Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
My Lords, the hybrid Grand Committee will now begin. Some Members are here in person, respecting social distancing, others are participating remotely, but all Members will be treated equally. I must ask Members in the Room to wear a face covering, except when seated at their desk, to speak sitting down and to wipe down their desk, chair and any other touch points before and after use. If the capacity of the Committee Room is exceeded or other safety requirements are breached, I will immediately adjourn the Committee. If there is a Division in the House, the Committee will adjourn for five minutes.
I will call Members to speak in the order listed. During the debate on each group, I invite Members, including Members in the Grand Committee Room, to email the clerk if they wish to speak after the Minister, using the Grand Committee address. I will call Members to speak in order of request. The groupings are binding. Leave should be given to withdraw amendments. When putting the Question, I will collect voices in the Grand Committee Room only. I remind Members that Divisions cannot take place in Grand Committee. It takes unanimity to amend the Bill, so if a single voice says “Not Content” an amendment is negatived, and if a single voice says “Content” a clause stands part. If a Member taking part remotely wants their voice accounted for if the Question is put, they must make this clear when speaking on the group.
Leasehold Reform (Ground Rent) Bill [HL]
Wednesday 9th June 2021
(3 years, 5 months ago)
Grand CommitteeRead Full debate Leasehold Reform (Ground Rent) Act 2022 View all Leasehold Reform (Ground Rent) Act 2022 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-II Second marshalled list for Grand Committee - (9 Jun 2021)
Lord Blencathra
Lord Blencathra (Con) [V]
My Lords, I will, for a change, be very brief, not least because there are a number of amendments in this group in the name of my noble friend Lord Young of Cookham which give a practical way forward and are far superior to mine. I declare a personal interest as someone who pays £602 ground rent per annum on my London flat. While that is a disgraceful rip-off, for no services given, it pales into insignificance compared to the horror stories I heard at Second Reading about leaseholders hit with escalating ground rents running to tens of thousands of pounds.
At Second Reading, I attempted to use mockery to draw attention to the fact that the English leasehold and ground rent laws are an absolutely prehistoric abomination which should not exist in a top G7 country these days. I also said that I fully support this Bill and will do nothing to hold up its becoming law. The only problem is that it does not go far enough and does not deal with the injustices for all those caught up in the current ground rent racket. The peppercorn rent solution, ridiculous though that term now is, does in fact give justice to all future leaseholders, and I welcome that. Amendments 1, 2 and 11 simply apply that same just principle to the current racket. If it is right and just that all future leaseholders, who have not lost a penny, are protected from this evil racketeering, then surely it is far more important to deliver justice to all those who are being ripped off at present, some for extortionate sums, as the House heard at Second Reading. Amendments 1 and 2 simply say that all current ground rents will become peppercorn rents, just as the Bill does for future rents. Amendment 11 offers an alternative, setting a ceiling on the amount which may be demanded in ground rent per annum and giving a refund to leaseholders who are being ripped off by ground rents above £1,000 per annum.
I suspect that my noble friend the Minister will say that this is a very complicated subject, that the Government are working on solutions and that we will see the full details next year in the leaseholders Bill. I accept that my amendments take an absolutist, purist approach, but I do like the detailed, sensible amendments tabled by my noble friend Lord Young of Cookham, which may offer a compromise—letting leaseholders buy their freedom. As my noble and learned friend Lord Mackay of Clashfern will confirm, since he is a far better scholar of ancient Roman law than I ever was, in ancient Roman times slaves could buy their freedom, but very few could afford to buy their manumission. Most were freed by testamentary manumission—that is, in the will of their master—and Caesar Augustus regulated the system. So I call on my noble friend the Minister to become the new Caesar Augustus and set free the millions of leaseholders still paying their salarium.
If the Minister cannot accept my amendments, I would like to hear exactly what is wrong with Amendments 7, 8, 12, 17 and 18, proposed by my noble friend Lord Young of Cookham and Amendment 5 in another group, in the name of my noble and learned friend Lord Mackay of Clashfern. They seem to me to be an excellent way to remove this 800-year-old injustice, bring justice to leaseholders and not deprive freeholders of some of their entitlements. I beg to move.
Lord Young of Cookham (Con)
My Lords, I will speak to Amendment 12 and its consequential Amendments 7, 8, 17, 22 and 23. Their effect is broadly the same as Amendments 1 and 2, in the name of my noble friend Lord Blencathra, whose speech I commend. Whereas he was able to express himself in four lines, I am afraid that my amendments have taken up four pages. The amendments also achieve the same as Amendment 5, which we will come to later, in the name of my noble and learned friend Lord Mackay. However, his amendment reserves all the detail set out in mine to the discretion of the Secretary of State, in regulations, and is time-limited. The amendments standing in my name, if accepted, would give a right to buy out ground rents for ever, beginning on 1 January 2023.
As my noble friend Lord Blencathra has just said, the Bill as drafted applies only to future leases, coming into force on such a day as the Secretary of State may appoint by regulations. It does nothing to help existing leaseholders or anyone who buys a lease with a ground rent before the commencement date, but it is government policy that existing leaseholders should have the right to buy out their ground rents. I refer to the Written Statement by the Secretary of State on 11 January this year:
“I am confirming that the Government will give leaseholders of all types of property the same right to extend their lease as often as they wish, at zero ground rent, for a term of 990 years.”
Later comes the crucial commitment:
“We will also enable leaseholders, where they already have a long lease, to buy out the ground rent without the need to extend the term of the lease.”
The obvious question for the Minister, raised by these amendments, is why the Leasehold Reform (Ground Rent) Bill does not deliver government policy on ground rents. Why should we have to wait for the next piece of legislation to honour the commitment? On waiting for promised legislation, I am once bitten, twice shy. As Opposition spokesman in another place, when the hereditary Peers were removed, I was assured by the then leader of the House that stage two of House of Lords reform would be in place for the first round of elections to your Lordships’ House, by 2001. Twenty years on, I am still waiting.
There is still no firm commitment from the Government on when the Bill will come into force and, the longer the Government leave setting a date, the greater the risk that new monetary ground rents will continue to be created. The Government could stop this by indicating even a provisional date for this legislation to come into force, which would shift the bargaining power in favour of prospective purchasers of leasehold properties. That is why Amendment 22, in my name, prescribes a date of 1 January 2023 for this right to buy out ground rents to come into force.
The case for giving existing leaseholders this right was well made by the Law Commission. They took head on the counterargument that this right is unnecessary because leaseholders can extinguish the ground rent by extending their lease. I quote from Law Commission paper 387, entitled Leasehold Home Ownership: Buying your Freehold or Extending your Lease. Paragraph 3.63 of the consultation paper states:
“we explained that the 1993 Act right to a lease extension has been criticised for requiring leaseholders simultaneously to extend the term of their lease (and therefore pay the landlord for the deferral of the reversion) and to extinguish the ground rent (and therefore pay the landlord the value of the remainder of the original term). We noted suggestions that leaseholders should be able to choose between extending their lease, extinguishing their ground rent, or both, in order to reduce the premium payable on the lease extension.”
The paper continued:
“Support for the introduction of a right to extinguish the ground rent under a lease without extending the lease (whether alone, or together with the right discussed immediately above) was widespread. Consultees who supported this option included various professional bodies, the majority of commercial freeholders, a majority of firms and individual professionals, and a significant majority of leaseholders and other individuals.”
I continue to quote from the report, which states:
“Generally, consultees’ reasoning for supporting a right to extinguish the ground rent without extending the lease focussed on the predicament of leaseholders who are subject to onerous or doubling ground rents in long or very long leases. Both professionals and leaseholders explained that these leaseholders have no need to extend their lease term (which may be as long as 999 years), but wish to buy out their ground rent before it becomes onerous, and/or to make their property saleable. It was said to be ‘pointless’ to require them to claim an extended lease term purely to solve this problem.”
The report goes on to say:
“Several consultees considered that, given the forthcoming ban on ground rents in the majority of new leases, the right to extinguish ground rent in an existing lease (which is very long and does not require extending) would help to avoid the creation of a ‘two-tier’ market, consisting of leases with ground rent and those without. This argument was most persuasively made by a number of leaseholders from 1 West India Quay Residents’ Association. Pointing out that media coverage of the ground rent scandal has led prospective buyers to scrutinise ground rent obligations much more closely, Antonio De Gouveia wrote: ‘If Government is to cap or eliminate ground rents on new leases (which we think they will do), then there is even more reason for new legislation from the Law Commission to enable all leaseholders in our building to buy out their ground rent (onerous or not)’.”
I note in passing that the point about a two-tier market was made in the helpful briefing for the Bill from the Law Society. This all led the commission to its conclusion in paragraph 3.108:
“We recommend that leaseholders who already have very long leases should be entitled to extinguish the ground rent payable under their lease without also extending the term of the lease.”
My amendments deliver that. They have been drafted so that costs are kept to a minimum. No valuation is required because proposed subsection (6) of Amendment 12 sets out the terms, based on Law Commission examples. There is no prejudice to enfranchisement rights and timescales are set out to prevent any delay by the freeholder.
My amendment also addresses a different complaint raised by the Law Commission, namely that the current process for statutory leasehold extensions is too long and cumbersome. Landlords have options to game the system to make it as difficult as possible for leaseholders to exercise their rights. Look at paragraph 2.23 of Law Commission report 392.
My Amendment 12 therefore seeks to give effect to the Law Commission’s recommendations for simplification by proposing a straightforward way in which to buy out monetary ground rents without the need for notice and counter-notice, as exists under the current legislation. There will be nowhere for unscrupulous landlords to hide if the approach suggested in this group of amendments is adopted.
My Amendment 17 provides for the First-tier Tribunal to have jurisdiction in dealing with any issues arising from the exercise of the rights given by Amendment 12 and mirrors the provisions in Clauses 13 and 15. Amendment 12 goes further, in that it would also permit the tribunal at its discretion to award damages to a tenant denied rights to buy out a monetary ground rent, which is intended to serve as a deterrent to landlords denying such rights. Amendment 22 brings in the commencement date of 1 January 2023, giving those involved time to make the necessary preparations. Amendment 23 is consequential.
