholders) to apply—(a) for a building to be recognised as a relevant building, and(b) for a relevant building to be recognised as eligible for grants in respect of the cost of remediation works.(2) The BSRS must provide—(a) for the appointment of persons (“BSRS adjudicators”) with appropriate expertise to determine, on behalf of the Secretary of State, applications under sub-paragraph (1)(a) and (b), and(b) for BSRS adjudicators to be required to exercise operational independence in making determinations under the scheme.(3) For the purposes of sub-paragraph (2), the BSRS may provide for appointments to be made by the Secretary of State or by one or more persons designated for that purpose by the Secretary of State under the scheme.(4) The BSRS must provide that determinations of BSRS adjudicators in respect of building eligibility for the scheme under paragraph 4 are final (but nothing in this sub-paragraph prevents the exercise by the High Court of its judicial review jurisdiction).Scheme supplementary regulations
4 (1) The Secretary of State must make regulations (“scheme supplementary regulations”) in respect of the BSRS.(2) Scheme supplementary regulations, in particular—(a) may make provision for determining what is to be, or not to be, treated as a relevant building for the purposes of the scheme;(b) may make provision for determining the date on which buildings were constructed or subject to additional building work;(c) may make provision for determining who is entitled to make an application under the scheme in respect of a relevant building;(d) may specify criteria to be applied by BSRS adjudicators in determining whether a relevant building presents building safety risks as a result of defective construction (and the criteria may, in particular, make provision wholly or partly by reference to building regulations or other enactments in force at the time of construction or by reference to specified classes of document);(e) may make provision permitting or requiring BSRS adjudicators to conduct tests, and requiring owners and occupiers of relevant buildings to cooperate with BSRS adjudicators in conducting tests; (f) may make provision permitting BSRS adjudicators to require local authorities or other specified classes of person to provide information or documents, and requiring persons to comply with any requirements imposed;(g) may make provision about the timing of applications and determinations;(h) may make provision about evidence to be adduced in support of an application;(i) may require or permit BSRS adjudicators to operate a rebuttable presumption of defective construction where specified classes of fact have been proved (for which purpose the regulations may make provision similar to, or applying with or without modification, any enactment);(j) may make provision about the making, processing and determination of applications under the scheme;(k) may make provision about the giving of notice to developers and others;(l) may make provision about the payment of awards;(m) may make provision about monitoring expenditure on remediation works;(n) may set a threshold for the estimated or quoted cost of remediation works below which an application for recognition cannot be made;(o) may make provision for determining, having regard in particular to the need for proportionality, the nature and extent of remediation costs which may be funded by the scheme (for which purpose “remediation costs” means any class of expenditure related to building safety risks, including, in particular, repair costs, the costs of interim mitigation or safety measures and reimbursement of or compensation for increases in insurance premiums);(p) may make provision for account to be taken of grants provided in respect of remediation works by any other scheme established by enactment or by a public authority;(q) may make provision for financial assistance provided by any other scheme established by enactment or by a public authority to be repaid out of grants under the remediation scheme;(r) may permit or require the amalgamation of multiple applications in respect of one relevant building, or of applications on behalf of the residents of one or more relevant buildings;(s) may permit or require representative applications on behalf of the residents of one or more relevant buildings;(t) may make provision about the qualifications, appointment, remuneration and conduct of BSRS adjudicators, and the regulations may, in particular—(i) provide for adjudicators to be remunerated from BSRS funds;(ii) provide for indemnities in respect of decisions taken by adjudicators (for which purpose the regulations may apply an enactment (with or without modification));(u) must include provision requiring the maintenance and publication of records of applications and determinations under the BSRS;(v) must confer a right to appeal to the First-tier Tribunal in respect of determinations as to whether a building safety risk arose from defective construction or additional building work.Scheme funding regulations
5 (1) The Secretary of State must make regulations about the funding of the BSRS and of grants made under it (“scheme funding regulations”).and of grants made under it (“scheme funding regulations”). (2) Scheme funding regulations must aim to apply the building safety remediation principle so far as practicable.(3) For that purpose, scheme funding regulations must aim to ensure that a grant awarded under the BSRS is funded—(a) so far as possible where building safety risks arise from defective construction or additional building work, by the developer or principal contractor of the building in respect of which the grant is awarded, and(b) failing that (whether by reason of the dissolution of a developer or principal contractor, insolvency or otherwise), or where building safety risks do not arise from defective construction or additional building work, by money paid into a fund maintained through a levy on the building industry in general, or specified parts of the building industry.(4) For the purposes of achieving the objective in sub-paragraph (3)(a)—(a) the reference to the developer of a building includes a reference to any person who arranged for its construction or additional building work and for the sale of units in the building;(b) the reference to the principal contractor is a reference to the person who was responsible to the developer for the construction of a building or undertaking additional building work;(c) scheme funding regulations must permit a BSRS adjudicator to provide for an award under the scheme to be paid by one or more persons specified by the adjudicator (and awards may, in particular, provide for joint and several liability);(d) scheme funding regulations must confer a right to appeal to the First-tier Tribunal;(e) scheme funding regulations may include provision permitting a BSRS adjudicator to permit or require an award for payment by a specified person to be satisfied wholly or partly by a person connected to that person (within the meaning of the regulations, for which purpose the regulations may apply, with or without modification, section 121 of the Building Safety Act 2022 and any enactment relating to joint ventures);(f) scheme funding regulations may include provision about enforcement of liability to satisfy awards, which may, in particular—(i) provide for collection of awards as a statutory debt,(ii) include provision for interest or penalties,(iii) provide for liability to make payments pending appeal or review, and(iv) create criminal offences in connection with evasion.(5) For the purposes of achieving the objective in sub-paragraph (3)(b), scheme funding regulations—(a) must establish one or more levies to be paid by specified businesses or classes of business;(b) must make provision for determining liability to pay the levy;(c) may confer functions on BSRS adjudicators or other specified persons (which may include the Secretary of State) in respect of determination of liability to pay the levy;(d) must confer on a person determined to be liable to pay the levy the right to appeal to the First-tier Tribunal;(e) may provide for different amounts of levy to be paid by different classes of person;(f) may provide for the levy to be paid by way of one-off payments, periodic payments or both; (g) may include provision about enforcement of liability to pay the levy (which may, in particular, provide for collection of the levy as a statutory debt, include provision for interest or penalties and create criminal offences in connection with evasion);(h) must include provision about the administration of the levy by the Secretary of State, including provision as to the maintenance and publication of estimates, accounts and other records;(i) may include supplemental provision about the levy.(6) In making regulations under sub-paragraph (5), and in particular in assessing the proportionality and other fairness of any levy imposed by regulations under sub-paragraph (5), the Secretary of State must—(a) have regard to any other levy or similar imposition that appears to have a similar purpose as a levy under the scheme funding regulations, and(b) must consult persons appearing to him or her to represent the interests of persons affected by other relevant levies and impositions.(7) Scheme funding regulations may include provision about—(a) application of awards, levies and grants, including provision for holding (or return) of surplus funds;(b) the nature and extent of obligations imposed by awards (which may, in particular, provide for payments in money or services or money’s worth);(c) processes and procedures to be applied in determining applications for grants and questions of liability to awards (which may, in particular, include provision for determination wholly, partly, absolutely or contingently by arbitration, mediation or any other kind of process or procedure the Secretary of State thinks appropriate);(d) terms and conditions of awards, levies and grants;(e) appraisals, appeals and enforcement.Apportionment
6 (1) Scheme funding regulations may make provision about apportionment of liability for defective construction.(2) In particular, scheme funding regulations may provide that where a person is required to pay an award under the BSRS, that person may bring proceedings to recover a contribution from one or more persons who share responsibility for the defects in respect of which the award is made.(3) Provision made by virtue of this paragraph may—(a) confer jurisdiction on the First-tier Tribunal or on any other specified court or tribunal;(b) apply (with or without modifications) any enactment about third- party liability.Interim payments
7 (1) The Secretary of State may make interim grants to persons whom the Secretary of State believes are likely to be entitled to benefit from the remediation scheme.(2) Interim grants may be made on such terms and conditions (including as to repayment) as the Secretary of State may specify.(3) Scheme supplementary regulations—(a) may include provision for account to be taken of interim grants under this paragraph, and(b) may include other provision about interim grants under this paragraph (including provision about applications for grants, eligibility for grants and determination of applications for grants). Interpretation
8 For the purposes of this Schedule— “building safety risk” has the meaning given in section 120(5) of the Building Safety Act 2022;“building industry” has the meaning given in section 127(7) of the Building Safety Act 2022;“construction” includes any kind of building work (whether part of the original construction of a building or not) including works of improvement, repair and extension;“class” includes description;“defective construction or other building work” means construction or additional building work that—(a) contravened building regulations or other enactments in force at the time of the construction or additional building work, or(b) satisfies any other criteria specified in the BSRS or in scheme supplementary regulations;“BSRS funding regulations” has the meaning given by paragraph 5;“BSRS scheme” has the meaning given by paragraph 1;“BSRS adjudicator” has the meaning given by paragraph 3;“grant” includes loans and any other form of financial assistance (for which purpose a reference to payment includes a reference to the provision of assistance);“building safety remediation principle” has the meaning given by paragraph 1;“landlord” means means the landlord under the lease or any superior landlord.“remediation costs” has the meaning given by paragraph 4;“relevant building” means a self-contained building, or self-contained part of a building that contains at least two dwellings;“scheme supplementary regulations” has the meaning given by paragraph 4.Consultation
9 Before making the scheme, the scheme supplementary regulations and the scheme funding regulations, the Secretary of State must consult—(a) persons appearing to represent the interests of freeholders, leaseholders or occupiers of blocks of flats with building safety risks;(b) persons appearing to represent the interests of the construction industry and related industries, and(c) such other persons as the Secretary of State thinks appropriate.Regulations
10 (1) Scheme supplementary regulations and scheme funding regulations—(a) may make provision that applies generally or only for specified purposes,(b) may make different provision for different purposes,(c) may confer functions (including discretionary functions) on specified persons or classes of person, and may provide for the Secretary of State to appoint persons to exercise functions under the regulations or the remediation scheme (whether or not on behalf of the Secretary of State), and(d) may include supplemental, consequential or transitional provision.(2) Scheme funding regulations may not be made unless a draft has been laid before, and approved by resolution of, each House of Parliament.(3) Scheme supplementary regulations are subject to annulment in pursuance of a resolution of either House of Parliament.” Member's explanatory statement
This new Schedule would implement a building safety remediation scheme to ensure that buildings with building safety risks are put right without costs to leaseholders.
The Earl of Lytton (CB)
My Lords, in moving Amendment 93B I will also speak to linked Amendment 107 and Amendments 105C to 105G standing in my name. These amendments offer a range of proposals to enhance the protection of leaseholders from the costs of remedying fire protection or other structural defects.
I make no apology for returning, once again, to this matter of basic consumer protection for leaseholders and for going over some old ground. My mailbox tells me that the issues are far from resolved. Too many leaseholders remain seriously encumbered by the defects in the original construction of flats that they occupy or own. The plain truth is that the Building Safety Act—I shall refer to it as the BSA—is not delivering the protection that leaseholders ought to expect as a basic right, and this Bill serves to undermine it further in certain material respects.
There is cross-party consensus that the BSA needs amendment. I pay tribute to colleagues who, with me, continue to press the Government to make changes. I support the other amendments in this group for reasons that will become apparent. The BSA is convoluted. It complicates, excludes, creates uncertainty and risk, and delays remediation. It leaves some leaseholders—and their lenders—with permanently impaired assets. Where before there was one market, the BSA creates three tiers of flat ownership, with such complex rules that conveyancers frequently decline instructions and, increasingly, insurers are unwilling to offer professional indemnity cover to practitioners.
The Government have placed substantial remediation obligations on landlords. The courts should be the last resort, yet the BSA and the Bill force landlords to take legal action as a first resort on initial unfunded remediation and, thereafter, to recover the costs of defects that they did not cause from the developers. Where the developer no longer exists, they must fund it themselves. There is no automatic developer liability to meet any of the costs in the 85% of buildings not covered by the developer contract. There is no legal obligation on any contracting developer to cover non-life-critical fire defects and structural defects. Landlords are the backstop if public funding for cladding costs happens to prove insufficient. Construction inflation, moreover, has risen by a quarter since the announcement of the building safety fund in March 2020, so my first question is: what assurance exists that all eligible claims on the building safety fund and the cladding safety scheme will be met even if they exceed those historic cost budgets?
More broadly, this model seems to be based on little more than political bias and destined to fail, and fail in a way that will ultimately harm leaseholders and the leasehold market. I have questioned previously whether the major landlord groups can afford to fulfil their remediation obligations as demanded. I was therefore surprised to learn that under the Bill, and despite relying on landlords to fund non-cladding remediation works or related legal action, the Government proposed to eliminate or reduce the ground rent income. I was further surprised to learn from the noble Baroness, Lady Swinburne, in a letter last week, that the Government have no estimates of the risk of freeholder insolvency.
The main asset of many landlord groups is ground rent income, as we have heard before in discussions on the Bill. It is used to repay the long-term bonds or loans over many decades. If the income is removed, some will likely declare insolvency: the Government acknowledge this risk in their own impact assessment. I mention this again because it is critical to the remediation obligation. So that leaseholders are not left completely exposed if their landlords are insolvent, I trust that the Minister will regard as an essential lifeline my amendments, which are the only ones providing for alternative remediation funding sources. I would like to know what contingency plans the Government have in place apart from this, should buildings with remediation obligations escheat to the Crown, an eventuality the Minister alluded to on Monday.
Valuers are already marking down portfolio valuations because of material uncertainty. Permanent impairment of leaseholder and lender assets is also risked under the Government’s model. Basel III pillar 1 standards come into force next year. Lenders will have to revalue a loan if an
“event occurs resulting in a permanent reduction of the property value”.
Leaseholders will also be hit by these provisions; specifically the unprotected and partially protected—that is, the capped liability leaseholders—and those leaseholds covered by the developer contract. The contract allows combustible materials, now banned, to remain on buildings so long as they do not cause that “life-critical fire safety risk”. I put that in quotes: it is a non-statutory definition and my Question for Written Answer on this still awaits a response. But leaving these in place gives rise to a B1 category of building risk rather than the fully remediated A1 classification. At the same time, these flaws are evident to the market, which values an asset not according to life safety but according to the risk of material loss. The result is permanently higher insurance premiums. Ministers may wag the finger at the FCA in relation to its insurer members but, in truth, the market has spoken on the BSA and on building and professional indemnity cover risks, and no amount of political manipulation is going to alter that.
There is one group that faces a very bleak outcome, unless the Government change course, and that is in enfranchised leaseholders. Theirs are, in the terms of the BSA, “not relevant buildings”, a point that the noble Lord, Lord Young, makes in his amendments. The limit of any new protection afforded to resident management companies is the cost of obtaining a remediation contribution order, so can the Minister explain how enfranchised leaseholders will deal with non-cladding defects or effectively force the original developer to make a contribution, especially if it happens not to exist any longer?
Better policy is clearly needed. Simply, the BSA should be amended to protect all leaseholders, regardless of circumstances, in buildings of all heights. A separate, dedicated funding stream is needed so that leaseholders are not left in limbo, particularly when their landlord becomes insolvent.
The Committee will be familiar with Amendments 93B and 107 from the debates on the levelling-up Bill and the then Building Safety Bill, so I will try not to labour the point too much. Amendment 107 requires the Government to establish a building safety remediation scheme and Amendment 93B proposes a new schedule setting out the scheme’s key features. The scheme would serve to protect all leaseholders, without exclusion, from building safety remediation and interim safety costs. As drafted, it is fully funded.
Joint and several liability for remediating building safety defects is placed on the developer and principal contractor where a building did not comply with regulations at the time of construction. If neither can pay, or if the regulations have moved on and a building is retrospectively deemed unsafe, remediation funding comes from a levy across the wider building and materials industry. That approach has been extensively scrutinised by a range of legal and other professionals. In particular, I thank David Sawtell KC, of 39 Essex Chambers, for making himself available when I recently met with the Minister, whom I thank for facilitating the meeting.
I have added a second option for good measure. Amendments 105C to 105G amend certain arrangements already in the BSA. The developer contract limits developer responsibility to undefined “life-critical fire safety defects”. That means that all other defects are excluded. Amendment 105C closes that loophole by requiring developers to remedy all defects defined in the BSA. That brings all fire and structural defects within the scope of the developer contract—and, therefore, the responsible actors scheme—and puts that in line with primary legislation. It ends the arrangement whereby Parliament set in legislation one definition of defects requiring remediation while the Secretary of State entered into some side agreement with the industry for something rather different. At present, the government scheme requires developers only to remediate their own buildings. The Secretary of State has not given effect to Section 126(4)(b) of the BSA on the costs of remediating other buildings. Amendment 105D would put that right by amending the responsible actors scheme regulations.
Amendments 105E and 105F set out to end the three- tier system of leaseholder exclusions from remediation cost protection. Amendment 105E removes the exclusions according to building height and type of lease set out in the BSA. Amendment 105F removes the conditions and exclusions around remediation cost protection in Schedule 8 to the BSA.
The risk of major landlord insolvency is real. Amendment 105G reinstates and expands the original BSA provisions on insolvent landlords. It obliges insolvency practitioners and Law of Property Act receivers to commence or continue remediation work. Remediation costs are to be considered part of their expenses and therefore paid ahead of other creditors. It also reinstates their power to apply for a remediation contribution order, which the Government seek to remove through the Bill. But—this is a very big “but”—insolvency practitioners need secure funding if that is to work.
In closing, I draw attention to the great gulf between the Government’s self-praise about what they are doing—although, to a great degree, there is a lot of good in the Bill—and the reality. That reality is measured in the anguish and distress of hundreds of thousands of leaseholders who bought properties in good faith and now cannot sell them, get mortgages or move on with their lives. It is measured in the 15,000 people evacuated from their homes, as reported three days ago in the Sunday Times and referred to by the noble Baroness, Lady Thornhill, on Monday. It is measured in the 37% defect rate found in developer-contract buildings; in the glacial progress of remediation revealed in the Government’s most recent progress statistics; and in the FCA’s frank warning that insurers price risk not according to the loss of life, as the Government may wish, but according to the stronger test of total loss of asset. It is measured by the fact that this debate continues to play out seven years after the Grenfell fire.
This inequitable scattering of liability across innocent parties begs the question: why do the Government not make the wider construction industry, which designed, built, sold and banked the profits from these defective properties, the primary backstop for the damage done? We do not have an answer to that.
I have provided in these amendments two possible routes to effective protection of leaseholders, the most vulnerable group in this sorry tale of shame. I ask the Minister and noble Lords: if not by these proposals, how? When will the Government act to protect all innocent, home-owning consumers from market failure, and are they content to risk their reputation and legacy on simply making this a problem for the next Government? I beg to move.
Lord Young of Cookham (Con)
My Lords, it is a pleasure to follow the noble Earl, Lord Lytton, who has been at the forefront of the campaign to extend protection to leaseholders since the Building Safety Act was passed. I say at the beginning that I will miss the contributions to our debates from the noble Lord, Lord Stunell, who was a regular contributor to housing debates and spoke with great authority.
This group of amendments is for many leaseholders the most important, and it differs from the rest of the Bill. The rest of the Bill gives rights to leaseholders that they did not have when they bought their lease. This group restores rights that leaseholders thought they had when they bought the lease but have now discovered that they did not. That right was to live in a building that complied with the safety regulations at the time. These leaseholders took all the necessary precautions, employing professional people before buying, but now find that they are faced with unaffordable bills, unsaleable properties and, quite often, repossession. As the noble Earl referred to, the Sunday Times revealed that more than 15,000 residents have been forced to leave homes due to fire or fire safety defects. These decants are on the rise, with residents decanted from 21 buildings last year. Until these injustices are addressed, the Bill, with its new rights, is meaningless to those leaseholders.
I welcome the steps the Government have taken through the Building Safety Act, and I am grateful to my noble friend the Minister for patiently listening to me during our many meetings. But despite the steps forward in recent years, there is still a gap between what the Government promised at the outset and where we are now. I will not repeat the quotes I gave at Second Reading but here is one I did not use, from Michael Gove:
“Most importantly, leaseholders are shouldering a desperately unfair burden. They are blameless, and it is morally wrong that they should be the ones asked to pay the price”.—[Official Report, Commons, 10/1/22; col. 283.]
I will come back in a moment to those who fall outside the protection.
Amendment 102 asks for a progress report. It covers the same ground as my Amendment 101, which was down for Monday but which I was unable to speak to owing to an aggressive Covid jab over the weekend. I am grateful to Giles Grover and the team at End Our Cladding Scandal for their briefing.
According to the department’s own figures on overall remediation, of the 4,329 buildings identified with unsafe cladding, over half had not started remediation at the end of March this year—seven years after Grenfell. Only 23%, 976 buildings, have completed remediation works. Within that overall figure there are 1,501 buildings 11 metres and over in height that have life-critical fire safety defects and where developers have committed to remediate or pay to remediate, but over half have not started remediation. Some 1,001 of the developers’ buildings have not even been assessed.
Looking at the cladding safety scheme, there are now 1,105 buildings within the scheme after the pilot was launched in November 2022. Work has been completed on not one. Work has started on two and the rest are in various stages, the largest number being in “pre-application”. Nor am I reassured by the statement by the department:
“All residential buildings above 11 metres in England have a pathway to fix unsafe cladding, either through a taxpayer-funded scheme or through a developer-funded scheme, protecting leaseholders from these costs”.
Having a pathway is like a traveller having a map. It does not follow that he has begun his journey. Where there is grant funding, the money is not being disbursed at pace. Because of these delays, the department had to surrender nearly a quarter of a billion pounds to the Treasury last year. We need a firm grip and oversight of remediation through the available schemes—which have no visible oversight or co-ordination—and that is what Amendment 102 provides.
The rest of my amendments have broadly the same objective as those tabled by the noble Earl, Lord Lytton, while getting there by a slightly different route. They would ensure that the Building Safety Act operates as intended, as was the Government’s stated objective in the King’s Speech last year. On Amendment 96, on buildings under 11 metres, the department’s view was set out by the Minister, Lee Rowley, on 22 April:
“Of those, we can count on one hand where there has been a problem. We are working with each of those three buildings to make the progress we need to make”.—[Official Report, Commons, 22/4/24; col. 636.]
Those three require full remediation but leaseholders are now reliant on the good will of their developer, without any mechanism in place to compel work to take place to the necessary standard. In Inside Housing on 26 April, it was reported that there are 586 homes under 11 metres in Barnet with defective cladding. One 25% shared owner has a bill of £23,000, and this falls outside the Building Safety Act. The other 75% is owned by a housing association, Notting Hill Genesis, which has said that under the terms of the lease the shared owner is responsible for all remediation costs. Mortgage lending on buildings under 11 metres is still inconsistent. Based on data from four or five mortgage lenders, an EWS1 certificate was deemed to be required for mortgage valuations on approximately 2,000 low-rise flats last year, although the Government have said that it is not necessary.
Insurance in low-rise buildings is another quagmire, with several insurers mandating work as a requirement of providing cover. There are many cases of difficulties with insurance; I cite only one. Aviva was the only insurer that would give cover on one low-rise block, but on the condition that HPL cladding would be removed within an urgent timeframe of four months. The judge at the First-tier Tribunal hearings was satisfied that this was the case, having seen the correspondence. There was no means of funding other than leaseholders. Cladding was removed in 2022 as instructed. It has taken two years to raise funds to replace the cladding, with the replacement due to begin in February 2024. The total cost will be £45,000 per leaseholder.
I remain concerned over resident-owned—or enfranchised —buildings, which were referred to by the noble Earl, Lord Lytton, and are covered by Amendment 99. Last November the department issued a press release confirming that this Bill would
“include measures to amend the Building Safety Act 2022 to make it easier to ensure that those who caused building-safety defects in enfranchised buildings are made to pay”.
Five months later, it remains unclear what measures these will be. Those who were encouraged by the Government to take ownership and control of their buildings remain beset with uncertainty on how and when their homes will be made safe. They do not have the protection afforded to those who did not enfranchise. The same press release also said that the Government would ensure that
“the leaseholder protections are not unfairly weighted against those who own properties jointly”.
This is addressed in Amendment 100. This is known as the marriage penalty, whereby a couple owning four properties together do not have this part-ownership accounted for in the leaseholder protection, despite tax law recognising this pro rata weighting. A call for evidence on this was opened in early April. However, time seems to be running out for the Government’s commitments to be kept in respect of joint-owner leaseholders—unless my noble friend can tell me otherwise.
The Secretary of State has repeatedly expressed his desire to ensure that
“those with the broadest shoulders must pay”,
so Amendment 100 would also help those who invested in buy to let but whose shoulders are not broad. It would ensure that all received protection for the first three flats that they owned, rather than the current cliff edge, and introduce a leaseholder wealth criterion, which is the same basis on which freeholders and developers are tested to assess whether they have the means to pay. The department is well aware of the case of Malcolm in Salford, a leaseholder of a number of properties with a total value below £1 million, who asked the department for help two years ago but has now been forced to enter into bankruptcy. Who will now pay his share of the remediation costs?
Finally, that amendment would end
“the distinction between qualifying and non-qualifying leases once prescribed conditions are met”—
once remediation is complete. This would ensure that the value of flats owned by leaseholders who are still deemed to be non-qualifying would be returned to somewhere near their market value without the severe impairment that non-qualifying leases currently suffer, even where no work is required.
Without this set of amendments, ordinary people across the country will still shoulder a desperately unfair burden, still face financial ruin and still be no closer to moving on with their lives, all at odds with the assurances that Ministers have given. I know my noble friend is sympathetic and I look forward to her reply.
