Leasehold and Freehold Reform Bill
Friday 24th May 2024
(3 weeks, 3 days ago)
Lords ChamberLeasehold and Freehold Reform Act 2024 View all Leasehold and Freehold Reform Act 2024 Debates Read Hansard Text Amendment Paper: HL Bill 76-I Marshalled list for Report - (24 May 2024)
Lord Gascoigne
“(2) A lease is a retirement housing lease if— (a) it is a term of the lease that the house comprised in the lease may be occupied only by persons who have attained a minimum age,(b) that minimum age is not less than 55, and(c) the house comprised in the lease is part of a retirement development or scheme in which the leases of all the houses in that development or scheme meet the requirements set out in paragraphs (a) and (b).”Member's explanatory statement
This amendment changes the definition of a retirement housing lease so that the minimum age requirement applies to a person occupying the house, rather than to the tenant or assignee.
Lord Gascoigne (Con)
My Lords, before I start, I declare that my wife is an employee of the Crown Estate, as set out in my ministerial register of interests.
Government Amendments 1, 2, 4, 5, 6, 59, 64 and 65 are clarificatory amendments of a minor and technical nature to ensure that the Bill operates as intended. Amendments 3 and 7 give effect to the Government’s announced exemption for accepted sites on Crown land. Amendments 54, 55, 56, 57 and 58 relate to legal costs; they introduce a power to set exemptions to Clause 61 and a power to suspend the application requirement until an event set out in regulation occurs. The amendments provide for flexibility to make sensible exemptions and to recognise the position of certain landlords—those in resident-led buildings, for example.
Amendments 10, 12, 14 and 27 are minor and technical amendments relating to the application of the Bill to leaseholders holding over. Amendments 38, 39 and 41 are also minor and technical to ensure that the new valuation scheme will operate in the way it was intended. Amendments 18, 28, 42 and 43 clarify the methodology for intermediate release. Amendment 26 would clarify that there is an order of priority to Part 4 of Schedule 4. Amendment 11 relates to lease extensions and clarifies that the notional lease is granted by the person granting the extended lease. Amendment 60 and 61 correct drafting errors in Clauses 80 and 91.
These amendments are essential for the effective functioning of the Bill. I hope that noble Lords will support them. I beg to move.
Lord Young of Cookham (Con)
My Lords, I rise briefly to press my noble friend on Amendment 1. The Bill bans new houses being sold on leasehold, which is something I entirely support. Schedule 1 provides a rather narrow range of exemptions and Amendment 1 refers to retirement housing.
I raised in Committee a product called Homes for Life, which looks as if it may be caught by this Bill. Basically, Homes for Life enables someone who is over 60 to sell their home on the open market, then Homes for Life buys the home they want to move to and gives them a lease on that home. That enables the person to downsize and releases a useful sum of money for them. However, that product is not at the moment exempted under Schedule 1. When the Government consulted on implementing reforms to the leasehold system they concluded:
“We will provide an exemption from the ban for these financial products”.—[Official Report, Commons, 22/4/24; col. 1271.]
That included this one. I was in correspondence with the noble Baroness, Lady Scott, about this. Can my noble friend give an assurance that that product, which is useful and non-controversial, will not be banned by the Bill when it becomes an Act?
Lord Moylan (Con)
My Lords, before I go further, I declare that I am a long leaseholder in a property which is my home and that I have no other property interests, apart from as a will trustee of one flat in London in which I have no beneficial interest, simply a nominal interest on behalf of the beneficiary of the will during his lifetime.
I shall respond in particular to Amendments 55 and 58 among the government amendments, because they address a point that I have raised. I am slightly surprised that my noble friend on the Front Bench did not seek to draw my attention to this fact. It is a point that I raised in Committee and on which I have a related amendment later in the list, which we will no doubt come to—but if I address it now, I can be briefer when we come to that group later on.
The matter relates in particular to the question that I raised in Committee about the ability of landlords to recover legal costs from the service charge and, in particular, how this would work for right-to-manage companies. I should have declared that in the block where I live we have a right-to-manage company, and I am a member and a director of that company. How would this ban relate to right-to-manage companies that have no other source of income apart from the service charge? Before these amendments were brought forward, the Bill would have made it virtually impossible for a right-to-manage company to bring legal action against, for example, a defaulter or someone who failed to pay, because they would have no assurance in advance that they would be able to recover their legal costs. The directors would be exposed to having to pay the legal costs out of their own pockets—quite apart from the fact that most lawyers like a little bit of money upfront anyway in order to commence proceedings, so that would need to be funded from the private pockets of the directors of the company. My amendment later also raises this question in relation to other types of non-profit landlord or building managers who have no financial interest in the building other than in their role as manager.
The Government’s response—and here I am making the speech I was expecting my noble friend to make in relation to these two amendments—appears to be that the Secretary of State will make regulations subject to the affirmative procedure to provide for circumstances where the new proposed regime on litigation costs and administration charges will not apply or is suspended.
This appears to be something of a concession in the direction of the point I raised in Committee and have on the amendment paper later. But the drafting and Explanatory Notes provide no guidance on when such regulations will be made or what the intention is behind such exemptions. It is worth saying here that the amendments provide that the circumstances on which the exceptions may be based include not only the litigation costs but the relevant proceedings and the landlord of a specified description. As I say, this could be beneficial for freeholders in the circumstances I described, but it depends very much on the content of the regulations.
I would like to ask my noble friend some questions. We are in the very strange position that I am asking him to give a commitment when, subject to the will of the electorate, he may not be a member of the Government and the Government on behalf of whom he speaks may not be in power. I say nothing to anticipate what the result may be, but of course the electorate may choose a Government of a different party. I will none the less ask him these questions and, in some ways, I would be very grateful if the noble Lord, Lord Kennedy of Southwark, might find it possible to give his own answer to these questions.
The first question is: what types of litigation costs, proceedings or landlords do the Government intend to be excepted from the general rule? I am sorry, normally I am better prepared, but of course very few of us are well prepared for dealing with this Bill because it has been added so late to the agenda. I suspect my noble friend on the Front Bench is in that category as well, from the turn of the head I noticed on his part just now.
Could these exceptions also extend to certain categories of leaseholders, for example investor leaseholders who might benefit from the general rule? Crucially, within what timeframe will such regulations be made? There is of course no commitment to timeframes in the amendments that have been made. The difficulty is that directors of right-to-manage companies and others are being left in a sort of limbo between the passing of this Bill and the coming into effect of the regulations.
One must also bear in mind that directors of right-to-manage companies and similar landlords may be the subject of legal action. Their ability to recover their own legal costs in defending such actions is also a question that needs to be resolved—and clearly resolved. If people such as me are going to continue as directors of right-to-manage companies, they will potentially find themselves exposed to that sort of risk.
So, as far as these two amendments go, I welcome their general direction. I find it deeply unsatisfactory that we are having to rely on the promise of a Secretary of State who may not be in office in six weeks. I would prefer my own approach, later on the Marshalled List, of putting these provisions on the face of the Bill. I seek a very clear response from my noble friend so that the many people in this country who have pursued right-to-manage, which is a policy the Government support and wish to extend—and I wholly support them in that—are not left adrift by ill thought out drafting in this Bill.
Lord Howard of Rising (Con)
My Lords, Amendment 1 states that a lease is a retirement housing lease where residents have a minimum age of 55 years. I declare an interest as a chairman of the Hospital of the Holy and Undivided Trinity at Castle Rising. Is it possible to retrospectively introduce that condition if it does not already exist? In the case of the charity I referred to, the trust deed was originally set out in the 17th century and there was less concern then about things such as there are in this piece of legislation. Perhaps the Minister could tell me whether, or what, action could be taken to make sure that this particular building does not fall foul of the legislation.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I first make a number of declarations: I am a non-executive director of MHS Homes; chair of the Heart of Medway housing association; and a vice-president of the Local Government Association. In addition to that, I am a leaseholder. My noble friend Lady Taylor of Stevenage cannot be here as she is attending a friend’s funeral. That is why noble Lords have to put up with me today on the Opposition Front Bench.
I am sure that, when the noble Lord, Lord Gascoigne, responds to the debate, he will explain this in detail. Obviously, I have only just picked this stuff up this morning; I am sure that buried away in the government amendments are all the promises and pledges that we have had from the Government over the past six or seven years. There are things that we have heard repeatedly from the Member for Surrey Heath in the other place, which have been repeated on Sky News, the BBC, ITV and in most national newspapers. I am sure that now, finally—at the last possible chance—all those pledges are here.
I am sure that the Minister will confirm to me the promise on ground rents. We heard of course that there would be peppercorn ground rents and there was a consultation. Then we heard it leaked that they would be £250 a year with a taper. Again, I am sure the Minister can point out whether that is here. It will be very frustrating if leaseholders and campaigners have been promised action and there is nothing here.
Because of the Renters (Reform) Bill biting the dust, as it were, we have not dealt with the assured shorthold tenancy trap, which will be kept. My noble friend Lady Twycross had a PMB that addressed that very issue. She was repeatedly assured by the Government that there was no need to bring forward her PMB because they would deal with the issue in the Renters (Reform) Bill; so she quite rightly withdrew it. She accepted the assurance from the Government that it would all be sorted out in the Renters (Reform) Bill and withdrew her Bill. She was right near the top of the ballot, so she would have got it through this House and we maybe could have been arguing at the other end about getting it through during the wash-up. But she accepted, in good faith, the Government’s assurance that there was no need as it was in the Renters (Reform) Bill, and now it is lost, so the issue remains.
There is also the whole issue of the Section 24 trap: namely, that leaseholders in high-rise buildings cannot ask the First-tier Tribunal to appoint a manager under Section 24 of the Landlord and Tenant Act 1987. Again, we were expecting amendments to deal with that here. Because the manager cannot be the accountable person under the Building Safety Act, there is a gap in the law which means that people are trapped. You get unscrupulous landlords who have been thrown out as managers of a building, but they can get back in again and take control of the service charge. That was going to be addressed, but it is not here—or maybe it is and I cannot spot it.
We are not going to oppose this Bill at all, and I hope it can pass today. There are some good things in it, but it is far, far short of what was promised. The Government should be quite ashamed of how they have behaved over the last few years in relation to this Bill—making promise after promise and delivering very little. That is no way to do politics. If you stand up in the House, or make a pledge in a newspaper, about the things that you are going to do, you should go and do them. Not to do them is very poor. I know that it is not the fault of the noble Lord, Lord Gascoigne, but I hope he can tell us where all these things have gone. Where is the progress on forfeiture? It is just not there and it is just wrong. This is not the way to operate.
The noble Lord, Lord Moylan, asked me a question. Obviously, I cannot answer that question. At the end of the day, the people will decide who the Government will be on 4 July. Whoever is in power, whether it is a Conservative or Labour Government, I hope that they will look at what happened with this Bill, look at the Law Commission recommendations that are sitting there, done and ready to be introduced, and bring them in.
What is in the King’s Speech is a matter for the Prime Minister of the day. I certainly hope that, whoever is in power, the necessary action is taken and the leaseholder problems are dealt with. They have not been dealt with by this Government—we have had year after year and promise after promise and nothing done. That is very poor. Maybe I am wrong, and the noble Lord will point out what I have missed in the points that I have made.
Lord Gascoigne (Con)
I am grateful for all the contributions in what has been a relatively brief group. I will go through the issues that were raised chronologically.
My noble friend Lord Young raised a specific case, and I have seen the correspondence he referred to. It is the Government’s policy to allow equity release in home finance products in houses, including home purchase plans and lifetime leases. We have a power in this Bill to add, remove or amend definitions for categories of permitted leases. On the specific product, the department is considering an appropriate definition for secondary legislation, and officials have met the main provider in question. I assure my noble friend that the measures in the Bill relating to the ban on leasehold houses will not be implemented immediately, should the Bill secure Royal Assent, as there are other important regulations that need to be provided for first before the ban becomes operational.