Why not use the Bill to give an option to millions of existing leaseholders, rather than wait for another Bill that deals with ground rents? There is no disagreement on policy, and here we have the vehicle. I await the response from my noble friend the Minister and hope that he will set the tone for this Committee by looking favourably on this first group of amendments.
Lord Stunell (LD) [V]
My Lords, I shall speak in particular about Amendment 1, and the consequential amendments tabled by the noble Lord, Lord Blencathra. It was great fun to listen to him on Second Reading, with his eloquent flow sweeping away the whole caboodle of leasehold legislation and starting again from square one. That was spoken like a true reformer and radical, which, in his heart, I know he is.
Today the noble Lord was a bit more circumspect, but no less radical, with amendments that would not just reform the system but abolish it completely, starting on day one. That is an attractive proposal, especially to leaseholders—but even more so to lawyers. If implemented as drafted, it would leave a trail of wreckage that should keep lawyers employed for many a long year.
However, I suspect that, as befits a former Chief Whip in the other place, the noble Lord has carefully done his homework behind the scenes. No doubt he has had a word with the Minister and secured a commitment to bring back a government-led amendment on Report to comprehensively reform the entire leasehold regime and implement the recommendations of the Law Commission, and in the meantime to freeze the granting of lease extensions on grossly inequitable terms. If that is so, my noble friends and I will be ready add our names to that amendment, when it comes along.
However, perhaps the noble Lord’s quiet chat with the Minister did not go quite as well as he had hoped, and no such agreement was forthcoming—which may be why today he deferred to the amendments tabled by the noble Lord, Lord Young. Among those, Amendment 12, in particular, sets out in impressive detail a somewhat equivalent plan, as the noble Lord, Lord Young, has just spelt out. At first reading, that amendment would seem to provide less of a free lunch for lawyers than Amendment 1 would, and it is sensible, measured and proportionate, as one would expect from the noble Lord.
In his explanatory statement, the noble Lord describes Amendment 12 as a probing amendment. We certainly welcome that probing of the Government’s position and intentions. We too are concerned by the slow pace of reform, and the fact that the current Bill does nothing for existing leaseholders. Instead, the Government are offering jam tomorrow—or possibly the day after tomorrow—for current leaseholders. At least the noble Lord’s amendments offer us a sniff of jam today. I would encourage the Minister, in his reply, to explain fully to us exactly when he will come back with clear plans to achieve the reforms that the noble Lord has already drafted for him. I thoroughly endorse the noble Lord’s concerns about the gaps that could open up.
We should remember that leaseholders’ organisations desperately want this Bill in place, and the Liberal Democrats support their intentions. There should be no delay in its passage. But the Minister owes it to those leaseholders to commit to delivering a comprehensive reform in the shortest possible time. That is not only the right and equitable course of action, but the best way of avoiding disruption to the market.
The noble Lord, Lord Young, referred to the Law Society’s briefing on the Bill. I draw noble Lords’ attention to the Law Society’s belief that leasehold purchasers and their mortgage providers will, understandably, steer clear of taking out leases under the existing legal framework if they can find a much more favourable lease elsewhere in the market, under the new terms in the Bill. That means that existing leaseholders who are trying to sell will be put at a double disadvantage—not only having to pay outlandish charges but having more difficulty in selling their homes than if they had benefited from the new terms.
That risk to a stable market gets worse the longer the second stage of the reform is delayed. Perhaps the fact that that the noble Lord, Lord Young, referred to hereditary Peers’ legislation speaks to that foreseeable risk of endless delay. Two experienced senior members of previous Conservative Governments have tabled amendments in very similar terms to try to pre-empt that delay—which may be some kind of hint that they lack trust in the Government’s commitment to deliver on the second stage. In the Minister’s reply we need to hear exactly when he, as the responsible Minister, and the Government he represents, will bring forward that follow-up legislation, which we believe is now a pressing priority.
Lord Naseby (Con) [V]
My Lords, I apologise that I was not able to take part at Second Reading. Some of your Lordships know that my wife was taken very ill with Covid—in fact, we nearly lost her—and I decided to take her away for a rest. I am pleased to say that she is now pretty well.
There are a couple of interests that I ought to declare. I am a vice-chairman of the Shared Ownership Housing APPG. I have taken a particular interest in care homes, so I will be addressing the Committee on Amendment 4. My friends know that I was chairman of the housing committee in the London Borough of Islington from 1968 to 1971, when there was a fair number of lease challenges. Finally, I say to my noble friend on the Front Bench that I welcome the principle behind the Bill and thank Her Majesty’s Government for actually moving things forward.
I do not want to speak for very long on any of the amendments. I understand my roommate’s enthusiasm, which he has for everything in life, and he does cut through the rubbish, usually. It is nice to see someone cut through, bearing in mind that this is a pretty revolutionary Bill to start with. That is one end of the spectrum, and that covers Amendments 1 and 2. The noble Lord, Lord Young of Cookham, went into it in great detail. I read with great care what he said at Second Reading and the Government would do well to do the same—I am sure they must have done. He covered what might well be in the next Bill. It should be looked at extremely seriously.
I am concerned—I wrote it down before the noble Lord spoke this afternoon—about the position of existing leaseholders when they come to sell. I think that is a fair question, which the Labour Front Bench raised. That problem will be there unless some action is taken. It certainly cannot wait until the second half of this problem is dealt with in another Bill.
One other area concerns me: the situation, which is not uncommon, particularly in the provinces—I am speaking today from Sandy in Bedfordshire—where a landlord offers a 25-year lease on a residential property at a market or rack rent. That is pretty common in mixed-use scenarios; for example, a shop with a flat above, where the owner wants the commercial and residential parts to be leased out concurrently. In those sorts of circumstances, it seems—some would say absurd but that might be going too far—unusual and strange to expect just a peppercorn rent when a lessee is getting the benefit of living in or renting out the property.
The amendments in this group are absolutely crucial and I too look forward to the Minister’s response.
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
I call the next speaker, the noble and learned Lord, Lord Mackay of Clashfern. Lord Mackay, could you unmute, please? I will move on to the next speaker, the noble Baroness, Lady Grender.
Baroness Grender (LD)
My Lords, the debate so far has underlined the urgent need for reform across the entire leasehold sector and has reflected some of the strongly made arguments at Second Reading. In particular, many of the amendments are about the 4.5 million current leaseholders who are still captured by this unfair legacy and the failure to shift to commonhold, initiated in the 2002 Act.
I start by taking this opportunity to thank the Minister for discussions in advance of Committee and to stress our strong support for the Bill’s intentions. Its primary purpose is to chop off the head of the snake: the continuing supply of investment opportunities for freeholders on which they can base their borrowing for the next batch of unsuspecting leaseholders. I therefore hope that it goes through the parliamentary process with considerable speed. That said, what we cannot afford is any loopholes that enable this “something for nothing” industry to continue. When we debate later clauses, noble Lords will see that I believe there is a significant loophole that will be exploited: informal extensions, more ON which later.
As the relevant Committee, it is vital that we continue to remind ourselves of the shocking unfairness out there for many leaseholders. Last month, the Daily Mail featured a story about Carole Patterson, aged 44, an administrator in human resources whose ground rent on her flat in south London doubles every five years, rising to £1 million a year in 50 years’ time. The freeholder, MEA Real Estate Ltd, is prepared to waive the ground rent for a one-off payment of a whopping £100,000, described as
“a quarter of the value of the property”.
Given the value of that property, it is now almost impossible for her to sell on. Currently, leaseholders exist in a climate that was probably signed off by a solicitor, supposedly on their behalf. For all the Caroles, it is critical that this reform begin, and soon.
I therefore thank the noble Lords, Lord Kennedy and Lord Lennie, for Amendment 18, which I have also put my name to. It addresses the critical need for a swift resolution to the problem of existing leaseholders, and therefore asks for the next Bill to be delivered in draft form as quickly as possible. We recognise that the Law Commission has suggested a longer period, but the Government do not always do what it recommends. At present, a third of Law Commission recommendations are not implemented, some due to timing, but others because the Government have decided not to implement them. At certain points, politicians need to decide and act. With chronic unfairness built into the system for 4.5 million leaseholders, this is one of those moments.
Regarding the readiness for this change on the part of the freehold investment sector and the ongoing oligopoly of housebuilders, it is possible to argue that, since the leasehold reforms of 2002 or perhaps earlier, they have been forewarned that the clear intention over time of various Governments, of all parties, has been to move out of the leasehold system. If they are not prepared for that scenario, the problem belongs fully with them and not with the Government.
As my noble friend Lord Stunell—also a member of the former Chief Whips club in our own party—said, we of course support the intention of Amendments 1 and 2, in the name of the noble Lord, Lord Blencathra, to move more swiftly to cover all leaseholds. We also support his Amendment 11, which would limit ground rents with a relevant cap of £250 and provide for reimbursement. It is an interesting approach, given that, as I understand it, a property in London with a ground rent of more than £1,000 a year, or of over £250 per annum in the rest of the country, now falls into the definition bracket of an assured shorthold tenancy. That means that for some aspects of leasehold obligations, the courts do not have jurisdiction, especially regarding forfeiture, which was much discussed at Second Reading. I therefore look forward with interest to the Minister’s response to this issue.
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
Before I call the noble Lord, Lord Lennie, I will return to the noble and learned Lord, Lord Mackay of Clashfern.
Lord Mackay of Clashfern (Con) [V]
I am glad to say that I have managed to unmute with the help of the host.
I very much support the principles behind these amendments in this group. If it is wrong to have a new lease with ground rent of the kind that we are concerned with, why is it not wrong to have it in existing rents? That is what we need to address, and now, if at all possible, although I am equally strongly in favour of getting the Bill on the statute book as soon as possible and I would not like any delay to result from the other considerations. Nevertheless, these other considerations are very strong and I cannot see why it would not be possible to incorporate dealing with them in the Bill as well as preventing another wave of the problem.