The Lord Bishop of Lincoln
My Lords, I stand to support the amendments in the name of the noble Lord, Lord Young of Cookham. My right reverend friend the Bishop of Manchester has put his name to the amendments and regrets that he cannot be in his place today. As we have heard, the Building Safety Act 2022 contained welcome measures to address historic building safety defects, but the fact remains, as other noble Lords have noted, that it does not go nearly far enough. Seven years on from the Grenfell fire, only 21% of high-rise blocks have been fully remediated—and they are the ones that are eligible; there remain gaps in provision where leaseholders are disqualified for such arbitrary reasons as their block being 10.9 metres tall rather than, say, 11.1. The Act disqualifies huge numbers of people who are now trapped in potentially unsafe flats which they will struggle to sell. They might face very high bills through service charges and insurance premiums.
My right reverend friend’s diocese of Manchester has been identified, as mentioned by the noble Lord, Lord Young, as one of the areas most at risk from inadequate cladding. More than 20 buildings have been identified with ACM cladding in both Manchester and Salford, and in Salford between six and 10 of those are yet to be remediated. The measures are not being implemented fast enough, which is why I also support the amendment from the noble Baroness, Lady Pinnock, which would require a statement to Parliament on progress, because, clearly, more scrutiny is needed. But for those buildings which are ineligible for support entirely, a statement to Parliament does not go far enough. Does the Minister believe that living on the top floor of a block of 11.5 metres is significantly safer than living on the top floor of a block of 11 metres, where both have flammable cladding? Beyond this obvious safety issue, my right reverend friend has received correspondence evidencing the difficulties that some leaseholders face in selling ineligible properties due to the difficulties in obtaining a mortgage on those flats. Will the Minister commit to ending this injustice once and for all?
Lord Rooker (Lab)
My Lords, I support the thrust of the amendments in general. I also much regret the news we had today about the noble Lord, Lord Stunell. The points I am going to raise relate to a previous debate we had on the levelling-up Bill where he followed me and also raised some very practical issues on safety.
I want briefly to follow up the points I raised on 18 September last year during the passage of the levelling-up Bill, at Hansard cols. 1252 to 1255, regarding the issue of electrical safety and what are known as NCDs—neutral current diversions. I have no interest to declare, other than my 60-year membership of the Institution of Engineering and Technology and that I came across this issue via an article in the April 2023 issue of the IET magazine.
Since I raised the issue in September last year, I have been contacted by several electrical engineers. Indeed, I visited one factory involved in preventing neutral current diversions. I will keep the techy bit brief. A neutral current diversion can occur on the network when the combined protective earthing and neutral—PEN—conductor fails. The current is then diverted, making a circuit via exposed metalwork on buildings, including gas, water and oil pipes. This can lead to a significant build-up of heat, because those pipes are not designed to carry electricity, which can lead to fires and gas explosions. These conductors are susceptible to damage, corrosion, and general wear and tear across what is an ageing network. We probably have the second-oldest electrical network in the world—and it will vastly expand due to our net-zero obligations.
Baroness Thornhill (LD)
My Lords, before I get into the detail of these amendments, I will comment on some significant absences from our Benches. First, my noble friend Lady Pinnock is up for re-election tomorrow. She has been a passionate and doughty fighter from the beginning and throughout this tragic journey.
The second absence, as has already been mentioned, is due to the recent shocking death of Lord Stunell. His expertise and attention to detail, often peppered with a gentle sense of humour, were a perfect foil to my noble friend Lady Pinnock: they worked well together. We have missed him significantly during the passage of this Bill; I am truly a poor sub from the bench.
In truth, the significant contributions from the noble Earl, Lord Lytton, and the noble Lord, Lord Young of Cookham, are grounded in solid evidence and reality. We support and endorse them and I have no intention of going anywhere near the detail that they described. I admit openly that I have learned a lot.
All the amendments in this group relate to building safety and to the fallout of the Building Safety Bill and the gaps that were created as a result of it. Noble Lords have outlined them very well and I am certain that the noble Baroness, Lady Taylor, will too.
After the tragic events at Grenfell Tower in 2017, in which 72 people lost their lives, it became clear that millions of leaseholders would need to make their buildings safe and habitable. The campaign group End Our Cladding Scandal—some of its members are here today—estimates that as many as 3 million leaseholders are caught up in the scandal. That is a huge number of families and people and, if you think of the people who they know, care for and love, you will be talking about considerably more.
The Building Safety Act sought to protect leaseholders from the cost of remediating these safety defects but, as has been amplified, the scheme has a glaring issue: a huge number of affected leaseholders are not included. We support the amendments that are clearly designed to widen that pool—if we do not just say “Let’s do the whole caboodle”.
Estimates included in a briefing from the National Residential Landlords Association suggest that there are approximately 1.3 million leaseholders of buildings less than 11 metres in height who are not able to qualify for support. This is in addition to the 400,000 leaseholders in high-rise buildings who are non-qualifying due to other eligibility criteria, such as, as has been mentioned, the enfranchised leaseholders and leaseholders owning more than three flats. On learning about that a little bit more, it seems to me that this is a travesty. As has been stated by others, these leaseholders are facing eye-watering sums and many are living in unsafe buildings that are unmortgageable, uninsurable and unsellable. That they have been abandoned is unconscionable.
Amendments 93B, 96, 97, 99, 100, 105 and 107 seek, in different ways, to expand the number of leaseholders eligible for remediation support. This is the right thing to do. It is also obvious that some small adjustments can be made to make things better for more: for example, simply looking at the wealth—what is known as the affordability test—or the issues of joint ownership.
Amendment 93B, tabled the noble Earl, Lord Lytton, is very clear that only a building remediation scheme will ensure that all buildings with safety defects undergo remediation, irrespective of ownership or building height. We agree with that. Too many people are falling through the gaps that have emerged post the Building Safety Act. Insurance has already been mentioned, so I will not make any more comments on that.
It seems to us that the pragmatic Amendments 96, 97, 99 and 100 from the noble Lord, Lord Young of Cookham, are arguably the neatest way of achieving this aim. They simply amend the Building Safety Act so that these non-qualifying leaseholders are included in the support available to other leaseholders.
Amendment 102, in the name of my noble friend Lady Pinnock, would require the Government to report on progress relating to the building safety remediation. I am sure that she would probably agree with the comments made by the right reverend Prelate. This amendment was drafted in response to concerns raised by End Our Cladding Scandal, namely the speed at which remediation is occurring, alongside the progress in ensuring that leaseholders have access to a robust and independent dispute resolution process, and the fact that not all affected leaseholders are able to access protection.
I note that the Government publish monthly figures relating to the remediation of building safety defects, but there is no clear target for when these works should be completed. It would be appreciated if the Minister could perhaps clarify this. I am reminded of the saying that you do not fatten a pig by simply weighing it. To us, the lack of speed or a plan or any sense of urgency is clearly the impetus behind the amendments from the noble Earl, Lord Lytton. It seems that no one is holding anyone’s feet to the fire.
The Government also promised a robust and independent resolution process that would allow leaseholders to challenge building assessments or remediation. This has arguably not come to pass, with the process being more ad hoc and without sufficient leaseholder representation. It is vital that leaseholders are able to hold developers to account and ensure that remediation is completed safely, in a timely manner and at good value, but they need more government clout.
There was something mentioned only briefly that I would like to expand on a little. It seems to me that developers are getting all the flak. We all agree that lease- holders are blameless, but developers are not the only party to blame. Many of us still need to be brought to the table, preferably with cash, to provide the funding that will fix the problem. I am talking about product manufacturers, architects and designers, contractors, building control, testing houses and insurers. They all have a part to play and they should all play their part.
I suspect that, when the Grenfell Tower Inquiry reports later this year, the role that successive Governments, to be fair, have played will also be unavoidable. We feel that it is time that the Government really stepped up and gripped this problem comprehensively. They are the ringmaster, after all.
Lord Empey (UUP)
I am most grateful to the noble Baroness for giving way. She mentioned a list of people who had a degree of responsibility. One of them, of course, is building control. My experience of building control in local authorities is that they can be extremely pernickety and difficult, and can enforce very high standards. All of us, in our different cities, will have seen examples of absolutely grotesque omissions and failures. But is it not the case that a local authority has a statutory liability, through building control, and that that, in and of itself, could and should be a source of remedy for a person who finds themselves in this position? On top of that, is there not an incentive for a developer, having built a structure and sold on the units, to wind up and move on to a different company to build the next one? We end up with people slipping out of the net entirely.
Baroness Thornhill (LD)
The noble Lord has hit on a point; in some estates, you build one building that might just meet the requirements, and then more and more are built, and it expands the problem. I agree with a lot of what he said. I was trying to point out that we tend to say it is all on the developers, but I think this is a systemic failure of a series of accountable people. That is what I am trying to say.
Ultimately, I am saying that, sadly for democracy, this is yet another state failure—like WASPI, blood contamination and Windrush, to name but a few. The harsh reality is that the impact of this is felt every day by some people, and is growing: when a leaseholder decides that they want to reinsure or somebody decides that they want to sell, suddenly they are faced with, “Wow, I didn’t realise that there was all of this”. Therefore, the number of people affected is actually growing.
I will end on what my noble friend Lady Pinnock always says: leaseholders have done nothing wrong and everything right. Excellent campaigning from groups such as End Our Cladding Scandal and the non-qualifying leaseholders group has helped us achieve the progress we have made on remediation support. We owe it to them to keep pressing the Government on making sure that all leaseholders are protected from the costs of a situation they did absolutely nothing to cause.
Baroness Taylor of Stevenage (Lab)
My Lords, I add my tribute on the sad and sudden passing of Lord Stunell. We worked very closely with him on the levelling-up Bill, and he was such a great asset during the passage of that Bill. Looking at his record over the years, his was a life dedicated to public service, to both national and local government. I hope the noble Baroness will take our condolences back to the Liberal Democrat group, and we will pass them on to his family as well.
The noble Earl, Lord Lytton, is right to call this issue a sorry tale of shame. It is clear from the number of building safety amendments in this group and this Bill, and previously in the levelling-up Bill, that there appears from our debates to be a cross-party consensus from most of us, except the Government Front Bench, of such deep dissatisfaction with building safety in general and the glacial progress on remediation in particular. It was carefully calculated in the recent Times article by Martina Lees, referred to earlier, to show that only 8% of buildings in need have been remedied, not the 21% that the Government claim, and which was mentioned by the right reverend Prelate the Bishop of Lincoln.
As important is the huge number of non-qualifying leaseholders whose dreams of property ownership have turned to nightmares, as the horror of their uncertain financial position, the escalating costs of remediation and the impossibility of selling homes—I have seen evidence of this, as valuers are currently placing values at zero or negative—snatch away their aspirations and leave behind only extreme anxiety. Numbers vary, but the Times estimates the number of affected homes to be up to 1.5 million and, as other noble Lords have said, upwards of 4 million people are affected.
An excellent briefing from the National Residential Landlords Association points out that data remains lacking and estimates that there are approximately 1.3 million leaseholders in buildings less than 11 metres in height and 400,000 leaseholders, referred to by the noble Baroness, Lady Thornhill, in high-rise buildings who are non-qualifying because of other eligibility criteria. Many leaseholders are unaware of their non-qualifying status or are alerted to it only when they receive an invoice for remediation works or attempt to sell their property. It is important to remember that many leaseholders are understandably reluctant to speak out on this issue for fear of further devaluing what they thought was going to be a very valuable property asset.
The scale of this problem is eye-watering. I agree with comments made previously by Members of your Lordships’ House that, unless this is addressed urgently, as more and more leaseholders discover their liability, another enormous injustice scandal will unravel, which will scar whole generations of home owners. The noble Earl, Lord Lytton, referred to the fact that this will escalate over time to the detriment of freeholders and leaseholders, but with the balance of personal financial risk sitting with leaseholders.
The system the Government put in place, which was subject to an update in your Lordships’ House at the end of March, may have made some progress, but as a spokesperson for Grenfell United said:
“Government’s shockingly slow progress towards remediation shows a complete lack of political will to keep people safe in their own homes”.
Giles Grover, of the excellent group End Our Cladding Scandal said:
“The majority of unsafe buildings across the country still don’t have plans in place to fix all issues”.
The 7,283 mid-rise buildings that the Government have estimated to be unsafe are missing from any plan for remediation as they are deemed non-qualifying, and the unbearable pressure of remediation is falling on the ordinary people who make these flats their homes. While the Government have brought forward legislation and statutory instruments to deal with this situation, progress has been slow because issues are being dealt with piecemeal as they arise. Even when legislation has been considered, such as the Building Safety Act 2022, which should have been a comprehensive solution, too often amendments were rejected with serious impacts and consequences for leaseholders only now becoming more apparent.
The noble Earl, Lord Lytton, proposes a comprehensive and detailed framework to encompass the whole situation around building safety remediation that would give more structure to the current piecemeal approach. While I understand that the level of detail that he proposes in this scheme will almost certainly not be greeted by the Minister with the wholehearted approval that it probably deserves, I hope the principle of having such a framework in place and the thorough approach set out by the noble Earl will at least be a matter for reflection and future consideration as the Bill progresses.
Amendments 96 and 97, tabled by the noble Lord, Lord Young of Cookham, his Amendments 99 and 100, to which I have added my name, and Amendments 105E and 105F, tabled by the noble Earl, Lord Lytton, are aimed at ending the iniquitous distinction between qualifying and non-qualifying leaseholders. We cannot simply allow the nightmare that many non-qualifying leaseholders are enduring to continue.
We totally support the aim of Amendment 102, in the name of the noble Baroness, Lady Pinnock, in terms of holding the Government to account for the building safety remediation programme. The reporting mechanisms so far do not appear to have accelerated progress on remediation, although it has to be said that the bringing to justice of some of the worst developer offenders, such as those involved with Vista Tower in Stevenage, is welcome. I hope the Government will accept this amendment and bring regular updates before your Lordships’ House, but it would be even better if there could be target dates for outstanding work to be completed. The fact that remediation has dragged on for so many years is a cause of great frustration, anxiety and financial hardship to those affected. Do the Government have a view about a projected end date for these works to be completed? A deadline, even if it is not met by everyone involved, is great for concentrating the minds of those involved in remediation.
In response to the points made by the noble Baroness, Lady Thornhill, and the noble Lord, Lord Empey, I agree with the noble Baroness that it is not just developers who are responsible for this issue. But a big problem here has been the deregulation of the building control function, taking it away from local authorities and allowing developers to pick and choose who their building control inspectors will be. That has been greatly responsible for some of these issues.
Our Amendment 105 is simple and straightforward in its aim. It would bring the beleaguered non-qualified leaseholders, who are in desperate need of remedies for their building defects, within the remit of the Building Safety Act 2022. Surely, if we are concerned about ensuring that people feel safe and are safe in their homes, we can all support that. It remains our position that it should not be the responsibility of leaseholders to suffer the financial consequences of defective building. Amendment 105C in the name of the noble Earl, Lord Lytton, has a similar aim.
I support my noble friend Lord Rooker in his campaign to highlight the danger of—I was going to call them electricity surges, but I had better not now because I will get into trouble with him—neutral current diversion. I want to come back to the case that Martina Lees quoted of Viv Sharma and his Ukrainian wife Julia, who had to leave their nine-storey block when the fire service deemed it unsafe. It had more than 17 defects, caused by the original developers, which should never have been approved by building control. They have been offered less for their property than they bought it for 15 years ago, and they have had to pay for temporary accommodation. Julia has said:
“I’m now 50. How am I supposed to rebuild my life?”
That situation—which is morally wrong, as the noble Lord, Lord Young, said—remains in place. Such situations should have been remedied by the Building Safety Act but were not. We now have another opportunity to put things right, so I hope the Government will do so by accepting the amendments before us today.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, I first add my tribute to Andrew, Lord Stunell. I have sat opposite him for many hours in this Chamber and in Committee, being challenged by him in a detailed but always good-humoured way. I am going to miss him. I did not know where he was this week to begin with, and I asked questions. He will be sorely missed, particularly on the issues that we talk about as a group of Peers. I send his family, friends and colleagues our best wishes. May he rest in peace.
I thank noble Lords for the amendments on building safety and for this thoughtful debate. It is an important issue. I will take all the amendments in turn and put the Government’s view. I thank the noble Earl, Lord Lytton, for Amendments 93B and 107. Their aims were debated extensively during the passage of the Building Safety Act 2022 and the Levelling Up and Regeneration Act 2023. I thank the noble Earl for his years of important campaigning on building safety, and for tabling these amendments again and speaking to them in such a detailed way. We continue to consider his arguments and are always willing to listen carefully to the ways in which we could improve the current regime. That is why the Government tabled several clauses in the other place to clarify and extend the protections in some particular areas of this Act.
However, I reiterate that implementing a new building safety remediation scheme would reverse what has been achieved by the regulatory regime set out in the Building Safety Act. Creating a system which mirrored the existing regime would delay essential remediation already being carried out. It would also create uncertainty for leaseholders across the country. The responsible actors scheme, the developer remediation contract, remediation orders and remediation contribution orders are already delivering many of the noble Earl’s objectives, requiring developers to fix problems that they have caused.
Lord Empey (UUP)
On that matter, if a company was responsible for defective property and the company became insolvent, am I to understand that the directors of that company would be capable of recommencing building another property? Or is the Minister saying that the individuals could be followed through the courts for remediation, rather than being able to sidestep their responsibilities?
Baroness Scott of Bybrook (Con)
My Lords, that is an interesting and very legal point. Rather than speaking off the top of my head, I would like to get it right and write to the noble Lord.
I move to Amendments 96, 97, 99 and 100. I thank my noble friend Lord Young of Cookham for these amendments. Amendments 96 and 99 would extend the leaseholder protections to buildings under 11 metres and to collectively owned leaseholder buildings. It is generally accepted that the risk to life from historic fire safety defects is proportionate to the height of buildings. As this risk is lower in buildings under 11 metres, such buildings will require remediation only in very exceptional circumstances. Given the small number of buildings that have required this—it is three across the country; the developers have remediated two of them and we are in negotiations on the third to get that remediation done—our assessment remains that extending the leaseholder protections to these buildings is neither necessary nor proportionate.
Where leaseholders in buildings under 11 metres face remediation costs, it is important, as I have said so many times at the Dispatch Box, that they contact the department immediately and we will look into that individual building on a case-by-case basis. If necessary, we will write to the building owner to seek assurances that any proposed works are necessary and proportionate, and that the rights to redress are being fully utilised.
The Government understand that some leaseholders in these buildings are still facing higher insurance premiums, with insurers citing building safety as the reason for the increase. The Association of British Insurers and its members have stated that premiums should reduce where buildings comply with building regulations. We expect insurers to honour their commitments and make sure that premiums are priced fairly and appropriate to the level of risk.
Regarding collectively owned leaseholder buildings, the Government made the decision that the leaseholder protections in the Building Safety Act would not apply to these buildings. As a result, people would still have to pay to remedy the safety defects in their building as owners. Residents who own the freehold would have to pay not only their portion of remediation costs but for any residents who did not participate in the purchase of the freehold.
Since the Building Safety Act, the Government have continued to examine the situation faced by collectively owned leasehold buildings. For instance, the Building Safety (Leaseholder Protections) (England) Regulations 2022 provide owners in these leaseholder-owned buildings with access to remediation contribution costs. We have listened and we have acted.
I turn to Amendment 97. The existing leaseholder protection package is designed to maintain a fine balance between leaseholders’ and freeholders’ rights. The amendment distorts the balance disproportionately in favour of leaseholders and risks unfairly benefiting one group of investors, leaseholders, to the detriment of another—the freeholders.
Regarding Amendment 100, our intention has always been to protect individuals living in their own homes, rather than those who have purchased property for financial or commercial reasons. Changing the leaseholder protection regime so that it is linked to a share of ownership, rather than individual properties, would also introduce an unnecessary level of uncertainty and complexity into the protections.
Regarding cessation certificates, it is not clear what effect such a certificate would have or how a landlord would know when to serve one. The responsibility for the costs of fixing historical building safety defects should rest with those responsible for creating them. The Building Safety Act was clear that, when this is not possible, responsibility for remediation should be shared between stakeholders in the property. Concentrating responsibility on a single group would risk a number of unintended consequences, including freeholders becoming insolvent. Taken together, the changes made by this amendment would therefore complicate the regime unnecessarily and slow the progress made towards the remediation of buildings.
I thank the noble Baroness, Lady Thornhill, who spoke on behalf of the noble Baroness, Lady Pinnock, to Amendment 102 about the reporting requirement for building safety remediation. The Government are committed to accelerating remediation and protecting affected residents. The total number of buildings reported to have started or completed remediation works in England has more than doubled since the end of March 2023. Along with monthly updates, Ministers have also committed to providing the other place and those interested with regular updates on progress, the latest of which was provided on 26 March.
My noble friend Lord Young of Cookham asked about ACM cladding. Another noble Lord mentioned pathways. I realise that pathways do not mean delivery, but, importantly, all residential buildings in England taller than 11 metres have a pathway to fixing unsafe cladding, either through taxpayer-funded schemes, developer-funded schemes or social housing provider-led remediation. This protects leaseholders from these costs. In addition, 99% of high-rise buildings with unsafe Grenfell-style ACM cladding identified before 2023 have been made safe or have work under way to make them safe. The proportion of buildings remediated continues to shift as more buildings are being identified and 90% of all high-rise buildings with ACM cladding have been made safe or have work under way on them.
My noble friend Lord Young also brought up the issue of decanting. The Government amended the Bill in the other place to make it explicit that the costs of alternative accommodation for residents, when they are decanted from their homes to avoid imminent threat to life or of personal injury, or because remediation works cannot take place while residents are in occupation, can be recovered. They can recover those costs through a remediation contribution order, which is an important change to the Bill.
The department continues to take steps to support applicants to start on site more quickly. Local authorities, fire and rescue authorities and the Health and Safety Executive can take enforcement action against those not progressing remedial works. Where building owners are failing to make acceptable progress, those responsible should expect further action to be taken.
Some 55 of the largest developers signed legally binding contracts committing to remediate, or to pay to remediate, life-critical fire safety defects in 1,500 buildings over 11 metres that they had a role in developing in England over the 30 years to April 2022. Together with the building safety levy, this will see industry contribute an estimated £6 billion. The department publishes information on developer progress based on quarterly returns submitted by developers, and this is available. I make it clear that the introduction of new reporting requirements involves time and cost, which need to be balanced against the need to continue our progress in building remediation. So I ask the noble Baroness not to press the amendment.
I thank the noble Baroness, Lady Taylor of Stevenage, for her Amendment 105. Similarly to Amendment 97, it would open the door to changes which distort that balance disproportionately in favour of one group, to the detriment of another. It is important that legislation provides clarity for leaseholders, freeholders and the courts. The Government believe that having definitions of qualifying and non-qualifying leases in primary legislation provides greater certainty to all interested parties—an important consideration given that this is a pivotal part of the legislation for so many people across the country.
I thank the noble Earl, Lord Lytton, for Amendments 105C to 105G, which seek to make several changes to the building safety regime and, in the case of Amendment 105G, the insolvency regime. Amendment 105C would rewrite the developer remediation contract by statute. This would unfortunately serve to create operational legal confusion about what developers’ obligations are, which buildings need to be identified and remediated, and what standards this should be done to, resulting in delay and litigation. I hope the Committee agrees that the Government should instead focus on holding developers to account for remediating unsafe buildings as quickly as possible.
On Amendment 105D, it is right that the Government have worked with major developers that have built defective buildings to secure binding commitments to remediate, worth an estimated £3 billion. However, I do not believe it would be fair also to target these specific developers to pay a disproportionate share of other remediation costs for buildings that they have no connection with. That is why we are focused on setting up the building safety levy to contribute funds to our programmes to remediate buildings over 11 metres. The levy is estimated to raise a further £3 billion over 10 years, or more.
We have had much debate on the merits of Amendment 105E, and I gave my views on Amendments 96, 97 and 99. As I mentioned, relatively small numbers of residential buildings under 11 metres or five storeys require remediation. These buildings are considered to be at low risk of historical fire defects, and I maintain that this change would disproportionately and unfairly place the obligation for remediation of non-life-threatening defects on freeholders. Meanwhile, extending protection to leaseholders who have not purchased the freehold would place the financial burden of remediation entirely on leaseholders who own a share of the freehold, making it less likely that these buildings will be remediated.
As for providing leaseholder protections to leaseholders who own more than three dwellings, I reiterate the points raised earlier. Landlords owning a number of properties are likely to have these as investments, and a fair balance needs to be met. The Building Safety Act was not designed to benefit investors; it is to help individuals living in their own homes.
On Amendment 105F, removing qualifications for passing on costs for defects in service charges would widen the scope of the leaseholder protections considerably. This would risk the burden of remediation costs falling disproportionately on landlords, whether or not those landlords are also some or all of the leaseholders in the building. The amendment also provides for members of a building industry scheme to cover remediation costs. I have already mentioned my concerns with the similar approach in Amendment 105D.
The Earl of Lytton (CB)
My Lords, I thank all noble Lords who have spoken in this debate. Needless to say, too many further questions arise out of all this, and there are too many points for me to be able to address anything other than the odd one—other than by making a very long speech and incurring the wrath of the Government Whip for the second time in the week.
I preface my further remarks by saying a word about Lord Stunell. His death is a great loss to all of us. He was forensically well-informed and always delivered his contributions with care, tact and supreme authority. I had the great honour of serving with him on the Built Environment Committee and, of course, I was with him throughout the Fire Safety Bill and the Building Safety Bill, as well as the levelling up Bill. He will leave a very great hole in our deliberations.
There is a fundamental common purpose between what the noble Lord, Lord Young, and I are trying to achieve. I simply say that I look forward to working with him to see whether we can find a common way forward—and indeed with other noble Lords, such as the noble Baronesses, Lady Thornhill and Lady Taylor, and the Minister, because there is a consensus that something needs to be done.
The right reverend Prelate and all the Bishops have been fantastic in their support on this—right the way through the passage of the now Building Safety Act and Levelling-up and Regeneration Act, and again on this Bill—in order to get justice for innocent leaseholders.