My noble friend Lord Moylan is right to say that this will come up later, and we can have the discussion then. In brief, on the right-to-manage companies, we have laid amendments to set regulations to suspend the requirement for certain landlords to apply to the relevant court or tribunal to recover their litigation costs until an event set out in regulation occurs. An example of when it might be appropriate to suspend the application requirement is for resident-led buildings or assetless landlords. As I say, I think we will come back to it later.
Lord Moylan (Con)
Among noble Lords, my noble friend at least must have confidence that the Government will be returned to power and that he will be sitting on that Bench only a matter of weeks from now. On that assumption, could he give us a date for when these regulations will be brought forward, so we can at least know the Government’s position on the timing of this? There is the risk of people being left in limbo. Even if it is a matter of six weeks that is bad enough, but it could be longer, even if the Government are returned to power. On that assumption, is he able to help the House, and directors and members of right-to-manage companies, by indicating a date when the regulations will be brought before us under the affirmative procedure?
Lord Gascoigne (Con)
On the first question, it is with regret that I cannot give that date now. On his second question—whether I have confidence that we will win—that is up to the electorate, but I have every hope that we will. Obviously, I would not like to curse us in saying that—touch wood. Who knows? Let us see.
I was also asked what action could be taken to make sure that this does not fall foul of legislation. The Government will work closely with stakeholders to ensure that the application requirement is suspended only where appropriate. In addition, the power is subject to the affirmative procedure.
This is the first time I have had the honour to speak directly to the noble Lord, Lord Kennedy, from the Dispatch Box. I know he has raised this issue inside the Chamber and outside many times, and he is right to do so. Obviously, there have been many constraints on the legislative timetable and, as we are now in wash-up, those pressures have increased tenfold. This is a good Bill as it stands, and the Government want to see it through. The noble Lord mentioned that we are at the beginning of a general election campaign. Who knows what will come thereafter, but this Bill is very good as it stands, and I hope noble Lords will be able to support it today.
Lord Kennedy of Southwark (Lab Co-op)
Can the Minister confirm that there is nothing in this Bill on forfeiture or ground rents, as had been promised?
Lord Gascoigne (Con)
There are lots of good things in the Bill as it stands that we have only just begun to talk about. I hope the noble Lord will support it. If we have the opportunity to serve again, we will continue to do what we can.
Lord Kennedy of Southwark (Lab Co-op)
I am not looking to oppose the Bill; I support it as it is. I am just trying to be clear on the specific question of ground rents being reduced to peppercorn rents. We have spoken about £250 a year; as far as I can see, that is not here, and neither is the issue around forfeitures. Can the Minister confirm those facts?
Lord Gascoigne
“4 A lease of a house where the house comprised in the lease— (a) is a property or part of a property vested inalienably in the National Trust for Places of Historic Interest or Natural Beauty (“the National Trust”) under section 21 of the National Trust Act 1907, or(b) is inalienable by the National Trust by virtue of section 8 of the National Trust Act 1939.”Member's explanatory statement
This amendment clarifies the scope of the exemption for leases of certain National Trust property to ensure that it captures leases of houses which are a property, or part of a property, vested inalienably in the National Trust under section 21(1) or (2) of the National Trust Act 1907, or which are inalienable by the National Trust by virtue of section 8 of the National Trust Act 1939.
“4A “(1) A lease granted out of a freehold estate by the Crown.(2) In this paragraph “the Crown” means—(a) His Majesty in right of the Crown, in right of His private estates, or in right of the Duchy of Lancaster, or(b) the Duchy of Cornwall.”Member's explanatory statement
This amendment creates a new category of permitted lease for the purpose of Part 1 of the Bill (ban on leasehold houses) where a lease is granted out of a freehold estate by certain parts of the Crown.
Lord Gascoigne
Member's explanatory statement
This amendment ensures that the provision only applies to an application for completion by registration of a disposition which is a grant of a lease and not to an application for other entries on the register.
Member's explanatory statement
This amendment ensures that the restriction under this subsection only applies to a disposition which is completed by registration.
Member's explanatory statement
This amendment ensures that the restriction under this subsection only applies to a disposition which is completed by registration.
Lord Gascoigne
“Part 1: Crown applicationThis Part binds the Crown.”Member's explanatory statement
The amendment inserts a new clause into Part 1 of the Bill (leasehold houses) to make provision that the Part binds the Crown.
Lord Bailey of Paddington
“Mandatory share of freehold on new enfranchisable blocks of flats(1) A person may not grant or enter into an agreement to grant a restricted long lease of a flat in a qualifying building on or after the day on which this section comes into force, unless the freehold estate in the building is held by a Shared Freehold Company.(2) The appropriate national authority may make regulations providing for—(a) the content, form and effect of the articles of association of Shared Freehold Companies, which may include provision which is to have effect for a Shared Freehold Company whether or not it is adopted by the company;(b) a provision of the articles of association of a Shared Freehold Company to have no effect to the extent that it is inconsistent with the regulations;(c) the exemption of Shared Freehold Companies from the strike-off provisions of section 1000 of the Companies Act 2006;(d) the automatic acquisition and termination of membership in a Shared Freehold Company by tenants and initial subscribers; and(e) restrictions on the terms or effect of any agreement, lease or rentcharge to which a qualifying building or its appurtenant property is subject.(3) The articles of association of any Shared Freehold Company must provide that—(a) all tenants under long leases of flats in the relevant qualifying building will be voting members of the Shared Freehold Company; and(b) no other person will be a voting member of a Shared Freehold Company where more than one year has elapsed since its incorporation.(4) Regulations under this section are subject to negative resolution procedure.(5) In this section—“appropriate national authority” is—(a) in relation to England, the Secretary of State;(b) in relation to Wales, the Welsh Ministers;“effective date” means the day three years after the day on which this Act is passed,“exempted building” means any building in which a freehold estate is held by—(a) a Commonhold Association, or(b) a Community Land Trust satisfying the definition in section 2(7A) of the Leasehold Reform (Ground Rent) Act 2022;“flat” has the same meaning as in section 101 of the Leasehold Reform, Housing and Urban Development Act 1993;“long lease” has the same meaning as in sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002;“qualifying building” is a building which meets the following conditions—(a) it would constitute premises to which Chapter 1 of the Leasehold Reform, Housing and Urban Development Act 1993 applied if each flat in the building had a qualifying tenant within the meaning specified in section 5 of that Act; and(b) the first long lease granted over a flat in the building was granted on or after the effective date; and (c) it is not an exempted building;“restricted long lease” is a long lease which does not fall into any of the categories in Schedule 1, where the terms of the lease do not prevent the flat from being occupied under that lease as a separate dwelling;“Shared Freehold Company” means a limited company established for purposes connected with holding the freehold of a specific qualifying building, where membership in the company is referable to holding a leasehold estate in one or more flats in the qualifying building.”Member's explanatory statement
This amendment requires new blocks containing leasehold flats to be mutually owned (commonhold, Community Land Trusts, or shared freehold), but exempting Schedule 1's “permitted leases”, and optionally permits regulating Shared Freehold Companies, analogously to existing powers over RTM companies. This facilitates commonhold adoption, while preserving the option of shared freehold arrangements which have evolved through private initiative.
Lord Bailey of Paddington (Con)
My Lords, this Bill is suboptimal. It is not the revolution that many leaseholders across the country have been desperate for, but it is the only game in town—a game that has taken 22 years to get to this point—and the Government should be commended for some things.
I have tabled this amendment because a share of freehold is more flexible and means that owners of flats can make any company arrangements that they wish, whereas commonhold is more top-down and restrictive. Residents would also have insolvency protection, which is always a good thing. Importantly, all leaseholders must be members of that share of freehold company to maximise alignment of interests and block any residents’ disputes. Forfeiture, as I have said before, is a gangster-like power. It needs to go, and I cannot see why that is not in this Bill.
Baroness Fox of Buckley (Non-Afl)
My Lords, it is very difficult for us at this stage because a huge number of amendments have suddenly emerged. When I heard that the Government were putting forward so many, I was quite pleased, because I had had a very productive meeting with the noble Baroness, Lady Scott; I thought that we had made some strides in Committee and that there would be an attempt by the Government to strengthen the Bill for leaseholders. Then I saw all the amendments. I confess that I do not understand all the technical implications, but I know that, as the noble Lord, Lord Kennedy, pointed out, the things that the Government have talked about in only the last couple of weeks—ground rent, forfeiture and so on—are not there.
I am delighted that this is in wash-up. I will not be able to speak on every group because, at this point, I just want to get the Bill through and do not want to do anything to delay it. I had hoped that the Government would be amenable to some of the constructive amendments, such as this one from the noble Lord, Lord Bailey, to give a bit of extra heft to a Bill which says the right things at the top but has left so many leaseholders frustrated. The Bill has left things dangling in front of them—“suboptimal” is entirely the right description.
When the Minister comes back, perhaps he could indicate whether there are any grounds for hope rather than that we end up spending too long on this discussion and somehow it does not even pass in the suboptimal state that it is in. How should we even view this discussion today? Is anyone listening?
Baroness Fox of Buckley (Non-Afl)
I do not want to just go through the motions. I just want to understand the process so that we do not bother speaking to every group of amendments just for the sake of it. Clarity would be helpful on the Government’s attitude to the positive amendments that have been put in by the likes of the noble Lord, Lord Bailey. I thank my heckler as well. It is always appreciated.
Lord Moylan (Con)
My Lords, I speak in support of the two linked amendments tabled by my noble friend Lord Bailey of Paddington. It is perfectly clear that leasehold is unlikely to be the path of the future. My objections to this Bill, apart from some that are to do with practicality—such as the one I spoke on in the last group, where clarity is still needed from the Government—are about the retrospective meddling with private property rights and existing private contracts.
It is perfectly clear that leasehold has probably had its day and that my noble friend is correct in saying that future buildings—blocks of flats or whatever—should be constituted under some such regime as commonhold, or at least shared freehold with 999-year leases or some other such provision as he has mentioned here in his amendment. I would very much hope that the Government and the Opposition would take this on, and certainly if my noble friend were to divide the House, I would support him in the lobbies on Amendment 8 and the associated consequential amendment.
Baroness Pinnock (LD)
My Lords, we have come to the last stages—the last rites—of this important Bill, which we on these Benches support, despite the fact that there are serious omissions to it. It is fascinating to me that it is Members of the Government’s own side who are raising all the issues at this late stage, and perhaps trying to delay the passage of this Bill.
On the amendments proposed by the noble Lord, Lord Bailey of Paddington, we on these Benches support the move to commonhold. It is one of the principles on which the leasehold reform Bill was to be based. It is most unfortunate that, because of the difficulty in overcoming some of the issues in reaching the ability to move to commonhold, this Bill does not include it. However, I am glad that both the Government Benches and the Labour Benches are saying that they support the Bill and want to make further changes, whoever comes into power on 5 July. We on this side are making lots of notes so that we know that, whoever it is, we will hold them to account, to bring these back so that we have a leasehold reform Bill that everyone across the House can support. It should include commonhold.
Lord Gascoigne (Con)
My Lords, I thank my noble friend Lord Bailey of Paddington for his amendment, and indeed all noble Lords who spoke in this relatively brief group. We appreciate the benefits that a share of freehold arrangements has over ordinary leasehold arrangements with third-party landlords. That is why we are making it simpler and cheaper for leaseholders of flats to collectively enfranchise and therefore achieve a share of freehold arrangements. Making a share of freehold arrangements compulsory would require us to construct a legal framework on the same scale and complexity as commonhold. That would include not only making the regulations that my noble friend is taking the power for, but much else as well. It is not a quick or easy fix.
The commonhold framework has already been designed as the optimal legal vehicle for the collective ownership of flats. By comparison to moving to commonhold, making share of freehold arrangements compulsory would be, I am afraid to say, an inferior but not an easier outcome. As such, the Government want to see the widespread take-up of commonhold and for it to be the future preferred tenure for the owners of flats, rather than a share of freehold.
We are sympathetic to the sentiments expressed mainly by my noble friend Lord Bailey and the noble Baroness, Lady Fox. I, too, would like to have gone much further in many areas—but I am afraid that wash-up means that we are where we are. With that, I hope that my noble friend Lord Bailey is able to withdraw his amendment.