I am very much in favour of my noble friend Lord Young of Cookham’s Amendment 12 and all the complementary ones around it. I had the responsibility a long time ago of looking at this question of leasehold and I confirm what has just been said—that it was certainly my idea to try to get rid of it altogether. I was brought up under the Scottish system, where Scottish tenement property is capable of being owned outright without the necessity of a lease. I also had the experience of later seeing the feu, or feudal, system abolished. It had a rent, called a feu duty, which was part of the basic responsibility of the title, and the Government of the day decided to get rid of it altogether. Of course, that meant that something had to happen to the feu duty. It was capitalised by a very simple formula that the feuer had to pay, and so the whole thing finished. I would love to see something like that happen to the leasehold system but I realise that that is a hope beyond immediate realisation. Therefore, my stance is the same as that of my noble friend Lord Young of Cookham—I think I am right in saying that I participated in the Bill when he was concerned with these matters a considerable time ago. I have suggested a small alteration to his way of dealing with the matter which I will explain briefly later.
Lord Lennie (Lab) [V]
My Lords, it was certainly worth waiting for the speech of the noble and learned Lord, Lord Mackay, because we now know we are all batting on the same wicket. As we have heard, Amendment 18, tabled by my noble friend Lord Kennedy and me, in addition to amendments tabled by the noble Lords, Lord Young and Lord Blencathra, introduces the issue of existing leaseholders and brings into question why the Government are not legislating to protect them. To us there seems to be no rhyme nor reason why they are not.
Although the provisions of the Bill are welcome and the Government are right to set future ground rents to zero, they are offering nothing for those tied into existing leaseholds. In 2019, the Ministry for Housing, Communities and Local Government estimated that one in five homes in England were leasehold dwellings. That equates to approximately 4.5 million properties, and the number will have grown since. Many of those households, tied into leasehold arrangements, are subjected to ground rent arrangements overwhelmingly balanced to benefit landlords—what the noble Lord, Lord Blencathra, called legal racketeering. Some leaseholders are being charged extortionate amounts and others have seen their payments rise exponentially.
In fact, the Competition and Markets Authority is currently taking action against both Countryside and Taylor Wimpey, which are doubling some ground rents every 10 to 15 years. There is one factor that every household paying ground rent has in common: they receive little to no benefit from paying that sum. The Government should take action for those already stuck in leaseholds and paying extortionate ground rent charges. Amendment 18, tabled by my noble friend Lord Kennedy and me, seeks to address this by ensuring that the Government bring forward further legislation. Can the Minister confirm whether any further legislation is anticipated or planned on this theme and, if so, when?
The purpose of Amendment 9 is to raise the question of remedial costs for leaseholders. The crux of this matter is that the Government have failed to introduce legislation to deal with the fact that building owners are attempting to pass on the cost of remedial work to leaseholders. Despite promises from Government Ministers that leaseholders would not be forced to pay to fix fire safety problems that were not their fault, the issue is still ongoing. I have a nephew who is a leaseholder in a block of flats in Hackney. The freeholder, Southern Housing, has simply failed to engage with the Government. It has not applied for any grant aid to assist to fix the fire safety problems, leaving the leaseholders potentially to bear the cost. We are talking here about tens of thousands of pounds per household. Can the Minister confirm when legislation will be introduced to prevent leaseholders facing those extraordinary costs?
Amendment 10, meanwhile, raises the issue of service charges in shared ownership properties. The purpose of the amendment is to highlight the sky-high fees that many residents in those properties are being charged, often with little return. Will the Minister use this opportunity to explain what steps the Government will take to help those in shared ownership agreements who are facing extortionate service charges?
Amendment 11 raises the important point of informal arrangements, which can be used to bypass the central provisions of the Bill. I look forward to clarification from the Minister in this area, and on the questions raised by Amendments 22 and 23, tabled by the noble Lord, Lord Young. I understand that the purpose of the amendments is to give time to prepare for all involved parties, but we should consider that the Bill’s proposals have been discussed for some time already. None the less, I trust the Minister will respond to the points made by the noble Lord.
The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)
My Lords, we have heard a great deal today about the difficulties facing some existing leaseholders, particularly in relation to ground rent—poignantly in the speech by my noble friend Lord Blencathra and, with some powerful examples, from the noble Baroness, Lady Grender.
We are very concerned about leases with high and increasing ground rents. We are aware that such onerous conditions affect not only the affordability of living costs for affected leaseholders but their ability to sell or even re-mortgage their properties. That is why we asked the Competition and Markets Authority to conduct an investigation into potential mis-selling and unfair terms in the leasehold sector. This included the issue of onerous ground rent. Following a detailed investigation, in February last year the CMA published its report, which estimated that the issue of doubling ground rent has affected more than 18,000 leaseholders. In March this year, it informed developers that they may be in breach of the law. Noble Lords will agree that this is very serious indeed, and the Government welcome the CMA’s continued efforts to bring justice to home owners affected by unfair practices.
Our commitment to existing leaseholders certainly does not end there. As I made clear at Second Reading, this is just the first of a two-part legislative reform programme that will improve the leasehold system. Further legislation later in this Parliament will address a range of issues facing existing leaseholders. In answer to the noble Lords, Lord Stunell and Lord Lennie, the aim is to have that next stage in the third Session.
On 7 January the Secretary of State announced a package of leasehold reforms covering enfranchisement valuation and 990-year leases. This is the first part of our response to the Law Commission’s reports on leasehold and commonhold. We will respond to the remaining recommendations in due course. We are absolutely committed to a comprehensive and ambitious programme of reform to create a fairer and more transparent leasehold market, but we need to make sure we get it right. That takes time, which is why we have started with this ground rent Bill, focused tightly on ground rents on new residential long leases.
I turn to the specific amendments before us today that deal with existing leaseholders. My noble friend Lord Blencathra has tabled Amendments 1 and 2. The whole House will have been left in no doubt as to his views of ground rents and the leasehold system following his barnstorming speech at Second Reading. His two amendments both aim to extend this Bill so as to reduce ground rent for existing leaseholders, and we can all understand his reasons for laying them.
I am grateful to colleagues from across the House for their close examination of the issues facing existing leaseholders. However, the decision to focus this legislation tightly on new leases was a very deliberate one. We are working to make the leasehold system fairer and more transparent for leaseholders, but we also need to ensure that we are fair to freeholders. Setting existing leases to a peppercorn raises complex issues and could have negative consequences that may extend beyond the leasehold sector. As just one example of these consequences, your Lordships will be aware that there are pension providers who hold existing investments dependent on ground rent income that were entered into some years ago. These are long-term financial commitments that service the needs of many of our elderly citizens.
I note again that we are in the throes of planning to bring forward further legislation on leasehold reform, and the changes to the valuation process will make a real difference for many existing leaseholders, especially those with fewer than 80 years remaining on their lease.
I come to the six amendments tabled by my noble friend Lord Young of Cookham regarding the right to buy out ground rent in pre-commencement leases, Amendments 7, 8, 12, 17, 22 and 23. As noble Lords will know, there is already statutory provision for leaseholders of flats to reduce the ground rent they pay to a peppercorn on payment of a premium when they extend their lease, and leaseholders of houses can buy their freehold and so extinguish ground rent liability that way under existing legislation. The Government are aware that for some leaseholders this may be prohibitively expensive. This is why we have announced forthcoming changes to the valuation process that will cap how ground rent is treated, reducing the premium to be paid for leaseholders with onerous ground rents.
In addition, the Law Commission has recommended that leaseholders should be able to choose to pay to extinguish their ground rent without extending their lease, as my noble friend Lord Young mentioned. I can confirm that the reforms we will bring forward in future leasehold legislation will enable leaseholders, where they already have a long lease, to buy out the ground rent without the need to extend the term of the lease. We are considering the remainder of the Law Commission’s recommendations and will respond in due course.
I know that my noble friend Lord Blencathra has asked me to be a latter-day Caesar Augustus, but I point out that we have not addressed this in this legislation because reform of enfranchisement and historical ground rents is complex and interlinked. It is important to address these issues together in the forthcoming legislation. The cost of enfranchisement is directly related to ground rents and other components, such as the length of the lease. That is why we are looking to do that in a second tranche of reforms in the third Session of this Parliament. That is the plan.
These planned changes will directly address the issue underpinning the amendments from my noble friends Lord Blencathra and Lord Young. Future leasehold reforms will allow existing leaseholders to pay a more affordable premium and buy out their ground rent when they extend their lease or purchase their freehold. This will be less costly for leaseholders than under the current approach to enfranchisement valuation. I hope that noble Lords will agree that these changes mean that the amendments are not needed, as their effect is being achieved through work beyond the Bill.
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
I have received a request to speak after the Minister from the noble Lord, Lord Young of Cookham.
Lord Young of Cookham (Con)
I am very grateful to the Minister for his reply. I press him on what he said right at the end about the importance of getting the Bill through “as speedily as possible”. I accept that, but if it is important that Parliament processes this legislation speedily, is it not then incumbent on the Government to announce an early date for the implementation of the Bill?
Lord Greenhalgh (Con)
My Lords, we want to move as speedily as possible but, as I stated in my reply, we do not want to set a deadline for things. We want to get this on the statute book very speedily in this Session; that is why it is so early in this Session. That is my answer.
Lord Blencathra (Con) [V]
My Lords, I am grateful to all noble Lords who have participated in this debate. I feel rather guilty that I am responding when it really should be my noble friend Lord Young of Cookham, who put forward an impeccable case today for the reforms he has suggested.