The noble Baroness, Lady Thornhill, referred to the wider liability and systemic failures. I get that, which is why I keep referring to the wider construction industry. There are lots of people involved there and they all have some responsibility.
The noble Lord, Lord Empey, referred to building control. This takes us back to the Building Act 1984 measures, which allowed for approved inspectors—as privatised entities—effectively to take over the role of local authority building control. The local authority then lost control of the process at that stage. The construction sector gamed the system. Indeed, I know at least one large body that had its own wholly owned subsidiary as its approved inspector. Where is the objectivity there?
The noble Lord, Lord Rooker, was absolutely right on the question of electrical safety, which is a subset of the fire safety issue.
The noble Baroness, Lady Taylor of Stevenage, has always been a fantastic supporter of what I am trying to do; I say to her and to all noble Lords that I am not set on the particular solution that I have put forward, but I am dead set on wanting something that protects consumers and protects leaseholders in their own home—this is the recurring theme. The chickens are going to come home to roost: the bottom line is that this will always end up with leaseholders by default picking up the pieces; they are the most vulnerable. The problems do not go away; whether you kick the political can down the road or whether you do not, it just leads to more grief.
I will not go through the comments of the Minister, but I thank her for them and will look at them with very great care. I am sorry that the argument still seems to be that, because this matter was raised in the passage of the then Building Safety Bill and levelling up Bill, it somehow should not be discussed any more. The point is that the problem has not gone away. The Minister may not want to listen to me—certainly not for much longer this afternoon—but she needs to listen carefully to what leaseholders are saying about their experiences. We in Parliament may start turning a tin ear to what is happening out there, but it is evident in the media and in emails to me and other noble Lords, and it cannot be ignored or avoided any longer. The mercury in this respect is going up the tube quite fast, and this will become more and more of an issue.
If my proposals are destined to slow down the process, all I can say is that, politically, I suspect that this is going to start speeding up very rapidly. The Government may say that they will take further action if the players do not perform, but this is another bit of finger-wagging. We know that something needs to be done and that it needs to be done now.
I end by saying that I will consult with other noble Lords about how we can take this forward. I certainly may return to this matter on Report. None of us wants to delay this Bill but, unamended, the agony for lease- holders will go on and on. On that note, I beg leave to withdraw Amendment 93B.
Lord Best
“The Regulator of Property Agents(1) The Secretary of State shall establish a body corporate known as the Regulator of Property Agents (“the Regulator”) to regulate property agents in respect of—(a) estate management of leasehold properties,(b) sale of leasehold properties, and(c) sale of freehold properties subject to estate management or service charges.(2) Regulations under this section—(a) must be laid within 24 months of the date of Royal Assent to this Act,(b) must be made by statutory instrument, and(c) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.(3) If, at the end of the period of 12 months beginning with the day on which this Act is passed, the power in subsection (1) is yet to be exercised, the Secretary of State must publish a report setting out the progress that has been made towards doing so.(4) The objectives of the Regulator are—(a) to protect the consumers of services provided by property agents, in respect of—(i) estate management of leasehold properties,(ii) sale of leasehold properties, and(iii) sale of freehold properties subject to estate management or service charges. (b) to set and uphold standards of competence and conduct for property agents in relation to the sale of leasehold properties and freehold properties subject to estate management or service charges.(5) “Property agent” means an individual or body of persons (whether incorporated or not) which carries out the roles of an estate agent as defined in Section 1 of the Estate Agents Act 1979 or of a property manager as defined in Sections 54 and 55 of the Housing and Planning Act 2016.(6) The Secretary of State may provide financial assistance (by way of grant, loan or guarantee, or in any other form) and make other payments for the establishment and maintenance of the Regulator.(7) The Regulator must establish a panel of persons called “the Advisory Panel”.(8) The Panel may provide information and advice to the Regulator about, and on matters connected with, the Regulator’s functions (whether or not it is requested to do so by the Regulator).(9) The Regulator must appoint the following persons to the Panel—(a) persons appearing to the Regulator to represent the interests of—(i) leaseholders of properties managed by property agents,(ii) freeholders of properties subject to estate management or service charges, and(iii) professional bodies and associations representing property agents who manage leasehold properties.(b) the Secretary of State.(10) The Regulator has powers as follows—(a) to monitor, assess, report, and intervene (as appropriate) in relation to the performance of property agents who manage leasehold properties;(b) to determine mandatory qualifications to ensure that those undertaking the activities of a property agent in England have, or are working towards, qualifications that demonstrate competency in respect of the sale or management of leasehold and freehold properties;(c) to enforce compliance with a mandatory and legally-enforceable Code of Practice for property agents selling or managing leasehold properties;(d) to provide guidance to property agents on the regulatory framework for the sale and management of leasehold and freehold properties;(e) to register all property agents complying with the requirements of the Regulator and to revoke the registration of property agents who persistently breach the regulatory framework;(f) to raise a registration fee and an annual fee to pay for the ongoing costs of the Regulator of Property Agents;(g) to review and make recommendations to the Secretary of State for the updating of the statutory guidance that sits alongside the regulatory framework for the sale and management of leasehold and freehold properties;(h) to delegate to designated bodies administrative and regulatory functions in respect of the sale and management of leasehold and freehold properties, as it deems appropriate.(11) The Property Ombudsman and other redress schemes, if any, covering property agents shall provide the Regulator with such information as the Regulator shall request.”Member’s explanatory statement
This amendment seeks to create a Regulator of Property Agents to regulate property agents in respect of estate management of leasehold properties, sale of leasehold properties, and sale of freehold properties subject to estate management or service charges.
Lord Best (CB)
My Lords, Amendment 94 is in my name and those of the noble Lord, Lord Young of Cookham, and the noble Baronesses, Lady Hayter of Kentish Town and Lady Taylor of Stevenage, and I am very grateful for their support. Before I speak to the amendment, I want to add my appreciation of the life and shock at the loss of Lord Stunell. Andrew Stunell was a terrific advocate for better housing, as a notable Construction Minister in the coalition Government and an eloquent speaker on a range of Bills, not least the Bill we are debating today, which he analysed brilliantly just a month ago in this Chamber. He will be very greatly missed indeed.
Amendment 94 represents the grand finale in our Committee debates on the Bill. It would empower the Secretary of State to establish an independent statutory regulator of property agents who sell and manage leasehold property. It would introduce into law the recommendations from the Government’s own Regulation of Property Agents working group, which I had the honour to chair and which reported in July 2019. The twin objectives of the regulator would be to protect consumers and to raise standards. Although the working group recommended a regulator for all property agents covering estate agents, sales agents and letting agents as well as property agents handling leasehold property, the amendment relates only to the leasehold managing agents, to keep within the scope of the Bill. However, many property agents involved in leasehold sales and management also engage in sales of freehold properties and in the management of rented sector lettings, so would be covered. Moreover, a twin amendment in the Renters (Reform) Bill, due in this House shortly, could extend the regulators’ role to cover agents managing rented properties as well.
The need for regulation was spelled out graphically at Second Reading, and many of your Lordships have shared details of agents’ misconduct brought to their attention. The unsuitability of badly behaved agents ranges from simply not communicating with leaseholders to misleading them and taking advantage of their leaseholder status with exorbitant commissions, charges and fees, not least in retirement housing developments. Although there are some excellent agents providing a good service and value for money, there are also inept, incompetent and exploitative agents whose reprehensible behaviour cries out for proper regulation. The urgency for regulating the sector has now increased, following the passage of the Building Safety Act 2023. This legislation has meant managing agents of blocks of flats taking responsibility for spending substantial sums of leaseholders’ money and of taxpayers’ subsidies to cover remedial building works in blocks of flats. It is now more essential than ever that such responsibilities are exercised only by reputable and qualified professional agents.
There is rock-solid support for a regulator of property agents from the professional bodies and trade associations representing the sector: the RICS; Propertymark; and the Property Institute, which comprises the Institute of Residential Property Management and the Association of Residential Managing Agents. Those property agents who are acting honourably are undermined by the unprofessional conduct of too many. Of course, the organisations representing consumers, such as Citizens Advice and the Leasehold Knowledge Partnership, are extremely supportive of the proposals encapsulated in this amendment.
A regulator would establish requirements for relevant qualifications and continuous professional development and would require adherence to an overarching code of conduct and to subsidiary-specific codes covering the different components of property agency. The regulator would have a full range of enforcement powers, from requiring specific changes to levying fines or removing the licence for a firm or individual to operate. That would provide the same consumer protections as for social housing, with its social housing regulator and Housing Ombudsman, and as for the financial sector, with its Financial Conduct Authority and Financial Ombudsman Service.
As with accountants, lawyers or surveyors, property agents deserve to be respected as professionals with expertise and with the proper attributes that go with professional status. Why would the Government resist a measure that is likely to be extremely popular with millions of leaseholders, which is earnestly requested by those who would themselves be the subject of regulation, and which has been given so much support from this House, particularly following the strong encouragement from the cross-party scrutiny of your Lordships’ own Industry and Regulators Committee last month?
Baroness Hayter of Kentish Town (Lab)
My Lords, I declare a non-financial interest in having worked with the Property Institute and other groups that have supported this area for many years. Also, as the noble Lord, Lord Best, alluded to, I chaired a committee working on one aspect of this matter, which I will come to shortly.
As the noble Lord said, it is quite unusual for this call for regulation to come not only from the consumers who would benefit but from the professionals already working in the field. It is virtually unanimous; in fact, among the organised groups, it is unanimous that this is the regulation under which they would like to work. The agencies and their representative bodies are waiting for this to happen.
As has just been described, in a way the reasons are obvious, not only outside but within this House. We know that, as was mentioned, the Best report was welcomed, I think universally; the Select Committee on Industry and Regulators has called for it to happen; and in the world outside there is still an expectation—a hope—that this might happen. A number of us want an election soon but we could even put it off—if that would be the only thing needed to get this through, we will put up with more of this Government.
It is fairly obvious that housing is not just bricks and mortar. Homes are fundamental to people’s financial and emotional well-being. Get this right, and their own quality of life improves dramatically. Get it wrong, and it is debilitating, stressful and expensive. It starts, of course, with the purchase, or indeed the sale, of a leasehold property, which is a more complicated transaction than simply buying a freehold house. So even at that stage, transparency, clarity, openness and proper explanation by estate agents are essential, and so, therefore, is the need for their expertise in these specialist areas of purchase and sale.
However, even once it has happened and you are living in the leasehold property, that can be a particularly fraught arrangement. With leasehold management there is a three-way relationship between the landlord, the resident—that is, the leaseholder or the owner—and the managing agent. Marriages with three in are always a bit complicated, but in this case, of course, you have the managing agent, who is appointed by the landlord but who has duties and, even more importantly, a close working relationship with the leaseholder. That adds an element of necessary expertise in how to handle it.
As important is the complexity of the law involved in this. It covers particular rights that are different from those associated with a freehold house. There are the safety issues, which have been well rehearsed in Committee. There are consumer issues and fiduciary duties, as well as myriad external bodies and requirements that have to be met. Frankly, managing agency is no task for an amateur. Agents need to be trained in ethics as well as the law and building regulations, and they need to be checked to ensure that they are fit and proper to handle both people’s money and their safety, and to prepare all the legal and other paperwork essential for running a complex operation. That is why we require regulation and oversight of this important profession.
As was mentioned, a code of conduct is needed across the industry, not simply to provide the requirements on agents but, importantly, to enable consumers to understand and thus to be able to enforce their rights. As the noble Lord, Lord Best, said, a cross-industry group that I had the privilege to chair and whose outcome was welcomed by the department has prepared the code and it is ready and waiting, so the work in setting up this regulatory body would be less than otherwise. It is there, ready and waiting for the legislation to make adherence to that code a legal requirement. That is the key to professionalising the industry and enhancing the experience of all who deal with managing agents—landlords and leaseholders alike.
It is not sufficient, welcome though it might be, to have an ombudsman to adjudicate and put things right when things have gone wrong. We need to prevent problems arising, which means raising standards, ensuring compliance, requiring training and qualification, and continuing professional development in a world of statutory requirements that seem to be changing, not just year by year but month by month, as is the technology involved in building, which we know about.
The Best way is the only way. Let us give the noble Lord what he has been asking for for so long and just get this report into law—let us get on with it. I am delighted to support Amendment 94.
Lord Young of Cookham (Con)
My Lords, I will add a very brief footnote to the excellent speeches made by the noble Lord, Lord Best, and the noble Baroness, Lady Hayter.
The point I want to make is that the market is changing. We are moving away from a position where the freehold of blocks of flats was owned by the Grosvenor estates, Cadogan Estates, the Portman Estate —professional freeholders—and they were well able to choose responsible managing agents and keep an eye on them. We are moving away from that to a position where more and more of the blocks of flats are owned by the leaseholders. It is a trend that I that I welcome—indeed, the Bill accentuates that trend—and eventually we will end up with commonhold. Against that background, it becomes even more important that the managing agents should be professional. The background is changing and the need for this is now much more urgent than it was a few years ago.
I very much hope that the Government will be able to respond to the eloquence of the noble Lord, Lord Best, and introduce regulation of managing agents. However, if they cannot, he hinted at two intermediate steps, which I think the Government might be able to take. One is requiring mandatory qualifications. As the noble Lord said, these have already been introduced for the social housing sector and could be expanded to protect leaseholders and private tenants. The second thing the Government could do, which the noble Lord also mentioned, is to introduce the mandatory code of practice, drawing on his working group on the regulation of property agents—this case was well made by the noble Baroness, Lady Hayter.
The Government could do one final thing which has not been mentioned so far. There is a government document called the How to Lease guide, and they could make that a mandatory document to be shared with consumers who purchase a leasehold property, in exactly the same way in which landlords and agents must provide the How to Rent guide to tenants. Therefore, if my noble friend cannot go the whole hog, I very much hope that she can smile warmly on intermediate steps, which might then pave the way to the final introduction of regulation of managing agents in the very near future.
Lord Truscott (Non-Afl)
My Lords, I am pleased to follow the noble Lord, Lord Young of Cookham, and I agree with the comments that he just made. I remind the Committee that I have been a leaseholder for around 30 years, and over that time I have dealt with several property management companies.
I wholeheartedly support Amendment 94 in the names of the noble Lords, Lord Best and Lord Young of Cookham, and the noble Baronesses, Lady Hayter of Kentish Town and Lady Taylor of Stevenage. I pay tribute to the dogged determination of the noble Lord, Lord Best, in pursuing the reform and regulation of property agents over a number of years, and, of course, to the sterling work of the noble Baroness, Lady Hayter of Kentish Town.
I fail to see why His Majesty’s Government should not support this amendment in full. I also fail to see why the Government have failed to bring forward their own measures to regulate property agents, which, as we have heard, are long overdue. I know that the Minister will say that this is all very complicated and requires detailed and thoughtful legislation, that she will describe how property managing agents are making voluntary strides to improve their standards and operation, and how there are redress schemes in place. However, I do not really buy that argument. This amendment gives His Majesty’s Government two years to lay down regulations to regulate property agents. That is enough time even for this Government, and if not them, then certainly for the next one.
No other sector I know of handles potentially millions of pounds of other people’s money but is unregulated by statute. The City of London looks at property management companies aghast given the lack of oversight. I will give some practical examples of why property management companies should be effectively regulated, following the comments of the noble Lord, Lord Best.
Baroness Hayter of Kentish Town (Lab)
My Lords, I apologise to the Committee. From what the noble Lord has said, I realise that I probably should have said that I was a leaseholder when I spoke.
Baroness Bennett of Manor Castle (GP)
My Lords, I rise briefly to offer Green support for this clear, obvious and essential amendment, which already has strong support across the Committee.
I want to pick up a point made by the noble Baroness, Lady Hayter, about how both buyers and sellers desperately need confidence and how that confidence is utterly lacking at the moment. A lot of our discussion has focused on the problem of estate management, where there are clear and obviously pressing problems, but to focus a little on sales of properties and the need for some oversight there, I note that, last year, trading standards warned that many agents were not passing on the best offers that they had received from purchasers, as they are legally required to do, because they were getting commission fees from mortgage brokers, solicitors, surveyors and other third parties. They were choosing to go with what would produce a better result for them but a lower price for the seller. The only way that this is generally uncovered is if the would-be buyer who did not succeed in purchasing the property happens to look at the Land Registry sales price, says “but that’s less than I was offered” and creates a fuss. That is a sign of just how utterly cowboy the current situation is without regulation.
A report out yesterday noted that for 34% of the “for sale” stock on some major websites there had been an asking price reduction. People often need to sell for all kinds of reasons—including divorce, bereavement or perhaps because they need more bedrooms for extra children. These are all stressful, difficult situations where delays can cause damage and create uncertainty. We have a cowboy situation out there, and as the noble Baroness, Lady Hayter, said, the people in the industry who want to do the right thing know that there are cowboys out there who are a threat to them. Therefore, the amendment is clearly essential to making our housing sector less of a cowboy environment than it is now.
Baroness Thornhill (LD)
My Lords, I too support Amendment 94 in the name of the noble Lord, Lord Best, which was so well outlined by him with his usual clarity and reason. It is an amendment that I was determined to put my name to, but its popularity was such that I was too late. However, I listened intently to the informed contributions from the noble Baroness, Lady Hayter, and the noble Lord, Lord Young of Cookham, and look forward to the contribution of the noble Baroness, Lady Taylor. This will therefore be possibly my shortest and easiest contribution to the Bill, simply saying that, between them, the proposers have nailed this issue with an amendment that should be workable and which we hope that they will take forward on Report.
The noble Lord, Lord Best, listed the broad coalition of support for a regulator and indeed it appears that it is ready to go. This is something which the noble Lord has campaigned on for years. His report was widely accepted and praised for its thoroughness and its remarkably workable plan for the way forward, which he has stated in detail. Interestingly, the recommendations of his working group went much further than this amendment, so the movers of the amendment are being pragmatic and measured because they want to see change now—we support that.
I found the contribution of the noble Lord, Lord Truscott, on redress, particularly interesting. It reminded us that, currently, regulation in the property sector is voluntary and sanctions are limited. This Bill will not change that enough. Do your Lordships not think it is shocking that anyone can set up a firm from their bedroom and very soon be handling hundreds of thousands of pounds of leaseholders’ and taxpayers’ money while being largely unaccountable to the leaseholders who, on the whole, do not choose them to manage their block or control their service charges? This cannot be right. An individual can set up in business as a property manager without any formal qualifications, experience or even insurance.
It seems shocking that there has been so much good legislation to protect much smaller sums, such as deposits for renters, but nothing to protect leaseholders’ funds. We have regulations and regulators for individuals and companies handling much smaller amounts of people’s money. Leaseholders are usually required by the terms of their lease to make advance payments towards the service charge and to contribute to a sinking fund or reserve fund. These sums can be substantial, especially if major works are planned, which is why we supported the amendment tabled by the noble Baroness, Lady Fox, earlier in the Bill on consultation on major works. The Federation of Private Residents’ Associations has asserted that there is no other area in the UK in which money is held by a third party that is not regulated—unless somebody can tell me otherwise. The federation suggests that moneys held by unregulated and unprotected third parties may well exceed £1 billion.
If we want to change the behaviour of such property agents, there needs to be a much more professional approach to training and development, as the noble Baroness, Lady Hayter, exemplified well. Mandatory professional standards should be set, along with the oven-ready code of practice.
Even within the sector, the good guys—and there are good ones—do not want the rogues giving them a bad name and tarring everyone with the same brush. It is clear that the Government are procrastinating on this issue, so much so that several years after the report from the noble Lord, Lord Best, very little has happened. The fact that the Government have not taken the opportunity with this Bill to introduce relevant property agent regulations proves that they have probably yielded to the anti-regulation voices among their ranks, despite their acceptance in principle of the case for regulating property agents, which has also been accepted by the majority of interested and affected parties. We are all seeking a solution, and Amendment 94 is certainly worthy of consideration, and we urge the Government to give it that consideration. I look forward to the Minister’s reply and to Report, definitely.
Lord Thurlow (CB)
My Lords, I have not heard a voice in the Chamber this afternoon against the amendment from the noble Lord, Lord Best. It is such a refreshing amendment, it is long awaited, and we have heard, and we all knew, that his report was kicked into the long grass many years ago by the Government, and that is something of a disgrace. Even in the Levelling- up and Regeneration Bill debates last year, this subject was much discussed. We must not overlook that large cohort of hugely responsible and professional property managers—and there are many—but our focus must be on those who fail to adopt high standards, those who knowingly overcharge, those who take discreet commissions, and those in the pockets of clients with dubious standards.
This subject of rogue managing agents has come up again and again in this Bill; the time has come to act. The amendment clearly has strong cross-party support, and we have heard that the Government want to do it in principle. If the Government really want to do something for leasehold occupiers, this is it: simple regulation of property managing agents and other related property advisers; no one to practise without registration; a no-nonsense, strictly monitored and enforced system of effective supervision; and a simple, advertised complaints procedure for the lessees and rigorous monitoring of those complaints. This amendment has my wholehearted support. I hope the Government will adopt it; if not, I hope it is pressed on Report.
Lord Hacking (Lab)
My Lords, I do not want to jump in front of my Front Bench, but this is not a Bill that I have followed in detail. I did not take part in the Second Reading, and I have not taken part so far in Committee, but I was in the House this afternoon, and that is why I am standing up to very briefly address your Lordships on Amendment 94, which should be fully supported. I declare a personal interest, and your Lordships will see how I can link that to supporting this amendment. My wife and I are both freeholders and leaseholders of five flats, which are in an adjacent house to our own house. We personally manage them and know all the tenants well, and we try to deal with all their needs and circumstances, but the time will come when we have to sell. It is that stage that I am worried about, to ensure that these leaseholds are properly managed under the auspices of the regulator.
Baroness Taylor of Stevenage (Lab)
My Lords, it is a great pleasure to take part in this debate and to hear from such eminent experience across the Committee on this issue. On one of the points made by the noble Baroness, Lady Thornhill, about how far back this goes: one of my very first jobs in the early 1970s was at an estate agent. It was a family business run by somebody who had trained as a journalist and had a career in journalism, but he did, at least in that case, have the grace to train as a chartered surveyor as he carried on his business as an estate agent. You would have thought that things would have changed a bit over the subsequent years—it is quite a long time ago now—and it is ridiculous that it can still happen that people with little experience or qualification can be in charge of huge sums of other people’s money and property, and I hope that we can move matters on, at least in that respect.
Baroness Scott of Bybrook (Con)
I thank the noble Lord, Lord Best, for his Amendment 94, and for his and other noble Lords’ persistence in pushing for the creation of a new regulatory body to oversee property agents. I put on record my sincere thanks to him for his valuable work on regulation over very many years. I note that he is also a member of the Industry and Regulators Committee, which recently concluded that the case for regulation of the property agent sector still remains. Ministers will respond to the committee in due course.
However, as the noble Lord is acutely aware, the Secretary of State indicated in the other place that he did not consider that this was the right time or the right Bill to set up a new regulator for property agents. I know that he and other noble Lords will be disappointed, but perhaps not surprised, by this. However, the Government remain committed to driving up professionalism and standards among property agents. Leaseholders deserve a good service for the money they pay, whether from their landlord or their managing agent, where one is in place.
The noble Lord once again brought up, as he has many times with me, mandating professional qualifications. This was one of the areas that the Government asked the noble Lord’s working group to look into as part of its review. I assure him that that remains on the table.
At this point, I will respond to the interesting idea from my noble friend Lord Young of Cookham about the How to Lease guide. Interestingly, I spoke to officials about this idea not too many hours ago, building on the guide to renting. That is something that could be put in place. I will work further on it and talk to my noble friend more.
Industry plays an important role in driving up standards, and we welcome the ongoing work being undertaken by the industry and others to support this. This includes the efforts of the noble Baroness, Lady Hayter of Kentish Town, and her independent steering group in preparing an overarching code of conduct. I thank her for that. I know that the Government are very interested and looking at it in much more detail. This is an important development to ensure that all consumers are treated fairly and agents work to the same high standards. I echo what many noble Lords have said. We have some excellent agents in this country who do a fantastic job. The agents we are talking about are the rogue agents, who I know noble Lords are trying to ensure come up to the same high standards. I thank the noble Baroness for her work on this.
I should also stress that measures in this Bill, alongside existing protections and work being undertaken by the industry, seek to make managing agents more accountable to those who pay for their services. That includes making it easier for leaseholders to take on the management of their buildings themselves, where they can directly appoint or replace agents.
However, I recognise the strength of feeling expressed on this issue at Second Reading and today by a number of noble Lords, and the ambition of all noble Lords who spoke to drive up the standards of property agents. The noble Lord, Lord Truscott, the noble Baroness, Lady Bennett of Manor Castle, and others spoke about individual cases where managing agents have been either good, as we heard from the noble Lord, Lord Truscott, or extremely unacceptable.
I will continue to engage with the noble Lord, Lord Best, my noble friend Lord Young of Cookham and any others who would like me to on this issue during the remainder of the Bill’s passage. I know I already have a meeting in my diary with the noble Lord, Lord Best, in a week or so. With the assurance that we will keep working on this, and following what I have said, I hope the noble Lord will withdraw the amendment.
Lord Best (CB)
My Lords, I am very grateful to all noble Lords who have spoken—all of them in favour of the concept of a regulator of property agents. I think the case is now unavoidable. My especial thanks to the noble Baronesses, Lady Hayter and Lady Taylor, and the noble Lord, Lord Young of Cookham, for supporting this amendment, and to the noble Baroness, Lady Thornhill, who, if we were allowed one more name on the list, would have been there as well. It was great to hear illustrations from real life from the noble Lord, Lord Truscott, bringing a consumer perspective to the story. The noble Baroness, Lady Bennett, shared stories of cowboy agents. I am afraid they do exist, and we should be doing something about it.
The Minister offered me some consolation. We are going to meet again soon, and she recognises the strength of feeling that everybody has been expressing. I thank her for continuing to engage on the subject and I hope there is something we can salvage, before the Bill finally passes, that will at least make a start on this really important mission of creating a regulator to the benefit of the 5 million leaseholders out there. I beg leave to withdraw my amendment.