Lord Bailey of Paddington (Con)
My Lords, the House knows two things about me—that I am new and procedure is not my thing and that I am prone to a belligerent outburst. My noble friend Lord Young kindly pointed out to me that forfeiture comes later on in this process so I would like to hear what the noble Lord has to say about that in response and I reverse my earlier comment.
A share of the freehold is the quickest, most elegant way to get to the halfway house before we go to commonhold, which is why I am so passionate about it. It goes to my theme on all of this Bill—where the small man or woman in the street is concerned, it is about control, and this would hand back control very quickly. I beg leave to withdraw my amendment.
Lord Howard of Rising
“Residence condition where a claim is made in reliance on section 28 of this Act(1) Section 13 of the LRHUDA 1993 is amended as follows—(a) in subsection (2)(a)(ii), omit “and”;(b) in subsection (2)(b), at end insert “and—(c) in a claim to which the High Non-Residential Floor Area Condition applies, not less than one half of the qualifying tenants by whom the notice is given must satisfy the Residence Condition.”;(c) after subsection (11), insert—“(11A) In this section—(a) the “High Non-Residential Floor Area Condition” applies if— (i) the specified premises are not excluded from the right to enfranchise by section 4(1), and(ii) the internal floor area percentage assessed in accordance with section 4(1)(b) is more than 25 per cent, and(b) the Residence Condition applies if the qualifying tenant or, where there are joint tenants who comprise the qualifying tenant, one of those joint tenants, occupies their flat as their only or principal home at the relevant date.””Member's explanatory statement
This amendment ensures that, in a case where a building has more than 25% of commercial floor space, the right of collective enfranchisement will not apply unless at least 50% of the participating tenants are occupying home owners.
Lord Howard of Rising (Con)
My Lords, Amendment 9 in my name would ensure that, when a building has more than 25% of commercial floorspace, the right of collective enfranchisement will not apply unless at least 50% of the participating tenants are occupying home owners. At present, for leaseholders of flats to be able to compulsorily acquire the freehold interest in a building, the amount of commercial floor area must not exceed 25%. Increasing the threshold to 50% in conjunction with compulsory lease-backs and below-market compensation will have a number of unintended consequences. This change will lead to the increased fragmentation of high streets and city centres, eroding the ability of property owners—including charities and, importantly, local authorities providing essential public services—to actively manage places.
The loss of contiguous ownership will erode the incentive that property companies have to invest beyond the buildings themselves for the needs of communities, to create attractive neighbourhoods and support broad demographics. It will also discourage investment and lead to less residential in new buildings as landlords take defensive steps to limit the impact. More broadly, it must be recognised that mixed-use buildings pose a greater management challenge than purely residential ones. Freeholders ultimately need to be active and responsive property managers, not only managing issues such as fire and building safety but responding to requests for alterations and improvements and any redevelopment of the commercial elements of the building, its common parts and residential elements. For mixed-use buildings to operate effectively, property owners must balance the continued commercial attractiveness of the offices or retail within the building with the residential occupiers’ quiet enjoyment of their homes and the attractiveness of the wider neighbourhood.
From the perspective of a freeholder looking to actively manage the commercial units within enfranchised mixed-use buildings, the key issue that arises is that the enfranchised leaseholders are held in a corporate structure, such as an offshore entity, company or trust. As many leaseholders have encountered in seeking to hold freeholders to account for building remedial works, it can be incredibly challenging to identify the ultimate decision-maker and secure consent to even modest alterations. As part of the reform, the Bill should mitigate this by introducing an additional requirement that to be a qualifying leaseholder they should be required to satisfy a residential test.
As we know, a high proportion of leasehold properties are owned by investors, including from overseas. Where leaseholders who live in their properties are likely to have regard for their surrounding neighbourhood and what happens in their building—as we have seen from other matters relevant to building management—this is not always true of investors. It is not just a case of ensuring the effective management of individual buildings but of protecting high streets of significant economic importance from being fragmented, particularly in London’s central activity zone, where we know that a high proportion of residential properties are held by investors.
The amendment would seek to pre-empt these challenges by requiring a resident test to ensure that leaseholders seeking to acquire a freehold live in the building as their main residence. It would give some assurance that they will be contactable and responsive, avoiding the negative impacts of zombie freeholders. I beg to move.
Lord Gascoigne (Con)
I thank my noble friend Lord Howard of Rising for Amendment 9 on enfranchisement claims in mixed-use buildings. Establishing residency and occupation is, as I understand, difficult. It can change quickly over time and can easily be manipulated. That could lead to the validity of claims being challenged successfully, years after they have been acquired. A residency test would remove the existing rights of some leaseholders and complicate the system overall, counter to the Bill’s aims, and lead to an uptick in disputes and litigation. Attempting to restrict one leaseholder in another building may well disfranchise the others. Therefore, I am afraid that we oppose the introduction of new residency tests. With the greatest respect, I kindly ask my noble friend to withdraw his amendment.
Lord Howard of Rising (Con)
I am not sure that what the Minister said would not apply even if my amendment did not pass. Does he have a comment on that?
Lord Gascoigne (Con)
With respect to my noble friend, I thought I addressed the points. Introducing this measure would introduce a huge number of complications to the Bill.
Lord Howard of Rising (Con)
Yes, but complications exist now, and therefore it is unnecessary to go as far as the new Bill does. That having being said, I beg leave to withdraw the amendment.
Lord Gascoigne
(aa) the current lease will continue (on those terms) until its term date;”Member's explanatory statement
This amendment would restructure paragraph 3(2) in connection with the new sub-paragraph (2A) that would be inserted by another amendment in my name.
(ba) the notional lease”Member's explanatory statement
This amendment would make clear that it must be assumed that the notional lease is granted out of the interest of the person granting the new lease on the lease extension.
“(2A) But if the tenant is holding over under the Local Government and Housing Act 1989 at the valuation date—(a) in the assumption in sub-paragraph (2)(a), the reference to the terms on which the current lease is granted has effect as a reference to the terms on which the tenant is holding over under that Act;(b) the assumption in sub-paragraph (2)(aa) does not apply.(2B) Paragraph 21 makes provision about whether any right to hold over under the Local Government and Housing Act 1989 is to be taken into consideration in determining the market value of the notional lease (if the tenant is not holding over under that Act at the valuation date).”Member's explanatory statement
This amendment would clarify the operation of paragraph 2 in cases where the tenant has a right to hold over under the Local Government and Housing Act 1989
Lord Howard of Rising
Member's explanatory statement
This amendment defines a homeowner lease, to distinguish between homeowners and investors, and restricts certain benefits of the Bill to leaseholders who reside in the property as their principal home.
Lord Howard of Rising (Con)
My Lords, I will speak to the group of amendments in my name, Amendments 13, 15, 19, 23, 24, 25, 40, 46, 47 and 48. These amendments seek to define a home owner’s lease, which would distinguish between a home owner and investors, and therefore restrict certain benefits of the Bill to leaseholders who reside in the property as their principal residence.
Lord Robathan (Con)
My Lords, this is the first time I have taken part in the debates on this Bill so I should state, for the avoidance of doubt, that I have no leasehold interest whatever. With the leave of the House, I will be slightly far-reaching; there are several amendments here. This is a far-reaching Bill, but it has not been properly scrutinised. Indeed, my noble friend the Minister admitted some confusion in his remarks. The noble Lord, Lord Kennedy, said that this way of doing legislation is “just wrong”, and the noble Baroness, Lady Fox, said that we need some clarity. We need clarity and clear legislation because otherwise—we have all seen this—there will be further confusion.
I can certainly support the end of freeholds in the future; I have no problem with that at all. Yet we have heard that the Bill will not do that; it will not happen yet. Furthermore, this legislation is retrospective for existing freeholds and leaseholds. Retrospective legislation is always deemed unwise. I will not go into too much detail about marriage value or foreign investors because we need to look at this better, but proper scrutiny has not taken place.
The first point is that there is a huge possibility of challenge in the courts—everybody must see that—because we are taking people’s property away. The rulings on confiscation of property and investment will certainly be subject to challenge. We would all challenge it if we had investments that were diminished by the Government. Of course, this could drive some freeholders, who have perhaps invested in just one or two leasehold flats, into bankruptcy. If it did, would the Government be subject to demands for compensation? I have no idea, but nor does anybody else because this has not been properly scrutinised.
What will happen, for instance, if a freeholder in a large building with several flats suddenly finds that he cannot pay the interest rates, goes bust and the flats are left without a freeholder or, indeed, anything to run the freehold? My noble friend Lord Bailey talked about commonhold, which is a very sensible way forward, but it is not properly addressed in this Bill.
Yesterday, I went to very moving memorial—one or two other noble Lords were there but not, I think, anyone here in the Chamber—for Lord Brown of Eaton-under-Heywood. Stressed in that was his adherence to the rule of law and, indeed, to decency and fairness. We in this Chamber should all be looking at decency and fairness in any law we pass. I have to say that this Bill, as has been pointed out by my noble friend Lord Howard, is not decent or fair. It is half-baked and half-thought-out, and there will be huge problems in the future.
I agree that there are problems in leasehold, but this Bill does not necessarily address them. In fact, in my opinion, it will make for chaos. I do not wish to detain the House further, except to say: we must make proper, well-scrutinised legislation. This House, for goodness’ sake, is always claimed to scrutinise legislation properly, yet here we are on a late afternoon when not many people are around, dashing for a wash-up. This is the worst way to pass legislation.
Lord Moylan (Con)
My Lords, I say in support of my noble friend Lord Robathan, having once lived in a flat where the landlord was bankrupt, that you do not want to have a bankrupt landlord. It is not good for leaseholders if the landlord cannot exercise their functions—well or badly. So I ask my noble friend the Minister: what assessment have the Government made of the likely effects of this in inducing insolvency on the part of various landlords? There is too much passion behind this Bill, but the passion seems to be predicated on the idea that landlords are all rich private equity characters who can be mulcted for endless amounts of money, when the truth is that in many cases, freehold interests are owned by families, and sometimes small investors, and the effects of this on them, especially if their investment is leveraged, can be very great.
Turning to the remarks made by my noble friend Lord Howard of Rising, and the amendment, I acknowledge that we are in danger of straying into the next group, which is specifically about marriage value, and I will save my remarks on that until the next group. But on the general principle, the Government have presented the Bill in a way that seems to me to confuse the concepts of leaseholders and tenants. They presented this as something that would be good for home owners but, in practice, as we know, a very large number of leasehold flats are sublet, quite properly and quite lawfully, to people who pay rent for them. The benefit will not go to the home occupier; it will go to the person who holds the lease.
The next fallacy from the Government—who seem to have difficulty, for a Conservative Government, in understanding markets—is that this benefit will somehow trickle down to future leaseholders. That is not true either. What is happening is a transfer of wealth from one group of persons to another. That second group, having been enriched by this movement, will seek to achieve and will achieve higher prices when they sell later on. It is not the case that flats, or even houses, will become generally cheaper as a result of this. The benefit is a one-off transfer to existing leaseholders, many of whom have a profound interest in seeing this happen because they are going to be the direct beneficiary of the expropriation.
The next fallacy that the Government have been peddling is ignoring the fact that so much property, especially in London, is owned by foreign investors. There are reasons for that, which I think deserve exploration, although this is not the time. But property is, as a matter of fact, as I think everyone will acknowledge, owned by foreign investors. We all know about these new blocks of flats that were pre-marketed in Singapore, Hong Kong and all sorts of places, not to mention the Gulf. Those who still hold those leases will be the direct beneficiaries, not the persons to whom they let their flats. But the Government seem to have made no assessment of what the effect of this is going to be. I am to some extent reinforcing the points made by my noble friend Lord Howard of Rising. I ask, seriously, my noble friend on the Front Bench: where is the assessment of this? Is it credible, and will he give an account of it?
I will make a final point: the biggest beneficiaries of this transfer are going to be people who have short leases and expensive properties. I mentioned in Committee that in Kensington there are many people salivating at the prospect of this Bill being passed. This is not about poor people living in remoter parts of the country. This is about the benefit, as a matter of mathematics, that will go to those with shorter leases and larger properties.