The one thing that has come through loud and clear to the Minister from all noble Lords is that the current system is totally unsustainable. My amendments are probably not appropriate; I believe the amendments of my noble friend Lord Young of Cookham are. If they cannot be accepted into this Bill, it is desperately important that we get them in the full leasehold reform Bill which we expect next year. If my noble friend wishes to put down his amendments on Report, I will support him; he may not wish to push them to a vote, but perhaps the Government need to see on Report that we are serious about talking about the injustice of the current leasehold system.
My noble friend the Minister has said that this is a difficult area and that he is committed to giving leasehold reform “high priority”. If I may say so, the Law Commission is a worthy body, but its problem is that it is full of lawyers; they see leasehold reform as a matter of dotting some “i”s, crossing some “t”s and tweaking an 800 year-old system a bit here and there to make it work better. As politicians—and as politicians in the Commons would say—we find the whole system iniquitous. It is wrong. Perhaps it is those of us from a Scottish background who cannot believe that you buy a property and do not fully own it; it is an extraordinary, wrong system. When the Bill comes next year, we do not want leasehold reform tweaked; we want it stopped for all new contracts.
The wonderful innovation of commonhold failed because we gave developers and other money-grubbing people the choice of continuing with leasehold or commonhold. We thought they would implement common decency and common sense, but they operated a system which made the most money—well, we cannot criticise that; it is inevitable. When the new Bill comes, let there be no choice. Let it be clear that commonhold will be the only system acceptable for all new purchase contracts in future.
That still leaves the problem of current leaseholders. I am very certain that, with Amendment 5 from my noble and learned friend Lord Mackay, the amendments from my noble friend Lord Young of Cookham on a buy-out scheme must be the right direction to go in, because it affords justice to leaseholders who can get out of this wicked system and gives some compensation—too much in my opinion, but who am I to say?—to current freeholders who would demand the right not to be stripped of all their benefits.
On early implementation, I refer my noble friend Lord Young of Cookham to Amendment 26, where I suggest that the Bill should be implemented on Royal Assent. I appreciate that we may need to make exceptions for property for old folks’ homes—I am not sure what the current term is for an old folks’ home, but I believe that is to be exempted for a couple of years for us to figure out how to do it. The rest of this Bill should be implemented as soon as possible after Royal Assent.
With those words—and my apologies; my camera was off a lot of the time so that my machine did not run down, but I heard all the debate—I am grateful to all noble Lords who have taken part and, in conclusion, emphasise to my noble friend once again that the Government might get away with not sorting out leasehold and ground rents in this Bill, but they will not get away with it next year when the big Bill comes. I beg leave to withdraw my amendment.
Lord Young of Cookham
Member’s explanatory statement
This amendment is to probe the application of the Bill where premises are part business and part residential.
Lord Young of Cookham (Con)
My Lords, Amendment 3 in my name is designed to shed light on what the Government mean by premises that significantly contribute to “business purposes”. We may move into less turbulent territory in this group.
I begin by asking the Minister a fairly basic question: if ground rents are, as I believe, a feudal anachronism or, in the words of my noble friend Lord Blencathra, “legal racketeering”—a payment for which one gets nothing in return—why are they being banned only for future dwellings and not for all premises? Surely a combination of a lease and a conventional rent would suffice for the commercial sector and we could simply strip Clause 2 out of the Bill entirely. This may go beyond my noble friend’s negotiating brief but, if we are to have this distinction, we need some clarity.
By way of background, when I put the Leasehold Reform, Housing and Urban Development Act on the statute book, one of the most contentious issues was the exemption from enfranchisement of mixed-use buildings, with shops on the ground floor and flats above. After a healthy dialogue between the two Houses, when your Lordships’ House still had a healthy representation of the country’s freeholders and the other place was concerned more with leaseholders who actually had votes, we ended up exempting properties where the commercial use was 25% or more of the total space. That Act was about the collective enfranchisement of a building, whereas this Bill is about individual leases within a building, so the same definition may not work. There is, none the less, the same need for clarity and, with the current definition, I can see scope for argument and the possibility for a freeholder to introduce a ground rent by arguing that the leases in his building qualify for Clause 2 exemption.
Suppose, for example, a new block of flats is specifically designed so occupants can work from home. The developer not only builds in all the relevant infrastructure in each flat but has a communal space on the ground floor that can be hired as a conference room to get around Clause 2(3). Could he then claim exemption and include ground rents in all the leases in the flats?
I was grateful to my noble friend for the time he spent with me on Monday, when he explained that the object of exemption was where a ground-floor shop had a flat above it and it was essential, for the efficient operation of the shop, for the shopkeeper to live above it. Perhaps the parliamentary draftsmen had in mind publicans, who often live above licensed premises. My concern remains that the wording is too loose, so it can provide loopholes and give rise to litigation. I wonder whether, between now and Report, my noble friend could consider an alternative and tighter wording. I beg to move.
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
I call the next speaker, the noble and learned Lord, Lord Mackay of Clashfern. Lord Mackay, could you unmute, please? Lord Mackay? Perhaps I can return to him. In the meantime, I shall call the next speaker, the noble Lord, Lord Stunell.
Lord Mackay of Clashfern (Con) [V]
My Lords, I am of the same view as my noble friend Lord Young of Cookham about the difficulty of understanding exactly why business premises of any sort are exempt from this. No doubt there is an explanation. If so, it is necessary to ensure that the precise reason for business premises being exempt should be the basis of their definition. This is my point. I am sorry; I seem to have difficulty in unmuting without help, for some reason that I have not understood so far. Maybe I will gradually learn as the day goes on.
Lord Stunell (LD) [V]
My Lords, I will simply support the carefully presented argument from the noble Lord, Lord Young, with a case study which also shows a way in which the system might be exploited. On a new housing development outside Leicester, homes have been sold on leases with index-linked ground rents. So too have the parking spaces that go with them; the leases of the parking spaces are separate and also index-linked. There have been endless and, so far, fruitless battles to sort out the situation. Indeed, some leaseholders, facing rising charges and challenging their validity, have been presented with agreements signed with what they claim are forged signatures. Needless to say, they employed, of necessity, the developer’s nominated solicitor to advise them when they first purchased. The allegation is that he was a party to the alleged forgery.
Should the Bill—or, rather the next one because, as we have all fully understood, this Bill will not help anybody with an existing lease in Leicester—provide these residents with some relief? The Committee has heard from the Minister that it will, in due course, but how will they stand in relation to separate leases that they hold for their parking spaces? Is it open to a legally hawk-eyed owner of the lease to designate them as commercial? If they come as part of a car park that is also occupied by visitors to local shops, is the car park a commercial one, or does there exist some way of exempting the parking places of residents—not necessarily those living over shops, but those adjacent to commercial premises? Will they be entitled to redeem those leases on the car parking places under the terms of this Bill or its successor, or, in that case, will the evidently unscrupulous developers be able to claim that it is a commercial, not a residential, lease and therefore exempt, and that the accelerating payments can continue?
If the Minister says, “It is a matter of common sense”, then I would say that in Leicester it is not. If it will not be the amendment in the name of the noble Lord, Lord Young of Cookham, it certainly needs to be something more than is in the Bill as it is now, setting out clearly that leases ancillary to the proper use of the home will be included in the legislation and there will be no loopholes left for exclusion. It would be good to hear the Minister say that he agrees and will bring a suitable amendment back on Report.
Lord Lennie (Lab) [V]
The purpose of the amendment is to probe the application of the Bill where premises are part business and part residential. High streets across the four nations of the UK include properties that fit this description, and I hope that the Government have drafted the Bill with these in mind. I look forward to hearing the Minister’s confirmation of how the Government intend the Bill to apply to premises that are part business and part residential.
I have two questions. I would appreciate it if the Minister could confirm whether the Government have an estimate of how many part-business, part-residential properties could be impacted by the Bill. Will he also confirm what engagement the Government have had with the owners of such buildings as part of the drafting of the Bill?
Lord Greenhalgh (Con)
My Lords, I thank all noble Lords for their time on this issue, particularly the noble Lord, Lord Young of Cookham. I am happy to engage with noble Lords further on whether we can make the business exemption as clear as possible.
The Government consulted carefully on the detail that has informed the Bill. During that consultation a small number of areas were identified where there was a justification for the charging of a rent or ground rent for a property. The Bill exempts business leases from the peppercorn rent requirement, and we have always been clear that this Bill is aimed at residential properties. Clause 2(1)(b) addresses the very small number of leases that fall between these; that is, mixed-use leases, where a single lease comprises both business and residential purposes.
For the avoidance of doubt, this does not relate to mixed-use developments, which may comprise a range of property types, including both business and residential, but each on a separate lease. In such cases, provided that no other exceptions apply, the residential premises in such a development would be subject to a peppercorn rent, and a rent may be charged for commercial properties.
In response to the noble Lord, Lord Stunell, the exemption applies only where flat and commercial premises are on the same lease. The Bill is clear that home businesses and other ancillary leases are not included in the definition of “business lease”.
The types of premises that Clause 2(1)(b) is intended to address are likely to be small in number. They could include, as mentioned by the noble Lord, Lord Young, a flat above a shop where the occupant of the flat is a shop worker living above the business where they are required to have the shop open at certain times. The noble Lord mentioned a publican living above a pub.
We have taken care to ensure that this exception does not provide a loophole whereby a ground rent is charged on a premises that is to all intents and purposes a residential one. To prevent such a loophole, there must be a close link between the business purpose and the need for the associated residential use. That is brought about by the requirement in Clause 2(1)(b) that the use as a dwelling
“significantly contributes to the business purposes”.
There is a further protection for both leaseholders and landlords in Clause 2(1)(c). This requires that, at or before the point the lease is granted, both the landlord and leaseholder provide written notices that they intend the premises covered by the lease in question to be used for the business purposes set out in the lease. The purpose of Clause 2(1)(c) is to make sure that there is no doubt for either party that the lease is intended to be used, and continues to be used, for business purposes.
