Building Safety (Leaseholder Protections etc.) (England) (Amendment) Regulations 2023
(Limited Text - Ministerial Extracts only)
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Baroness Scott of Bybrook
That the draft Regulations laid before the House on 12 June be approved.
Relevant documents: 45th Report from the Secondary Legislation Scrutiny Committee and 44th Report from the Joint Committee on Statutory Instruments (special attention drawn to the instrument)
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, in moving the draft regulations, I will also set out why the Government oppose the amendment tabled by the noble Earl, Lord Lytton.
The regulations amend the leaseholder protection regulations 2022 to address points raised by the Joint Committee on Statutory Instruments last July, as well as two stayed judicial review applications, and clarify some provisions to ensure the leaseholder protections have the effect originally intended. While many noble Lords will be aware of the background to the leaseholder protections, I will start by providing some context and background to these regulations. Before the Government introduced the leaseholder protections, many leaseholders found themselves liable for unlimited costs for remediating historical safety defects in their buildings—costs that they could not afford for problems that were not their fault. Since the provisions came into force last summer, many leaseholders have either been protected from these costs entirely or had their liability firmly capped.
During the debates on the affirmative regulations last July, the Government committed to bring forward further changes should it become apparent that they were necessary. Contrary to what the noble Earl, Lord Lytton, purports, these regulations do just that: delivering additional detail needed to address a number of operational points that had come to light in the early operation of the leaseholder protections. The regulations also address points raised in two stayed judicial review applications and points raised in the Joint Committee on Statutory Instrument’s report of July 2022, and make further changes to clarify and simplify the provisions in the 2022 regulations.
Since the protections came into force last summer, we have engaged extensively with leaseholders, landlords and others affected, including lenders and conveyancers. The Government do not consider that a formal consultation would add to our understanding of the issues specifically covered by these regulations, and I note that there is no requirement under the Building Safety Act 2022 to consult formally on these regulations. We have also engaged in two rounds of pre-laying scrutiny with the Joint Committee. In its 44th report of the 2022-23 Session, it reported the regulations for one case of defective drafting in relation to a lack of consequence for the failure to notify the landlord associated with the developer of their liability.
The Government are grateful to the Joint Committee for its careful scrutiny of these regulations and have considered this issue carefully. As set out in the department’s memorandum, published by the committee, the Government are satisfied that there are no issues with the regulations that will prevent the process operating successfully. We believe it is imperative that the regulations come into force before the Summer Recess to alleviate the issues facing named managers and landlords. However, we will, of course, monitor closely the progress of future cases, and if it becomes apparent that further changes are necessary we will come back to Parliament with proposals.
Baroness Taylor of Stevenage (Lab)
My Lords, while we do not object to this regulation’s contents in principle, we too regret that it has been necessary for the Government to bring this instrument forward. After all, the regulations consist mostly of technical amendments to regulations previously made under the Building Safety Act after it came into force. Surely the need for such basic definitions could have been anticipated in the drafting of the previous regulations. We appreciate fully that these are not simple matters, but instruments coming forward to correct what are largely obvious deficiencies and admissions in the drafting of previously approved regulations do not exactly inspire confidence in the Government’s approach to leaseholder protection and to the building safety crisis more generally.
At the heart of this issue are the millions of leaseholders who are losing sleep and their hard-earned cash over the remediation costs issue. During the passage of the Building Safety Bill, Members of both Houses warned about the consequences of rapidly overhauling what was already a complex and technical piece of legislation in order to reflect the Government’s belated change of approach. Indeed, my honourable friend Matthew Pennycook MP said at the time that
“this is no way to make good law”.—[Official Report, Commons, 20/4/22; col. 191.]
The noble Lord, Lord Stunell, referred to a previous regret Motion tabled by the noble Baroness, Lady Pinnock, regarding judicial reviews and attempts at redrafting.