What assessment has my noble friend the Minister made of how much business has gone on in the last year and six months of investors cannily buying up short leases, specifically in anticipation of this Bill passing because of the windfall profit they expect to accrue as a result? It is remarkable that the Government seem to think that this measure will benefit ordinary people. It will not.
Lord Hacking (Lab)
My Lords, perhaps I might get up for just a moment to express extreme disquiet about this Bill and the whole wash-up procedure. I have listened with great care to the speeches from the noble Lords, Lord Howard, Lord Moylan, Lord Bailey of Paddington and Lord Robathan, and from the noble Baroness, Lady Fox. This Bill is not being properly considered. I need to say that from these Benches. I also need to say that the wash-up procedure that has been adopted here today—I have been in the House almost all of today and I have listened to the wash-up procedure—is leaving a lot of dirty clothing in the washing machine which has not been properly attended to. It is too late to redress things now, but at least a word of protest should be given.
Lord Hintze (Con)
My Lords, given the fact I have not spoken before on this matter, I again draw attention to my registered interests. I want to add my disquiet at what I am seeing here. This is an attack on property rights. That is an issue for both sides of the House. Why? Because it attacks us—our country—as a good place to invest. There are issues that need to be talked through but, to be very clear, the bankruptcy point that the noble Lord, Lord Moylan, raised is absolutely not trivial. The legal issues around this are quite serious. I ask the Minister: have the Government looked at that in any detail?
The other thing I would like to ask Government is: why the rush? Why now? There are issues that both sides of the House want to address, whether now or in the next Parliament. I seriously think we should wait. What really makes me quite hot under the collar, if you do not mind my saying so, is: why make it retrospective? In my view, this goes against all sorts of natural justice. Unless something terrible is being done, why make it retrospective? Anyway, that is my word that I would like to share with the House.
Baroness Fox of Buckley (Non-Afl)
My Lords, the noble Lords, Lord Hintze and Lord Robathan, both made the point that there had not been enough scrutiny of leasehold in this Bill. They also both said, “I’m sorry I haven’t spoken on this before”. I will just point out that there has been a fair bit of scrutiny on this Bill. There has also been a whole range of debates on leasehold since I have been in the House—for only three and a half years. If they had been in previous discussions on the Bill, they would have heard in boring detail, which we do not have time for now, how many inquiries and investigations from all political parties have gone into every aspect, detail and legal and financial implication of what would happen if we got rid of leasehold—every detail of it. The criticism is that the Government are not going far enough, but the notion that you can wander in and say, “You lot have not thought about this; you’ve not considered it”, is wrong.
The other thing that I want immediately to come back on—undoubtedly the noble Lord, Lord Moylan, will think that I am being too passionate, but anyway—is that everybody is suddenly now concerned about bankruptcy. It is true that nobody wants to drive anyone into bankruptcy, but the notion that this Bill is about driving people into bankruptcy is wrong because it is actually designed as a way of dealing with the fact that many people face bankruptcy because of the service charges that they face.
Lord Robathan (Con)
I am grateful to the noble Baroness for giving way, but she said in her earlier speech that she wanted clarity. It may have been discussed before, but she wanted clarity, I want clarity, and I think we all want clarity in legislation.
Baroness Fox of Buckley (Non-Afl)
The context of my point about clarity was slightly different.
Anyway, the final thing is that the bankruptcy many leaseholders face, because of service charges and some of the things this Bill tries to deal with, is just being ignored.
The final thing is that I object to this notion that it is an attack on property rights and to this idea that people do not understand. People who buy leasehold flats are entering into the property market. They think they are property owners and they are being done over and ripped off by people who sell them the myth that they are buying into a property-owning democracy—something which has been sold by the Conservative Party many times. They have been mis-sold and misled. This cry for commonhold is all about giving them the right to own their property and manage their own affairs and not, suddenly out of nowhere, to have people in control of their homes ripping them off. It is as simple as that. We are trying to give them autonomy. This Bill does not go far enough. However, these arguments are a complete distraction from the limitations of this Bill. They are irrelevant to this Bill. We should be let it go through as quickly as possible.
Lord Moylan (Con)
Before the noble Baroness sits down, I hope she can appreciate that it is perfectly possible to agree with every word she said—that there are abusers, as I said in Committee, that the Bill should address the abuses and that commonhold or something of that character is undoubtedly the way forward and could be legislated for even now—and still be concerned about the retrospective seizure of assets from one party to be transferred to another and to ask how many of those are actually overseas investors, how many are domestic investors and how many are the real people she wants to speak up for who live in their homes. It is perfectly possible to ask those questions.
This Bill is a sledgehammer to attack a nut. It is rare that something as arcane as property law could excite such passion, but we need less passion and more focus on the detail of property law and getting it right if it is to work and not produce worse outcomes for people who live in their own homes, for whom she has so passionately and properly argued.
Baroness Fox of Buckley (Non-Afl)
It is very fashionable to say “I am not a lawyer”, but lots of lawyers who work in property and housing support this Bill but think it does not go far enough. It is not just all bluster and passion. That is misleading.
My final retort to come back is that I am defending people who buy a property to live in. People who buy a property that they then rent out are, as far as I know, not the devil incarnate. I am surprised that people on the Conservative Benches have decided that, if you happen to buy a leasehold property and you want to rent it out, you are doing something malign and malicious. This is not about poor people versus rich people. It is about impoverishing people who buy a house, thinking they are buying a house, only to find out that they have no control or autonomy and that somebody else from a rentier class that has become lazy about innovation in terms of construction, building and housing, is living off easy gains by ripping off leaseholders.
Lord Gascoigne (Con)
I thank my noble friends Lord Howard of Rising and Lord Moylan for their amendments, and all who have spoken in this group. As we have already discussed on the previous group, residency is difficult to establish, can change quickly over time and could be manipulated, as previous residency requirements have been. The fact remains that a residency test would complicate the system overall, contrary to the aims of the Bill, leading to an uptick in disputes and litigation. Therefore, we oppose the introduction of any form of residency test which would treat leaseholders differently under these reforms. I assure my noble friends that I completely understand and hear what their aim is, here and in the previous group, but it would complicate the system and create a two-tier system.
A number of points were raised which I will seek to address. First, I shall cover the points raised by my noble friends Lord Howard and Lord Moylan about analysis, impact studies and foreign investment as a group. My noble friend Lord Howard asked about analysis. While it might be the case that marriage-value savings are concentrated in London and the south-east, this is because of the large number of flats in London, the region where leasehold property prices are highest.
Further to that, my noble friend asked about our analysis. I assure him that it is robust, as is demonstrated by our impact assessment being noted as fit for purpose and green-rated by the Regulatory Policy Committee—RPC.
My noble friend Lord Moylan raised a point about foreign investors. The Bill will fulfil the Government’s aims to make it cheaper and easier for leaseholders to extend their lease or buy their freehold. It will apply to leaseholders whether they live in their property or elsewhere. Attempting to limit the rights of non-resident leaseholders would complicate the system that we aim to simplify and restrict access where we wish to improve it.
My noble friend also talked about a lack of proper scrutiny. This has had proper scrutiny. In 2018, the Law Commission’s legal experts began their report into enfranchisement. In 2019, the Law Commission reported, including options on marriage values, which we accepted. In 2021, the Government confirmed that these recommendations were policy. In 2023, the King’s Speech set out the Bill, which has had scrutiny in both Houses.
That leads me neatly on to my noble friend Lord Robathan and the noble Lord, Lord Hacking, who raised the impact of wash-up. The noble Baroness, Lady Fox—maybe I should say my noble friend on this occasion—got this right, but I appreciate the point about the impact of wash-up. The suggestion is that the Bill has not been scrutinised but, in my brief time as a Government Minister, I have sat through many debates on this and it has been through both Houses of Parliament. We are talking about it today; it is being scrutinised. Many noble Lords and others have had to tolerate sitting in meetings with me, alongside my noble friend the Minister, to talk about it. We have engaged. I appreciate the point being made that this is not the way to do it, but it is because of wash-up. The Chief Whip raised this earlier today and the Leader addressed it yesterday.
Lord Robathan (Con)
Could the Minister just respond to what my noble friend Lord Howard of Rising said? Supposing I am a foreign investor and I buy 100 flats. After the marriage value is put down, I get, say, £100,000 for each flat as a bonus. I think that is an underestimate. Would he defend that?
Lord Gascoigne (Con)
I would certainly be happy to defend this Bill and what it does. I therefore ask my noble friend to withdraw his amendment.
Lord Howard of Rising (Con)
I thank all those who were kind enough to support this amendment. The Minister talked about adequate examination. I have great respect for the Minister and especially for his integrity: when he borrowed my house, I got the key back. It took some months, but it came and it is a very special key, because they stopped making them 50 years ago. I had to have them specially made, so I thought, “Oh, no, I have to go through that expense again, because I could not possibly stick a poor young politician with the cost of a key like that”. Suddenly, like magic, it flopped through the door one day.
But what credence can we give to the legal advice the Minister has had, which he referred to earlier, when the Government’s own advisers have said that the legality of this is a very fine argument? The truth of the matter is, as has already been mentioned today, that one of the main planks of the Human Rights Act is the right of property. The Government are gaily switching around bits of property at a Minister’s whim. I cannot believe that that can have been passed as solid by so many august legal entities unless they themselves had an axe to grind. Of course, there is also, as has been mentioned, the retrospective angle of the legislation.
Lord Gascoigne
(a) the tenant is holding over under the Local Government and Housing Act 1989 at the valuation date, or(b) the term date of the current lease is within the period of five years beginning at the valuation date.”Member’s explanatory statement
This amendment would stop the standard valuation method from being compulsory if the current lease has passed its term date (and so the tenant is holding over by virtue of Schedule 10 to the Local Government and Housing Act 1989).
Lord Howard of Rising
“Hope value and/or marriage value payable
13A The standard valuation method is not compulsory for the property comprised in a current lease in circumstances where Assumption 2 in paragraph 17 does not apply.”Member’s explanatory statement
This amendment would not require the standard valuation method to be used in circumstances where hope value and/or marriage value is payable.
Lord Howard of Rising (Con)
My Lords, Amendments 16 to 18 in my name seek to ensure that the approach taken towards marriage value by this legislation does not undermine long-standing and entirely legitimate property rights, specifically ensuring that a standard valuation is not compulsory where hope value and/or marriage value is payable.
First, I contend that the Government’s suggestion that they are abolishing marriage value is a misnomer. The so-called abolition is rather a transfer of wealth, and the Government’s proposals are simply a retrospective expropriation of assets: an interference with long-established property rights. Handing over the full benefit of marriage value to leaseholders without compensation will have wide-ranging effects, but the most damaging and significant is the threat to property rights if the ownership of property is no longer secure, because it can be taken away without compensation. Where does that leave us? On all occasions, when the Government have been asked about the principle of marriage value in the past, they have consistently acknowledged and accepted that it forms part of a landlord’s legitimate property interest—that is, until now.
Research commissioned by leading consultants shows that this interference with long-established property rights will benefit only a tiny proportion of properties in England, and will disproportionately benefit property investors in London rather than leaseholders who live in their homes—genuine home owners, as I have referred to before. The Government’s impact assessment states that there 4.8 million leasehold properties in England, of which only 385,400 have leases under 80 years. Of these 385,400, the large majority, and therefore the bulk of the value that might be transferred, are located in London and the south-east. Despite the Government’s noble ambition to support aspirational home owners, I understand that in London, 60% of leaseholders benefiting from this policy change would be private investors, of which as many as a quarter are based overseas.
Finally, as we have already covered briefly, there is the problem with human rights legislation. As I said earlier, the Government have consistently acknowledged and accepted that marriage value forms part of a landlord’s legitimate property interest. One of the founding principles of the European Convention on Human Rights is the protection of property. I know I have mentioned this before but it needs mentioning again, because we will end up with years of legislation to nobody’s benefit and at huge cost.