The business lease exception is carefully drafted to enable a rent to be charged where it is justified, and to include sufficient protection against abuse of this exception. I restate to the noble Lord, Lord Stunell, that the Bill defines “dwelling” as including gardens or appurtenances, which should include parking spaces, but I will be happy to clarify that specific point before Report. I therefore ask the noble Lord, Lord Young, to withdraw his amendment.
Lord Young of Cookham (Con)
My Lords, I am grateful to all those who have taken part in this short debate. I welcome what the Minister said in his reply, that he would undertake to reflect on it between now and Report to see whether there is a better definition. I am not sure whether we have dealt adequately with the case raised by the noble Lord, Lord Stunell, where, as I understand it, because a parking space is not a dwelling, it is not covered by the Bill. The Minister said he was going to reflect on whether that represented a loophole in that a developer could let a property separately from a parking space. The noble Lord also raised the issue of where you have a communal parking space that can be used by both the residents living nearby and the visitors to the shops, and whether the developer of the parking area could charge both the residents and the shops a ground rent for the use of the communal parking space.
The only other point I wanted to raise was whether my noble friend the Minister could give me an assurance on the specific example I gave, where a developer included in the block of flats a conference facility on the ground floor, and whether he could then argue that the nature of the business purposes permitted by the lease significantly contributed to the business purposes, and whether he could argue to everybody who bought a flat in that development that because they could access the conference room and whatever other facilities might be on the ground floor, therefore all the flats could be exposed to a ground rent. I do not expect my noble friend to give me a reply off the cuff but I would be quite interested in a response to that specific example if he could give it between now and Report.
On that basis I beg leave to withdraw my amendment.
“Retirement homes where development has begun prior to commencement
(12) A lease is an excepted lease if it is a lease of a retirement home, and—(a) a contract to purchase the land to develop retirement homes was agreed before 1 April 2021, and(b) development of the homes began before the relevant commencement day under section 25(4).(13) A lease is a lease of a retirement home if—(a) it is a term of the lease that the premises demised by the lease may be occupied only by persons who have attained a minimum age, and(b) that minimum age is not less than 55.”
Lord Best (CB) [V]
My Lords, I thank the Homes for Later Living group for its briefing on the issues that I shall raise. I greatly welcome the Bill, and congratulate the Government on taking the bold step of getting rid of ground rents. I know there is more to come in this space, and I look forward to further legislation to assist existing leaseholders in the future.
This amendment is intended to tidy up an anomaly in the Bill relating to the provision of retirement housing. I declare my interest as co-chair of the APPG on Housing and Care for Older People, and chair of the five inquiries flowing from the so-called HAPPI initiative—Housing our Ageing Population Panel for Innovation.
I shall set the amendment in context. Retirement housing is an important but very small part of the housing scene. It seeks to meet the needs of older people who want to “rightsize”, usually from a family house and garden to somewhere easy to manage and inexpensive to heat, with space and light and without stairs and obstacles, where care can be delivered if need be—and, importantly, with the opportunity for company and companionship, in these times when loneliness is a problem for so many.
By moving in later life, older people not only avoid the struggle and cost of maintaining a large property, and prevent the need for an expensive and unpopular move into residential care, but bring a much-needed family home on to the market. The house buying and selling chain that follows means that a young family, too, can access the home they need. The nation gets two for one. Yet in the last year before Covid, of around 200,000 homes built, only about 7,000 were tailor-made for later living—down from 28,000 in the recent past. That output is far short of the numbers needed, with surveys indicating that nearly 4 million people over pension age would be interested in downsizing—or rightsizing—if the opportunity were there.
I have been anxious to see whether the Bill assists or undermines the already very low level of new home building for older people. As it stands, there is a danger that it will have a negative effect on that sector, because ground rents currently play a special and different role in such schemes. The specialist developers of retirement housing have had a tough time competing with the volume housebuilders, which make bigger profits, and so pay more for sites, by concentrating on younger buyers who are less discerning and often desperate to move.
Retirement housing cannot take advantage of Help to Buy subsidies, or the ongoing stamp duty relief for first-time buyers. Importantly, retirement accommodation must include extra space for communal facilities—a clubroom, a garden area and a range of other facilities in assisted living and extra care schemes, such as a restaurant, a treatment room, accommodation for care staff and a guest room. Space for those items can add up to 30% of the total cost of a residential development.
The cost for a scheme of 40 apartments is likely to be between £1 million and £2 million. This is where ground rents come in. They have not been, as they are in other housing schemes, payments of “something for nothing”. When capitalised and sold to investors, they have been the means of funding the extra capital costs of the communal spaces inside and out. As I said at Second Reading, they have been “something for something”, and have represented an alternative to a higher purchase price, which would be entirely justified, but which can put off buyers in this sensitive marketplace and debar those unable to afford the extra cost.
Why, you may ask, cannot service charges cover the capital costs in retirement housing, instead of using ground rents? The existing rules on what goes into a service charge—which can, of course, cover the ongoing revenue costs of communal facilities—mean that it is impossible to use a service charge to pay for these extra capital costs. This is as it should be.
Lord Mackay of Clashfern (Con) [V]
My Lords, I very much admire the detailed knowledge that the noble Lord, Lord Best, has of this and many other areas of importance. I heartily agree with him. Your Lordships will appreciate that I may have a special interest in this area, in view of my years.
As a matter of interest, I wonder how the age of 55 was chosen. I hope he may be able to give me a short explanation of that, because it is of interest to me.
Lord Naseby (Con) [V]
My Lords, I too pay tribute to the noble Lord, Lord Best. I am in my 80s and, from talking among friends, I am aware of at least two couples who are beginning to think about retirement homes. The noble Lord, Lord Best, is quite right. We discussed this issue before I even knew it was coming up in the Bill.
This sector of the market is, first, growing—that in itself is very encouraging—and as a country we have been a bit slow in this area compared with other countries. Secondly, it is growing in the sense that it was clear, back in my days as an MP, that there was a scepticism about retirement homes with all these extra facilities, but now it is taken as the norm and people are particularly fussy. If, as the noble Lord, Lord Best, says, a number are caught by this time dimension, it seems sensible that any business that started by the dates he puts in his amendment should be exempt.
I do not understand why 55 was chosen. The retirement age is still going up, so 55 seems a bit generous, frankly. Another 10 on top of it would not have gone amiss, but that is a minor issue. I hope Her Majesty’s Government take the points made by the noble Lord, Lord Best, very seriously; they need addressing.
Baroness Grender (LD)
My Lords, developing adequate housing stock for an ageing population is a significant challenge for this and future Governments. The work of the noble Lord, Lord Best, and the publications by his APPG for Housing and Care for Older People have been essential reading in this area. While we recognise that what is now in the Bill is a compromise achieved following a total exemption for retirement homes in the original consultation, and in spite of the arguments of the noble Lord, Lord Best—whose expertise in this area is significant—when the Minister responds, I still want to understand where the essential difference lies between retirement and other leaseholders, in his or the Government’s opinion. If the straight answer is money required to be spent on common parts, surely a more honest and transparent way to do that is in either the original price or the service charges. However, I hear what the noble Lord, Lord Best, has said today and will study his explanation.
Given that ground rents appear to serve no purpose, as we have already discussed several times and at Second Reading, other than profit for the freeholder or security to borrow to develop more properties, why is this different when applied to retirement homes? I am sure that noble Lords are familiar with the Times investigation into this in November 2019, but it bears revisiting. It uses the example of one retirement property bought for £197,000, in 2009, from the FTSE 250 development company McCarthy & Stone, which was sold for only £26,000 six years later. By the time the flat owner died, she was paying the management company almost £8,000 a year.
The Times went on to say:
“Housebuilders such as McCarthy & Stone argue that without the money they make selling the freehold to management companies they could not afford to provide communal areas for their properties. Yet this is a poor excuse when there are far more transparent ways to raise revenue, such as simply selling their properties for a higher price.”
They often cover that in the service charge. The article continued:
“They insist, moreover, that the majority of their homes have increased in value.”
However, the Times then went on to find that
“one McCarthy & Stone property had lost £45,000 between 2015, when it was bought,”
and 2019. The same investigation found that, as with other leaseholders, elderly relatives are persuaded to use a solicitor who the developer has recommended, who turns out to be the very opposite of an advocate on behalf of the retiree. As the noble Lord, Lord Best, has explained, this group can often be exploited and manipulated.
For those reasons, we are minded to support the amendments in the names of the noble Lords, Lord Kennedy and Lord Lennie, but look forward to hearing the arguments in the closing stages of this debate.
Lord Lennie (Lab) [V]
My Lords, the welcome provisions of this Bill will not apply to retirement properties until at least April 2023, despite previous suggestions by the Government that these properties would be included. This is echoed by the contribution of the noble Baroness, Lady Grender. It represents a clear U-turn, without any explanation, and for this reason I have tabled Amendment 25 with my noble friend Lord Kennedy, intended to bring retirement properties in line with all other homes.
If the Government had placed the April 2023 date in the hope of creating a transition period, the Minister should explain to the Committee exactly why this is needed, when it has been accepted that no period is necessary for other properties, as part of this. Given that over 50,000 people in the UK live in retirement community units, I hope the Minister can explain what consultation has taken place with groups representing those residents and their families.
I am pleased that the noble Lord, Lord Best, who is deeply knowledgeable, has tabled an amendment to consider the application of this legislation to retirement homes where development has begun prior to commencement. I hope the Minister will offer an explanation of what steps the Government will take to support residents, which this clause relates to.
Lord Greenhalgh (Con)
My Lords, I start by addressing the point about age. It is great to hear from my noble friend Lord Naseby and my noble and learned friend Lord Mackay of Clashfern on why we are considering people aged a mere 55 for this. I do not have to declare an interest as I have not quite made that age threshold yet. However, it is fair to say that that sector broadly starts providing retirement housing for those aged 55 and above. Some people in that age group choose to move to those properties. In fact, one can access lump sums from one’s pension from the age of 55 but I know that people at a greater age look at that and ask, “How can you even contemplate retirement at such a young age?”