Leasehold and Freehold Reform Bill
Friday 24th May 2024
(6 months, 4 weeks ago)
Commons ChamberRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 76-I Marshalled list for Report - (24 May 2024)
Mr Deputy Speaker (Mr Nigel Evans)
I confirm that nothing in the Lords amendments engages Commons financial privilege.
Clause 12
Restriction on title
The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Jacob Young)
I beg to move, That this House agrees with Lords amendment 1.
Mr Deputy Speaker
With this it will be convenient to discuss Lords amendments 2 to 67.
Jacob Young
All amendments made to this legislation in the other place were minor and technical in nature, and serve to make the legislation function as intended.
This is a historic day for leaseholders: this package of reforms will transform the leasehold housing market and the lives of millions of leaseholders across England and Wales. Our reforms to lease extensions and the buying of freehold will give families and individuals security, which is a core Conservative principle. Giving more leaseholders the freedom to manage their own building will empower them to make important decisions themselves, such as choosing a management company that delivers good-quality work at reasonable prices, and will require management companies to up their standards and give leaseholders a better deal in order to retain and win business.
On service charges, leaseholders must be given more information as to what is being done to their property and what they are actually paying for. The requirement for landlords and management companies to specify exactly what the service charge entails will encourage higher standards among those companies and empower leaseholders to challenge poor service. That is because transparency is a core Conservative value, too. Similarly, our buildings insurance reforms will stop leaseholders being charged exorbitant, opaque commissions on top of their premiums and tackle the proven cases of insider trading in the market—fairness is another core Conservative principle.
Then, we turn to the millions of freeholders living on new estates who are impacted by poor service, bad management and opaque fees. Those estates and the properties on them bring joy, security and futures for everyone who has purchased those properties, including the 1 million households that will have been created in this Parliament. I can tell the House today that the Government’s target of building 1 million new homes in this Parliament has been met. These further rights for homeowners on private and mixed-tenure estates encapsulate what the Bill is trying to do: bring fairness, security, transparency and competition to freehold estates. It is not right to force someone who has bought a freehold property to deal only with one management company, which is not required to give any information or charge reasonable fees—a monopoly.
The Bill will explicitly ban the creation of future leasehold houses. This is a once-in-a-generation reform that will alter the housing market forever, and I commend the Bill to the House.
Sir Peter Bottomley (Worthing West) (Con)
I think the whole House wishes that the Secretary of State was able to be with us. He is one of the people who has helped to move this forward, together with the junior Minister. I say to Michael: well done, not just on education, but on getting a grip of the horrors in residential leasehold.
After the Grenfell fire tragedy, people realised that those stuck with the bill not just for cladding but for every other fire defect were not the developer, the architect, the surveyors or the suppliers of components, but the residential leaseholders who by law are only tenants and own not a single brick in the building. It was when the Secretary of State came in that the action started. Actually, he was not the first. Two other Secretaries of State had to give instructions to their permanent secretaries to start giving out some compensation. I still commend to the Government having an agency to take over potential claims of all residential leaseholders, taking action against those responsible and holding a roundtable with all their insurers. That would get £10 billion in almost overnight, saving the money going to the lawyers.
To return to the Bill, there has been cross-party agreement over the past eight years that something was needed. The Law Commission produced many recommendations, most of which are in the Bill. I will not go into all the detail of the debate that I heard in another place, where some Members seem to think that people’s property rights are being harmed. I do not remember those Members of another place complaining when the disgraceful statutory instrument 632 came through in 2020, boosting landowners’ values by about £5 billion. The only people paying that were the leaseholders.
I am very grateful to the people who have supported the all-party group on leasehold and commonhold reform. Katherine O’Riordan has done really well on that, as have the trustees of the campaigning charity Leasehold Knowledge Partnership, Martin Boyd and Sebastian O’Kelly, together with new trustees, including Liam Spender, who has done a great deal in fighting off very bad landlords in the east end of London.
Three problems remain, on which the House will want to see the next Administration take action urgently. One is that forfeitures, as the whole House accepts, is a draconian system that must go. The threat of losing the home is one thing, but all the equity going to the landlord is totally another, and that should be stopped. In one case in which I was involved in Plantation Wharf, someone was at risk of losing £600,000 over a disputed bill of £7,000.
Secondly, the commitment to bring in a ground rent cap has not come forward but it must be introduced. I acknowledge that I have a share of a small block of leasehold flats in Worthing where I have a home, and I own another leasehold property that I let out, but I will not benefit from this because I have negotiated with my landlord that they will pay the ground rent for the next 30 years, which will see me out. We need a ground rent cap. We know that ground rent turns to peppercorn if there is a legal extension, and we ought to get to that as fast as we can. If on the way we have to stop at £250 a year, that is fine.
The last thing is that we need to recognise that a move to commonhold is the only way forward to ensure an effective housing market. We ought to stop new residential leasehold properties being sold, and we ought to find a way to help existing leaseholders avoid facing penalties from external landlords, who can go into all sorts of bad behaviour, whether on insurance commissions or other ways of taking money off leaseholders improperly. That would be in the interests of both landlords and leaseholders.
I congratulate the Government and thank the Minister for his attendance. I am very grateful to the Opposition for helping persuade the Prime Minister that this Bill could come forward in this last Session of this Parliament. I claim the credit because on the Tuesday before the King’s coronation, I was standing with the Prime Minister and the Leader of the official Opposition and I said to the Prime Minister that the Opposition would help him—Rishi looked at Keir, Keir nodded, and now we have the Bill.
Jeff Smith (Manchester, Withington) (Lab)
On that note, may I on behalf of the Opposition also welcome this Bill? We are pleased that the disagreements down the other end of the building have been resolved and that it can go forward. It is not perfect, as the Father of the House has pointed out, and I hope that a future Labour Government will take the next steps that we need. It is a step forward, so we are pleased to support this legislation going on to the statute books this evening.
Jacob Young
With the leave of the House, I pay tribute to all the staff and Clerks here, the countless campaigners on the rights of leaseholders and some of those mentioned by my hon. Friend the Member for Worthing West (Sir Peter Bottomley), the brilliant parliamentary champions of the Bill, including my hon. Friend himself, the officials who have worked so hard to deliver the Bill, and indeed my private office and officials for their work on the Renters (Reform) Bill, which sadly has not made it through the wash-up today, such is the nature of a snap general election.
Mr Deputy Speaker (Mr Nigel Evans)
With the leave of the House, I will put a single question on the Government motions to agree to Lords amendments 2 to 67, otherwise we would be here a long time.
Lords amendments 2 to 67 agreed to.
Mr Speaker
I have to acquaint the House that the House has been to the House of Peers where a Commission under the Great Seal was read, authorising the Royal Assent to the following Act and Measure:
Finance (No. 2) Act 2024
Digital Markets, Competition and Consumers Act 2024
Post Office (Horizon System) Offences Bill Act 2024
Media Act 2024
Pet Abduction Act 2024
Paternity Leave (Bereavement) Act 2024
Building Societies Act 1986 (Amendment) Act 2024
British Nationality (Irish Citizens) Act 2024
Zoological Society of London (Leases) Act 2024
Victims and Prisoners Act 2024
Leasehold and Freehold Reform Act 2024.
Leasehold and Freehold Reform Bill
Friday 24th May 2024
(6 months, 4 weeks ago)
Lords ChamberRead Full debate Leasehold and Freehold Reform Act 2024 Read Hansard Text Amendment Paper: HL Bill 76-I Marshalled list for Report - (24 May 2024)
Lord Gascoigne
“(2) A lease is a retirement housing lease if— (a) it is a term of the lease that the house comprised in the lease may be occupied only by persons who have attained a minimum age,(b) that minimum age is not less than 55, and(c) the house comprised in the lease is part of a retirement development or scheme in which the leases of all the houses in that development or scheme meet the requirements set out in paragraphs (a) and (b).”Member's explanatory statement
This amendment changes the definition of a retirement housing lease so that the minimum age requirement applies to a person occupying the house, rather than to the tenant or assignee.
Lord Gascoigne (Con)
My Lords, before I start, I declare that my wife is an employee of the Crown Estate, as set out in my ministerial register of interests.
Government Amendments 1, 2, 4, 5, 6, 59, 64 and 65 are clarificatory amendments of a minor and technical nature to ensure that the Bill operates as intended. Amendments 3 and 7 give effect to the Government’s announced exemption for accepted sites on Crown land. Amendments 54, 55, 56, 57 and 58 relate to legal costs; they introduce a power to set exemptions to Clause 61 and a power to suspend the application requirement until an event set out in regulation occurs. The amendments provide for flexibility to make sensible exemptions and to recognise the position of certain landlords—those in resident-led buildings, for example.
Amendments 10, 12, 14 and 27 are minor and technical amendments relating to the application of the Bill to leaseholders holding over. Amendments 38, 39 and 41 are also minor and technical to ensure that the new valuation scheme will operate in the way it was intended. Amendments 18, 28, 42 and 43 clarify the methodology for intermediate release. Amendment 26 would clarify that there is an order of priority to Part 4 of Schedule 4. Amendment 11 relates to lease extensions and clarifies that the notional lease is granted by the person granting the extended lease. Amendment 60 and 61 correct drafting errors in Clauses 80 and 91.
These amendments are essential for the effective functioning of the Bill. I hope that noble Lords will support them. I beg to move.
Lord Young of Cookham (Con)
My Lords, I rise briefly to press my noble friend on Amendment 1. The Bill bans new houses being sold on leasehold, which is something I entirely support. Schedule 1 provides a rather narrow range of exemptions and Amendment 1 refers to retirement housing.
I raised in Committee a product called Homes for Life, which looks as if it may be caught by this Bill. Basically, Homes for Life enables someone who is over 60 to sell their home on the open market, then Homes for Life buys the home they want to move to and gives them a lease on that home. That enables the person to downsize and releases a useful sum of money for them. However, that product is not at the moment exempted under Schedule 1. When the Government consulted on implementing reforms to the leasehold system they concluded:
“We will provide an exemption from the ban for these financial products”.—[Official Report, Commons, 22/4/24; col. 1271.]
That included this one. I was in correspondence with the noble Baroness, Lady Scott, about this. Can my noble friend give an assurance that that product, which is useful and non-controversial, will not be banned by the Bill when it becomes an Act?
Lord Moylan (Con)
My Lords, before I go further, I declare that I am a long leaseholder in a property which is my home and that I have no other property interests, apart from as a will trustee of one flat in London in which I have no beneficial interest, simply a nominal interest on behalf of the beneficiary of the will during his lifetime.
I shall respond in particular to Amendments 55 and 58 among the government amendments, because they address a point that I have raised. I am slightly surprised that my noble friend on the Front Bench did not seek to draw my attention to this fact. It is a point that I raised in Committee and on which I have a related amendment later in the list, which we will no doubt come to—but if I address it now, I can be briefer when we come to that group later on.
The matter relates in particular to the question that I raised in Committee about the ability of landlords to recover legal costs from the service charge and, in particular, how this would work for right-to-manage companies. I should have declared that in the block where I live we have a right-to-manage company, and I am a member and a director of that company. How would this ban relate to right-to-manage companies that have no other source of income apart from the service charge? Before these amendments were brought forward, the Bill would have made it virtually impossible for a right-to-manage company to bring legal action against, for example, a defaulter or someone who failed to pay, because they would have no assurance in advance that they would be able to recover their legal costs. The directors would be exposed to having to pay the legal costs out of their own pockets—quite apart from the fact that most lawyers like a little bit of money upfront anyway in order to commence proceedings, so that would need to be funded from the private pockets of the directors of the company. My amendment later also raises this question in relation to other types of non-profit landlord or building managers who have no financial interest in the building other than in their role as manager.
The Government’s response—and here I am making the speech I was expecting my noble friend to make in relation to these two amendments—appears to be that the Secretary of State will make regulations subject to the affirmative procedure to provide for circumstances where the new proposed regime on litigation costs and administration charges will not apply or is suspended.
This appears to be something of a concession in the direction of the point I raised in Committee and have on the amendment paper later. But the drafting and Explanatory Notes provide no guidance on when such regulations will be made or what the intention is behind such exemptions. It is worth saying here that the amendments provide that the circumstances on which the exceptions may be based include not only the litigation costs but the relevant proceedings and the landlord of a specified description. As I say, this could be beneficial for freeholders in the circumstances I described, but it depends very much on the content of the regulations.
I would like to ask my noble friend some questions. We are in the very strange position that I am asking him to give a commitment when, subject to the will of the electorate, he may not be a member of the Government and the Government on behalf of whom he speaks may not be in power. I say nothing to anticipate what the result may be, but of course the electorate may choose a Government of a different party. I will none the less ask him these questions and, in some ways, I would be very grateful if the noble Lord, Lord Kennedy of Southwark, might find it possible to give his own answer to these questions.
The first question is: what types of litigation costs, proceedings or landlords do the Government intend to be excepted from the general rule? I am sorry, normally I am better prepared, but of course very few of us are well prepared for dealing with this Bill because it has been added so late to the agenda. I suspect my noble friend on the Front Bench is in that category as well, from the turn of the head I noticed on his part just now.
Could these exceptions also extend to certain categories of leaseholders, for example investor leaseholders who might benefit from the general rule? Crucially, within what timeframe will such regulations be made? There is of course no commitment to timeframes in the amendments that have been made. The difficulty is that directors of right-to-manage companies and others are being left in a sort of limbo between the passing of this Bill and the coming into effect of the regulations.
One must also bear in mind that directors of right-to-manage companies and similar landlords may be the subject of legal action. Their ability to recover their own legal costs in defending such actions is also a question that needs to be resolved—and clearly resolved. If people such as me are going to continue as directors of right-to-manage companies, they will potentially find themselves exposed to that sort of risk.
So, as far as these two amendments go, I welcome their general direction. I find it deeply unsatisfactory that we are having to rely on the promise of a Secretary of State who may not be in office in six weeks. I would prefer my own approach, later on the Marshalled List, of putting these provisions on the face of the Bill. I seek a very clear response from my noble friend so that the many people in this country who have pursued right-to-manage, which is a policy the Government support and wish to extend—and I wholly support them in that—are not left adrift by ill thought out drafting in this Bill.
Lord Howard of Rising (Con)
My Lords, Amendment 1 states that a lease is a retirement housing lease where residents have a minimum age of 55 years. I declare an interest as a chairman of the Hospital of the Holy and Undivided Trinity at Castle Rising. Is it possible to retrospectively introduce that condition if it does not already exist? In the case of the charity I referred to, the trust deed was originally set out in the 17th century and there was less concern then about things such as there are in this piece of legislation. Perhaps the Minister could tell me whether, or what, action could be taken to make sure that this particular building does not fall foul of the legislation.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I first make a number of declarations: I am a non-executive director of MHS Homes; chair of the Heart of Medway housing association; and a vice-president of the Local Government Association. In addition to that, I am a leaseholder. My noble friend Lady Taylor of Stevenage cannot be here as she is attending a friend’s funeral. That is why noble Lords have to put up with me today on the Opposition Front Bench.
I am sure that, when the noble Lord, Lord Gascoigne, responds to the debate, he will explain this in detail. Obviously, I have only just picked this stuff up this morning; I am sure that buried away in the government amendments are all the promises and pledges that we have had from the Government over the past six or seven years. There are things that we have heard repeatedly from the Member for Surrey Heath in the other place, which have been repeated on Sky News, the BBC, ITV and in most national newspapers. I am sure that now, finally—at the last possible chance—all those pledges are here.
I am sure that the Minister will confirm to me the promise on ground rents. We heard of course that there would be peppercorn ground rents and there was a consultation. Then we heard it leaked that they would be £250 a year with a taper. Again, I am sure the Minister can point out whether that is here. It will be very frustrating if leaseholders and campaigners have been promised action and there is nothing here.
Because of the Renters (Reform) Bill biting the dust, as it were, we have not dealt with the assured shorthold tenancy trap, which will be kept. My noble friend Lady Twycross had a PMB that addressed that very issue. She was repeatedly assured by the Government that there was no need to bring forward her PMB because they would deal with the issue in the Renters (Reform) Bill; so she quite rightly withdrew it. She accepted the assurance from the Government that it would all be sorted out in the Renters (Reform) Bill and withdrew her Bill. She was right near the top of the ballot, so she would have got it through this House and we maybe could have been arguing at the other end about getting it through during the wash-up. But she accepted, in good faith, the Government’s assurance that there was no need as it was in the Renters (Reform) Bill, and now it is lost, so the issue remains.
There is also the whole issue of the Section 24 trap: namely, that leaseholders in high-rise buildings cannot ask the First-tier Tribunal to appoint a manager under Section 24 of the Landlord and Tenant Act 1987. Again, we were expecting amendments to deal with that here. Because the manager cannot be the accountable person under the Building Safety Act, there is a gap in the law which means that people are trapped. You get unscrupulous landlords who have been thrown out as managers of a building, but they can get back in again and take control of the service charge. That was going to be addressed, but it is not here—or maybe it is and I cannot spot it.
We are not going to oppose this Bill at all, and I hope it can pass today. There are some good things in it, but it is far, far short of what was promised. The Government should be quite ashamed of how they have behaved over the last few years in relation to this Bill—making promise after promise and delivering very little. That is no way to do politics. If you stand up in the House, or make a pledge in a newspaper, about the things that you are going to do, you should go and do them. Not to do them is very poor. I know that it is not the fault of the noble Lord, Lord Gascoigne, but I hope he can tell us where all these things have gone. Where is the progress on forfeiture? It is just not there and it is just wrong. This is not the way to operate.
The noble Lord, Lord Moylan, asked me a question. Obviously, I cannot answer that question. At the end of the day, the people will decide who the Government will be on 4 July. Whoever is in power, whether it is a Conservative or Labour Government, I hope that they will look at what happened with this Bill, look at the Law Commission recommendations that are sitting there, done and ready to be introduced, and bring them in.
What is in the King’s Speech is a matter for the Prime Minister of the day. I certainly hope that, whoever is in power, the necessary action is taken and the leaseholder problems are dealt with. They have not been dealt with by this Government—we have had year after year and promise after promise and nothing done. That is very poor. Maybe I am wrong, and the noble Lord will point out what I have missed in the points that I have made.
Lord Gascoigne (Con)
I am grateful for all the contributions in what has been a relatively brief group. I will go through the issues that were raised chronologically.
My noble friend Lord Young raised a specific case, and I have seen the correspondence he referred to. It is the Government’s policy to allow equity release in home finance products in houses, including home purchase plans and lifetime leases. We have a power in this Bill to add, remove or amend definitions for categories of permitted leases. On the specific product, the department is considering an appropriate definition for secondary legislation, and officials have met the main provider in question. I assure my noble friend that the measures in the Bill relating to the ban on leasehold houses will not be implemented immediately, should the Bill secure Royal Assent, as there are other important regulations that need to be provided for first before the ban becomes operational.
My noble friend Lord Moylan is right to say that this will come up later, and we can have the discussion then. In brief, on the right-to-manage companies, we have laid amendments to set regulations to suspend the requirement for certain landlords to apply to the relevant court or tribunal to recover their litigation costs until an event set out in regulation occurs. An example of when it might be appropriate to suspend the application requirement is for resident-led buildings or assetless landlords. As I say, I think we will come back to it later.
Lord Moylan (Con)
Among noble Lords, my noble friend at least must have confidence that the Government will be returned to power and that he will be sitting on that Bench only a matter of weeks from now. On that assumption, could he give us a date for when these regulations will be brought forward, so we can at least know the Government’s position on the timing of this? There is the risk of people being left in limbo. Even if it is a matter of six weeks that is bad enough, but it could be longer, even if the Government are returned to power. On that assumption, is he able to help the House, and directors and members of right-to-manage companies, by indicating a date when the regulations will be brought before us under the affirmative procedure?
Lord Gascoigne (Con)
On the first question, it is with regret that I cannot give that date now. On his second question—whether I have confidence that we will win—that is up to the electorate, but I have every hope that we will. Obviously, I would not like to curse us in saying that—touch wood. Who knows? Let us see.
I was also asked what action could be taken to make sure that this does not fall foul of legislation. The Government will work closely with stakeholders to ensure that the application requirement is suspended only where appropriate. In addition, the power is subject to the affirmative procedure.
This is the first time I have had the honour to speak directly to the noble Lord, Lord Kennedy, from the Dispatch Box. I know he has raised this issue inside the Chamber and outside many times, and he is right to do so. Obviously, there have been many constraints on the legislative timetable and, as we are now in wash-up, those pressures have increased tenfold. This is a good Bill as it stands, and the Government want to see it through. The noble Lord mentioned that we are at the beginning of a general election campaign. Who knows what will come thereafter, but this Bill is very good as it stands, and I hope noble Lords will be able to support it today.
Lord Kennedy of Southwark (Lab Co-op)
Can the Minister confirm that there is nothing in this Bill on forfeiture or ground rents, as had been promised?
Lord Gascoigne (Con)
There are lots of good things in the Bill as it stands that we have only just begun to talk about. I hope the noble Lord will support it. If we have the opportunity to serve again, we will continue to do what we can.
Lord Kennedy of Southwark (Lab Co-op)
I am not looking to oppose the Bill; I support it as it is. I am just trying to be clear on the specific question of ground rents being reduced to peppercorn rents. We have spoken about £250 a year; as far as I can see, that is not here, and neither is the issue around forfeitures. Can the Minister confirm those facts?
Lord Gascoigne
“4 A lease of a house where the house comprised in the lease— (a) is a property or part of a property vested inalienably in the National Trust for Places of Historic Interest or Natural Beauty (“the National Trust”) under section 21 of the National Trust Act 1907, or(b) is inalienable by the National Trust by virtue of section 8 of the National Trust Act 1939.”Member's explanatory statement
This amendment clarifies the scope of the exemption for leases of certain National Trust property to ensure that it captures leases of houses which are a property, or part of a property, vested inalienably in the National Trust under section 21(1) or (2) of the National Trust Act 1907, or which are inalienable by the National Trust by virtue of section 8 of the National Trust Act 1939.
“4A “(1) A lease granted out of a freehold estate by the Crown.(2) In this paragraph “the Crown” means—(a) His Majesty in right of the Crown, in right of His private estates, or in right of the Duchy of Lancaster, or(b) the Duchy of Cornwall.”Member's explanatory statement
This amendment creates a new category of permitted lease for the purpose of Part 1 of the Bill (ban on leasehold houses) where a lease is granted out of a freehold estate by certain parts of the Crown.
Lord Gascoigne
Member's explanatory statement
This amendment ensures that the provision only applies to an application for completion by registration of a disposition which is a grant of a lease and not to an application for other entries on the register.
Member's explanatory statement
This amendment ensures that the restriction under this subsection only applies to a disposition which is completed by registration.
Member's explanatory statement
This amendment ensures that the restriction under this subsection only applies to a disposition which is completed by registration.
Lord Gascoigne
“Part 1: Crown applicationThis Part binds the Crown.”Member's explanatory statement
The amendment inserts a new clause into Part 1 of the Bill (leasehold houses) to make provision that the Part binds the Crown.
Lord Bailey of Paddington
“Mandatory share of freehold on new enfranchisable blocks of flats(1) A person may not grant or enter into an agreement to grant a restricted long lease of a flat in a qualifying building on or after the day on which this section comes into force, unless the freehold estate in the building is held by a Shared Freehold Company.(2) The appropriate national authority may make regulations providing for—(a) the content, form and effect of the articles of association of Shared Freehold Companies, which may include provision which is to have effect for a Shared Freehold Company whether or not it is adopted by the company;(b) a provision of the articles of association of a Shared Freehold Company to have no effect to the extent that it is inconsistent with the regulations;(c) the exemption of Shared Freehold Companies from the strike-off provisions of section 1000 of the Companies Act 2006;(d) the automatic acquisition and termination of membership in a Shared Freehold Company by tenants and initial subscribers; and(e) restrictions on the terms or effect of any agreement, lease or rentcharge to which a qualifying building or its appurtenant property is subject.(3) The articles of association of any Shared Freehold Company must provide that—(a) all tenants under long leases of flats in the relevant qualifying building will be voting members of the Shared Freehold Company; and(b) no other person will be a voting member of a Shared Freehold Company where more than one year has elapsed since its incorporation.(4) Regulations under this section are subject to negative resolution procedure.(5) In this section—“appropriate national authority” is—(a) in relation to England, the Secretary of State;(b) in relation to Wales, the Welsh Ministers;“effective date” means the day three years after the day on which this Act is passed,“exempted building” means any building in which a freehold estate is held by—(a) a Commonhold Association, or(b) a Community Land Trust satisfying the definition in section 2(7A) of the Leasehold Reform (Ground Rent) Act 2022;“flat” has the same meaning as in section 101 of the Leasehold Reform, Housing and Urban Development Act 1993;“long lease” has the same meaning as in sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002;“qualifying building” is a building which meets the following conditions—(a) it would constitute premises to which Chapter 1 of the Leasehold Reform, Housing and Urban Development Act 1993 applied if each flat in the building had a qualifying tenant within the meaning specified in section 5 of that Act; and(b) the first long lease granted over a flat in the building was granted on or after the effective date; and (c) it is not an exempted building;“restricted long lease” is a long lease which does not fall into any of the categories in Schedule 1, where the terms of the lease do not prevent the flat from being occupied under that lease as a separate dwelling;“Shared Freehold Company” means a limited company established for purposes connected with holding the freehold of a specific qualifying building, where membership in the company is referable to holding a leasehold estate in one or more flats in the qualifying building.”Member's explanatory statement
This amendment requires new blocks containing leasehold flats to be mutually owned (commonhold, Community Land Trusts, or shared freehold), but exempting Schedule 1's “permitted leases”, and optionally permits regulating Shared Freehold Companies, analogously to existing powers over RTM companies. This facilitates commonhold adoption, while preserving the option of shared freehold arrangements which have evolved through private initiative.