The lack of compensation for freeholders under the process as set out in the Bill challenges the expectation that parties should be fully compensated for losses resulting in expropriation or state control of use. Regardless of the results in the courts, it is clear that it will cost the Government a small fortune and freeze the leasehold property market, and that present leaseholders will be reluctant to sell when there is the chance of a greater value in the future—given the state of the current property market, that is really not an additional unintended consequence.
My amendments here, and those that I will speak to later in this debate, seek to address these problems and introduce sensible solutions. I beg to move.
Lord Jackson of Peterborough (Con)
My Lords, briefly, I support my noble friend Lord Howard of Rising’s amendment. It is important to put on record some of the concerns about the marriage value and grandfathering issues that the Bill has thrown up, and the problem of significant ramifications and externalities, and unintended consequences, that may fall as a result of this Bill becoming an Act later today. It is important to also put on record, as the noble Lord, Lord Hacking, said, that it is an unsatisfactory position that such a complex and potentially difficult and litigious Bill should be debated in the final stages of the last day before Prorogation.
I should say at the outset that I am very grateful to David Elvin KC of Landmark Chambers for the legal work that he has done on this Bill. Freeholders, many of them individuals who rely on income from ground rents and marriage values, should not be penalised. Government figures show that, of the 5.2 million leaseholders in the UK, only 400,000 will benefit. This issue is one of fairness and equity. Four-fifths of those leaseholders are in London and the south-east, and two-thirds are not owner-occupiers. Just 240,000 owner-occupier leaseholders stand to gain.
The Residential Freehold Association describes the reforms as
“a totally unjustified interference in the legitimate property rights of freeholders”.
It claims that the Government may need to pay out £31 billion in compensation for erasing the value of these investments. Mick Platt, director of the RFA, said, very pertinently:
“Given the UK’s proud history of protecting legitimate property rights and respecting contract law, it would ordinarily be unthinkable for investors to have to rely on the courts to protect their interests, but this is inevitable if Mr Gove pushes these proposals through”.
Marriage value currently forms part of the property value and is shared equally between freeholders and leaseholders where leases are under 80 years. The original social justification for enfranchisement allowed the recovery of market value and an equitable share of marriage value. This reform takes that away and, subject to any transitional provisions, removes a whole element of the value from the freeholder without compensation, so that any assessments of, or reliance on, existing market values will be frustrated. As has been said by my noble friend, it will be, in many cases, a retrospective deprivation of value in that it applies to existing interest.
I want to specifically address the point made by my friend the noble Baroness, Lady Fox of Buckley—with whom I very rarely disagree because she is eminently sensible on pretty much everything she opines on in this House—about lawyers casting their eyes on this legislation. In Lindheim v Norway, before the European Court of Human Rights, the state sought to manipulate market value in mandatory lease extensions by fixing the rent at historic, rather than current, value, and the Strasbourg court held that this violated Article 1 of the first protocol of the European Convention on Human Rights. You do not often get me citing the European Convention on Human Rights, but I will make an exception today because this is an important issue.
Although the social measures pursued a legitimate aim in the public interest, none the less the measure did not strike a fair balance, given the burden placed on property owners. The proposed abolition of marriage value in this Bill represents a significant departure from established property practices. The unilateral transfer of value from freeholders to leaseholders without compensation raises legal, ethical and practical concerns.
As I finish, I make the point that the Government should look benevolently on Amendments 20 and 21 on grandfathering, because they provide an interesting way forward. It would adjust the balance in applying assumptions which remove marriage value only to those leases with more than 80 years remaining at the time of commencement of the relevant provisions.
The Minister has done an excellent job defending a very sticky wicket against some quite awkward googlies. I know that we all have had very little time to prepare for this, but this needs to be put on the record because this legislation has the potential to give rise to very serious division, litigation and difficulties, and unintended impacts in the property market, which will mean fewer people have the benefit of owning their own homes or having leases. With that, I conclude my remarks.
Lord Gascoigne (Con)
I thank my noble friends Lord Howard of Rising and Lord Moylan for these amendments. They lay some of the groundwork for the grandfathering amendments to marriage value, which will be discussed later—in group 7, I think—and we will debate the substantial matters then.
One thing I would like to say now, so that I am not accused of ignoring it, is that the Leasehold and Freehold Reform Bill is considered by the Government to be A1P1 ECHR-compliant as introduced to both Houses. Indeed, the valuation scheme itself and constituent parts are A1P1-compliant. We will come back to that in a couple of groups.
It is worth pointing out that Amendment 16 would not only grandfather marriage value but remove such leaseholders left owing marriage value from the standard valuation method altogether. The consequences of this would be that they would not only be left owing marriage value but would not benefit from any valuation reforms, including to the treatment of ground rent rates and so on. Moreover, since there would be no specific provisions for valuing their properties outside of the standard valuation period, leaseholders and freeholders would be left to negotiate all aspects of the valuation. This would result in much greater costs, delays and litigation. I therefore kindly ask my noble friends not to press their amendments.
Lord Howard of Rising (Con)
I thank the Minister. We touched on this before. The Minister said that this is compliant with the European Convention on Human Rights, but the advice given to the Government was that it was a very marginal case.
I also point out to the Minister that, if you had some ground rents coming in and you had them removed by force, you would simply fight as long as you wanted, because you would continue to get them while you were fighting in the court. I envisage that the legal complications would last for several years. There are huge sums of money involved, with £7.1 billion of assets being transferred, and people will try to protect that.
If I was the Minister, I would go back and ask my legal advisers to check what was happening. Having said that, I beg leave to withdraw the amendment.
Lord Gascoigne
(a) in the case of the transfer of a freehold house under the LRA 1967—(i) the merger with the freehold of any lease which the claimant will acquire as part of the statutory transfer;(ii) the surrender of any lease of the currently leased premises that belongs to the qualifying tenant and is superior to the current lease;(b) in the case of the grant of an extended lease of a house under the LRA 1967—(i) the merger with the interest of the person granting the statutory lease of any lease which will be deemed to be surrendered and regranted as part of the statutory grant;(ii) the surrender of any lease that will be surrendered under paragraph 11(1) of Schedule 1 to the LRA 1967 as part of the statutory grant;(c) in the case of the collective enfranchisement of a building under the LRHUDA 1993, the merger with the freehold of any lease which the claimant will acquire as part of the enfranchisement;(d) in the case of the grant of a new lease of a flat under the LRHUDA 1993—(i) the merger with the interest of the person granting the statutory lease of any lease which will be deemed to be surrendered and regranted as part of the statutory grant;(ii) the surrender of any lease that will be surrendered under paragraph 10(3) of Schedule 11 to the LRHUDA 1993 as part of the statutory grant.”Member's explanatory statement
This amendment would restructure paragraph 17(2) and add new material in paragraph (a)(ii), (b)(ii) and (d)(ii) to require it to be assumed that certain leases have been surrendered.
“(3A) But in a case where the freeholder is a charity and the freehold interest was vested in that charity immediately before the passing of this Act, the freeholder is entitled to compensation for loss of marriage or hope value, with the amount of compensation being equal to the amount the freeholder would have received by way of marriage or hope value if assumption 2 had not been made.”Member's explanatory statement
This amendment would give a charity freeholder the right to compensation for the loss of marriage or hope value.
The Lord Bishop of Southwell and Nottingham
My Lords, I will speak to both amendments in my name. I declare my interest as a beneficiary of the funds of the Church Commissioners, being in receipt of a stipend. I am also a leaseholder of a flat in Bristol.
I beg the House’s indulgence briefly to return to the impact that this Bill will have on seven charities. I do not wish to unduly detain the House for longer than strictly necessary, but this legislation as drafted will have a significant financial effect on the operational ability of the charities.
My amendments have the support of my right reverend friend the Bishop of Manchester and the noble Lord, Lord Thurlow, who are unfortunately unable to attend the House today but raised similar issues at Second Reading and in Committee. We submitted our concerns to every consultation and debate before the Bill arrived, and have done so since. We none the less thank the noble Baroness, Lady Scott of Bybrook, who has given very diligent service to the House, particularly for her work on this Bill. We thank the noble Lord, Lord Gascoigne, who has been supporting the noble Baroness, Lady Scott, and is stepping in today in somewhat challenging circumstances.
I wish to put on record that these two amendments serve to register the ongoing concern that I and others have and seek to press for clarity and reassurance. This has been requested in meetings but, despite the best efforts of the ministerial team and the department, it is still not sufficient. My right reverend friend the Bishop of Manchester wrote to the noble Baroness, Lady Scott, last night when the Bill was announced as returning and I hope the noble Lord, Lord Gascoigne, has seen this.
My right referend friend and I unreservedly support the Bill’s primary aim of making leasehold a simpler and fairer tenure for all. However, we are concerned about the unintended consequences, in particular on a small number of charities which, despite being fairly few in number, deliver a large amount of public good. These charities collect receipts from lease extensions which fund their charitable work and which are put in jeopardy by this Bill. Some of the charities implicated stand to lose as much as £3 million per annum in distributable funds. These are not small figures. I fear that, for some of those charities affected—the John Lyon’s Charity will lose £4 million per annum, one-quarter of its total income, most of which goes towards supporting children and youth projects—these losses will be considerable.
The Church Commissioners stand to lose £1 million per annum in distributable funds. This will hit their discretionary spend, including the strategic development fund, which supports some of the more deprived areas of the country. This is particularly close to my heart, as my diocese of Southwell and Nottingham has received four significant disbursements from this fund, benefitting particular areas of higher deprivation where there were important opportunities to develop work among children and young people. These funds equip churches to grow and enhance their contribution to community-building initiatives, especially working in partnership with local schools. The transformation that that brings is of considerable social and public benefit. For example, there has been pioneering and successful regeneration work across seven estates to the north of the city.
It is work like this that the charities I am talking about are particularly well placed to deliver. When we discussed this issue in Committee, there was support from various corners of the House that charities should not be out of pocket as a result of this Bill. Nobody wants to see the worthwhile work of charities threatened, particularly in a time of ever-increasing need.
My right reverend friend the Bishop of Manchester and I had hoped that there would be sufficient time in the remaining stages to agree a solution to deliver a fairer deal for leaseholders without unduly disadvantaging charities. I regret but understand that wash-up has got in the way of that. While I have no desire to hold up proceedings, I hope that the Minister will look seriously at accepting the amendment offered by way of a mutually acceptable solution.
The amendments in my name seek to mitigate the financial impact of this Bill on charity freeholders. Amendment 20 would entitle charity freeholders to compensation, which would mean that they would be no worse off due to the passage of the Bill in terms of marriage and hope value. Amendment 32 would ensure that, in setting deferment rates, the Secretary of State would need to have due regard to the income of charity freeholders, taking into account their incomes and public benefit, just as the rates will take into account the needs and wishes of leaseholders.
These rates are potentially make or break for some of these charities, while all support the aim of making it clearer and simpler to extend a lease. However, in setting these rates, the Secretary of State needs to consider the potential impact on beneficiaries of registered charities. The Bill gives the Secretary of State the power to set, change and periodically review the deferment rates. How do the Government intend to set these rates? Will the Minister commit to consult charities about these rates to ensure that they can continue their good work?
It should be noted that, despite our support on these Benches for the concept of the Bill, in our view it does not deliver the Government’s aim of ending the tenure of leasehold or present a compelling alternative. Commonhold was a wholly positive development but, as noted in this House several times, it has failed to take off and nothing in this Bill will help it to catch on. My right reverend friend the Bishop of Manchester and I are particularly concerned that the Bill will make life difficult for charities and their beneficiaries without really delivering an improved system of tenures. I therefore respectfully request that consideration be given to the adoption of these amendments.
Lord Murray of Blidworth (Con)
My Lords, I apologise for not previously intervening on this Bill. I have no leasehold interests but, given that I will support the right reverend Prelate’s amendment, I should declare that, until very recently, my son sung in the excellent cathedral choir at Southwell Minster.
It is very difficult for the Government to argue against the point raised by the right reverend Prelate. It cannot be right that a Conservative Government should impact on the revenue of charities in this way. The seven charities he listed, in particular the John Lyon’s Charity, are fundamentally reliant on the income derived from these sources. Insufficient scrutiny has been given to the efforts made to protect that income. Similarly, the vital funds paid to the Church Commissioners from their income from these types of sources need to be protected.