As noble Lords know, it is our intention to protect leaseholders from unfair practices through the Bill by ensuring that future regulated leases are restricted to a peppercorn rent, unless exempted. While we would like the provisions of the Bill to come into effect as soon as possible, we have decided to give the retirement sector additional time to prepare for these changes, as was mentioned by the noble Lord, Lord Best.
The noble Lords, Lord Kennedy and Lord Lennie, have tabled Amendment 25 to remove the provision that provides that the Bill will not come into force in regard to retirement homes prior to 1 April 2023. I thank them for their consideration of this matter.
I will explain to your Lordships the reasoning for including a transitional period for retirement properties and why it is the right thing to do. The detail of the peppercorn ground rent was announced in 2019, following the Government’s consultation Implementing Reforms to the Leasehold System. At the time of the announcement, retirement properties were to be exempt from the restrictions on ground rent in the Bill. Having reviewed this in further detail, the Government decided in January 2021 to widen the protections granted under the Bill and to remove the retirement exemption.
All other parts of the development industry have had time since the Government’s announcement in 2019 to adapt and review their business models and will have had sufficient time by the commencement of the Bill to adapt. However, given that the retirement sector has had less time to prepare, we have carefully considered the impact on developers and weighed this against our ambition to protect leaseholders. It is our firm belief that given these circumstances, the retirement sector should be given additional time to make adequate preparations to transition to peppercorn rents, as was carefully argued by the noble Lord, Lord Best.
The noble Lord’s Amendment 4 would have the effect of extending the transition period for retirement properties that are under development, potentially for an additional two years, or even longer where sites are slower to build out and sell. I am grateful to noble Lords for looking closely at this, and to stakeholders in the retirement housing sector who have provided information on this issue. We have carefully considered this matter to ensure that we are striking the right balance, thereby giving the retirement sector time to transition and ensuring that protection for leaseholders comes as quickly as possible.
I am sure that noble Lords will agree that the transitional arrangements that we have set out in the Bill will make it fair for all parties, both developers and leaseholders, and that it is the right thing to do. I therefore ask that the noble Lord withdraws his amendment.
Lord Best (CB) [V]
My Lords, I am grateful for all the contributions to the debate on the amendment. Perhaps I may respond to them all.
The noble and learned Lord, Lord Mackay, and the noble Lord, Lord Naseby, asked whether an age limit of 55 is sensible. It was chosen by the Government and is the age chosen by a number of retirement housing schemes. I agree entirely with the sentiments expressed by the noble Lords on that. Having had some responsibility for developing such schemes, I know that people actually move in in their 70s, not their 50s. The sometimes vain hope is that the scheme will attract a few younger people in order to get a mix of ages throughout. Indeed, sometimes people with disabilities who are in their late 50s are ideal people to move in. But the reality is that despite an age restriction of 55, people will only actually move in in their 70s. However, the flexibility has worked quite well also.
Other noble Lords were more sceptical. I hope that perhaps if they have a good look at Hansard, they might be convinced that there is a “something for nothing” versus a “something for something” debate here and that this particular kind of housing has achieved something for something with ground rents in the past and the transition to a future in which it has to do without that will present some problems.
As the noble Lord, Lord Lennie, and the noble Baroness, Lady Grender, said, it is probably the case that, in the longer term, there will be more transparency in a higher purchase price. It means that people will have to fork out more at the beginning—they cannot spread it over a period of years with a ground rent—but it will be more transparent. If some people cannot afford it, that is a casualty along the way, which I am sorry about, but it will lead to greater transparency in the longer term.
In the meantime, there are developments in the pipeline that are a cause of actual concern and difficulty. I am grateful to the Minister for his comments. He made it clear that this sector was given quite a clear steer back in 2019 that it could carry on as it was with new developments because this ban on ground rents would not affect it and it would be exempted. I agree with the change of mind that followed. It is right that all people are dealt with the same, younger and older alike, and that there will be no ground rents in the future.
I am happy with that, but it does leave the providers of later living housing rather high and dry. Although they have been given until April 2023—a similar period to that for housebuilders building for younger households—it is a fact that they need a bit more time. The buyers in this particular marketplace are right to be discerning, but it does take longer and there will be a problem for the relatively small number of 180-odd developments and about 4,200 homes affected, for which the transition is just not long enough. We will have weird situations where there are two kinds of occupier in the same development, some paying ground rents and some not, and the producer of the scheme having some financial and management difficulties accordingly. It would be quite simple to help them on their way and encourage this sector to develop, rather than discourage it, which I fear is the outcome at the moment. However, I am happy to withdraw the amendment at this stage and thank all noble Lords who participated in the debate.
Lord Mackay of Clashfern
“Leases with an option of redemption
(1) In this Act a lease with an option of redemption means a lease which meets the following conditions—(a) it is a long lease of a dwelling,(b) it is in force on the “relevant transition date”, and(c) it is not an excepted lease.(2) The “relevant transition date” is the day on which this section and the other relevant provisions of this Act come into force in relation to leases of that kind.(3) After the relevant transition date the tenant has an option to pay a capital sum to the landlord, on payment of which the rent payable under the lease shall be a peppercorn rent.(4) The capital sum in subsection (3) shall be calculated in accordance with a formula specified by regulations made by the Secretary of State.(5) The option to pay a capital sum to the landlord set out in subsection (3) may only be exercised within two years of the relevant transition date.”
Lord Mackay of Clashfern (Con) [V]
My Lords, this is an amendment on the principles that my noble friend Lord Young of Cookham explained when speaking to his amendment. The only reason why I thought of doing it this way was to make it part of the legislation now, if that was acceptable, with a degree of flexibility in the Secretary of State’s powers to fix the way payment would be adjusted or assessed. I thought it might help to deal with this situation now rather than later. As I said, this is based to an extent on the way feu duty was dealt with in Scotland when it was made compulsory to stop it altogether as we departed from the feudal system. My suggestion may be attractive in the sense that it avoids dealing with a lot of detail now. On the other hand, it may not be very wise to leave it so doubtful, especially when there are other concerns associated with the payment of ground rent, such as the maintenance of insurance policies and so on. I beg to move.
Baroness Grender (LD)
As in the earlier group, we support the principle of this amendment. I reiterate that the elegant drafting by the noble Lord, Lord Young of Cookham, in the earlier group is the drafting that we would prefer—and very much look forward to seeing on Report.
On Amendment 5, our concern would be about any kind of delay in this process, which would be driven by having to produce subsequent drafting of regulations for how the amounts would be calculated. Therefore, we would prefer the wording used by the noble Lord, Lord Young of Cookham.
I also take this opportunity, given that the Minister, in his summing up of the first group of amendments on trying to extend to existing leaseholders, made an argument about the proportion and percentage of pension funds that are currently invested in freehold property and the disruption that this might cause to pension funds, to ask him to elaborate on what kind of proportion that might affect, and what the balance is between the 4.5 million leaseholders who currently experience quite a significant negative impact in terms of ground rent in particular in the abuse of this system, and the pension fund system.
Lord Lennie (Lab) [V]
My Lords, this amendment returns the debate to the question of existing leaseholders and appears to allow existing leaseholders to pay a fee to exempt them from ground rent. As I said in the earlier group, ground rent arrangements are overwhelmingly balanced to benefit landlords and the system needs urgent reform for all involved.
I am grateful to the noble and learned Lord, Lord Mackay, for explaining that this was based on the Scots departing from the previous feudal system, but I am concerned that his amendment, if applied literally, could lead to landlords charging extortionate termination fees. None the less, I appreciate that he sees the need for reforming the system and I look forward to the Minister’s response.
Lord Greenhalgh (Con)
My Lords, I spoke earlier about the Competition and Markets Authority investigation into potential mis-selling and unfair terms in the leasehold sector. This included the issue of onerous ground rent. Our commitment to existing leaseholders does not end with the CMA investigation. As I have mentioned several times, this Bill is just the first of two-part legislation to reform and improve the leasehold system. As noble Lords will know by now, further legislation later in this Parliament will address a range of issues facing existing leaseholders.
My noble and learned friend Lord Mackay of Clashfern’s Amendment 5 would give an option of redemption on existing leases, allowing leaseholders to pay a capital sum to reduce their ground rent to a peppercorn. The broad aim of such an amendment to allow existing leaseholders to buy out their ground rent has been discussed previously, so I will avoid repeating the detail at length.
As noble Lords will recall, existing legislation already allows for the leaseholders of flats to reduce their ground rent to a peppercorn when they extend their lease, while leaseholders of houses can eliminate ground rent completely by buying the freehold of their property.
In January the Government responded in part to the Law Commission’s reports on leasehold and commonhold reform. This included a commitment to allow leaseholders who already have a long lease to buy out the ground rent, without the need to extend the term of their lease. We will respond to the remaining Law Commission recommendations in due course.
I hope that noble Lords will agree that the work currently being undertaken beyond the Bill means that this amendment is not needed. Noble Lords can rest assured that this Government have a desire to reform the leasehold system at the earliest opportunity and the ground rent Bill represents the first stage in a two-step legislative programme.
I point out—as was raised just now by the noble Baroness, Lady Grender—that there are pension fund investments and we need to take that into account. That is why the Government believe it is right not to take a big bang approach to the abolition of existing ground rents but to make it easier to enfranchise and to offer that in the most leaseholder-friendly way. That is why we have made a number of commitments where people will be able to buy out ground rents without the need to extend their lease, as well as making enfranchisement as easy as possible, along the lines of the recommendations of the Law Commission. That is the balance that we want to strike to ensuring that existing leaseholders will have the mechanism and the ability to remove ground rents. I therefore ask that my noble and learned friend withdraws the amendment.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
I have received one request to speak after the Minister from the noble Baroness, Lady Grender.
Baroness Grender (LD)
I should just like to ask the Minister to perhaps write to all Members involved in this debate to give a bit more detail about what proportion of pension funds are impacted, given that my understanding is that the pension funds are fully aware of the intention to abolish ground rents and extend that to existing leaseholders. I should still like to understand the balance of impact between the 4.5 million leaseholders and the pension funds, if that is to be deployed as a significant argument in this issue. I am very happy for the Minister to write to us later about this.