Lord Bailey of Paddington (Con)
My Lords, this Bill is suboptimal. It is not the revolution that many leaseholders across the country have been desperate for, but it is the only game in town—a game that has taken 22 years to get to this point—and the Government should be commended for some things.
I have tabled this amendment because a share of freehold is more flexible and means that owners of flats can make any company arrangements that they wish, whereas commonhold is more top-down and restrictive. Residents would also have insolvency protection, which is always a good thing. Importantly, all leaseholders must be members of that share of freehold company to maximise alignment of interests and block any residents’ disputes. Forfeiture, as I have said before, is a gangster-like power. It needs to go, and I cannot see why that is not in this Bill.
Baroness Fox of Buckley (Non-Afl)
My Lords, it is very difficult for us at this stage because a huge number of amendments have suddenly emerged. When I heard that the Government were putting forward so many, I was quite pleased, because I had had a very productive meeting with the noble Baroness, Lady Scott; I thought that we had made some strides in Committee and that there would be an attempt by the Government to strengthen the Bill for leaseholders. Then I saw all the amendments. I confess that I do not understand all the technical implications, but I know that, as the noble Lord, Lord Kennedy, pointed out, the things that the Government have talked about in only the last couple of weeks—ground rent, forfeiture and so on—are not there.
I am delighted that this is in wash-up. I will not be able to speak on every group because, at this point, I just want to get the Bill through and do not want to do anything to delay it. I had hoped that the Government would be amenable to some of the constructive amendments, such as this one from the noble Lord, Lord Bailey, to give a bit of extra heft to a Bill which says the right things at the top but has left so many leaseholders frustrated. The Bill has left things dangling in front of them—“suboptimal” is entirely the right description.
When the Minister comes back, perhaps he could indicate whether there are any grounds for hope rather than that we end up spending too long on this discussion and somehow it does not even pass in the suboptimal state that it is in. How should we even view this discussion today? Is anyone listening?
Baroness Fox of Buckley (Non-Afl)
I do not want to just go through the motions. I just want to understand the process so that we do not bother speaking to every group of amendments just for the sake of it. Clarity would be helpful on the Government’s attitude to the positive amendments that have been put in by the likes of the noble Lord, Lord Bailey. I thank my heckler as well. It is always appreciated.
Lord Moylan (Con)
My Lords, I speak in support of the two linked amendments tabled by my noble friend Lord Bailey of Paddington. It is perfectly clear that leasehold is unlikely to be the path of the future. My objections to this Bill, apart from some that are to do with practicality—such as the one I spoke on in the last group, where clarity is still needed from the Government—are about the retrospective meddling with private property rights and existing private contracts.
It is perfectly clear that leasehold has probably had its day and that my noble friend is correct in saying that future buildings—blocks of flats or whatever—should be constituted under some such regime as commonhold, or at least shared freehold with 999-year leases or some other such provision as he has mentioned here in his amendment. I would very much hope that the Government and the Opposition would take this on, and certainly if my noble friend were to divide the House, I would support him in the lobbies on Amendment 8 and the associated consequential amendment.
Baroness Pinnock (LD)
My Lords, we have come to the last stages—the last rites—of this important Bill, which we on these Benches support, despite the fact that there are serious omissions to it. It is fascinating to me that it is Members of the Government’s own side who are raising all the issues at this late stage, and perhaps trying to delay the passage of this Bill.
On the amendments proposed by the noble Lord, Lord Bailey of Paddington, we on these Benches support the move to commonhold. It is one of the principles on which the leasehold reform Bill was to be based. It is most unfortunate that, because of the difficulty in overcoming some of the issues in reaching the ability to move to commonhold, this Bill does not include it. However, I am glad that both the Government Benches and the Labour Benches are saying that they support the Bill and want to make further changes, whoever comes into power on 5 July. We on this side are making lots of notes so that we know that, whoever it is, we will hold them to account, to bring these back so that we have a leasehold reform Bill that everyone across the House can support. It should include commonhold.
Lord Gascoigne (Con)
My Lords, I thank my noble friend Lord Bailey of Paddington for his amendment, and indeed all noble Lords who spoke in this relatively brief group. We appreciate the benefits that a share of freehold arrangements has over ordinary leasehold arrangements with third-party landlords. That is why we are making it simpler and cheaper for leaseholders of flats to collectively enfranchise and therefore achieve a share of freehold arrangements. Making a share of freehold arrangements compulsory would require us to construct a legal framework on the same scale and complexity as commonhold. That would include not only making the regulations that my noble friend is taking the power for, but much else as well. It is not a quick or easy fix.
The commonhold framework has already been designed as the optimal legal vehicle for the collective ownership of flats. By comparison to moving to commonhold, making share of freehold arrangements compulsory would be, I am afraid to say, an inferior but not an easier outcome. As such, the Government want to see the widespread take-up of commonhold and for it to be the future preferred tenure for the owners of flats, rather than a share of freehold.
We are sympathetic to the sentiments expressed mainly by my noble friend Lord Bailey and the noble Baroness, Lady Fox. I, too, would like to have gone much further in many areas—but I am afraid that wash-up means that we are where we are. With that, I hope that my noble friend Lord Bailey is able to withdraw his amendment.
Lord Bailey of Paddington (Con)
My Lords, the House knows two things about me—that I am new and procedure is not my thing and that I am prone to a belligerent outburst. My noble friend Lord Young kindly pointed out to me that forfeiture comes later on in this process so I would like to hear what the noble Lord has to say about that in response and I reverse my earlier comment.
A share of the freehold is the quickest, most elegant way to get to the halfway house before we go to commonhold, which is why I am so passionate about it. It goes to my theme on all of this Bill—where the small man or woman in the street is concerned, it is about control, and this would hand back control very quickly. I beg leave to withdraw my amendment.
Lord Howard of Rising
“Residence condition where a claim is made in reliance on section 28 of this Act(1) Section 13 of the LRHUDA 1993 is amended as follows—(a) in subsection (2)(a)(ii), omit “and”;(b) in subsection (2)(b), at end insert “and—(c) in a claim to which the High Non-Residential Floor Area Condition applies, not less than one half of the qualifying tenants by whom the notice is given must satisfy the Residence Condition.”;(c) after subsection (11), insert—“(11A) In this section—(a) the “High Non-Residential Floor Area Condition” applies if— (i) the specified premises are not excluded from the right to enfranchise by section 4(1), and(ii) the internal floor area percentage assessed in accordance with section 4(1)(b) is more than 25 per cent, and(b) the Residence Condition applies if the qualifying tenant or, where there are joint tenants who comprise the qualifying tenant, one of those joint tenants, occupies their flat as their only or principal home at the relevant date.””Member's explanatory statement
This amendment ensures that, in a case where a building has more than 25% of commercial floor space, the right of collective enfranchisement will not apply unless at least 50% of the participating tenants are occupying home owners.
Lord Howard of Rising (Con)
My Lords, Amendment 9 in my name would ensure that, when a building has more than 25% of commercial floorspace, the right of collective enfranchisement will not apply unless at least 50% of the participating tenants are occupying home owners. At present, for leaseholders of flats to be able to compulsorily acquire the freehold interest in a building, the amount of commercial floor area must not exceed 25%. Increasing the threshold to 50% in conjunction with compulsory lease-backs and below-market compensation will have a number of unintended consequences. This change will lead to the increased fragmentation of high streets and city centres, eroding the ability of property owners—including charities and, importantly, local authorities providing essential public services—to actively manage places.
The loss of contiguous ownership will erode the incentive that property companies have to invest beyond the buildings themselves for the needs of communities, to create attractive neighbourhoods and support broad demographics. It will also discourage investment and lead to less residential in new buildings as landlords take defensive steps to limit the impact. More broadly, it must be recognised that mixed-use buildings pose a greater management challenge than purely residential ones. Freeholders ultimately need to be active and responsive property managers, not only managing issues such as fire and building safety but responding to requests for alterations and improvements and any redevelopment of the commercial elements of the building, its common parts and residential elements. For mixed-use buildings to operate effectively, property owners must balance the continued commercial attractiveness of the offices or retail within the building with the residential occupiers’ quiet enjoyment of their homes and the attractiveness of the wider neighbourhood.
From the perspective of a freeholder looking to actively manage the commercial units within enfranchised mixed-use buildings, the key issue that arises is that the enfranchised leaseholders are held in a corporate structure, such as an offshore entity, company or trust. As many leaseholders have encountered in seeking to hold freeholders to account for building remedial works, it can be incredibly challenging to identify the ultimate decision-maker and secure consent to even modest alterations. As part of the reform, the Bill should mitigate this by introducing an additional requirement that to be a qualifying leaseholder they should be required to satisfy a residential test.
As we know, a high proportion of leasehold properties are owned by investors, including from overseas. Where leaseholders who live in their properties are likely to have regard for their surrounding neighbourhood and what happens in their building—as we have seen from other matters relevant to building management—this is not always true of investors. It is not just a case of ensuring the effective management of individual buildings but of protecting high streets of significant economic importance from being fragmented, particularly in London’s central activity zone, where we know that a high proportion of residential properties are held by investors.
The amendment would seek to pre-empt these challenges by requiring a resident test to ensure that leaseholders seeking to acquire a freehold live in the building as their main residence. It would give some assurance that they will be contactable and responsive, avoiding the negative impacts of zombie freeholders. I beg to move.
Lord Gascoigne (Con)
I thank my noble friend Lord Howard of Rising for Amendment 9 on enfranchisement claims in mixed-use buildings. Establishing residency and occupation is, as I understand, difficult. It can change quickly over time and can easily be manipulated. That could lead to the validity of claims being challenged successfully, years after they have been acquired. A residency test would remove the existing rights of some leaseholders and complicate the system overall, counter to the Bill’s aims, and lead to an uptick in disputes and litigation. Attempting to restrict one leaseholder in another building may well disfranchise the others. Therefore, I am afraid that we oppose the introduction of new residency tests. With the greatest respect, I kindly ask my noble friend to withdraw his amendment.
Lord Howard of Rising (Con)
I am not sure that what the Minister said would not apply even if my amendment did not pass. Does he have a comment on that?
Lord Gascoigne (Con)
With respect to my noble friend, I thought I addressed the points. Introducing this measure would introduce a huge number of complications to the Bill.
Lord Howard of Rising (Con)
Yes, but complications exist now, and therefore it is unnecessary to go as far as the new Bill does. That having being said, I beg leave to withdraw the amendment.
Lord Gascoigne
(aa) the current lease will continue (on those terms) until its term date;”Member's explanatory statement
This amendment would restructure paragraph 3(2) in connection with the new sub-paragraph (2A) that would be inserted by another amendment in my name.
(ba) the notional lease”Member's explanatory statement
This amendment would make clear that it must be assumed that the notional lease is granted out of the interest of the person granting the new lease on the lease extension.
“(2A) But if the tenant is holding over under the Local Government and Housing Act 1989 at the valuation date—(a) in the assumption in sub-paragraph (2)(a), the reference to the terms on which the current lease is granted has effect as a reference to the terms on which the tenant is holding over under that Act;(b) the assumption in sub-paragraph (2)(aa) does not apply.(2B) Paragraph 21 makes provision about whether any right to hold over under the Local Government and Housing Act 1989 is to be taken into consideration in determining the market value of the notional lease (if the tenant is not holding over under that Act at the valuation date).”Member's explanatory statement
This amendment would clarify the operation of paragraph 2 in cases where the tenant has a right to hold over under the Local Government and Housing Act 1989
Lord Howard of Rising
Member's explanatory statement
This amendment defines a homeowner lease, to distinguish between homeowners and investors, and restricts certain benefits of the Bill to leaseholders who reside in the property as their principal home.
Lord Howard of Rising (Con)
My Lords, I will speak to the group of amendments in my name, Amendments 13, 15, 19, 23, 24, 25, 40, 46, 47 and 48. These amendments seek to define a home owner’s lease, which would distinguish between a home owner and investors, and therefore restrict certain benefits of the Bill to leaseholders who reside in the property as their principal residence.
Lord Robathan (Con)
My Lords, this is the first time I have taken part in the debates on this Bill so I should state, for the avoidance of doubt, that I have no leasehold interest whatever. With the leave of the House, I will be slightly far-reaching; there are several amendments here. This is a far-reaching Bill, but it has not been properly scrutinised. Indeed, my noble friend the Minister admitted some confusion in his remarks. The noble Lord, Lord Kennedy, said that this way of doing legislation is “just wrong”, and the noble Baroness, Lady Fox, said that we need some clarity. We need clarity and clear legislation because otherwise—we have all seen this—there will be further confusion.
I can certainly support the end of freeholds in the future; I have no problem with that at all. Yet we have heard that the Bill will not do that; it will not happen yet. Furthermore, this legislation is retrospective for existing freeholds and leaseholds. Retrospective legislation is always deemed unwise. I will not go into too much detail about marriage value or foreign investors because we need to look at this better, but proper scrutiny has not taken place.
The first point is that there is a huge possibility of challenge in the courts—everybody must see that—because we are taking people’s property away. The rulings on confiscation of property and investment will certainly be subject to challenge. We would all challenge it if we had investments that were diminished by the Government. Of course, this could drive some freeholders, who have perhaps invested in just one or two leasehold flats, into bankruptcy. If it did, would the Government be subject to demands for compensation? I have no idea, but nor does anybody else because this has not been properly scrutinised.
What will happen, for instance, if a freeholder in a large building with several flats suddenly finds that he cannot pay the interest rates, goes bust and the flats are left without a freeholder or, indeed, anything to run the freehold? My noble friend Lord Bailey talked about commonhold, which is a very sensible way forward, but it is not properly addressed in this Bill.
Yesterday, I went to very moving memorial—one or two other noble Lords were there but not, I think, anyone here in the Chamber—for Lord Brown of Eaton-under-Heywood. Stressed in that was his adherence to the rule of law and, indeed, to decency and fairness. We in this Chamber should all be looking at decency and fairness in any law we pass. I have to say that this Bill, as has been pointed out by my noble friend Lord Howard, is not decent or fair. It is half-baked and half-thought-out, and there will be huge problems in the future.
I agree that there are problems in leasehold, but this Bill does not necessarily address them. In fact, in my opinion, it will make for chaos. I do not wish to detain the House further, except to say: we must make proper, well-scrutinised legislation. This House, for goodness’ sake, is always claimed to scrutinise legislation properly, yet here we are on a late afternoon when not many people are around, dashing for a wash-up. This is the worst way to pass legislation.
Lord Moylan (Con)
My Lords, I say in support of my noble friend Lord Robathan, having once lived in a flat where the landlord was bankrupt, that you do not want to have a bankrupt landlord. It is not good for leaseholders if the landlord cannot exercise their functions—well or badly. So I ask my noble friend the Minister: what assessment have the Government made of the likely effects of this in inducing insolvency on the part of various landlords? There is too much passion behind this Bill, but the passion seems to be predicated on the idea that landlords are all rich private equity characters who can be mulcted for endless amounts of money, when the truth is that in many cases, freehold interests are owned by families, and sometimes small investors, and the effects of this on them, especially if their investment is leveraged, can be very great.
Turning to the remarks made by my noble friend Lord Howard of Rising, and the amendment, I acknowledge that we are in danger of straying into the next group, which is specifically about marriage value, and I will save my remarks on that until the next group. But on the general principle, the Government have presented the Bill in a way that seems to me to confuse the concepts of leaseholders and tenants. They presented this as something that would be good for home owners but, in practice, as we know, a very large number of leasehold flats are sublet, quite properly and quite lawfully, to people who pay rent for them. The benefit will not go to the home occupier; it will go to the person who holds the lease.
The next fallacy from the Government—who seem to have difficulty, for a Conservative Government, in understanding markets—is that this benefit will somehow trickle down to future leaseholders. That is not true either. What is happening is a transfer of wealth from one group of persons to another. That second group, having been enriched by this movement, will seek to achieve and will achieve higher prices when they sell later on. It is not the case that flats, or even houses, will become generally cheaper as a result of this. The benefit is a one-off transfer to existing leaseholders, many of whom have a profound interest in seeing this happen because they are going to be the direct beneficiary of the expropriation.
The next fallacy that the Government have been peddling is ignoring the fact that so much property, especially in London, is owned by foreign investors. There are reasons for that, which I think deserve exploration, although this is not the time. But property is, as a matter of fact, as I think everyone will acknowledge, owned by foreign investors. We all know about these new blocks of flats that were pre-marketed in Singapore, Hong Kong and all sorts of places, not to mention the Gulf. Those who still hold those leases will be the direct beneficiaries, not the persons to whom they let their flats. But the Government seem to have made no assessment of what the effect of this is going to be. I am to some extent reinforcing the points made by my noble friend Lord Howard of Rising. I ask, seriously, my noble friend on the Front Bench: where is the assessment of this? Is it credible, and will he give an account of it?
I will make a final point: the biggest beneficiaries of this transfer are going to be people who have short leases and expensive properties. I mentioned in Committee that in Kensington there are many people salivating at the prospect of this Bill being passed. This is not about poor people living in remoter parts of the country. This is about the benefit, as a matter of mathematics, that will go to those with shorter leases and larger properties.
What assessment has my noble friend the Minister made of how much business has gone on in the last year and six months of investors cannily buying up short leases, specifically in anticipation of this Bill passing because of the windfall profit they expect to accrue as a result? It is remarkable that the Government seem to think that this measure will benefit ordinary people. It will not.
Lord Hacking (Lab)
My Lords, perhaps I might get up for just a moment to express extreme disquiet about this Bill and the whole wash-up procedure. I have listened with great care to the speeches from the noble Lords, Lord Howard, Lord Moylan, Lord Bailey of Paddington and Lord Robathan, and from the noble Baroness, Lady Fox. This Bill is not being properly considered. I need to say that from these Benches. I also need to say that the wash-up procedure that has been adopted here today—I have been in the House almost all of today and I have listened to the wash-up procedure—is leaving a lot of dirty clothing in the washing machine which has not been properly attended to. It is too late to redress things now, but at least a word of protest should be given.
Lord Hintze (Con)
My Lords, given the fact I have not spoken before on this matter, I again draw attention to my registered interests. I want to add my disquiet at what I am seeing here. This is an attack on property rights. That is an issue for both sides of the House. Why? Because it attacks us—our country—as a good place to invest. There are issues that need to be talked through but, to be very clear, the bankruptcy point that the noble Lord, Lord Moylan, raised is absolutely not trivial. The legal issues around this are quite serious. I ask the Minister: have the Government looked at that in any detail?
The other thing I would like to ask Government is: why the rush? Why now? There are issues that both sides of the House want to address, whether now or in the next Parliament. I seriously think we should wait. What really makes me quite hot under the collar, if you do not mind my saying so, is: why make it retrospective? In my view, this goes against all sorts of natural justice. Unless something terrible is being done, why make it retrospective? Anyway, that is my word that I would like to share with the House.
Baroness Fox of Buckley (Non-Afl)
My Lords, the noble Lords, Lord Hintze and Lord Robathan, both made the point that there had not been enough scrutiny of leasehold in this Bill. They also both said, “I’m sorry I haven’t spoken on this before”. I will just point out that there has been a fair bit of scrutiny on this Bill. There has also been a whole range of debates on leasehold since I have been in the House—for only three and a half years. If they had been in previous discussions on the Bill, they would have heard in boring detail, which we do not have time for now, how many inquiries and investigations from all political parties have gone into every aspect, detail and legal and financial implication of what would happen if we got rid of leasehold—every detail of it. The criticism is that the Government are not going far enough, but the notion that you can wander in and say, “You lot have not thought about this; you’ve not considered it”, is wrong.
The other thing that I want immediately to come back on—undoubtedly the noble Lord, Lord Moylan, will think that I am being too passionate, but anyway—is that everybody is suddenly now concerned about bankruptcy. It is true that nobody wants to drive anyone into bankruptcy, but the notion that this Bill is about driving people into bankruptcy is wrong because it is actually designed as a way of dealing with the fact that many people face bankruptcy because of the service charges that they face.
Lord Robathan (Con)
I am grateful to the noble Baroness for giving way, but she said in her earlier speech that she wanted clarity. It may have been discussed before, but she wanted clarity, I want clarity, and I think we all want clarity in legislation.
Baroness Fox of Buckley (Non-Afl)
The context of my point about clarity was slightly different.
Anyway, the final thing is that the bankruptcy many leaseholders face, because of service charges and some of the things this Bill tries to deal with, is just being ignored.
The final thing is that I object to this notion that it is an attack on property rights and to this idea that people do not understand. People who buy leasehold flats are entering into the property market. They think they are property owners and they are being done over and ripped off by people who sell them the myth that they are buying into a property-owning democracy—something which has been sold by the Conservative Party many times. They have been mis-sold and misled. This cry for commonhold is all about giving them the right to own their property and manage their own affairs and not, suddenly out of nowhere, to have people in control of their homes ripping them off. It is as simple as that. We are trying to give them autonomy. This Bill does not go far enough. However, these arguments are a complete distraction from the limitations of this Bill. They are irrelevant to this Bill. We should be let it go through as quickly as possible.
Lord Moylan (Con)
Before the noble Baroness sits down, I hope she can appreciate that it is perfectly possible to agree with every word she said—that there are abusers, as I said in Committee, that the Bill should address the abuses and that commonhold or something of that character is undoubtedly the way forward and could be legislated for even now—and still be concerned about the retrospective seizure of assets from one party to be transferred to another and to ask how many of those are actually overseas investors, how many are domestic investors and how many are the real people she wants to speak up for who live in their homes. It is perfectly possible to ask those questions.
This Bill is a sledgehammer to attack a nut. It is rare that something as arcane as property law could excite such passion, but we need less passion and more focus on the detail of property law and getting it right if it is to work and not produce worse outcomes for people who live in their own homes, for whom she has so passionately and properly argued.
Baroness Fox of Buckley (Non-Afl)
It is very fashionable to say “I am not a lawyer”, but lots of lawyers who work in property and housing support this Bill but think it does not go far enough. It is not just all bluster and passion. That is misleading.
My final retort to come back is that I am defending people who buy a property to live in. People who buy a property that they then rent out are, as far as I know, not the devil incarnate. I am surprised that people on the Conservative Benches have decided that, if you happen to buy a leasehold property and you want to rent it out, you are doing something malign and malicious. This is not about poor people versus rich people. It is about impoverishing people who buy a house, thinking they are buying a house, only to find out that they have no control or autonomy and that somebody else from a rentier class that has become lazy about innovation in terms of construction, building and housing, is living off easy gains by ripping off leaseholders.
Lord Gascoigne (Con)
I thank my noble friends Lord Howard of Rising and Lord Moylan for their amendments, and all who have spoken in this group. As we have already discussed on the previous group, residency is difficult to establish, can change quickly over time and could be manipulated, as previous residency requirements have been. The fact remains that a residency test would complicate the system overall, contrary to the aims of the Bill, leading to an uptick in disputes and litigation. Therefore, we oppose the introduction of any form of residency test which would treat leaseholders differently under these reforms. I assure my noble friends that I completely understand and hear what their aim is, here and in the previous group, but it would complicate the system and create a two-tier system.
A number of points were raised which I will seek to address. First, I shall cover the points raised by my noble friends Lord Howard and Lord Moylan about analysis, impact studies and foreign investment as a group. My noble friend Lord Howard asked about analysis. While it might be the case that marriage-value savings are concentrated in London and the south-east, this is because of the large number of flats in London, the region where leasehold property prices are highest.
Further to that, my noble friend asked about our analysis. I assure him that it is robust, as is demonstrated by our impact assessment being noted as fit for purpose and green-rated by the Regulatory Policy Committee—RPC.
My noble friend Lord Moylan raised a point about foreign investors. The Bill will fulfil the Government’s aims to make it cheaper and easier for leaseholders to extend their lease or buy their freehold. It will apply to leaseholders whether they live in their property or elsewhere. Attempting to limit the rights of non-resident leaseholders would complicate the system that we aim to simplify and restrict access where we wish to improve it.
My noble friend also talked about a lack of proper scrutiny. This has had proper scrutiny. In 2018, the Law Commission’s legal experts began their report into enfranchisement. In 2019, the Law Commission reported, including options on marriage values, which we accepted. In 2021, the Government confirmed that these recommendations were policy. In 2023, the King’s Speech set out the Bill, which has had scrutiny in both Houses.
That leads me neatly on to my noble friend Lord Robathan and the noble Lord, Lord Hacking, who raised the impact of wash-up. The noble Baroness, Lady Fox—maybe I should say my noble friend on this occasion—got this right, but I appreciate the point about the impact of wash-up. The suggestion is that the Bill has not been scrutinised but, in my brief time as a Government Minister, I have sat through many debates on this and it has been through both Houses of Parliament. We are talking about it today; it is being scrutinised. Many noble Lords and others have had to tolerate sitting in meetings with me, alongside my noble friend the Minister, to talk about it. We have engaged. I appreciate the point being made that this is not the way to do it, but it is because of wash-up. The Chief Whip raised this earlier today and the Leader addressed it yesterday.
Lord Robathan (Con)
Could the Minister just respond to what my noble friend Lord Howard of Rising said? Supposing I am a foreign investor and I buy 100 flats. After the marriage value is put down, I get, say, £100,000 for each flat as a bonus. I think that is an underestimate. Would he defend that?
Lord Gascoigne (Con)
I would certainly be happy to defend this Bill and what it does. I therefore ask my noble friend to withdraw his amendment.
Lord Howard of Rising (Con)
I thank all those who were kind enough to support this amendment. The Minister talked about adequate examination. I have great respect for the Minister and especially for his integrity: when he borrowed my house, I got the key back. It took some months, but it came and it is a very special key, because they stopped making them 50 years ago. I had to have them specially made, so I thought, “Oh, no, I have to go through that expense again, because I could not possibly stick a poor young politician with the cost of a key like that”. Suddenly, like magic, it flopped through the door one day.