All this appears to be symptomatic of the lack of scrutiny consequent on the driving of this measure through wash-up. I share the concern expressed in earlier groups by my noble friends Lord Robathan, Lord Howard, Lord Jackson and Lord Moylan and the noble Lord, Lord Hacking. I also share the concern that legislating in haste will result in our experiencing difficulties in the Strasbourg jurisdiction. While my noble friend the Minister reassured us on the last group that the Minister had seen fit to certify that, in his view, these measures are compliant with Article 1 of the first protocol of the European convention, as my noble friend Lord Jackson identified, there is a wealth of case law in Strasbourg identifying the protection of property rights, particularly in relation to charities.
I find myself strongly in agreement with the right reverend Prelate, which is a very happy and unusual situation. I commend his amendment to the Front Bench. I conclude by praising my noble friend the Minister, who has picked up this unfortunate googly at the last minute. The right reverend Prelate’s amendments are worthy of considerable consideration.
Lord Howard of Rising (Con)
My Lords, I listened with great interest to the right reverend Prelate. Worthy though charities are, it should not just be charities which benefit from this. Although I would like to see them exempted, the same should happen to everybody. Under the law, all should be equal. I find it difficult sometimes to support the Church as a charity if it can bung away £100 million. Then it wanted to bung away £1 billion—it is quite difficult to keep up with the Church’s generous donations. It is hard enough supporting my wife in her endeavours with the village fête to raise £2,000 and I sometimes wonder why we do it when the Church can give away as much as it does.
The Church does fantastic work and I would like to see it getting a larger income but I think this should apply not just to specific charities but to everyone who has made an investment and is expecting something in the long term. Pension funds invest in this form of investment because they have obligations that stretch 20, 30, 40 or 50 years ahead. How do you pay for that in the days of inflation? If you buy a freehold which you expect to fall in, you are covering your future liability. If that can be suddenly taken away, maybe we should include pension funds as a special category. I come back to the thing that it should be the same for everybody. I do not know how the Government intend to work it out for pension funds. If the total sum, as I said before, is £7 billion, that is a big hole in pension funds even if they own only a percentage of that.
I look forward to hearing what the Minister says about charities and, in particular, the Church’s exemption.
Lord Gascoigne (Con)
I thank the right reverend Prelate the Bishop of Southwell and Nottingham for these amendments and for his very kind comments about the Minister, which I will ensure she is aware of.
The Government fully appreciate the essential work done by the charity sector and I completely understand the sector’s concerns about the deferment rate. I also understand the importance of prescribing the rates for both leaseholders and freeholders, and recognise the right reverend Prelate’s concerns. We have committed to prescribing the rates at market value and the Secretary of State will carefully take into consideration and review all the information and views shared ahead of setting the rates. We have welcomed and appreciate the contributions the Church Commissioners and charities have provided and will welcome continued engagement before the rates are set.
As I have said, we recognise the positive contributions many charities make to our society, yet attempting to create carve-outs for specific groups of landlords, including charities, would complicate a system we aim to simplify. With that and with respect, I ask the right reverend Prelate to withdraw his amendment.
The Lord Bishop of Southwell and Nottingham
I thank the Minister for his answer. I will keep this brief. I thank the charities concerned and their staff for the support they have given to these amendments. I am also grateful to noble Lords for their valuable contributions not only to these amendments but to this debate more generally, expressing concerns about this Bill.
Lord Howard of Rising
(3A) Assumption 2 is not to be made where—(a) the claimant held the lease on the day on which this Act was passed, and(b) on that day the lease was of less than 80 years’ duration.Accordingly, marriage or hope value is payable in the case of a lease of less than 80 years’ duration held by the claimant at the date of the passage of this Act.”
Lord Howard of Rising (Con)
My Lords, Amendments 21 and 22 in my name seek to provide a means to ensure an orderly phasing out of marriage value. As we know, the Government’s impact assessment confirms that these proposals will result in a significant transfer of wealth to private landlords—not the people who actually live in leasehold properties, but the ones who own them. This is, in fact, a straightforward case of retrospective transfer of wealth with no compensation, and a significant deviation from current accepted property law.
We heard in Committee and this afternoon the main arguments against the Government’s proposals, wrapped up in the European Convention on Human Rights, Article 1 of Protocol 1, which says that all persons have the right to own property and to make use of their possessions and that no one shall be deprived of their property until public necessity so demands. If so, the state must guarantee fair compensation. This does not seem to be the case in the Bill.
Our own UK Human Rights Act says:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.”
This law stands a very strong chance of being attacked under human rights, because it is not offering fair compensation to the freeholders, and it is retrospective. I therefore very much hope that the Minister will see the dangers. We mentioned them earlier, so there has been plenty of time to think about them and the unfairness of this. I hope he will accept this proposal. This straightforward amendment proposes to tweak the legislation by grandfathering the current situation for those leases that have fewer than 80 years to run.
Governments have consistently acknowledged and accepted that marriage value forms part of landlords’ legitimate property interests. One of the founding principles of the European convention is that protection. What worries me is that, if the Government feel free to simply transfer assets in that way, where does that leave the banking system and the general economy? If there is no security of property assets, how does the banking system propose to work? What will it do with security? What will happen next? Will somebody say, “Somebody’s mortgage is 30 years’ long, which is frightfully unfair; it should be 25 years” and therefore knock five years off it? Does the person who lent the money just take the hit? What will the next reallocation or expropriation of assets be? If you have the economy working as it is today, you simply cannot chip away at a cornerstone without having a long-term effect.
I referred when I spoke at Second Reading to income tax being introduced at 2.5p in the pound and reaching 100%. The same will happen with property if left alone. If this goes through, we will have created a precedent that is extremely unhelpful. I am not saying that it would happen immediately, but the fact is that Governments always take advantages where they can to get their own way. One of the chief objections to this legislation is that erosion of the sanctity of the property asset. It is something that the Government should think most seriously about.
With the grandfathering those existing leases of less than 80 years, with marriage values already imputed under the 1993 legislation into their enfranchisement or lease extension value, they will not suffer from the destruction of the £7.1 billion of financial value, nor provide an unexpected enrichment for investors and overseas companies—and you will retain investor confidence in this country, because if you start to erode value where you feel like it, you will find that people no longer wish to invest in this country. So I ask the noble Lord to consider my amendment very seriously.
Lord Gascoigne (Con)
My Lords, I thank my noble friends Lord Howard of Rising and Lord Moylan for their amendments. These amendments would leave some leaseholders with wasting assets from which there is no escape. We have been unequivocally clear that the Government’s stated objective is to make it cheaper and easier for leaseholders to extend their lease or acquire their freehold. We do not believe that the leaseholder should have to pay marriage value. I know my noble friends have concerns that the removal of the requirement to pay marriage value, as I have heard previously, is expropriation. But the Government believe marriage value is a windfall that leaseholders should not have to continue to pay because of their need to enfranchise. The new valuation scheme without marriage value will provide sufficient compensation to freeholders and it is, as I have said before, the Government’s view that it is A1P1-compliant. I therefore kindly ask noble Lords not to press their amendments.
Lord Howard of Rising (Con)
Well, I would say to the Minister that people who have leases of under 80 years bought them. They purchased them and they got a discount on what they were buying because of the shorter period. Now you are suddenly saying, “Actually, they paid a perfectly fair price at the time, because it was cheaper than a longer lease or a freehold, but actually that is not good enough, so let them have a bit more.” So they are very lucky, but it is very unfair on those, such as the Church and pension funds, which invested for the longer term and have sold leases to people who wanted to buy leases. It was not compulsory; nobody from the Government went along and said, “Hang on, old boy, you’ve got to buy this lease whether you like it or not”. They bought them voluntarily and, as I have already said, most of these leases are in central London, where it was very much a voluntary act. If you had bought a 10-year lease in one of the more fashionable areas, it would have cost you many millions of pounds and you would have bought it knowing you could use it for 10 years. To suddenly find you can increase it to 80 years, making profits of tens of millions of pounds, seems to me absolutely absurd. It is a case of Robin Hood in reverse—robbing the poor, namely the pension fund holders and the charities, in order to give to the rich. I would be very interested to hear the Minister’s comments on that before he sits down.
The Deputy Speaker (Baroness Garden of Frognal) (LD)
The Minister has already spoken. He has sat down.
Lord Gascoigne
“(4A) But, as this paragraph has effect subject to any assumptions that must be made in accordance with other provisions of this Schedule, the effect of those assumptions must form part of the determination of what, if any, specified matters arise.” Member’s explanatory statement
This amendment would make clear that the assumptions made under Schedule 4 govern paragraph 20 (so that, for example, an intermediate lease which is assumed to have been surrendered, or merged with a superior title, would not be a “specified matter”).
(b) the tenant is not holding over under that Act at the valuation date.(1A) That right to hold over, and the likelihood of that right being exercised, is to be taken into consideration in determining the market value only if—(a) the term date of the current lease is within the period of five years beginning at the valuation date, and(b) that right to hold over is likely to be exercised.”Member’s explanatory statement
This would clarify that paragraph 21 only applies before the tenant starts to hold over under the Local Government and Housing Act 1989.
“22A “(1) This paragraph applies when determining—(a) the market value of the relevant freehold on the transfer of a freehold house under the LRA 1967, or(b) the market value of the notional lease on a lease extension,if the qualifying tenant is also the tenant of a relevant superior lease.(2) A “relevant superior lease” is a lease that—(a) is superior to the current lease, and(b) in accordance with paragraph 17(2)(a)(ii), (b)(ii) or (d)(ii) must be assumed to have been surrendered.(3) After the application of the other provisions of this Schedule for the purposes of calculating the market value, including the assumptions in paragraph 17(2)—(a) the amount produced by the application of those other provisions must be reduced to take account of the value of the relevant superior lease, and(b) the amount produced after that reduction is the market value.”Member’s explanatory statement
This amendment would ensure that the qualifying tenant is not required to pay a price that includes the value of an interest which they already own (namely a lease that is superior to the lease they are enfranchising or extending).
Lord Moylan
Member’s explanatory statement
This amendment would remove the cap on ground rent for the purposes of enfranchisement calculations.
Lord Moylan (Con)
My Lords, there has been a number of groups concerning marriage value and I have not spoken in them, because I thought I would save my remarks for now. It is quite clear that what the Government are proposing is simply expropriation—there is no other word for it—and it is one of the two most objectionable features of this Bill. The second is the one I come to now, as the subject of these amendments, which relate to the setting of a cap on ground rents for valuation purposes.
It will perhaps help some noble Lords if I say that, when I have mentioned this amendment, some people have asked me, “Why are you talking about ground rent when the Bill doesn’t introduce the expected cap on ground rents?” It is the cap on ground rents payable that is not introduced. However, in Schedule 4, there are provisions whereby the Government determine what the ground rent should be treated as for the purpose of valuations in the event of a leasehold enfranchisement or a lease extension. These two amendments would simply remove that cap.
What is happening, put very simply, is another form of expropriation. Quite simply, the ground rent that the tenant has signed up for and which the freeholder has a legitimate expectation of should be ignored in the assessment of valuations for the purposes I mentioned a moment ago and should be set at 0.1% of the property’s market value as a cap. As I say, this is simply another unwarranted interference with property rights, with almost no understanding or explanation on the part of the Government of what the practical effects will be on the interests of legitimate freeholders, which include pension funds, charities and other parties.
With that, I shall sit down since I do not expect my noble friend to give way on the matter, but I think it is very important that the point is made: this is another of the two most odious provisions in the Bill.
Lord Gascoigne (Con)
My Lords, I thank my noble friend—if I can still call him that—Lord Moylan for these amendments. As I made clear in Committee, the Government have made their intention to make enfranchisement cheaper and easier for leaseholders explicitly clear.
There has been much discussion of ground rents and the incidences where they cause difficulties for leaseholders. The provision in the Bill to cap ground rent in enfranchisement calculation at 0.1% of the freehold vacant possession value is an important measure to ensure that leaseholders with relatively high ground rents do not find the cost of enfranchisement prohibitively expensive. These amendments would be counter to that objective so, with respect, I ask my noble friend Lord Moylan to withdraw his amendment.