Lord Greenhalgh (Con)
My Lords, I shall try a second time, because obviously I did not manage it the first time. We have not made a commitment to abolish by fiat existing ground rents. We have committed to make it as easy as possible for leaseholders to enfranchise or to buy themselves out of the ground rent obligation. That of course then becomes a phased approach to the 4.5 million people who are paying ground rents. Of course, we are looking to the Competition and Markets Authority to deal with the issue of onerous ground rents. That is the policy position; the noble Baroness is implying something that we have not committed to.
Lord Mackay of Clashfern (Con) [V]
My Lords, I am grateful to all who have taken part in this short debate. It is quite important to have in mind the possibility of a variable way to buy off the ground rent, and that such a way of fixing that by a Minister in a regulation is flexible and could be of use in that regard. In the meantime, I am happy to withdraw my amendment.
Baroness Grender
“Existing leases: transparency requirement
(1) In this Act an “existing lease” means a lease which meets the following conditions— (a) it is a long lease of a dwelling,(b) it is not an excepted lease, and(c) it was granted before the relevant commencement day of any section of this Act that would make it a regulated lease.(2) Before requiring a payment of rent under an existing lease the landlord must provide the tenant in writing with a justification for the cost of the rent, and an explanation of what the payment will be used for.(3) Section 83 of the Consumer Rights Act 2015 (duty of letting agents to publicise fees etc) is amended in accordance with subsection (4).(4) After subsection (7) insert—“(7A) This section also applies in relation to a payment of ground rent.””Member’s explanatory statement
This amendment would require landlords charging ground rent on leases granted before this Act came into force to explain what the rent is for. It would also require lettings agents to make details of any ground rents available to prospective leaseholders.
Baroness Grender (LD)
My Lords, this is a fairly small amendment but may make a big difference for leaseholders. In a way, it is about replicating what I thought was a very successful late-stage amendment to the Tenant Fees Act. We are trying to introduce a greater level of transparency for leaseholders.
Before being required to pay a rent under an existing lease, the landlord must provide the tenant in writing with the justification for the cost of the rent and an explanation of what the payment will be used for. I fully understand and recognise, given the arguments made at Second Reading and those made so far today, that in reality, a lot of us would say that the ground rent is used for absolutely nothing—except buying a new Porsche for a very wealthy freeholder, for instance. However, I still believe that there should be an explanation and accountability and that we should use the opportunity of the Bill to ensure greater accountability. A lot of people who campaign in the area of leasehold reform want to see a display of comprehensive, accurate data on properties. They want to see how long the lease is, what the ground rent is and what the nature of the ground rent is. We already heard in the debate at Second Reading that some people are charged a ground rent without any notification; suddenly they are asked for a particular sum and they may then get into dangerous grounds of forfeiture if they cannot pay it.
The sentiment I am particularly trying to push for—I will be very happy if the Minister says that the wording is not quite right, but that he understands and recognises the sentiment and will come back with further drafting on Report—is that people who currently have to pay freeholders ground rent should get some sense of accountability regarding the amount, the future amount and what it goes towards.
I also take this opportunity to point out that ground rent demands already have to be accompanied by a statement of leaseholder rights, so there is absolutely no reason why the Government cannot prescribe a standard form of information to be given to leaseholders in this area.
Also, could the Minister in summing up answer a question I asked on Second Reading about the CMA’s action against Countryside and Taylor Wimpey? I asked whether, if the process the CMA is currently undergoing fails and it has to go to court, the Minister would consider putting more emphasis in the Bill on consumer protection law. With that I mind, I beg to move.
Lord Mackay of Clashfern (Con) [V]
My Lords, I support this. It is highly important that a person buying a property which is subject to this kind of rental arrangement should know precisely what its details are, as a necessary condition of the purchase. It seems essential to me to point out the whole nature of the responsibility for ground rent and what can happen, not only next year but in years to come. A person buying a property is entitled to know all the burdens on it at the time of purchase.
Lord Stunell (LD) [V]
My Lords, I am happy to speak in support of this amendment and am delighted to have the support of the noble and learned Lord, Lord Mackay of Clashfern, for the words of my noble friend Lady Grender in advocating for this change. It can hardly be a radical call to ask for accurate data to be available before a transaction is completed; yet, as the example I drew from Leicester in an earlier debate shows, that accuracy is often not present and the transparency is sometimes deliberately disguised. There is absolutely no particular obligation on those taking part in that transaction to make sure that the consumer is aware. It is very much caveat emptor, and one is in the hands of the legal representation one has—if any—in conducting it.
The Bill should state that there must be a clear explanation of the length and terms of the ground rent—the minefield that lies ahead of escalation charges and the development of the terms, some of which are not perhaps deliberately concealed but are well hidden in the small print. Reference has been made even to requiring release letters to cover pets, never mind alterations to the premises. Many issues have been used deliberately or have perhaps inadvertently fallen in such a way as to put leaseholders at a serious disadvantage. Of course, the hand they hold at that point is extremely weak, because if they decide to contest the payment, they have to consider not only the legal costs and the associated trouble and stress but the risk of forfeiture if they fail to pay. Paying and arguing afterwards is not a very successful basis for performance, either.
There are grounds for accuracy, transparency and accountability. We know that the CMA is actively looking at this area. If the Minister can give us some assurances about how he intends to proceed if the CMA does not do the business, I would find it a very helpful way forward.
I press the Minister to say that this is a sensible amendment that protects leaseholders and that any good landlord should be happy to comply with it. Therefore, I hope he will feel able to accept it.
Lord Lennie (Lab) [V]
My Lords, this amendment would ensure that landlords with existing leases explain why they are charging ground rent and that agents publicise the details of any such ground rent. Both of these points are pertinent and I am pleased that the noble Baroness, Lady Grender, tabled the amendment.
The first issue of ensuring that landlords explain why they are charging ground rent is so important precisely because there is often no reason to charge ground rent. Residents get no material benefit from paying these sizeable fees, yet the landlords often increase the charges exponentially. If the Minister is reluctant to accept the amendment, could he estimate how many landlords currently offer explanations for the ground rent they charge?
On the second issue of ensuring that estate agents publicise the details of any ground rent, I understand that Rightmove has recently changed its policy to encourage agents to do exactly this. Can the Minister confirm whether the Government have any plan of their own to follow this and encourage it further?
Lord Greenhalgh (Con)
My Lords, to respond directly to the noble Baroness, Lady Grender, I appreciated the point about the importance of seeing where the CMA’s investigation ends up and the potential need to look at consumer protection should that not succeed. I do not want to pre-empt the investigation at this stage, but it is an important point, because one of the fundamental purposes of the Bill is to increase transparency and clarity for home owners. I listened carefully to the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, and I thank them for putting forward these amendments, which look at the issue of transparency and seek to add to that agenda.
I shall start by addressing Amendment 6, which would put a requirement on landlords to write to their leaseholders setting out why they are charging rent and what it is being used for. As noble Lords know, and I have mentioned previously today, it is our intention that no rent can be charged beyond that of a peppercorn for regulated leases once the Bill comes into effect, admittedly for new leases, unless special rules applicable to shared ownership leases or leases replacing pre-commencement leases apply.
In the Bill, “rent” has been defined in a way that will preclude landlords sneaking prohibited rents into leases under another name. This will ensure that there is clear transparency in the lease as to what is charged as “rent”—which is to say, generally, a peppercorn—and what is charged in return for a “service”. It is also important for your Lordships to note that, where a leaseholder may be dissatisfied with service charges, there are statutory processes they can use to seek redress. I am sure that noble Lords will agree that while this amendment is a welcome attempt to increase transparency, the Bill as drafted delivers the important changes that we want to see in the system.
I turn to Amendment 13, which would require a landlord to inform leaseholders of their rights under housing law in England and Wales and in relation to the Bill before entering formal and/or informal renegotiations or extensions to an existing lease. I note the concerns of the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, that without such an amendment there may be a rush for landlords to incentivise leaseholders to extend their leases before the changes in this Bill come into force. The effect of this, in their view, would be to ensure that ground rent on these leases could continue to be collected, thus trapping more people in a situation of ground rent payments in the system we are trying to stop.
Unfortunately, as drafted, the amendment would not come into effect until after the Bill commences, and it would not have the desired impact that the noble Lords seek. However, I assure noble Lords that we are working closely with a wide range of stakeholders who are committed, as the Government are, to ensuring that leaseholders are aware of their rights and what routes of redress they can take. I also invite the noble Lords to join me in these efforts to ensure that these important messages reach as far as possible. Communication of these important points is key. I therefore ask the noble Lords not to press the amendments.
Baroness Grender (LD)
I thank the Minister and all noble Lords who spoke in the debate. We have not got to Amendment 13 yet, so I hope we can have a bit more discussion about it in the next group. I thank the Minister, in particular for his point about the CMA. I fully understand what he said. I hope that Ministers feel able to state an intent if the CMA court action is unsuccessful, simply to underline the need for particular developers who are currently on the naughty step to change their ways. I should very much like to revisit that, potentially on Report.
I thank the noble and learned Lord, Lord Mackay of Clashfern, for his support and my noble friend Lord Stunell for his example in Leicester, which I think still holds true in this discussion. I hope to take another look, read the Minister’s words and revisit this on Report. I want to ensure as much transparency as possible for leaseholders. I think we all agree that leaseholders are not given full transparency or provided with full information. That is why so many leaseholders are so aggrieved, particularly the 4.5 million current leaseholders, as opposed to future leaseholders. With all that in mind, I beg leave to withdraw the amendment.
Baroness Grender
This group has two purposes. The first would be to remove Clause 6 altogether to ensure that informal extensions come under the regulations proposed in the Bill; the second, less dramatic amendment would increase transparency in both formal and informal renegotiations or extensions of the existing lease. I shall deal with Clause 6 stand part first.