But what credence can we give to the legal advice the Minister has had, which he referred to earlier, when the Government’s own advisers have said that the legality of this is a very fine argument? The truth of the matter is, as has already been mentioned today, that one of the main planks of the Human Rights Act is the right of property. The Government are gaily switching around bits of property at a Minister’s whim. I cannot believe that that can have been passed as solid by so many august legal entities unless they themselves had an axe to grind. Of course, there is also, as has been mentioned, the retrospective angle of the legislation.
Lord Gascoigne
(a) the tenant is holding over under the Local Government and Housing Act 1989 at the valuation date, or(b) the term date of the current lease is within the period of five years beginning at the valuation date.”Member’s explanatory statement
This amendment would stop the standard valuation method from being compulsory if the current lease has passed its term date (and so the tenant is holding over by virtue of Schedule 10 to the Local Government and Housing Act 1989).
Lord Howard of Rising
“Hope value and/or marriage value payable
13A The standard valuation method is not compulsory for the property comprised in a current lease in circumstances where Assumption 2 in paragraph 17 does not apply.”Member’s explanatory statement
This amendment would not require the standard valuation method to be used in circumstances where hope value and/or marriage value is payable.
Lord Howard of Rising (Con)
My Lords, Amendments 16 to 18 in my name seek to ensure that the approach taken towards marriage value by this legislation does not undermine long-standing and entirely legitimate property rights, specifically ensuring that a standard valuation is not compulsory where hope value and/or marriage value is payable.
First, I contend that the Government’s suggestion that they are abolishing marriage value is a misnomer. The so-called abolition is rather a transfer of wealth, and the Government’s proposals are simply a retrospective expropriation of assets: an interference with long-established property rights. Handing over the full benefit of marriage value to leaseholders without compensation will have wide-ranging effects, but the most damaging and significant is the threat to property rights if the ownership of property is no longer secure, because it can be taken away without compensation. Where does that leave us? On all occasions, when the Government have been asked about the principle of marriage value in the past, they have consistently acknowledged and accepted that it forms part of a landlord’s legitimate property interest—that is, until now.
Research commissioned by leading consultants shows that this interference with long-established property rights will benefit only a tiny proportion of properties in England, and will disproportionately benefit property investors in London rather than leaseholders who live in their homes—genuine home owners, as I have referred to before. The Government’s impact assessment states that there 4.8 million leasehold properties in England, of which only 385,400 have leases under 80 years. Of these 385,400, the large majority, and therefore the bulk of the value that might be transferred, are located in London and the south-east. Despite the Government’s noble ambition to support aspirational home owners, I understand that in London, 60% of leaseholders benefiting from this policy change would be private investors, of which as many as a quarter are based overseas.
Finally, as we have already covered briefly, there is the problem with human rights legislation. As I said earlier, the Government have consistently acknowledged and accepted that marriage value forms part of a landlord’s legitimate property interest. One of the founding principles of the European Convention on Human Rights is the protection of property. I know I have mentioned this before but it needs mentioning again, because we will end up with years of legislation to nobody’s benefit and at huge cost.
The lack of compensation for freeholders under the process as set out in the Bill challenges the expectation that parties should be fully compensated for losses resulting in expropriation or state control of use. Regardless of the results in the courts, it is clear that it will cost the Government a small fortune and freeze the leasehold property market, and that present leaseholders will be reluctant to sell when there is the chance of a greater value in the future—given the state of the current property market, that is really not an additional unintended consequence.
My amendments here, and those that I will speak to later in this debate, seek to address these problems and introduce sensible solutions. I beg to move.
Lord Jackson of Peterborough (Con)
My Lords, briefly, I support my noble friend Lord Howard of Rising’s amendment. It is important to put on record some of the concerns about the marriage value and grandfathering issues that the Bill has thrown up, and the problem of significant ramifications and externalities, and unintended consequences, that may fall as a result of this Bill becoming an Act later today. It is important to also put on record, as the noble Lord, Lord Hacking, said, that it is an unsatisfactory position that such a complex and potentially difficult and litigious Bill should be debated in the final stages of the last day before Prorogation.
I should say at the outset that I am very grateful to David Elvin KC of Landmark Chambers for the legal work that he has done on this Bill. Freeholders, many of them individuals who rely on income from ground rents and marriage values, should not be penalised. Government figures show that, of the 5.2 million leaseholders in the UK, only 400,000 will benefit. This issue is one of fairness and equity. Four-fifths of those leaseholders are in London and the south-east, and two-thirds are not owner-occupiers. Just 240,000 owner-occupier leaseholders stand to gain.
The Residential Freehold Association describes the reforms as
“a totally unjustified interference in the legitimate property rights of freeholders”.
It claims that the Government may need to pay out £31 billion in compensation for erasing the value of these investments. Mick Platt, director of the RFA, said, very pertinently:
“Given the UK’s proud history of protecting legitimate property rights and respecting contract law, it would ordinarily be unthinkable for investors to have to rely on the courts to protect their interests, but this is inevitable if Mr Gove pushes these proposals through”.
Marriage value currently forms part of the property value and is shared equally between freeholders and leaseholders where leases are under 80 years. The original social justification for enfranchisement allowed the recovery of market value and an equitable share of marriage value. This reform takes that away and, subject to any transitional provisions, removes a whole element of the value from the freeholder without compensation, so that any assessments of, or reliance on, existing market values will be frustrated. As has been said by my noble friend, it will be, in many cases, a retrospective deprivation of value in that it applies to existing interest.
I want to specifically address the point made by my friend the noble Baroness, Lady Fox of Buckley—with whom I very rarely disagree because she is eminently sensible on pretty much everything she opines on in this House—about lawyers casting their eyes on this legislation. In Lindheim v Norway, before the European Court of Human Rights, the state sought to manipulate market value in mandatory lease extensions by fixing the rent at historic, rather than current, value, and the Strasbourg court held that this violated Article 1 of the first protocol of the European Convention on Human Rights. You do not often get me citing the European Convention on Human Rights, but I will make an exception today because this is an important issue.
Although the social measures pursued a legitimate aim in the public interest, none the less the measure did not strike a fair balance, given the burden placed on property owners. The proposed abolition of marriage value in this Bill represents a significant departure from established property practices. The unilateral transfer of value from freeholders to leaseholders without compensation raises legal, ethical and practical concerns.
As I finish, I make the point that the Government should look benevolently on Amendments 20 and 21 on grandfathering, because they provide an interesting way forward. It would adjust the balance in applying assumptions which remove marriage value only to those leases with more than 80 years remaining at the time of commencement of the relevant provisions.
The Minister has done an excellent job defending a very sticky wicket against some quite awkward googlies. I know that we all have had very little time to prepare for this, but this needs to be put on the record because this legislation has the potential to give rise to very serious division, litigation and difficulties, and unintended impacts in the property market, which will mean fewer people have the benefit of owning their own homes or having leases. With that, I conclude my remarks.
Lord Gascoigne (Con)
I thank my noble friends Lord Howard of Rising and Lord Moylan for these amendments. They lay some of the groundwork for the grandfathering amendments to marriage value, which will be discussed later—in group 7, I think—and we will debate the substantial matters then.
One thing I would like to say now, so that I am not accused of ignoring it, is that the Leasehold and Freehold Reform Bill is considered by the Government to be A1P1 ECHR-compliant as introduced to both Houses. Indeed, the valuation scheme itself and constituent parts are A1P1-compliant. We will come back to that in a couple of groups.
It is worth pointing out that Amendment 16 would not only grandfather marriage value but remove such leaseholders left owing marriage value from the standard valuation method altogether. The consequences of this would be that they would not only be left owing marriage value but would not benefit from any valuation reforms, including to the treatment of ground rent rates and so on. Moreover, since there would be no specific provisions for valuing their properties outside of the standard valuation period, leaseholders and freeholders would be left to negotiate all aspects of the valuation. This would result in much greater costs, delays and litigation. I therefore kindly ask my noble friends not to press their amendments.
Lord Howard of Rising (Con)
I thank the Minister. We touched on this before. The Minister said that this is compliant with the European Convention on Human Rights, but the advice given to the Government was that it was a very marginal case.
I also point out to the Minister that, if you had some ground rents coming in and you had them removed by force, you would simply fight as long as you wanted, because you would continue to get them while you were fighting in the court. I envisage that the legal complications would last for several years. There are huge sums of money involved, with £7.1 billion of assets being transferred, and people will try to protect that.
If I was the Minister, I would go back and ask my legal advisers to check what was happening. Having said that, I beg leave to withdraw the amendment.
Lord Gascoigne
(a) in the case of the transfer of a freehold house under the LRA 1967—(i) the merger with the freehold of any lease which the claimant will acquire as part of the statutory transfer;(ii) the surrender of any lease of the currently leased premises that belongs to the qualifying tenant and is superior to the current lease;(b) in the case of the grant of an extended lease of a house under the LRA 1967—(i) the merger with the interest of the person granting the statutory lease of any lease which will be deemed to be surrendered and regranted as part of the statutory grant;(ii) the surrender of any lease that will be surrendered under paragraph 11(1) of Schedule 1 to the LRA 1967 as part of the statutory grant;(c) in the case of the collective enfranchisement of a building under the LRHUDA 1993, the merger with the freehold of any lease which the claimant will acquire as part of the enfranchisement;(d) in the case of the grant of a new lease of a flat under the LRHUDA 1993—(i) the merger with the interest of the person granting the statutory lease of any lease which will be deemed to be surrendered and regranted as part of the statutory grant;(ii) the surrender of any lease that will be surrendered under paragraph 10(3) of Schedule 11 to the LRHUDA 1993 as part of the statutory grant.”Member's explanatory statement
This amendment would restructure paragraph 17(2) and add new material in paragraph (a)(ii), (b)(ii) and (d)(ii) to require it to be assumed that certain leases have been surrendered.
“(3A) But in a case where the freeholder is a charity and the freehold interest was vested in that charity immediately before the passing of this Act, the freeholder is entitled to compensation for loss of marriage or hope value, with the amount of compensation being equal to the amount the freeholder would have received by way of marriage or hope value if assumption 2 had not been made.”Member's explanatory statement
This amendment would give a charity freeholder the right to compensation for the loss of marriage or hope value.
The Lord Bishop of Southwell and Nottingham
My Lords, I will speak to both amendments in my name. I declare my interest as a beneficiary of the funds of the Church Commissioners, being in receipt of a stipend. I am also a leaseholder of a flat in Bristol.
I beg the House’s indulgence briefly to return to the impact that this Bill will have on seven charities. I do not wish to unduly detain the House for longer than strictly necessary, but this legislation as drafted will have a significant financial effect on the operational ability of the charities.
My amendments have the support of my right reverend friend the Bishop of Manchester and the noble Lord, Lord Thurlow, who are unfortunately unable to attend the House today but raised similar issues at Second Reading and in Committee. We submitted our concerns to every consultation and debate before the Bill arrived, and have done so since. We none the less thank the noble Baroness, Lady Scott of Bybrook, who has given very diligent service to the House, particularly for her work on this Bill. We thank the noble Lord, Lord Gascoigne, who has been supporting the noble Baroness, Lady Scott, and is stepping in today in somewhat challenging circumstances.
I wish to put on record that these two amendments serve to register the ongoing concern that I and others have and seek to press for clarity and reassurance. This has been requested in meetings but, despite the best efforts of the ministerial team and the department, it is still not sufficient. My right reverend friend the Bishop of Manchester wrote to the noble Baroness, Lady Scott, last night when the Bill was announced as returning and I hope the noble Lord, Lord Gascoigne, has seen this.
My right referend friend and I unreservedly support the Bill’s primary aim of making leasehold a simpler and fairer tenure for all. However, we are concerned about the unintended consequences, in particular on a small number of charities which, despite being fairly few in number, deliver a large amount of public good. These charities collect receipts from lease extensions which fund their charitable work and which are put in jeopardy by this Bill. Some of the charities implicated stand to lose as much as £3 million per annum in distributable funds. These are not small figures. I fear that, for some of those charities affected—the John Lyon’s Charity will lose £4 million per annum, one-quarter of its total income, most of which goes towards supporting children and youth projects—these losses will be considerable.
The Church Commissioners stand to lose £1 million per annum in distributable funds. This will hit their discretionary spend, including the strategic development fund, which supports some of the more deprived areas of the country. This is particularly close to my heart, as my diocese of Southwell and Nottingham has received four significant disbursements from this fund, benefitting particular areas of higher deprivation where there were important opportunities to develop work among children and young people. These funds equip churches to grow and enhance their contribution to community-building initiatives, especially working in partnership with local schools. The transformation that that brings is of considerable social and public benefit. For example, there has been pioneering and successful regeneration work across seven estates to the north of the city.
It is work like this that the charities I am talking about are particularly well placed to deliver. When we discussed this issue in Committee, there was support from various corners of the House that charities should not be out of pocket as a result of this Bill. Nobody wants to see the worthwhile work of charities threatened, particularly in a time of ever-increasing need.
My right reverend friend the Bishop of Manchester and I had hoped that there would be sufficient time in the remaining stages to agree a solution to deliver a fairer deal for leaseholders without unduly disadvantaging charities. I regret but understand that wash-up has got in the way of that. While I have no desire to hold up proceedings, I hope that the Minister will look seriously at accepting the amendment offered by way of a mutually acceptable solution.
The amendments in my name seek to mitigate the financial impact of this Bill on charity freeholders. Amendment 20 would entitle charity freeholders to compensation, which would mean that they would be no worse off due to the passage of the Bill in terms of marriage and hope value. Amendment 32 would ensure that, in setting deferment rates, the Secretary of State would need to have due regard to the income of charity freeholders, taking into account their incomes and public benefit, just as the rates will take into account the needs and wishes of leaseholders.
These rates are potentially make or break for some of these charities, while all support the aim of making it clearer and simpler to extend a lease. However, in setting these rates, the Secretary of State needs to consider the potential impact on beneficiaries of registered charities. The Bill gives the Secretary of State the power to set, change and periodically review the deferment rates. How do the Government intend to set these rates? Will the Minister commit to consult charities about these rates to ensure that they can continue their good work?
It should be noted that, despite our support on these Benches for the concept of the Bill, in our view it does not deliver the Government’s aim of ending the tenure of leasehold or present a compelling alternative. Commonhold was a wholly positive development but, as noted in this House several times, it has failed to take off and nothing in this Bill will help it to catch on. My right reverend friend the Bishop of Manchester and I are particularly concerned that the Bill will make life difficult for charities and their beneficiaries without really delivering an improved system of tenures. I therefore respectfully request that consideration be given to the adoption of these amendments.
Lord Murray of Blidworth (Con)
My Lords, I apologise for not previously intervening on this Bill. I have no leasehold interests but, given that I will support the right reverend Prelate’s amendment, I should declare that, until very recently, my son sung in the excellent cathedral choir at Southwell Minster.
It is very difficult for the Government to argue against the point raised by the right reverend Prelate. It cannot be right that a Conservative Government should impact on the revenue of charities in this way. The seven charities he listed, in particular the John Lyon’s Charity, are fundamentally reliant on the income derived from these sources. Insufficient scrutiny has been given to the efforts made to protect that income. Similarly, the vital funds paid to the Church Commissioners from their income from these types of sources need to be protected.
All this appears to be symptomatic of the lack of scrutiny consequent on the driving of this measure through wash-up. I share the concern expressed in earlier groups by my noble friends Lord Robathan, Lord Howard, Lord Jackson and Lord Moylan and the noble Lord, Lord Hacking. I also share the concern that legislating in haste will result in our experiencing difficulties in the Strasbourg jurisdiction. While my noble friend the Minister reassured us on the last group that the Minister had seen fit to certify that, in his view, these measures are compliant with Article 1 of the first protocol of the European convention, as my noble friend Lord Jackson identified, there is a wealth of case law in Strasbourg identifying the protection of property rights, particularly in relation to charities.
I find myself strongly in agreement with the right reverend Prelate, which is a very happy and unusual situation. I commend his amendment to the Front Bench. I conclude by praising my noble friend the Minister, who has picked up this unfortunate googly at the last minute. The right reverend Prelate’s amendments are worthy of considerable consideration.
Lord Howard of Rising (Con)
My Lords, I listened with great interest to the right reverend Prelate. Worthy though charities are, it should not just be charities which benefit from this. Although I would like to see them exempted, the same should happen to everybody. Under the law, all should be equal. I find it difficult sometimes to support the Church as a charity if it can bung away £100 million. Then it wanted to bung away £1 billion—it is quite difficult to keep up with the Church’s generous donations. It is hard enough supporting my wife in her endeavours with the village fête to raise £2,000 and I sometimes wonder why we do it when the Church can give away as much as it does.
The Church does fantastic work and I would like to see it getting a larger income but I think this should apply not just to specific charities but to everyone who has made an investment and is expecting something in the long term. Pension funds invest in this form of investment because they have obligations that stretch 20, 30, 40 or 50 years ahead. How do you pay for that in the days of inflation? If you buy a freehold which you expect to fall in, you are covering your future liability. If that can be suddenly taken away, maybe we should include pension funds as a special category. I come back to the thing that it should be the same for everybody. I do not know how the Government intend to work it out for pension funds. If the total sum, as I said before, is £7 billion, that is a big hole in pension funds even if they own only a percentage of that.
I look forward to hearing what the Minister says about charities and, in particular, the Church’s exemption.
Lord Gascoigne (Con)
I thank the right reverend Prelate the Bishop of Southwell and Nottingham for these amendments and for his very kind comments about the Minister, which I will ensure she is aware of.
The Government fully appreciate the essential work done by the charity sector and I completely understand the sector’s concerns about the deferment rate. I also understand the importance of prescribing the rates for both leaseholders and freeholders, and recognise the right reverend Prelate’s concerns. We have committed to prescribing the rates at market value and the Secretary of State will carefully take into consideration and review all the information and views shared ahead of setting the rates. We have welcomed and appreciate the contributions the Church Commissioners and charities have provided and will welcome continued engagement before the rates are set.
As I have said, we recognise the positive contributions many charities make to our society, yet attempting to create carve-outs for specific groups of landlords, including charities, would complicate a system we aim to simplify. With that and with respect, I ask the right reverend Prelate to withdraw his amendment.
The Lord Bishop of Southwell and Nottingham
I thank the Minister for his answer. I will keep this brief. I thank the charities concerned and their staff for the support they have given to these amendments. I am also grateful to noble Lords for their valuable contributions not only to these amendments but to this debate more generally, expressing concerns about this Bill.
Lord Howard of Rising
(3A) Assumption 2 is not to be made where—(a) the claimant held the lease on the day on which this Act was passed, and(b) on that day the lease was of less than 80 years’ duration.Accordingly, marriage or hope value is payable in the case of a lease of less than 80 years’ duration held by the claimant at the date of the passage of this Act.”
Lord Howard of Rising (Con)
My Lords, Amendments 21 and 22 in my name seek to provide a means to ensure an orderly phasing out of marriage value. As we know, the Government’s impact assessment confirms that these proposals will result in a significant transfer of wealth to private landlords—not the people who actually live in leasehold properties, but the ones who own them. This is, in fact, a straightforward case of retrospective transfer of wealth with no compensation, and a significant deviation from current accepted property law.
We heard in Committee and this afternoon the main arguments against the Government’s proposals, wrapped up in the European Convention on Human Rights, Article 1 of Protocol 1, which says that all persons have the right to own property and to make use of their possessions and that no one shall be deprived of their property until public necessity so demands. If so, the state must guarantee fair compensation. This does not seem to be the case in the Bill.
Our own UK Human Rights Act says:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.”
This law stands a very strong chance of being attacked under human rights, because it is not offering fair compensation to the freeholders, and it is retrospective. I therefore very much hope that the Minister will see the dangers. We mentioned them earlier, so there has been plenty of time to think about them and the unfairness of this. I hope he will accept this proposal. This straightforward amendment proposes to tweak the legislation by grandfathering the current situation for those leases that have fewer than 80 years to run.
Governments have consistently acknowledged and accepted that marriage value forms part of landlords’ legitimate property interests. One of the founding principles of the European convention is that protection. What worries me is that, if the Government feel free to simply transfer assets in that way, where does that leave the banking system and the general economy? If there is no security of property assets, how does the banking system propose to work? What will it do with security? What will happen next? Will somebody say, “Somebody’s mortgage is 30 years’ long, which is frightfully unfair; it should be 25 years” and therefore knock five years off it? Does the person who lent the money just take the hit? What will the next reallocation or expropriation of assets be? If you have the economy working as it is today, you simply cannot chip away at a cornerstone without having a long-term effect.
I referred when I spoke at Second Reading to income tax being introduced at 2.5p in the pound and reaching 100%. The same will happen with property if left alone. If this goes through, we will have created a precedent that is extremely unhelpful. I am not saying that it would happen immediately, but the fact is that Governments always take advantages where they can to get their own way. One of the chief objections to this legislation is that erosion of the sanctity of the property asset. It is something that the Government should think most seriously about.
With the grandfathering those existing leases of less than 80 years, with marriage values already imputed under the 1993 legislation into their enfranchisement or lease extension value, they will not suffer from the destruction of the £7.1 billion of financial value, nor provide an unexpected enrichment for investors and overseas companies—and you will retain investor confidence in this country, because if you start to erode value where you feel like it, you will find that people no longer wish to invest in this country. So I ask the noble Lord to consider my amendment very seriously.
Lord Gascoigne (Con)
My Lords, I thank my noble friends Lord Howard of Rising and Lord Moylan for their amendments. These amendments would leave some leaseholders with wasting assets from which there is no escape. We have been unequivocally clear that the Government’s stated objective is to make it cheaper and easier for leaseholders to extend their lease or acquire their freehold. We do not believe that the leaseholder should have to pay marriage value. I know my noble friends have concerns that the removal of the requirement to pay marriage value, as I have heard previously, is expropriation. But the Government believe marriage value is a windfall that leaseholders should not have to continue to pay because of their need to enfranchise. The new valuation scheme without marriage value will provide sufficient compensation to freeholders and it is, as I have said before, the Government’s view that it is A1P1-compliant. I therefore kindly ask noble Lords not to press their amendments.
Lord Howard of Rising (Con)
Well, I would say to the Minister that people who have leases of under 80 years bought them. They purchased them and they got a discount on what they were buying because of the shorter period. Now you are suddenly saying, “Actually, they paid a perfectly fair price at the time, because it was cheaper than a longer lease or a freehold, but actually that is not good enough, so let them have a bit more.” So they are very lucky, but it is very unfair on those, such as the Church and pension funds, which invested for the longer term and have sold leases to people who wanted to buy leases. It was not compulsory; nobody from the Government went along and said, “Hang on, old boy, you’ve got to buy this lease whether you like it or not”. They bought them voluntarily and, as I have already said, most of these leases are in central London, where it was very much a voluntary act. If you had bought a 10-year lease in one of the more fashionable areas, it would have cost you many millions of pounds and you would have bought it knowing you could use it for 10 years. To suddenly find you can increase it to 80 years, making profits of tens of millions of pounds, seems to me absolutely absurd. It is a case of Robin Hood in reverse—robbing the poor, namely the pension fund holders and the charities, in order to give to the rich. I would be very interested to hear the Minister’s comments on that before he sits down.
The Deputy Speaker (Baroness Garden of Frognal) (LD)
The Minister has already spoken. He has sat down.
Lord Gascoigne
“(4A) But, as this paragraph has effect subject to any assumptions that must be made in accordance with other provisions of this Schedule, the effect of those assumptions must form part of the determination of what, if any, specified matters arise.” Member’s explanatory statement
This amendment would make clear that the assumptions made under Schedule 4 govern paragraph 20 (so that, for example, an intermediate lease which is assumed to have been surrendered, or merged with a superior title, would not be a “specified matter”).
(b) the tenant is not holding over under that Act at the valuation date.(1A) That right to hold over, and the likelihood of that right being exercised, is to be taken into consideration in determining the market value only if—(a) the term date of the current lease is within the period of five years beginning at the valuation date, and(b) that right to hold over is likely to be exercised.”Member’s explanatory statement
This would clarify that paragraph 21 only applies before the tenant starts to hold over under the Local Government and Housing Act 1989.
“22A “(1) This paragraph applies when determining—(a) the market value of the relevant freehold on the transfer of a freehold house under the LRA 1967, or(b) the market value of the notional lease on a lease extension,if the qualifying tenant is also the tenant of a relevant superior lease.(2) A “relevant superior lease” is a lease that—(a) is superior to the current lease, and(b) in accordance with paragraph 17(2)(a)(ii), (b)(ii) or (d)(ii) must be assumed to have been surrendered.(3) After the application of the other provisions of this Schedule for the purposes of calculating the market value, including the assumptions in paragraph 17(2)—(a) the amount produced by the application of those other provisions must be reduced to take account of the value of the relevant superior lease, and(b) the amount produced after that reduction is the market value.”Member’s explanatory statement
This amendment would ensure that the qualifying tenant is not required to pay a price that includes the value of an interest which they already own (namely a lease that is superior to the lease they are enfranchising or extending).
Lord Moylan
Member’s explanatory statement
This amendment would remove the cap on ground rent for the purposes of enfranchisement calculations.
Lord Moylan (Con)
My Lords, there has been a number of groups concerning marriage value and I have not spoken in them, because I thought I would save my remarks for now. It is quite clear that what the Government are proposing is simply expropriation—there is no other word for it—and it is one of the two most objectionable features of this Bill. The second is the one I come to now, as the subject of these amendments, which relate to the setting of a cap on ground rents for valuation purposes.
It will perhaps help some noble Lords if I say that, when I have mentioned this amendment, some people have asked me, “Why are you talking about ground rent when the Bill doesn’t introduce the expected cap on ground rents?” It is the cap on ground rents payable that is not introduced. However, in Schedule 4, there are provisions whereby the Government determine what the ground rent should be treated as for the purpose of valuations in the event of a leasehold enfranchisement or a lease extension. These two amendments would simply remove that cap.