Lord Moylan
Lord Moylan (Con)
My Lords, again, I will be brief. The question of deferment rates was raised by the right reverend Prelate the Bishop of Southwell; he raised them specifically in connection with charities but he did not explain exactly what was going on here. My amendments are broader than his as they cover the entire spectrum of deferment rates.
What is going on here is that these rates, deferment rates and capitalisation rates—I have amendments addressing both—are absolutely crucial to the valuation of property for the purpose of freehold enfranchisement and leasehold extensions. Indeed, I am indebted to the noble Baroness, Lady Pinnock, for her speech in Committee when she read out in tabular form, so to speak, how very small adjustments in deferment rates—perhaps only a quarter of a percentage point—could have very large effects on capital values. She illustrated, without my having to do so, exactly how important this measure is.
Heretofore, deferment rates and capitalisation rates have been set in principle by a tribunal on the basis of argument and evidence. It is true that that does not happen very often. I grant this point to the Government: while large landowners have the resources to bring those actions before a tribunal, it is more difficult for leaseholders to do so because of the large amount of professional evidence required in order for them to make their case.
I fully accept, therefore, that this could be looked at, but can it be the right approach for this rate to be set by the Secretary of State? Why would we transfer this highly political question to the Secretary of State? Pushing up the deferment rate will have the effect of destroying freehold values. I know that my noble friend said that it will be set in line with the market, but that leaves a very wide margin of discretion, none the less. My amendments refer to both the deferment rates and the capitalisation rates. I cannot see why we would want to pass this sensitive decision into the political forum, in essence.
My noble friend said that the Secretary of State will consult—he offered that assurance to the right reverend Prelate in relation to charities—but that is no substitute for having these rates set in a judicial forum on an adversarial basis, as is our tradition, and on the basis of argument and evidence. This vision should go. I beg to move.
The Lord Bishop of Southwell and Nottingham
My Lords, I support Amendment 37 in the name of the noble Lord, Lord Moylan. As he has made clear, it would give some guidance to the Secretary of State in setting capitalisation rates. The amendments would go a long way to ensuring that the rate is set fairly and considers the wishes of all stakeholders.
I have already spoken at some length about the impact of the Bill on charity freeholders, and capitalisation rates are one of the areas that could significantly impact charity incomes. The Secretary of State will now have the power to set this rate. That might make the process simpler for leaseholders, an aim which I applaud and support, but it must be noted that the rate will also have an impact on the amount of money that some charities will then have to disburse to some of the most deprived areas of the UK. It is only right that there should be clear guidelines to guide the setting of the rate, and one of the factors that should be taken into account is the incomes of charities.
Lord Gascoigne (Con)
My Lords, I thank my noble friends Lord Moylan and Lord Howard of Rising for their amendments, and the right reverend Prelate for his comments.
At the moment, it is difficult for a leaseholder to understand how much they must pay to the landlord when they enfranchise. Different rates are used across the country and across the industry on a case-by-case basis. It can therefore be costly and time-consuming for both parties to agree, especially where there may be a dispute, which can lead to inefficiencies in the system.
We are reforming the enfranchisement valuation landscape and rebalancing the inequity of arms between leaseholders and freeholders. For the first time, we can put an end to uncertainty, inefficiency and the wasted costs and time that leaseholders and freeholders endure through the current enfranchisement valuation process. We will do this through these reforms, by allowing the Secretary of State to prescribe the capitalisation and deferment rates for enfranchisement valuation calculations.
I know that there has been concern that the Bill includes a requirement to review the rate at least every 10 years, as has been mentioned. However, this is simply a backstop. It does not preclude the Secretary of State reviewing them more frequently, as suggested by these amendments. Nor will the power preclude the Secretary of State from setting different rates for different situations, which is also suggested by these amendments. I am fully aware of the importance of prescribing the rates for both leaseholders and freeholders, and recognise the concerns, including those of the right reverend Prelate. The rates will be prescribed at market value, as we have committed to and as suggested by the amendments. I ask my noble friend to withdraw his amendment.
Lord Moylan (Con)
My Lords, I omitted to say what I should have said: of course, my noble friend, who has been a friend for a very long time indeed, may continue to regard me as his noble friend and I will regard him as my noble friend, whatever strange and paradoxical circumstances we may find ourselves in in the course of debate in this Chamber. With that remark, and with a great sense of dissatisfaction at his response, I beg leave to withdraw my amendment.
Lord Gascoigne
Member’s explanatory statement
This amendment would be consequential on the amendment in my name that would insert a new sub-paragraph (2) into paragraph 1.
“(2) But in the case of a deemed single lease— (a) there is not to be a single term date for the deemed single lease (as would otherwise be the case in accordance with section 3(6) of the LRA 1967 or section 7(6) of the LRHUDA 1993);(b) instead, each constituent lease has its own term date (and sub-paragraph (1) applies for the purpose of giving the meaning of “term date” here).”Member’s explanatory statement
This amendment would provide that, where there is a deemed single lease, each of the constituent leases has its own separate term date (instead of there being a single term date for that deemed single lease).
Lord Gascoigne
Member’s explanatory statement
This amendment would be consequential on the amendment in my name that would insert a new sub-paragraph (2) into paragraph 1.
Lord Gascoigne
“(3A) But any lease that must be surrendered under paragraph 11(1) is to be treated for the purposes of this paragraph as if it had been surrendered immediately before the relevant time.”Member’s explanatory statement
This amendment would ensure that a lease which must be surrendered is assumed to have been surrendered.
“(3A) But any lease that must be surrendered under paragraph 10(3) is to be treated for the purposes of this paragraph as if it had been surrendered immediately before the relevant date.”Member’s explanatory statement
This amendment would ensure that a lease which must be surrendered is assumed to have been surrendered.
Lord Young of Cookham
“Abolition of forfeiture of a long lease(1) This section applies to any right of forfeiture or re-entry in relation to a dwelling held on a long lease which arises either—(a) under the terms of that lease, or(b) under or in consequence of section 146(1) of the Law of Property Act 1925.(2) The rights referred to in subsection (1) are abolished.(3) In this section— “dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;“lease” means a lease at law or in equity and includes a sub-lease, but does not include a mortgage term;“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002.”Member’s explanatory statement
This new Clause would abolish the right of forfeiture in relation to residential long leases in instances where the leaseholder is in breach of covenant.
Lord Young of Cookham (Con)
My Lords, this will give my noble friends Lord Moylan and Lord Howard an opportunity to catch their breath. At the beginning of our proceedings, the noble Lord, Lord Kennedy, picked up the Marshalled List, waved it in a state of mild indignation and demanded to know where was the amendment on forfeiture. My noble friend the Minister said it was not there, but here it is, in my name rather than the Government’s.
The position on forfeiture is very simple. At the moment, a tenant can lose possession of a flat worth £500,000 for a debt of £351, with the landlord keeping the entire difference between the value of the property and the debt. At Second Reading, this was condemned by nearly every speaker who spoke on it. When the Minister wound up, she said:
“We recognise that this is a real and significant problem and that there is huge inequity at stake here”.—[Official Report, 27/3/24; col. 704.]
The issue was raised again in Committee, and again my noble friend the Minister replied:
“We recognise that there is the potential for significant inequity”—
it had been a “huge” inequity; now it is a “significant” one—
“where a landlord stands to gain a windfall when a lease is forfeited. However, I reassure the noble Baroness, Lady Taylor, and the Committee that the Government have been listening to calls for us to act. The Government continue to work through the detail and we will report to the House shortly with more information”.—[Official Report, 24/4/24; col. 1552.]
Now is the opportunity to report to the House with more information.
Of course, I hope we might have an element of surprise in our proceedings and the Minister will get up and say that this amendment can be accepted, but I fear that the script in his folder begins “resist”. I put a direct question to my noble friend: exactly what progress has his department been able to make on this subject? It was raised at Second Reading in the other place many months ago, where the Minister recognised that this was an inequity, so they have had four or five months in which to address the problem. I want to know whether sufficient progress has been made for the Government, of whatever complexion, to provide me at the beginning of the next Parliament with a Private Member’s Bill that will simply put right this inequity of forfeiture. Actually, I had a Private Member’s Bill on this subject some time ago, so there is a template on which to build. If my noble friend cannot accept the amendment, can he give an undertaking that the necessary measures have been drafted and that they will be available to any Member who is successful in the ballot at the beginning of the next Parliament so that we can introduce this measure by a Private Member’s Bill if we cannot do it today? I beg to move.
Baroness Pinnock (LD)
My Lords, the noble Lord, Lord Kennedy, also drew attention to the lack of a clause in the Bill to reduce ground rents to a peppercorn, as promised several times by the Secretary of State in the other place. There is one, as there is one on forfeiture, that I have tabled, because I feel it is an important issue to include in the Bill. I tabled Amendment 45, which would enable a transition, over five years, of ground rent to a peppercorn. There is no justification for ground rents. It is a cost to leaseholders for no service provided as a consequence. I hope, because it is clearly government policy and it is clearly supported by those on the Opposition Benches and certainly by ours, that the Minister can stand up and have at least one amendment today that he does not have the word “resist” against.
Lord Bailey of Paddington (Con)
My Lords, I will speak to Amendments 51 and 52. I will not rehearse the arguments that I made in Committee, but I still have a major concern around the removal of any criminal sanction against bad landlords for service charge abuse. I want to be quite clear that this is not a crusade against landlords; landlords are often small family businesses, which are very good and want to help their tenants. However, a significant number of landlords have their leaseholders by the short and curlies, to coin a term that was sent to me by a suffering leaseholder. He was trying to get across just how powerless leaseholders are in this situation.
At a time when we have the likes of Alan Bates and sub-postmasters actively considering bringing private criminal charges against the Post Office, why would we remove that tactic from another set of people in our society who are roundly abused all the time? It is very simple: all this, for me, is about control. We need to give people who have paid this money control over their own future and their own money.
On Amendment 52, if a landlord does not pay back their overcharging within two months, they should face interest charges. This is to incentivise a landlord who has lost in an open, professional tribunal, who then drags their feet and forces leaseholders to launch other legal proceedings to reclaim money that they are rightfully owed. Again, this comes down to letting the little man or woman in the street have some control over their future. Perhaps my noble friend the Minister will comment on why the Government would not support these two reasonable, necessary measures, and send a signal to the country that the law is on the side of the small person who has ploughed all their savings into their home and who has no recourse.
Lord Truscott (Non-Afl)
I will speak in support of my Amendment 66. In doing so, I remind the House of my interest as a long-standing leaseholder. At the outset, I thank the Minister, the noble Baroness, Lady Scott of Bybrook, who is not in her place, for her diligence and engagement on the Bill. I also thank noble Lords who have worked so hard to improve the Bill as it has progressed through your Lordships’ House.
I welcome the Bill, even in its current form, as it at last heralds the beginning of the end of the outdated feudal leasehold system. Despite a determined rearguard action, we leaseholders have seen exploitation for hundreds of years. Enough is enough. In that sense, I agree with the noble Baroness, Lady Fox.
I must admit that, like many noble Lords and Members of the other place, I was rather taken aback by this cut-and-run election, which leaves so many pieces of legislation up in the air. My wife’s reaction was that Mrs Sunak has simply had enough and wants to have a good, long, normal family holiday. There seems to be no other, political logic for it.
Like many noble Lords, I would have liked to have seen further improvements to the Bill, especially clarity—ensuring that leases were truly faster, cheaper and easier to extend. The situation in which it is left to the discretion of the Secretary of State to set the deferment rate, replacing marriage value, remains unsatisfactory. In that sense, I agree with the noble Lord, Lord Moylan.
Incidentally, I see no type of exploitation taking place in this Bill. Pension representatives have already said that the proposals in the Bill will not significantly impact them or their members.
Similarly, I would have liked to have seen ground rents reduced to a peppercorn which, as was mentioned by the noble Lord, Lord Kennedy of Southwark, we were initially promised. For that reason, I support Amendment 45 in the name of the noble Baroness, Lady Pinnock.