All this could have been avoided if the Government had just grasped the nettle and brought forward a comprehensive Bill to abolish the outdated and anachronistic system that leasehold tenure is. I pay tribute to my noble friend Lord Kennedy of Southwark’s work—he has brought this matter before the House so many times—but we still seem to be no further forward. The Secretary of State described leasehold as an outdated feudal system in January this year and promised to bring forward a Bill to scrap it, saying that
“the fundamental thing is that leasehold is just an unfair form of property ownership. In crude terms, if you buy a flat, that should be yours. You shouldn’t be on the hook for charges which managing agents and other people can land you with”.
That should apply to remediation costs, too.
The Law Commission, asked to review leasehold by the Government, produced a report proposing an overhaul of the right-to-manage process and suggested that landlords’ legal costs should not be passed to leaseholders. Yet here we are, seven months later, with no sign of a Bill so far and increasingly complex instruments coming before us to try to sort out the mess that the Government have made in previous regulations. The Secondary Legislation Scrutiny Committee said in its report on 29 June, which has already been highlighted by the Minister:
“We are disappointed that this is a further example of a wider concern we have highlighted in recent reports, whereby we have had to ask basic questions about the rationale of changes made in an instrument and report the answers in our weekly reports, when such information should have been in the EM accompanying the instrument”.
What assurances can the Minister give that, in rectifying the deficiencies and omissions in previously approved regulations, the same errors will not recur in respect of the many other building safety instruments we still need to consider? What is the Minister doing to ensure that the overall quality of statutory instruments that come before this House is improved so that they are not the subject of amending instruments and judicial review?
The noble Earl, Lord Lytton, set out in great detail the technical issues in relation to this regulation. Our concern is that, while we understand that the Government’s intention is to ensure that landlords cannot avoid their responsibility to leaseholders in relation to building safety through complex corporate structures, if the instruments are not properly drafted, they will provide loopholes that enable that avoidance. What reassurance can the Minister give us today that this new instrument is sufficiently tight in its drafting to ensure that landlords will have to meet their obligations? The introduction given to us by the Minister, which referred to potential further redrafts and potentially even further primary legislation, does nothing to reassure us.
We note that Regulation 4 adds Homes England to the list of interested persons who may seek remediation orders and remediation contribution orders. Leaving aside the obvious question of why it was not included from the outset, particularly given that it administers the Building Safety Fund outside London, the Minister in the other place, Rachel Maclean, clarified that it is not the Government’s intention that Homes England takes over these responsibilities from government. However, the regulation does give it new responsibilities, so will Homes England be provided with further funding to fulfil these new responsibilities?
While we understand and share some of the concerns that sit behind the amendment moved by the noble Earl, Lord Lytton, the instrument contains a series of perfectly sensible refinements to previous regulations, the effect of which, we hope, will be to streamline the landlord certificate and leaseholder deed of certificate process. We take no issue with those measures, but we regret that, although the instrument makes the necessary changes, it is a missed opportunity to resolve other glaring deficiencies in the Building Safety Act that the Government should have resolved by now, such as the gap relating to leaseholders extending or varying their lease on or after 14 February 2022, which the noble Earl, Lord Lytton, referred to, which the Government promised in this House on 2 May that they would legislate to resolve as soon as parliamentary time allowed, and the fact that service charges to cover remedial acts were sent out to leaseholders quickly before the Act came into force, because those charges could not be applied retrospectively. That has left leaseholders at the expense of litigation to resolve the matter. We, too, are interested in the cost to the Treasury of claims that exceed the cap referred to by the noble Lord, Lord Stunell. Why are the Government not using this instrument to address the shortcomings I have mentioned?
I thank the noble Earl, Lord Lytton, for moving his amendment to give us the opportunity to have this debate, and I thank noble Lords who have contributed. I look forward to hearing the response from the Minister.
Baroness Scott of Bybrook (Con)
I thank the noble Lords for their contributions today. I will try to answer as many points as I can, but I imagine that on many points, particularly those from the noble Earl, Lord Lytton, I will have to write. I reiterate my invitation to him to meet us to talk about some of his concerns.