What is happening, put very simply, is another form of expropriation. Quite simply, the ground rent that the tenant has signed up for and which the freeholder has a legitimate expectation of should be ignored in the assessment of valuations for the purposes I mentioned a moment ago and should be set at 0.1% of the property’s market value as a cap. As I say, this is simply another unwarranted interference with property rights, with almost no understanding or explanation on the part of the Government of what the practical effects will be on the interests of legitimate freeholders, which include pension funds, charities and other parties.
With that, I shall sit down since I do not expect my noble friend to give way on the matter, but I think it is very important that the point is made: this is another of the two most odious provisions in the Bill.
Lord Gascoigne (Con)
My Lords, I thank my noble friend—if I can still call him that—Lord Moylan for these amendments. As I made clear in Committee, the Government have made their intention to make enfranchisement cheaper and easier for leaseholders explicitly clear.
There has been much discussion of ground rents and the incidences where they cause difficulties for leaseholders. The provision in the Bill to cap ground rent in enfranchisement calculation at 0.1% of the freehold vacant possession value is an important measure to ensure that leaseholders with relatively high ground rents do not find the cost of enfranchisement prohibitively expensive. These amendments would be counter to that objective so, with respect, I ask my noble friend Lord Moylan to withdraw his amendment.
Lord Moylan
Lord Moylan (Con)
My Lords, again, I will be brief. The question of deferment rates was raised by the right reverend Prelate the Bishop of Southwell; he raised them specifically in connection with charities but he did not explain exactly what was going on here. My amendments are broader than his as they cover the entire spectrum of deferment rates.
What is going on here is that these rates, deferment rates and capitalisation rates—I have amendments addressing both—are absolutely crucial to the valuation of property for the purpose of freehold enfranchisement and leasehold extensions. Indeed, I am indebted to the noble Baroness, Lady Pinnock, for her speech in Committee when she read out in tabular form, so to speak, how very small adjustments in deferment rates—perhaps only a quarter of a percentage point—could have very large effects on capital values. She illustrated, without my having to do so, exactly how important this measure is.
Heretofore, deferment rates and capitalisation rates have been set in principle by a tribunal on the basis of argument and evidence. It is true that that does not happen very often. I grant this point to the Government: while large landowners have the resources to bring those actions before a tribunal, it is more difficult for leaseholders to do so because of the large amount of professional evidence required in order for them to make their case.
I fully accept, therefore, that this could be looked at, but can it be the right approach for this rate to be set by the Secretary of State? Why would we transfer this highly political question to the Secretary of State? Pushing up the deferment rate will have the effect of destroying freehold values. I know that my noble friend said that it will be set in line with the market, but that leaves a very wide margin of discretion, none the less. My amendments refer to both the deferment rates and the capitalisation rates. I cannot see why we would want to pass this sensitive decision into the political forum, in essence.
My noble friend said that the Secretary of State will consult—he offered that assurance to the right reverend Prelate in relation to charities—but that is no substitute for having these rates set in a judicial forum on an adversarial basis, as is our tradition, and on the basis of argument and evidence. This vision should go. I beg to move.
The Lord Bishop of Southwell and Nottingham
My Lords, I support Amendment 37 in the name of the noble Lord, Lord Moylan. As he has made clear, it would give some guidance to the Secretary of State in setting capitalisation rates. The amendments would go a long way to ensuring that the rate is set fairly and considers the wishes of all stakeholders.
I have already spoken at some length about the impact of the Bill on charity freeholders, and capitalisation rates are one of the areas that could significantly impact charity incomes. The Secretary of State will now have the power to set this rate. That might make the process simpler for leaseholders, an aim which I applaud and support, but it must be noted that the rate will also have an impact on the amount of money that some charities will then have to disburse to some of the most deprived areas of the UK. It is only right that there should be clear guidelines to guide the setting of the rate, and one of the factors that should be taken into account is the incomes of charities.
Lord Gascoigne (Con)
My Lords, I thank my noble friends Lord Moylan and Lord Howard of Rising for their amendments, and the right reverend Prelate for his comments.
At the moment, it is difficult for a leaseholder to understand how much they must pay to the landlord when they enfranchise. Different rates are used across the country and across the industry on a case-by-case basis. It can therefore be costly and time-consuming for both parties to agree, especially where there may be a dispute, which can lead to inefficiencies in the system.
We are reforming the enfranchisement valuation landscape and rebalancing the inequity of arms between leaseholders and freeholders. For the first time, we can put an end to uncertainty, inefficiency and the wasted costs and time that leaseholders and freeholders endure through the current enfranchisement valuation process. We will do this through these reforms, by allowing the Secretary of State to prescribe the capitalisation and deferment rates for enfranchisement valuation calculations.
I know that there has been concern that the Bill includes a requirement to review the rate at least every 10 years, as has been mentioned. However, this is simply a backstop. It does not preclude the Secretary of State reviewing them more frequently, as suggested by these amendments. Nor will the power preclude the Secretary of State from setting different rates for different situations, which is also suggested by these amendments. I am fully aware of the importance of prescribing the rates for both leaseholders and freeholders, and recognise the concerns, including those of the right reverend Prelate. The rates will be prescribed at market value, as we have committed to and as suggested by the amendments. I ask my noble friend to withdraw his amendment.
Lord Moylan (Con)
My Lords, I omitted to say what I should have said: of course, my noble friend, who has been a friend for a very long time indeed, may continue to regard me as his noble friend and I will regard him as my noble friend, whatever strange and paradoxical circumstances we may find ourselves in in the course of debate in this Chamber. With that remark, and with a great sense of dissatisfaction at his response, I beg leave to withdraw my amendment.
Lord Gascoigne
Member’s explanatory statement
This amendment would be consequential on the amendment in my name that would insert a new sub-paragraph (2) into paragraph 1.
“(2) But in the case of a deemed single lease— (a) there is not to be a single term date for the deemed single lease (as would otherwise be the case in accordance with section 3(6) of the LRA 1967 or section 7(6) of the LRHUDA 1993);(b) instead, each constituent lease has its own term date (and sub-paragraph (1) applies for the purpose of giving the meaning of “term date” here).”Member’s explanatory statement
This amendment would provide that, where there is a deemed single lease, each of the constituent leases has its own separate term date (instead of there being a single term date for that deemed single lease).
Lord Gascoigne
Member’s explanatory statement
This amendment would be consequential on the amendment in my name that would insert a new sub-paragraph (2) into paragraph 1.
Lord Gascoigne
“(3A) But any lease that must be surrendered under paragraph 11(1) is to be treated for the purposes of this paragraph as if it had been surrendered immediately before the relevant time.”Member’s explanatory statement
This amendment would ensure that a lease which must be surrendered is assumed to have been surrendered.
“(3A) But any lease that must be surrendered under paragraph 10(3) is to be treated for the purposes of this paragraph as if it had been surrendered immediately before the relevant date.”Member’s explanatory statement
This amendment would ensure that a lease which must be surrendered is assumed to have been surrendered.
Lord Young of Cookham
“Abolition of forfeiture of a long lease(1) This section applies to any right of forfeiture or re-entry in relation to a dwelling held on a long lease which arises either—(a) under the terms of that lease, or(b) under or in consequence of section 146(1) of the Law of Property Act 1925.(2) The rights referred to in subsection (1) are abolished.(3) In this section— “dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;“lease” means a lease at law or in equity and includes a sub-lease, but does not include a mortgage term;“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002.”Member’s explanatory statement
This new Clause would abolish the right of forfeiture in relation to residential long leases in instances where the leaseholder is in breach of covenant.
Lord Young of Cookham (Con)
My Lords, this will give my noble friends Lord Moylan and Lord Howard an opportunity to catch their breath. At the beginning of our proceedings, the noble Lord, Lord Kennedy, picked up the Marshalled List, waved it in a state of mild indignation and demanded to know where was the amendment on forfeiture. My noble friend the Minister said it was not there, but here it is, in my name rather than the Government’s.
The position on forfeiture is very simple. At the moment, a tenant can lose possession of a flat worth £500,000 for a debt of £351, with the landlord keeping the entire difference between the value of the property and the debt. At Second Reading, this was condemned by nearly every speaker who spoke on it. When the Minister wound up, she said:
“We recognise that this is a real and significant problem and that there is huge inequity at stake here”.—[Official Report, 27/3/24; col. 704.]
The issue was raised again in Committee, and again my noble friend the Minister replied:
“We recognise that there is the potential for significant inequity”—
it had been a “huge” inequity; now it is a “significant” one—
“where a landlord stands to gain a windfall when a lease is forfeited. However, I reassure the noble Baroness, Lady Taylor, and the Committee that the Government have been listening to calls for us to act. The Government continue to work through the detail and we will report to the House shortly with more information”.—[Official Report, 24/4/24; col. 1552.]
Now is the opportunity to report to the House with more information.
Of course, I hope we might have an element of surprise in our proceedings and the Minister will get up and say that this amendment can be accepted, but I fear that the script in his folder begins “resist”. I put a direct question to my noble friend: exactly what progress has his department been able to make on this subject? It was raised at Second Reading in the other place many months ago, where the Minister recognised that this was an inequity, so they have had four or five months in which to address the problem. I want to know whether sufficient progress has been made for the Government, of whatever complexion, to provide me at the beginning of the next Parliament with a Private Member’s Bill that will simply put right this inequity of forfeiture. Actually, I had a Private Member’s Bill on this subject some time ago, so there is a template on which to build. If my noble friend cannot accept the amendment, can he give an undertaking that the necessary measures have been drafted and that they will be available to any Member who is successful in the ballot at the beginning of the next Parliament so that we can introduce this measure by a Private Member’s Bill if we cannot do it today? I beg to move.
Baroness Pinnock (LD)
My Lords, the noble Lord, Lord Kennedy, also drew attention to the lack of a clause in the Bill to reduce ground rents to a peppercorn, as promised several times by the Secretary of State in the other place. There is one, as there is one on forfeiture, that I have tabled, because I feel it is an important issue to include in the Bill. I tabled Amendment 45, which would enable a transition, over five years, of ground rent to a peppercorn. There is no justification for ground rents. It is a cost to leaseholders for no service provided as a consequence. I hope, because it is clearly government policy and it is clearly supported by those on the Opposition Benches and certainly by ours, that the Minister can stand up and have at least one amendment today that he does not have the word “resist” against.
Lord Bailey of Paddington (Con)
My Lords, I will speak to Amendments 51 and 52. I will not rehearse the arguments that I made in Committee, but I still have a major concern around the removal of any criminal sanction against bad landlords for service charge abuse. I want to be quite clear that this is not a crusade against landlords; landlords are often small family businesses, which are very good and want to help their tenants. However, a significant number of landlords have their leaseholders by the short and curlies, to coin a term that was sent to me by a suffering leaseholder. He was trying to get across just how powerless leaseholders are in this situation.
At a time when we have the likes of Alan Bates and sub-postmasters actively considering bringing private criminal charges against the Post Office, why would we remove that tactic from another set of people in our society who are roundly abused all the time? It is very simple: all this, for me, is about control. We need to give people who have paid this money control over their own future and their own money.
On Amendment 52, if a landlord does not pay back their overcharging within two months, they should face interest charges. This is to incentivise a landlord who has lost in an open, professional tribunal, who then drags their feet and forces leaseholders to launch other legal proceedings to reclaim money that they are rightfully owed. Again, this comes down to letting the little man or woman in the street have some control over their future. Perhaps my noble friend the Minister will comment on why the Government would not support these two reasonable, necessary measures, and send a signal to the country that the law is on the side of the small person who has ploughed all their savings into their home and who has no recourse.
Lord Truscott (Non-Afl)
I will speak in support of my Amendment 66. In doing so, I remind the House of my interest as a long-standing leaseholder. At the outset, I thank the Minister, the noble Baroness, Lady Scott of Bybrook, who is not in her place, for her diligence and engagement on the Bill. I also thank noble Lords who have worked so hard to improve the Bill as it has progressed through your Lordships’ House.
I welcome the Bill, even in its current form, as it at last heralds the beginning of the end of the outdated feudal leasehold system. Despite a determined rearguard action, we leaseholders have seen exploitation for hundreds of years. Enough is enough. In that sense, I agree with the noble Baroness, Lady Fox.
I must admit that, like many noble Lords and Members of the other place, I was rather taken aback by this cut-and-run election, which leaves so many pieces of legislation up in the air. My wife’s reaction was that Mrs Sunak has simply had enough and wants to have a good, long, normal family holiday. There seems to be no other, political logic for it.
Like many noble Lords, I would have liked to have seen further improvements to the Bill, especially clarity—ensuring that leases were truly faster, cheaper and easier to extend. The situation in which it is left to the discretion of the Secretary of State to set the deferment rate, replacing marriage value, remains unsatisfactory. In that sense, I agree with the noble Lord, Lord Moylan.
Incidentally, I see no type of exploitation taking place in this Bill. Pension representatives have already said that the proposals in the Bill will not significantly impact them or their members.
Similarly, I would have liked to have seen ground rents reduced to a peppercorn which, as was mentioned by the noble Lord, Lord Kennedy of Southwark, we were initially promised. For that reason, I support Amendment 45 in the name of the noble Baroness, Lady Pinnock.
On my own amendment on forfeiture, I believe it is unacceptable that people should lose their homes for sometimes minor rent or service charge arrears. The figure of £300 was mentioned and there are recorded cases of it being a pittance. However, rents and service charges are necessary for building maintenance, fire safety, cleaning and other services, so they should be paid.
Lord Moylan (Con)
I am grateful to my noble friend Lord Young of Cookham for giving me a breather. I entirely agree with his amendment in relation to forfeiture, which is clearly a completely over-the-top response. Landlords and managers should be entitled to recover their costs, but not at the expense of the tenant having their home seized or taken from them. Other ways must be found of doing that. If they made an effort, the Government would be able to find such ways. It might be through attachment of earnings or whatever, but forfeiture is clearly completely over the top and should go. I do not see why the Government cannot simply agree with what my noble friend Lord Young has said.
Lord Truscott (Non-Afl)
I think the noble Lord misunderstood to a certain extent what I was saying. Forfeiture actually happens; that is the point. It is merely the threat of forfeiture that ensures that people abide by their leases, and at the moment, as he mentioned, there is no system in place to ensure that people abide by those leases unless you go to the High Court, which is a very lengthy and expensive process. Without some such system, you will increasingly have anti-social behaviour and bodies such as Airbnb installed in residential blocks, and at the moment, there is very little recourse.
Lord Bailey of Paddington (Con)
Forfeiture is regularly used as a threatening tool so, although it does not land in court all the time so people have their property seized, it is often spoken about to pull people into line or to force people to pay bills that are, at best, iniquitous. It is used very regularly. I accept the noble Lord’s point that there needs to be another system, but forfeiture needs to go, even if that system does not exist, because its effect on leaseholders is broad, deep and very unpleasant.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, these are very welcome amendments that try to address two of the problems I referred to in my remarks on group 1. I still hope that the noble Lord, Lord Gascoigne, will jump up in a moment and say that the Government accept Amendments 44 and 45—that it was an error that the Government did not put their name to them—because they are exactly the things that the Member for Surrey Heath has been promising for months. I cannot remember the number of times I have heard in TV studios and the newspapers that he wants to do both these things. Here we are now with the mechanism to do it. All the Government need to do is accept the amendments and we can move forward.
As the noble Lord, Lord Moylan, said, anyone who is owed a debt should be able to recover it, but the threat of taking all the property away is completely wrong. Even on that one, I do not understand why the Government have not come forward with an amendment on it. It is absolutely bizarre. I think nobody in this House would oppose it, and it would be accepted. We want people to be able to recover their money, but this threat is totally over the top. We all agree on that.
What is even more frustrating is that, when I leave the Chamber and walk around the building, many Members actually agree with us, and say: “You’re absolutely right, Roy. This should happen”. I have even had Members of the Government Front Bench—not in the House at the moment—say to me: “The problem is, Roy, we agree with you, but Michael just goes off and makes these claims and pledges and promises without them being signed off”. It is no way to do business. We need to get these things done properly. This needs to be done. I do not understand why it cannot be done if everyone supports it. It is beyond me, really, that we operate like this. That is the whole frustration about this Bill. Promises and pledges and articles to say that we are going to do this and we are going to do that—I am sick of hearing it. And then when they get the chance, they do absolutely nothing.
Lord Gascoigne (Con)
My Lords, I thank all noble Lords for their contributions in this group. I thank my noble friends Lord Young and Lord Bailey of Paddington, and the noble Lord, Lord Truscott, for their amendments regarding forfeiture and service charge enforcement.
The upkeep and safety of buildings is paramount. Landlords, be they private companies or resident management companies, need an effective mechanism to recover unpaid debts, lest their costs fall to other leaseholders or to the detriment of the building’s upkeep. It is important to consider resident management companies in particular, which often have very limited access to other funds to cover any shortfall in the service charge fund. Having a robust and efficient way to enforce unpaid charges is therefore critical to ensure the efficiency and solvency of these resident-led companies. Equally, there are other breaches—unauthorised alterations, anti-social behaviour and use of a property for immoral purposes—that can be difficult and even impossible to remediate. In such cases, forfeiture may be the only effective way of putting a stop to the breaching behaviour. While well-intended, we do not believe that the abolition of forfeiture without a suitable replacement would ultimately serve the best interests of leaseholders, and in particular resident management companies.
My noble friend asked about progress in drafting. I hope he appreciates—it is with respect that I say this—that I do not think I am able to comment on what may happen or where that is, simply because I do not know who will be lucky enough to serve in the Government and answer that question after the election.
I turn to the amendment tabled by the noble Lord, Lord Truscott. Unfortunately, we believe that this amendment does not achieve its stated aim of protecting leaseholders, crucially against forfeiture over non-payment of service charges. The Government recognise that those home owners who pay rentcharges face the threat of forfeiture. Part 7 of the Bill already removes the risk of forfeiture for unpaid arrears of income-supporting rentcharges, since the remedy is so disproportionate to the sums owed. The Bill also contains a robust package of protections for home owners who pay estate rentcharges.
I now move to the amendment tabled by the noble Baroness, Lady Pinnock. Noble Lords will be aware that the Government do not believe that it is appropriate that many leaseholders face unregulated ground rents for no clear service in return. The Government have already legislated to put an end to ground rents for most new residential properties in England and Wales through the Leasehold Reform (Ground Rent) Act 2022. We have also encouraged work led by the Competition and Markets Authority to investigate abuses of the system, such as the mis-sold doubling ground rent leases, securing commitments from freeholders to remove these costly terms, benefitting more than 20,000 leaseholders. Given where we are in the parliamentary timetable, I hope noble Lords will understand that we cannot accept an amendment on complex new policy at this stage.
I turn to Amendments 51 and 52 in the name of my noble friend Lord Bailey. I fully agree that it is important to have effective enforcement measures in place. Amendment 51 seeks to retain criminal sanctions for failure to provide information to leaseholders in a timely manner. The existing measures, including the statutory offence under the existing Section 25 of the Landlord and Tenant Act 1985, have historically proven to be ineffective. Local housing authorities, as the enforcement body, were reluctant to bring prosecutions against landlords, and the cost and complexity of doing so were a significant barrier to leaseholders bringing a private prosecution. That is why we are replacing it with a more effective and proportionate proposal, set out in Clause 57.
Amendment 52 would require landlords to account to all leaseholders where costs were found to be unreasonable and would impose a two-month limit on repayments to leaseholders. It would introduce a power to enable the appropriate tribunal to award interest on any determination in favour of the leaseholder, where a leaseholder has made an application. While I agree that there must be a robust regime in place to challenge service charges, we do not think that this is the right approach.
Landlords may wish to compensate leaseholders by offering a credit against future service charges rather than returning money, and a leaseholder may prefer this. In addition, the Court of Appeal held in 2022 that a tribunal decision of the type to which my noble friend refers is a determination of whether the service charge is payable and not of whether it is due. Therefore, although the amendment is well-intentioned, it would not be possible to implement in the form drafted.
As I have said, I would have liked to go further, and indeed that was the intention, but we are in wash-up. With that, I hope my noble friend will withdraw his amendment.
Lord Young of Cookham (Con)
I am grateful to my noble friend for responding to the debate and to all those who took part, particularly my noble friends Lord Bailey and Lord Moylan for supporting my amendment on forfeiture, as well as the noble Lord, Lord Kennedy. Interestingly, we have had a debate on protecting the interests of leaseholders wedged between a series of debates on protecting the interests of freeholders.
I was a little disappointed by my noble friend’s reply, because Ministers have conceded that we have an inequity here. It is my view that, had we had a normal Report stage at the beginning of next month, the Government would have come forward with their own amendment to deal with what they conceded was an inequity. I was gently trying to find out what progress had been made with drafting a clause to deal with this, and whether sufficient progress had been made for a Private Member’s Bill to be brought forward in the next Parliament. I understand that my noble friend can make no commitments about who will be at the Dispatch Box, but it would be in the general interest, given that there is unanimity that this is a bad law and should be repealed, if we could be told that good progress had been made in government and that legislation was available. Having grumbled about that, I beg leave to withdraw my amendment.
Lord Moylan
“Right to manage: local housing authority Housing Revenue Account(1) The Commonhold and Leasehold Reform Act 2002 is amended as follows.(2) In paragraph 4(1) of Schedule 6 (premises excluded from right to manage), after “premises” insert “and the whole of the premises are held within the Housing Revenue Account of that local housing authority”.”Member's explanatory statement
This would allow the Right to Manage to be exercised where the landlord was a local housing authority but the premises were not held within that local housing authority’s Housing Revenue Account.
Lord Moylan (Con)
My Lords, this amendment relates to a very narrow point, which I will therefore try to deal with in summary form in the interests of time.
Before I do so, I will comment on Amendment 50, in the name of my noble friend Lord Bailey of Paddington. One of the most important things that we can do for leaseholders—I speak from experience—is promote the more widespread use of right to manage. This Bill goes some way in that direction but it could go further. I have no hesitation in supporting my noble friend in seeking to reduce the threshold to make this more accessible to leaseholders. It would remove many of their suspicions and anxieties—sometimes grounded and sometimes not—of abuse on the part of landlords if they could, as in my case we have, take responsibility for managing the building themselves and appoint managers who are accountable to them to scrutinise accounts and make all the important decisions.
Amendment 49 relates to an uncommon and peculiar situation whereby, in the case of a private block of flats that is acquired as an investment by a local authority—not one owned by a local authority for the purpose of social housing—the right to manage of those leaseholders is immediately extinguished because of the provisions of the Commonhold and Leasehold Reform Act 2002, which specifically exempts properties where the immediate landlord is a local housing authority. My amendment would remove that provision, except in cases where the property was held in the housing revenue account of that local authority. In other words, the leaseholders of private blocks would retain the right to manage, which the Government would surely welcome.
I am grateful to my noble friend and to my noble friend Lady Scott of Bybrook for arranging a meeting with me a few days ago at which we discussed this. However, I was no clearer at the end of that meeting what the position is, so my narrow purpose with this amendment is to seek clarity.
Lord Bailey of Paddington (Con)
My Amendment 50 seeks to bring down the onerous 50% participation threshold to 35%, so that many more leaseholders can take back control of their homes, their money and their lives. As my noble friend Lord Moylan said, it would remove much of the suspicion around whether your freeholder is fleecing you, for want of a better word. I believe the Government support a revolution in the right to manage, so I will be interested in the comments from my noble friend the Minister as to why this cannot be supported. This would be a great step for people in many communities where buying property is a lifelong dream that they could then achieve. It leaves that footprint firmly in their community, and gives them more control of the investment they have actually made.
Lord Gascoigne (Con)
I thank my noble friend Lord Moylan for Amendment 49 on the right to manage and local authorities. In taking forward this Bill, we have prioritised the most impactful of the Law Commission’s recommendations on enfranchisement and the right to manage. That includes allowing more leaseholders in mixed-use buildings to collectively acquire the freehold of their building, or to exercise their right to manage their building, by increasing the non-residential limit from 25% to 50% non-residential floorspace. The Law Commission did not make any recommendations on local authority householders, but we recognise that the right to manage is not available to leaseholders with local authority landlords where there are no secure tenants in the block. We will continue to review changes to improve the right to manage. I hope that, following these reassurances, my noble friend will withdraw his amendment.
Lord Moylan (Con)
If I may interrupt, I simply asked my noble friend for clarity. Is he now saying that the class of persons I referred to does not have access to the right to manage—he seems to have said those words—even by way of the Housing Act 1985, contrary to what was said in Committee, or would he maintain that that route is still available to them? Is it or is it not the Government’s position that the Housing Act 1985 is available?
Lord Gascoigne (Con)
As ever, I am grateful for the points my noble friend has made. I think it is as I have described previously: namely, that the Law Commission did not make any recommendations on local authority leaseholders. We recognise that the right to manage is not available for leaseholders with local authority landlords, where there are no secure tenants in the block. It is not available where there are only leaseholders.
I now turn to Amendment 50, tabled by my noble friend Lord Bailey of Paddington. We recognise that the participation requirement can cause difficulties if leaseholders cannot reach the threshold. But a participation requirement of one-half of the residential units is proportionate, ensuring that a minority of leaseholders are prevented from exercising the right to manage, which may be against the wishes of the majority of leaseholders in a building.
Reducing the participation requirement to 35% is disproportionate and could lead to undesirable outcomes, such as an increase in disputes. It would risk a situation where competing groups of minority leaseholders could make repeated claims against each other. The Government accept the Law Commission’s recommendation to keep the participation threshold as it is. For these reasons, I ask that my noble friend does not press his amendment.
Lord Moylan (Con)
My Lords, there is no better illustration of the sheer folly of trying to deal with this complex issue in wash-up. We have discussed a point that was raised and discussed in Committee, during which one answer was given by a Minister. It was discussed in a meeting at which officials were present. I have not tabled my amendments late; some of my amendments have been down for some time. It is a point that Minsters knew was likely to come up on Report, but they have not been able to give clarity.
