Monday 11th December 2023
(4 months, 2 weeks ago)
Commons ChamberLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text Watch Debate
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
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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
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.
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.
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.
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)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 16th January 2024
(3 months, 1 week ago)
Public Bill CommitteesLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 16 January 2024 - (16 Jan 2024)
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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.
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.
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.
Leasehold and Freehold Reform Bill (Second sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 16th January 2024
(3 months, 1 week ago)
Public Bill CommitteesLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 16 January 2024 - (16 Jan 2024)
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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.
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!
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.
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.
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.
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?
Leasehold and Freehold Reform Bill (Third sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 18th January 2024
(3 months, 1 week ago)
Public Bill CommitteesLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 18 January 2024 - (18 Jan 2024)
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
Leasehold and Freehold Reform Bill (Fourth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 18th January 2024
(3 months, 1 week ago)
Public Bill CommitteesLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 18 January 2024 - (18 Jan 2024)
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
Leasehold and Freehold Reform Bill (Fifth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 23rd January 2024
(3 months ago)
Public Bill CommitteesLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 23 January 2024 - (23 Jan 2024)
The Committee divided: - Ayes: 7 / Noes: 10 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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.
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.”
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)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 25th January 2024
(3 months ago)
Public Bill CommitteesLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text 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.
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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 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 .
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.
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)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 25th January 2024
(3 months ago)
Public Bill CommitteesLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text 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.
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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—
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.
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.
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
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.
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.
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.
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.
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.
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.
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)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 30th January 2024
(2 months, 4 weeks ago)
Public Bill CommitteesLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text 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.
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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 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.)
Tuesday 27th February 2024
(2 months ago)
Commons ChamberLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text Watch Debate 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.
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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.
Wednesday 27th March 2024
(1 month ago)
Lords ChamberLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text Watch Debate Amendment Paper: Consideration of Bill Amendments as at 27 February 2024 - large print - (27 Feb 2024)
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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 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.
Monday 22nd April 2024
(5 days, 15 hours ago)
Lords ChamberLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text Watch Debate Amendment Paper: HL Bill 50-I(a) Amendments for Committee (Supplementary to the Marshalled List) - (19 Apr 2024)
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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 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 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.
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.
Wednesday 24th April 2024
(3 days, 15 hours ago)
Lords ChamberLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text Watch Debate Amendment Paper: HL Bill 50-II(b) Amendments for Committee (Supplementary to the Second Marshalled List) - (24 Apr 2024)
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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 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 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.
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.
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.
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 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.
Wednesday 24th April 2024
(3 days, 15 hours ago)
Lords ChamberLeasehold and Freehold Reform Bill 2023-24 Read Hansard Text Watch Debate Amendment Paper: HL Bill 50-II(b) Amendments for Committee (Supplementary to the Second Marshalled List) - (24 Apr 2024)
This text is a record of ministerial contributions to a debate held as part of the Leasehold and Freehold Reform Bill 2023-24 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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 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.
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.
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.
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”.