The noble Earl asked about the complexity and clarity of existing regulations and what they do to address the concerns of the SLSC and the JCSI. As I said, this is what these regulations are for. They are there to address those concerns. The department will be publishing further guidance on GOV.UK to accompany the regulations. This will be published shortly after the regulations come into force.
The noble Earl also asked why the regulations do not address his concerns in relation to some leaseholders being liable in some circumstances. I am aware that I responded previously to the noble Earl when he brought forward his “polluter pays” amendments recently, which I now understand are being called building safety remediations. He seeks to return us to a subject that your Lordships debated extensively in the spring of last year, in what was then the Building Safety Bill. I say once more to the noble Earl, with the greatest of respect, that this House and the other place considered his arguments very carefully last year and rejected them. I still do not think that the Levelling-up and Regeneration Bill is an appropriate place to try and reopen these issues.
In any event, the noble Earl presents his amendments—I thought it was “polluter pays”, but it is now building safety remediation—as though that is not what the Act and the various government schemes do. His scheme seeks to use the planning system to force compliance, as does the Government’s responsible actors’ scheme. We are told that the proposed scheme would avoid expensive litigation, yet it would replace the expanded jurisdiction of the First-tier Tribunal, which is now dealing with a significant number of cases, with that of the High Court, where costs and delays are far higher. The noble Earl’s scheme would not make a significant difference to leaseholders, other than to set back the progress of remediation by over a year as the industry and leaseholders work to understand yet another new system, just as they get to grips with the Building Safety Act.
The noble Earl also asked whether liability should fall on L for unavoidable errors in certificates. Under the leaseholder protection regulations, as he will know, L is the person with managing and repairing obligations. It is the current landlord who must provide the landlord certificate, not L. Where the current landlord produces a certificate that does not meet the prescribed requirements, liability for the relevant defect falls to them. L, the person responsible for the maintenance and repairs, may pursue them for amounts owed via a remediation contribution order.
The noble Earl also asked about consultations with practitioners and leaseholders, including those who have been prevented from selling. I set out in my opening speech that the department has engaged with numerous practitioners, including landlords, named managers, conveyancers and lenders. I can confirm that this was done through written correspondence to the department and stakeholder round tables. I reiterate that the department is not required to consult on these regulations.
The noble Earl also asked about the ability of leaseholders or professionals, in particular, to check facts in landlord certificates. There is no expectation on any party to verify the information set out in the landlord certificates, and these regulations do not change that. Regulation 11 of SI 2022/711 provides that those leaseholders may apply to the First-tier Tribunal for an order, where they have a reason to believe that the information in a landlord certificate is incorrect. He also asked about the volume of information required to be sourced and collected. I have said before that regulations reduce the evidence requirement or burden on landlords where they accept liability for a relevant defect.
The noble Earl asked about the disparity between ascertainable facts, as at 14 February 2022, and subsequent facts coming to light at a later stage. The tests apply on 14 February 2022 to ensure that landlords cannot circumvent the rules, particularly in relation to their net worth. Subsequent facts are not considered for the purpose of the tests. Where the landlord has since sold their assets then their liability, determined on 14 February 2022, falls to the person who bought the landlord’s asset, but the original landlord may still be pursued by a remediation contribution order. The Building Safety Act 2022 provides for insolvency orders to recover remediation amounts from a company that is in the process of winding up, and associated companies of that insolvent company may be held liable.
The noble Earl then asked about the need for the landlord to gather information from L. We are aware of the issues concerning the landlord being unable to legally enforce the provision of information in relation to relevant defects in the building. It is of course in the leaseholders’ interest for the person responsible for repairs and maintenance, often resident led, to provide that information to reduce a qualifying leaseholders cap. We are looking to bring forward primary legislation to resolve this issue as soon as parliamentary time allows.