There are two possible routes. Is one of them available? Is what the Minister said in Committee correct or not? I am still really no clearer about the whole subject unless I construe the Minister’s words, as opposed to having them stated plainly for me. It is simply an illustration of why we should not be progressing this Bill in this fashion and in this way. With that comment, I beg leave to withdraw my amendment.
Lord Moylan
“(1A) Subsection (1) does not apply to non-profit or resident-led entities which have the right to enforce payment of a service charge.(1B) Entities described in subsection (1A) include but are not limited to—(a) a Resident Management Company, being a body corporate which is party to a lease of a building where—(i) the members of that body are leaseholders, or(ii) the majority of the shares of that body are held by leaseholders;(b) a Right to Manage Company constituted under the Commonhold and Leasehold Reform Act 2002, and(c) a landlord wholly owned by the tenants whether through a corporate structure or otherwise.(1C) Subsection (1) does not apply to entities with repairing obligations to but no legal interest in a building.(1D) Entities described in subsection (1C) include but are not limited to—(a) managers appointed under Section 24 of the Landlord and Tenant Act 1987, and(b) named managers appointed under the lease as being the party with managing and repairing obligations in relation to the building but separate from the landlord and with no legal interest in the land or building.(1E) Where subsections 1A or 1C apply, section 20C of this Act continues to apply.”Member’s explanatory statement
This would allow non-profit and/or resident-run lease operators and other entities with repairing obligations but no legal interest in the building to continue to recoup legal costs through the service charge in the first instance. The proposed Section (1E) introduces a protection for tenants by reinstating Section 20C of the Landlord and Tenant Act 1985.
Lord Moylan (Con)
My Lords, this amendment relates to the question of the ability of right-to-manage companies and similar bodies to recover their legal costs. I made remarks in the debate on the first group which largely addressed this. This issue has also been raised by the right reverend Prelate the Bishop of Southwell.
I see no reason, given the pressure of time, to add further to my arguments or comments on this amendment. I will simply have to accept, with a degree of gratitude—I suppose I have to be fair—that Amendments 54 to 58 proposed by the Government go some modest way towards addressing my concern. We will leave ourselves in the hands of the Secretary of State and hope that, whoever that is, they will be kind to us—but who knows? I beg to move.
Lord Gascoigne (Con)
My Lords, I thank my noble friend Lord Moylan for his amendment to Clause 61. The Government have laid Amendments 54 to 58, which will in part introduce a power to set regulations to suspend the requirement for certain landlords to apply to the relevant court or tribunal to recover their litigation costs until an event set out in regulations occurs.
This will mean that the Secretary of State or Welsh Ministers will have the power to allow certain landlords to demand money from leaseholders to fund litigation ahead of proceedings without the need to apply to the court or tribunal for permission to do so. Importantly, it would still require the same landlords to apply to the court or tribunal for their costs after “a specified event” in regulations occurs, ensuring that leaseholders are still protected.
The Government will work closely with stakeholders to ensure the application requirement is suspended only where appropriate. An example might be for resident-led buildings or assetless landlords. In addition, the power is subject to the affirmative procedure, meaning it will be scrutinised in both Houses. I hope this reassures my noble friend and that, on that basis, he will withdraw his amendment.
Lord Moylan (Con)
My Lords, I beg leave to withdraw my amendment.
Lord Gascoigne
“(6A) See section 20CB for powers of the appropriate authority to provide for other exceptions to subsection (1).”Member’s explanatory statement
This amendment would signpost the new section 20CB.
“20CB Section 20CA: powers to provide for exceptions(1) The appropriate authority may by regulations provide for circumstances in which—(a) section 20CA(1) does not apply, or(b) the effect of section 20CA(1) is to be suspended until an event of a specified description occurs.(2) The circumstances may include, among other things, that—(a) the litigation costs,(b) the relevant proceedings, or(c) the landlord,are of a specified description.(3) Where, by virtue of regulations under subsection (1)(b), the effect of section 20CA(1) is suspended until an event of a specified description occurs—(a) section 20CA(1) does not have effect before the event, but(b) section 20CA(1) does have effect on or after the event in relation to a variable service charge paid or payable before the event.(4) Accordingly, if—(a) a variable service charge was paid before the event, and(b) the landlord’s litigation costs were regarded as relevant costs to be taken into account in determining the amount of that charge until the event because the effect of section 20CA(1) was suspended,the landlord may retain the amount of those costs after the event only if the relevant court or tribunal makes an order under section 20CA(2) in relation to that charge.(5) In this section— “litigation costs” ,“relevant proceedings” and“the relevant court or tribunal” have the same meaning as in section 20CA;“specified” means specified in regulations under this section.(6) Regulations under this section—(a) are to be made by statutory instrument;(b) may make provision generally or only in relation to specific cases;(c) may make different provision for different purposes;(d) may include supplementary, incidental, transitional or saving provision.(7) A statutory instrument containing regulations under this section (whether alone or with other provision) is subject to the affirmative procedure.”Member’s explanatory statement
This amendment would introduce a new section 20CB to allow the appropriate authority (subject to the affirmative procedure) to make further exceptions to new section 20CA(1), and to provide for the effect of new section 20CA(1) to be suspended in certain circumstances.
“(5A) In section 178(4) (orders and regulations), after “171” insert “, paragraph 5C of Schedule 11”.”Member’s explanatory statement
This amendment would make regulations under the new paragraph 5C of Schedule 11 subject to the affirmative procedure.
“(5A) See paragraph 5C for powers of the appropriate national authority to provide for other exceptions to sub-paragraph (1).”Member’s explanatory statement
This amendment would signpost the new paragraph 5C.
“Paragraph 5B: powers to provide for exceptions
5C (1) The appropriate national authority may by regulations provide for circumstances in which—(a) paragraph 5B(1) does not apply, or(b) the effect of paragraph 5B(1) is to be suspended until an event of a specified description occurs.(2) The circumstances may include, among other things, that—(a) the litigation costs,(b) the relevant proceedings, or(c) the landlord,are of a specified description.(3) Where, by virtue of regulations under sub-paragraph (1)(b), the effect of paragraph 5B(1) is suspended until an event of a specified description occurs—(a) paragraph 5B(1) does not have effect before the event, but(b) paragraph 5B(1) does have effect on or after the event in relation to an administration charge paid or payable before the event.(4) Accordingly, if an administration charge was paid before the event in respect of the landlord’s litigation costs because the effect of paragraph 5B(1) was suspended, the landlord may retain the amount of that charge after the event only if the relevant court or tribunal makes an order under paragraph 5B(2) in relation to that charge. (5) In this paragraph—“litigation costs” ,“relevant proceedings” and“the relevant court or tribunal” have the same meaning as in paragraph 5B;“specified” means specified in regulations under this paragraph.”Member’s explanatory statement
This amendment would introduce a new paragraph 5C to allow the appropriate authority (subject to the affirmative procedure) to make further exceptions to new paragraph 5B(1), and to provide for the effect of new paragraph 5B(1) to be suspended in certain circumstances.
Lord Gascoigne
“(5) A statutory instrument containing regulations under this section is subject to the negative procedure.”Member's explanatory statement
This amendment would ensure that a statutory instrument containing regulations under clause 83 is subject to the negative procedure.
Lord Gascoigne
Member's explanatory statement
This amendment would correct an error, given that Welsh Ministers may approve a code of practice under section 87 of the LRHUDA 1993.
Lord Gascoigne
Member's explanatory statement
This amendment would correct an error, given that Welsh Ministers may approve a code of practice under section 87 of the LRHUDA 1993.
Lord Young of Cookham
“Training and qualifications of property agents(1) The Secretary of State may by regulations require that individuals undertaking the activities of a property agent in respect of—(a) estate management of leasehold properties, (b) sale of leasehold properties, and(c) sale of freehold properties subject to estate management or service chargesmust have, or be working toward, specific mandatory qualifications, as defined by regulations made under subsection (2), to demonstrate competency to undertake their property agency roles.(2) Regulations under this section—(a) are to be made by statutory instrument,(b) may make provision generally or only in relation to specific cases,(c) may make different provision for different purposes,(d) may include supplementary, incidental, or transitional provision,(e) may specify classes or types of employees who must be qualified and the appropriate qualification level for each such group,(f) may specify syllabuses and testing methods for qualifications,(g) may specify means of training provision and minimum training hours, and(h) may approve providers for the provision of training and qualifications.(3) A statutory instrument containing regulations under this section is subject to the negative procedure.”
Lord Young of Cookham (Con)
My Lords, I hear the bell ringing as we enter the last lap. This amendment is also in the names of the noble Lord, Lord Best, and the noble Baroness, Lady Hayter, neither of whom can be in their places at the moment. It deals with the regulation of property managing agents.
In 2017, the Government committed themselves to regulating property managing agents to,
“protect leaseholders and freeholders alike”.
They then set up a working group, chaired by the noble Lord, Lord Best, which reported in 2019. In Committee, the noble Lord, Lord Best, introduced Amendment 94, which would have empowered the Secretary of State to establish an independent, statutory regulator of property agents who sell and manage leasehold property. It received widespread support from all sides of the House, but was a step too far for the Government.
The amendment before us this afternoon is in fact slightly weaker. It does not require the Government to set up that organisation; it simply requires mandatory qualifications of property managing agents. This is something that the Government have already done for the social housing sector, and it could quite easily be expanded to protect leaseholders and private tenants. I beg to move.
Lord Bailey of Paddington (Con)
My Lords, I speak to my Amendment 67. When Parliament passed the Building Safety Act 2022, there was a major error within it. Anyone could be an accountable person except a manager appointed under Section 24 of the Landlord and Tenant Act 1987. Section 24 is a lifeline right for flat leaseholders with bad landlords, sky-high service charges and rundown buildings. Again, I return to my theme of control and the ability to remove a bad freeholder and a bad landlord—not a good one. Sadly, by barring Section 24 managers from being an accountable person, or at least from assuming that function, Section 24 is blown up.
Again, I just say that these are practical things that leaseholders will need. I believe that Labour colleagues also support this amendment. I would really like to hear from my noble friend the Minister why this cannot be done. It is a practical step, it does not seem to have any cost, and it would make a great deal of difference to the leaseholders involved.
Baroness Fox of Buckley (Non-Afl)
My Lords, we are really close to the end. This is a very similar amendment to one that I proposed in Committee. In following on from what the noble Lord, Lord Moylan, said about the meeting with the Minister, I also had a meeting with the Minister half an hour before the election was announced, in which it was indicated that there was some interest by the Government in supporting this amendment. It is, of course, frustrating to be in this position in wash-up with regard to some of these details. For example, it was said only last week that, even if we were not going to get peppercorn ground rent, we might have had a very low £250 ground rent. We were all anticipating that Report would be a very positive and creative time to improve this Bill.
That was not to be the case; but for whoever takes on this brief in the future, the implication earlier today in some of the crosser exchanges was that nobody had thought about the implications of what this Bill was about. Many of us are bored of thinking of the implications and this issue has gone on for decades and decades and decades. Political parties of both sides have promised that they would resolve some of the anomalies associated with leasehold and move us on to commonhold. We are now in a situation where, through bad luck, we cannot have a full discussion on this particular Bill—it was inadequate anyway. At least we got it into wash-up, and I say simply that I found the department, the noble Baroness, Lady Scott, and the noble Lord, Lord Gascoigne, to be incredibly helpful.
Baroness Pinnock (LD)
My Lords, we on these Benches totally support Amendments 62 and 63 in the name of the noble Lord, Lord Best, and moved and spoken to by the noble Lord, Lord Young of Cookham. The most unfortunate part of doing this Bill in wash-up is that we have lost the opportunity to address some of the omissions in and failures of the Building Safety Act. Many leaseholders who are stuck in their properties with high and escalating insurance rates and service charges that are growing inexorably and still have a fire safety issue. These two will be issues that will I ensure are addressed by the next Government, whoever they are.
I thank those on the Front Bench for the helpful comments and the co-operation they have provided during this Bill. Most of us are of one mind: it is such a shame that this Bill is being lost without the changes that many of us would want to have put into it; but with that, I end my contribution for today.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I will, very briefly, just add our support for Amendments 62, 63 and 67. The noble Lord, Lord Bailey, presents a way forward for addressing those issues as well. I wish we could be doing them, and I think it is disappointing we are not, but I will leave it there.
Lord Gascoigne (Con)
I thank the noble Lord, Lord Best, the noble Baroness, Lady Hayter, and my noble friends Lord Bailey of Paddington and Lord Young for their amendments, and all who have spoken in the final group of this Bill.
I will start with the amendments regarding the regulation of property agents. I thank the noble Lord, Lord Best—I appreciate he is not here—for raising the issue with the Minister recently; I know that it is something which he is passionate about, and I hope that he continues to engage extensively with the noble Baroness, Lady Scott. The Government are committed to driving up professionalism and standards among property agents. Leaseholders deserve a good service for the money they pay, whether that is from from their landlord or their managing agent, where one is in place. Industry plays an important role in driving up standards, and we welcome the ongoing work it is undertaking to support this. This includes industry-backed qualifications, as well as the preparations of codes of practice. Furthermore, the measures in the Bill, alongside existing protections in place and work being undertaken by industry, seek to make managing agents more accountable to those who pay for their services. That includes making it easier for leaseholders to take on management of their buildings themselves, where they can directly appoint or replace agents. The measures above will, I believe, contribute substantially to that objective.
In addition, we need to consider the question of standards for all property agents in the round rather than in a piecemeal fashion. That was the original purpose behind the idea of a regulator for property agents. While I recognise the intentions and desired outcomes of these amendments, I do not consider that now is the right time to introduce them.
I turn to Amendment 87. I trust that your Lordships will understand that the Government cannot accept these proposed amendments. Defining a Section 24 manager as “an accountable person” would move financial and criminal liabilities away from the existing accountable person to the Section 24 manager. It was the intent of the Building Safety Act that financial and criminal responsibility for certain aspects of maintaining the building should always remain with the accountable person and accountable persons cannot delegate this responsibility to a third party. Given these assurances, I hope that the noble Lord will withdraw his amendment and that other noble Lords will not press their amendments.
Lord Young of Cookham (Con)
My Lords, I am grateful to all those who took part in this decade. I want to pick up a point raised by my noble friend Lord Bailey when he moved his amendment to the Building Safety Act, a point also picked up by the noble Baroness, Lady Pinnock. Had this Bill proceeded in the normal way, there would have been a whole series of amendments to the Building Safety Act to deal with some of the problems mentioned by the noble Baroness but also to address the distinction between qualifying and non-qualifying leaseholders. I think there would have been a very good chance that we would have asked the other place to think again on a number of those issues—but that is for another day.
Yesterday, I think I had the last Oral Question and, unless something goes seriously wrong in another place, I may be the last speaker in this Parliament in this House. I take this opportunity to congratulate my noble friend Lord Gascoigne on the Front Bench. We have had a number of cricketing analogies about how he has coped with the googlies, but I prefer a footballing one. He is like the reserve goalkeeper who is summoned on to the pitch after full time and asked to save a large number of penalty kicks from some professional strikers. It is to his credit that he managed to tip most of the shots over the bar, although I think one or two may have got past him into the back of the net.
If the noble Baroness, Lady Scott, was watching his performance she will be well proud of what he did and, in thanking him, I also thank the noble Baroness, Lady Scott, whose patience I nearly exhausted with a number of meetings. On that basis, I beg leave to withdraw my amendment.
Lord Gascoigne
“(c) a county council in England,(ca) a district council,(cb) a London borough council,(cc) the Common Council of the City of London (in its capacity as a local authority),(cd) the Council of the Isles of Scilly, or”Member's explanatory statement
This amendment and the other Government amendment to this clause would replace the use of the defined term “local housing authority” (which is not used elsewhere in Part 6) with the specific authorities which are to be “enforcement authorities”, and add county councils in England as enforcement authorities.
65: Clause 110, page 124, leave out lines 29 to 34
Member's explanatory statement
See the explanatory statement to the other Government amendment to this clause.
Lord Moylan
“(2A) Section 36 comes into force at the end of the period of two months after the “applicable deferment rate(s)” and “applicable capitalisation rate(s)” defined in Schedule 4 have been prescribed in accordance with regulations made under that Schedule.”Member's explanatory statement
This amendment delays the entering into force of Clause 36 until two months after the applicable deferment rate(s) and applicable capitalisation rate(s) have been prescribed in regulations.
Lord Moylan (Con)
My Lords, I think it was Bismarck who said that the public should never see how laws or sausages are made.
Baroness Williams of Trafford (Con)
My Lords, I have it on command from His Majesty the King and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Leasehold and Freehold Reform 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.
I will also take this opportunity to notify the House of the Crown undertaking for the Bill. The Crown authorities have confirmed that the Crown would act by analogy with the Leasehold and Freehold Reform Bill and the statutes that the Bill amends, subject to specific specified conditions. The Crown authorities have also confirmed that the Crown would as landlord and subject to specified conditions agree to enfranchisement or extension of residential long leases under the same qualifications and terms to lessees who hold from other landlords, and the Crown will not sell or grant new leases of houses subject to specified circumstances.
If the House will bear with me, I must now relay the exact wording of the Crown undertaking before the House.
The Crown as landlord, will, subject to the conditions described below, agree to the enfranchisement or extension of residential long leases or to the grant of new residential long leases under the same qualifications and terms which will apply by virtue of the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993, to lessees who hold from other landlords.
Enfranchisement will be refused where property stands on land which is held inalienably; where there are particular security considerations, on the advice of the appropriate security agency; where properties are in, or intimately connected with, the curtilage of historic Royal Parks and palaces; or where properties, or the areas in which they are situated, have a long historic or particular association with the Crown. The properties include old land revenue and the reverter properties and grace and favour properties. The areas include the off islands within the Isles of Scilly—which are St Agnes, Bryher, St Martin’s and Tresco—and the garrison on St Mary’s.
Where enfranchisement is refused on the grounds set out in paragraph 2(a) but the tenant would otherwise qualify for enfranchisement, lease extension or the grant of a new lease by analogy within the statutes, the Crown will be prepared to negotiate new leases. Where enfranchisement is refused on the grounds set out in paragraphs 2(b) or (c) but the tenant would otherwise qualify for enfranchisement, lease extension or the grant of a new lease by analogy with the statutes, the Crown will be prepared to negotiate new leases for a term of 990 years at a peppercorn rent.
Where a lease has been extended in the circumstances under paragraph 4, the Crown will be entitled to insert a buy-back term, which gives the Crown the right to buy the whole or part of the extended leases, equivalent to that granted to the National Trust. The Duchies of Lancaster and Cornwall and the Crown Estate will publish their lease extension policies under the grounds set out in paragraphs 2(b) and (c). These policies will set out that each party is responsible for its own legal and valuation costs.
The Crown will follow the valuation bases set out in the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993. The Crown will agree to be bound by arbitration where there is dispute over valuation or other terms. The relevant tribunal will be empowered to act as the arbitration body, except in cases under paragraph 2, and will hear such disputes on voluntary reference. The Crown will not grant residential long leases of houses unless the property or the areas in which they are situated fall within one of the categories set out in paragraph 2(a), (b) or (c).
As this is probably my last outing of this Parliament at the Dispatch Box, I pay tribute to all noble Lords I have worked with in this House as Chief Whip, particularly the noble Lords opposite—the noble Lords, Lord Kennedy and Lord Coaker. At this time, I also remember Lord Rosser, with whom I worked for many years. He was a very dear man, and I will remember him fondly. I also thank my noble friend the Lord Privy Seal, who is not in the Chamber, and my absolutely wonderful Front Bench, who work so hard. Whether or not we agree with each other in this House, I think we can agree that we all work so professionally and constructively together, and I could not do it without the brilliant Ministers and Whips that we are so fortunate to have.
Lord Gascoigne (Con)
My Lords, I will first make a statement on the legislative consent process in relation to the Leasehold and Freehold Reform Bill.
The provisions in the Bill deliver a substantial package of reforms that will significantly increase leaseholders’ rights as consumers and home owners. To deliver these benefits to all leaseholders across England and Wales, we have sought support for legislative consent from the Welsh Government. We have engaged extensively with Welsh Government officials throughout the preparation and passage of the Bill, and I pay tribute to them for their constructive engagement.
Unfortunately, given the exceptional circumstances and the shortened timeline of passage, regrettably, we must proceed without a legislative consent Motion from the Senedd. However, I take this opportunity to reassure noble Lords that these measures were well received by the Welsh Government, and it is unfortunate that we were not able to conclude our discussions. We remain committed to ensuring that the Bill operates effectively across England and Wales, and we will continue to engage closely with the Welsh Government during the Bill’s implementation.
Lord Gascoigne (Con)
My Lords, in moving that the Bill do now pass, I recognise that we are now, finally, reaching the juddering climax of this Bill and this Parliament. As is only right and proper, there have been at times strongly held views about measures in the Bill. I am acutely aware that not everyone will be entirely satisfied with everything, but I remain encouraged and inspired by the passion that is felt across the House and by what has been evident yet again: the breadth, knowledge and experience of this House.
I am particularly grateful to all noble Lords across the House who have taken the time to engage directly with me and my noble friend Lady Scott of Bybrook. I thank both Opposition Benches for their sustained interest and engagement. In particular, I thank the noble Lords, Lord Truscott and Lord Best, the noble Baronesses, Lady Andrews, Lady Thornhill and Lady Fox of Buckley, the right reverend Prelate the Bishop of Manchester and the noble Earl, Lord Lytton. On our Benches, I thank my noble friends Lord Moylan, Lord Young of Cookham, Lord Bailey of Paddington and Lord Howard of Rising for their sustained engagement and helpful contributions during the debate. While we may not have been able to reach total agreement, I appreciate the concerns they are representing. Their careful examination of these measures has enabled the Government further to consider our policy and reinforce that our approach is correct. I am for ever grateful for their constructive scrutiny.
Speaking of my own Bench, I am sure it will not come as a surprise that today I feel a bit like Debbie McGee as there is one notable absence. I pay particular tribute to my noble friend Lady Scott. It has been a privilege to watch her work throughout the passage of the Bill and to work closely alongside her on much else. I am inspired by her impressive capacity to pick up technical issues and to work at pace and for her dedication to public service. My noble friend has done all of this and tolerated me with good humour.
I thank His Majesty’s loyal Opposition and the Front Benches opposite. I thank the noble Baronesses, Lady Taylor of Stevenage and Lady Pinnock, and the noble Lords, Lord Khan of Burnley and Lord Kennedy of Southwark, for their constructive interest in and engagement with these measures. I have been grateful for their willingness to work with this side on any matters of disagreement. It is both the first time and the last time in this Parliament when I am speaking to the noble Lord, Lord Kennedy, across this Dispatch Box. I would like to say something specific about him, if I may. While this may not necessarily be career-enhancing for both of us, in all the exchanges outside this Chamber, both formal and otherwise, he has been characteristically robust while courteous, approachable and friendly. As the new kid on the block, it has been appreciated.
I conclude by mentioning all the expert and extraordinarily comprehensive work that has gone into this legislation by the Law Commission, the Bill team and the officials behind the Bill, many of whom have been working on this legislation for many years, not to mention the extraordinary amount of work I imagine they have done over the past 24 hours due to wash-up. I spoke to the Minister first thing this morning, and on behalf of the Minister and myself, I thank them for their tireless support and professionalism.
Finally, as this is my last time in this Parliament to speak at the Dispatch Box, I say that my family were not political at all, so being a Member of your Lordships’ House alone is the honour of a lifetime, yet to be in His Majesty’s Government and to have played a small part in this Parliament has been beyond a privilege. I am grateful to everyone who has helped and supported me over the recent months in this Chamber, across the House and beyond. With that, I beg to move.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I thank the government team that worked on this Bill, particularly the noble Baroness, Lady Scott of Bybrook, and the noble Lord, Lord Gascoigne. I appreciate their generous remarks very much. I thank all the government officials for their work on the Bill, and noble Lords across the House who worked on it at every point. I thank the staff of the Opposition Whips’ Office. I pay particular tribute to my noble friends Lord Khan of Burnley and Lady Taylor of Stevenage. They took over doing the local government brief when I became the Opposition Chief Whip and did a far better job than I did. Sometimes I sit in my office in awe at how excellent they are—and how much better than I was.
I pay tribute to Lord Rosser and Lord McAvoy, who are missed by the whole House. They were always very kind to me when I arrived here. Lord McAvoy knew me for many years beforehand, and knew my mum very well as well; he always spoke very fondly of the time she was in the Members’ Tea Room in the House of Commons.
I thank the Labour Front Bench and the Labour Whips. They have done a fantastic job, and it has been an absolute privilege to serve as part of the Labour Front Bench over the last 14 years, and as one of the Labour Whips. I was privileged to arrive in the House 14 years ago. I am a kid from a council estate in Elephant and Castle, and I never thought I would end up here. To get here was a great thing, but to be the Opposition Chief Whip is something I have been immensely proud of, and I have tried to do my best in the last three years.
I pay tribute to the noble Baroness, Lady Williams of Trafford. We have followed each other around the House—when she was the Local Government Minister, I was the same over here, and then I went to the Home Office, and now we are against each other—or working with each other—in the usual channels. It is an absolute pleasure working with her in the usual channels: sometimes we agree and sometimes we do not agree, but it is all done in good humour, and usually over some chocolate in the noble Baroness’s office.
Lord Kennedy of Southwark (Lab Co-op)
Absolutely. We get on really well together, and I have always appreciated the way she deals with things. That is the best way for the House to work. At the end of the day, this House works by relying on the conventions, doing things properly and agreeing things properly.
Whoever forms the next Government—that will be decided by the people on 4 July—will have to deal with these big issues around leasehold. Whatever side of the House I am sitting on, whether on the Front Bench or the Back Bench, I will do my best to make sure that whatever the Government do, they deal with these issues properly.
It has been an absolute privilege to be here and to do the job of Opposition Chief Whip, and to come back today and do it for the last time. With that, I wish everyone a happy election—let us hope the best party wins.
Royal Assent
Friday 24th May 2024
(6 months, 4 weeks ago)
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