We see informal leasehold extensions as a significant potential loophole and the next obvious area to exploit for the “something for nothing” industry in this area. Therefore, we wish to ensure that informal leasehold extensions are regulated in the same way. I appreciate that there may be extenuating circumstances where there is a need for an informal extension—for example, if someone inherits a home and needs to make a relatively quick sale on a very short lease—but those circumstances should be the exception, not the rule. I fear that this will become standard practice unless the Government find a comprehensive way to restrict its use. If noble Lords who speak after me in this debate have concerns and examples of the advantages that an informal leasehold extension provides, I am more than happy to hear suggestions of better solutions than this, but the key question for this debate is how to prevent informal extensions being used, as they currently are, to exploit leaseholders and how that can be reflected in the Bill.
I will be using, in particular, specific examples provided in a detailed blog on this issue by Louie Burns. Sadly, he died a year ago. He was a trustee of the Leasehold Knowledge Partnership and an expert practitioner in the area of leasehold extensions. I have taken the liberty of sharing the link to his blog with noble Lords participating in the debate on this group of amendments.
Louie Burns called such offers “Trojan horse offers”. He described an offer from a real case he dealt with, made by a large London-based freeholder, on a property valued at £230,000 with a ground rent of £75 a year, doubling every 33 years, and a current lease of 75 years. The cost of extending the lease using statutory legal rights would be a total of £13,250, securing a lease of 165 years with zero ground rent.
Often, the freeholders in this scenario are professional money makers. They make money from licensing fees hidden in the lease, through claiming a finder fee for the building insurance, when people have no choice as to who building insurance is provided by, through service charges and ground rent—and, of course, through money paid to extend the lease.
The freeholder writes to the leaseholder offering to extend the lease back up to 99 years—which means that, 17 years later, the lease will need extending again —for £10,200, plus VAT of £1,000, with ground rent at £250 doubling every 10 years, with a short deadline of 30 days to make a decision offered by the freeholder. In the small print, of course, the leasehold is extended only to 99 years—or the freeholder may offer 125 years, without explaining that the extension is from the date that the lease was originally granted, not the date of the extension offered.
Louie Burns went on to explain how the costs described, over a 24-year period, added up to more than £100,000, which will go to the freeholder. Please remember that this is a specific real case, which he provided as an example. When compared, unfavourably, with the statutory route, costing about £13,000, with zero future ground rent, that is beyond shocking. We need to bring this sharp practice under some form of regulation.
The other option is to accept Amendment 13, which would impose an obligation to explain. If leaseholders had the full picture and knew both their statutory rights and the full costs over 24 years, say, they would have much greater control. The alternative is an informal extension to 99 years—which, as I said, would have to be renewed 17 years later, and then in turn makes the flat impossible to sell, and prohibitively expensive to maintain, with the ground rent alone.
An informal extension of a lease also means that the leaseholder is not protected by the law, and the freeholder can make changes by saying things such as:
“We are not looking to amend your lease in any way, we will only modernise the terms of your lease.”
Louie Burns, in his blog, told people to beware of the term “modernise” as used here, because it means “amend”. An informal leasehold extension is a quick route for a freeholder to add additional payment. It is also a quick route for a solicitor to receive a fee—which may explain why, often, solicitors do not give a warning.
The statutory route is slower. With banks and building societies now showing reluctance to lend for such leasehold arrangements, yet again, the person who suffers the most, and is caught between freeholder and lender, and cannot sell, is the leaseholder, who has received minimal information. Sometimes Ministers like to solve such transparency issues through guidance. But if the aim is to ensure that the freeholder complies with the law, I suggest that the transparency approach should be in the Bill. I beg to move.
Lord Naseby (Con) [V]
My Lords, the noble Baroness has done us a great service. We have all read about these situations. I am not aware of the details of any of them, but there has been enough coverage in the responsible media for me to see that this is a problem. I hope my noble friend on the Front Bench will be able to address it.
I assume that in this group we are also dealing with my noble friend Lord Young’s Amendment 12, although I notice that it is not listed. It says “After Clause 6”. Is that after this debate?
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
It was in the first group.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
Yes, we have.
Lord Naseby (Con) [V]
I apologise. I very much support what the noble Baroness said. I need do no more than ask my noble friend on the Front Bench to take it really seriously.
Lord Mackay of Clashfern (Con) [V]
My Lords, Clause 6 is inconsistent with the spirit of the amendments in the first group, which were heartily supported. In a sense Clause 6 stands against them, and for that reason I suppose it is logical to say that it should not stand part.
I am also very impressed by Amendment 13. There is a need to deal with this situation, in which people find themselves unconsciously in a very difficult position. I hope my noble friend will find it possible to deal with this in a satisfactory way.
Lord Stunell (LD) [V]
My Lords, I thank all those who have spoken. I particularly thank the noble and learned Lord, Lord Mackay of Clashfern, whose legal background and desire to make sure that the consumer gets the right result are very much assisting our argument on this occasion.
My noble friend Lady Grender set out our case very clearly. I want to make it clear that informal leasehold extensions can be as bad an evil, if not a worse, as some of the other abuses that have been talked about. They are the worst for being concealed. If you are offered what appears to be a new lamp for old, and the only difficulty you might face is that somebody may modernise the terms of your lease, it is very likely that what modernising the terms of your lease consists of will escape your eagle eye.
It is like all those “Change my settings?” messages that one gets on websites. One wants to get on with the business. You click and carry on; you certainly do not read paragraph 123 on page 17, where you find that bedded in it there is a hidden charge, which you never find out until the moment it matters most. At the low-entry bar, I hope the Minister will say that he will come back and show us how we can incorporate into the Bill the claim for transparency we make in Amendment 13.
By saying that the clause should not stand part, we are following the logic of what the noble and learned Lord, Lord Mackay of Clashfern, pointed out: it is absolutely contrary to the spirit and direction in which the Minister claims this legislation is intended to go. It is a major loophole, because it means that existing leaseholders who might find a way of using this new legislation to have a new lease find themselves drawn on an escalator—an escalator of continuing and repeated higher charges over the lifetime of that lease. That may well be the nuclear weapon amendment, but I hope it emphasises to the Minister the significance of Clause 6 and the damage it can do, and no doubt will do, in many cases that have already been spelt out.
I very much hope that I shall hear from the Minister a positive reaction to this and that we can move forward on Report with a proposal, coming from his side of the Chamber, that will help to remedy this major deficiency in the legislation we have in front of us today.
Lord Lennie (Lab) [V]
My Lords, the Motion moved by the noble Baroness, Lady Grender, on Clause 6 exposes the extortionate legal racketeering that goes on in this sector. We are right to seek clarification. We cannot allow a situation to develop whereby landlords are pressuring tenants to agree informal extensions as a means to continue their ground rent arrangements. The fact remains that leaseholders need greater legislative protection. While the Bill will, I hope, set the foundations for that, there is much more that needs to be done. I hope that the Minister explains the intention behind Clause 6 and considers whether further provisions are necessary to prevent any exploitation.
Amendment 13 would require landlords to inform tenants of any ground rent extensions. This raises the question of whether lease extensions will be agreed before the changes in the Bill are implemented. Can the Minister estimate the legislative timetable for this Bill and when it might receive Royal Assent? Can he also confirm whether the ministry has received any reports of lease extensions being rushed through before these changes have been brought into force?
Lord Greenhalgh (Con)
My Lords, I have just spoken of this Government’s efforts, including working with our key stakeholders, to strengthen leaseholders’ awareness of their rights and what entering into a lease might mean for them. The noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, have tabled a Motion to oppose Clause 6 standing part of the Bill. I acknowledge the concerns that have been raised, but I point out that we have made a conscious decision that the Bill should not create barriers to non-statutory leasehold agreements. Part of the reason is that more flexible processes outside the statutory route can, in some cases, be more cost-effective and quicker for both the leaseholder and freeholder, so we want to allow this option and choice to remain.
I reassure your Lordships that we do not want leaseholders to be taken advantage of in this situation, so we are working to ensure that better information, advice and support are offered to them, and we will consider where we can strengthen this where appropriate. By making the system more transparent and exposing inappropriate practices, as described by the noble Baroness, Lady Grender, and others, we can protect leaseholders.
It is important that your Lordships note that the Government are considering the Law Commission’s recommendations on enfranchisement. They include recommendations on voluntary informal lease extensions. When the time comes, I will be more than happy to engage with noble Lords on this, as we have done on this Bill.
Our overall approach to increasing awareness and making things fairer and more affordable will help protect more leaseholders, whichever route they choose. I therefore ask the noble Baroness to withdraw the Motion.
Baroness Grender (LD)
I thank the noble Lord and all Ministers for participating in this part of the discussion. I fully recognise the need for some level of flexibility and that there is a case for informal extensions. As I said in my opening remarks, I still think there is a danger of this being a loophole through which the industry, which we know is not very responsible or kind to leaseholders, will travel. It will exploit any and every available gap in the law in order to perpetuate itself. For example, when the Government said they were going to ban leasehold houses, the industry rapidly moved to deploy estate rentcharge schemes attached to freehold houses. This ensured that there were still two profits on the sale of every plot and that investors could still access a certain income stream, albeit by a different name. As a result, the consumer—the leaseholder —continues to suffer.
I very much appreciate the Minister’s intention and hope that we continue discussions about how this significant loophole can be closed. I particularly thank the noble Lords, Lord Naseby and Lord Lennie, and the noble and learned Lord, Lord Mackay of Clashfern, for their support for these amendments. Like my noble friend Lord Stunell, I hope that we move to a pragmatic remedy. There is potential for compromise and, with that in mind and an optimistic sense that there will be some compromise on Report, I beg leave to withdraw the Motion that Clause 6 do not stand part of the Bill.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
That concludes the work of the Committee this afternoon. I remind Members to sanitise their desks and chairs before leaving the Room.