On my own amendment on forfeiture, I believe it is unacceptable that people should lose their homes for sometimes minor rent or service charge arrears. The figure of £300 was mentioned and there are recorded cases of it being a pittance. However, rents and service charges are necessary for building maintenance, fire safety, cleaning and other services, so they should be paid.
Lord Moylan (Con)
I am grateful to my noble friend Lord Young of Cookham for giving me a breather. I entirely agree with his amendment in relation to forfeiture, which is clearly a completely over-the-top response. Landlords and managers should be entitled to recover their costs, but not at the expense of the tenant having their home seized or taken from them. Other ways must be found of doing that. If they made an effort, the Government would be able to find such ways. It might be through attachment of earnings or whatever, but forfeiture is clearly completely over the top and should go. I do not see why the Government cannot simply agree with what my noble friend Lord Young has said.
Lord Truscott (Non-Afl)
I think the noble Lord misunderstood to a certain extent what I was saying. Forfeiture actually happens; that is the point. It is merely the threat of forfeiture that ensures that people abide by their leases, and at the moment, as he mentioned, there is no system in place to ensure that people abide by those leases unless you go to the High Court, which is a very lengthy and expensive process. Without some such system, you will increasingly have anti-social behaviour and bodies such as Airbnb installed in residential blocks, and at the moment, there is very little recourse.
Lord Bailey of Paddington (Con)
Forfeiture is regularly used as a threatening tool so, although it does not land in court all the time so people have their property seized, it is often spoken about to pull people into line or to force people to pay bills that are, at best, iniquitous. It is used very regularly. I accept the noble Lord’s point that there needs to be another system, but forfeiture needs to go, even if that system does not exist, because its effect on leaseholders is broad, deep and very unpleasant.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, these are very welcome amendments that try to address two of the problems I referred to in my remarks on group 1. I still hope that the noble Lord, Lord Gascoigne, will jump up in a moment and say that the Government accept Amendments 44 and 45—that it was an error that the Government did not put their name to them—because they are exactly the things that the Member for Surrey Heath has been promising for months. I cannot remember the number of times I have heard in TV studios and the newspapers that he wants to do both these things. Here we are now with the mechanism to do it. All the Government need to do is accept the amendments and we can move forward.
As the noble Lord, Lord Moylan, said, anyone who is owed a debt should be able to recover it, but the threat of taking all the property away is completely wrong. Even on that one, I do not understand why the Government have not come forward with an amendment on it. It is absolutely bizarre. I think nobody in this House would oppose it, and it would be accepted. We want people to be able to recover their money, but this threat is totally over the top. We all agree on that.
What is even more frustrating is that, when I leave the Chamber and walk around the building, many Members actually agree with us, and say: “You’re absolutely right, Roy. This should happen”. I have even had Members of the Government Front Bench—not in the House at the moment—say to me: “The problem is, Roy, we agree with you, but Michael just goes off and makes these claims and pledges and promises without them being signed off”. It is no way to do business. We need to get these things done properly. This needs to be done. I do not understand why it cannot be done if everyone supports it. It is beyond me, really, that we operate like this. That is the whole frustration about this Bill. Promises and pledges and articles to say that we are going to do this and we are going to do that—I am sick of hearing it. And then when they get the chance, they do absolutely nothing.
Lord Gascoigne (Con)
My Lords, I thank all noble Lords for their contributions in this group. I thank my noble friends Lord Young and Lord Bailey of Paddington, and the noble Lord, Lord Truscott, for their amendments regarding forfeiture and service charge enforcement.
The upkeep and safety of buildings is paramount. Landlords, be they private companies or resident management companies, need an effective mechanism to recover unpaid debts, lest their costs fall to other leaseholders or to the detriment of the building’s upkeep. It is important to consider resident management companies in particular, which often have very limited access to other funds to cover any shortfall in the service charge fund. Having a robust and efficient way to enforce unpaid charges is therefore critical to ensure the efficiency and solvency of these resident-led companies. Equally, there are other breaches—unauthorised alterations, anti-social behaviour and use of a property for immoral purposes—that can be difficult and even impossible to remediate. In such cases, forfeiture may be the only effective way of putting a stop to the breaching behaviour. While well-intended, we do not believe that the abolition of forfeiture without a suitable replacement would ultimately serve the best interests of leaseholders, and in particular resident management companies.
My noble friend asked about progress in drafting. I hope he appreciates—it is with respect that I say this—that I do not think I am able to comment on what may happen or where that is, simply because I do not know who will be lucky enough to serve in the Government and answer that question after the election.
I turn to the amendment tabled by the noble Lord, Lord Truscott. Unfortunately, we believe that this amendment does not achieve its stated aim of protecting leaseholders, crucially against forfeiture over non-payment of service charges. The Government recognise that those home owners who pay rentcharges face the threat of forfeiture. Part 7 of the Bill already removes the risk of forfeiture for unpaid arrears of income-supporting rentcharges, since the remedy is so disproportionate to the sums owed. The Bill also contains a robust package of protections for home owners who pay estate rentcharges.
I now move to the amendment tabled by the noble Baroness, Lady Pinnock. Noble Lords will be aware that the Government do not believe that it is appropriate that many leaseholders face unregulated ground rents for no clear service in return. The Government have already legislated to put an end to ground rents for most new residential properties in England and Wales through the Leasehold Reform (Ground Rent) Act 2022. We have also encouraged work led by the Competition and Markets Authority to investigate abuses of the system, such as the mis-sold doubling ground rent leases, securing commitments from freeholders to remove these costly terms, benefitting more than 20,000 leaseholders. Given where we are in the parliamentary timetable, I hope noble Lords will understand that we cannot accept an amendment on complex new policy at this stage.
I turn to Amendments 51 and 52 in the name of my noble friend Lord Bailey. I fully agree that it is important to have effective enforcement measures in place. Amendment 51 seeks to retain criminal sanctions for failure to provide information to leaseholders in a timely manner. The existing measures, including the statutory offence under the existing Section 25 of the Landlord and Tenant Act 1985, have historically proven to be ineffective. Local housing authorities, as the enforcement body, were reluctant to bring prosecutions against landlords, and the cost and complexity of doing so were a significant barrier to leaseholders bringing a private prosecution. That is why we are replacing it with a more effective and proportionate proposal, set out in Clause 57.
Amendment 52 would require landlords to account to all leaseholders where costs were found to be unreasonable and would impose a two-month limit on repayments to leaseholders. It would introduce a power to enable the appropriate tribunal to award interest on any determination in favour of the leaseholder, where a leaseholder has made an application. While I agree that there must be a robust regime in place to challenge service charges, we do not think that this is the right approach.
Landlords may wish to compensate leaseholders by offering a credit against future service charges rather than returning money, and a leaseholder may prefer this. In addition, the Court of Appeal held in 2022 that a tribunal decision of the type to which my noble friend refers is a determination of whether the service charge is payable and not of whether it is due. Therefore, although the amendment is well-intentioned, it would not be possible to implement in the form drafted.
As I have said, I would have liked to go further, and indeed that was the intention, but we are in wash-up. With that, I hope my noble friend will withdraw his amendment.
Lord Young of Cookham (Con)
I am grateful to my noble friend for responding to the debate and to all those who took part, particularly my noble friends Lord Bailey and Lord Moylan for supporting my amendment on forfeiture, as well as the noble Lord, Lord Kennedy. Interestingly, we have had a debate on protecting the interests of leaseholders wedged between a series of debates on protecting the interests of freeholders.
I was a little disappointed by my noble friend’s reply, because Ministers have conceded that we have an inequity here. It is my view that, had we had a normal Report stage at the beginning of next month, the Government would have come forward with their own amendment to deal with what they conceded was an inequity. I was gently trying to find out what progress had been made with drafting a clause to deal with this, and whether sufficient progress had been made for a Private Member’s Bill to be brought forward in the next Parliament. I understand that my noble friend can make no commitments about who will be at the Dispatch Box, but it would be in the general interest, given that there is unanimity that this is a bad law and should be repealed, if we could be told that good progress had been made in government and that legislation was available. Having grumbled about that, I beg leave to withdraw my amendment.
Lord Moylan
“Right to manage: local housing authority Housing Revenue Account(1) The Commonhold and Leasehold Reform Act 2002 is amended as follows.(2) In paragraph 4(1) of Schedule 6 (premises excluded from right to manage), after “premises” insert “and the whole of the premises are held within the Housing Revenue Account of that local housing authority”.”Member's explanatory statement
This would allow the Right to Manage to be exercised where the landlord was a local housing authority but the premises were not held within that local housing authority’s Housing Revenue Account.
Lord Moylan (Con)
My Lords, this amendment relates to a very narrow point, which I will therefore try to deal with in summary form in the interests of time.
Before I do so, I will comment on Amendment 50, in the name of my noble friend Lord Bailey of Paddington. One of the most important things that we can do for leaseholders—I speak from experience—is promote the more widespread use of right to manage. This Bill goes some way in that direction but it could go further. I have no hesitation in supporting my noble friend in seeking to reduce the threshold to make this more accessible to leaseholders. It would remove many of their suspicions and anxieties—sometimes grounded and sometimes not—of abuse on the part of landlords if they could, as in my case we have, take responsibility for managing the building themselves and appoint managers who are accountable to them to scrutinise accounts and make all the important decisions.
Amendment 49 relates to an uncommon and peculiar situation whereby, in the case of a private block of flats that is acquired as an investment by a local authority—not one owned by a local authority for the purpose of social housing—the right to manage of those leaseholders is immediately extinguished because of the provisions of the Commonhold and Leasehold Reform Act 2002, which specifically exempts properties where the immediate landlord is a local housing authority. My amendment would remove that provision, except in cases where the property was held in the housing revenue account of that local authority. In other words, the leaseholders of private blocks would retain the right to manage, which the Government would surely welcome.
I am grateful to my noble friend and to my noble friend Lady Scott of Bybrook for arranging a meeting with me a few days ago at which we discussed this. However, I was no clearer at the end of that meeting what the position is, so my narrow purpose with this amendment is to seek clarity.
Lord Bailey of Paddington (Con)
My Amendment 50 seeks to bring down the onerous 50% participation threshold to 35%, so that many more leaseholders can take back control of their homes, their money and their lives. As my noble friend Lord Moylan said, it would remove much of the suspicion around whether your freeholder is fleecing you, for want of a better word. I believe the Government support a revolution in the right to manage, so I will be interested in the comments from my noble friend the Minister as to why this cannot be supported. This would be a great step for people in many communities where buying property is a lifelong dream that they could then achieve. It leaves that footprint firmly in their community, and gives them more control of the investment they have actually made.
Lord Gascoigne (Con)
I thank my noble friend Lord Moylan for Amendment 49 on the right to manage and local authorities. In taking forward this Bill, we have prioritised the most impactful of the Law Commission’s recommendations on enfranchisement and the right to manage. That includes allowing more leaseholders in mixed-use buildings to collectively acquire the freehold of their building, or to exercise their right to manage their building, by increasing the non-residential limit from 25% to 50% non-residential floorspace. The Law Commission did not make any recommendations on local authority householders, but we recognise that the right to manage is not available to leaseholders with local authority landlords where there are no secure tenants in the block. We will continue to review changes to improve the right to manage. I hope that, following these reassurances, my noble friend will withdraw his amendment.
Lord Moylan (Con)
If I may interrupt, I simply asked my noble friend for clarity. Is he now saying that the class of persons I referred to does not have access to the right to manage—he seems to have said those words—even by way of the Housing Act 1985, contrary to what was said in Committee, or would he maintain that that route is still available to them? Is it or is it not the Government’s position that the Housing Act 1985 is available?
Lord Gascoigne (Con)
As ever, I am grateful for the points my noble friend has made. I think it is as I have described previously: namely, that the Law Commission did not make any recommendations on local authority leaseholders. We recognise that the right to manage is not available for leaseholders with local authority landlords, where there are no secure tenants in the block. It is not available where there are only leaseholders.
I now turn to Amendment 50, tabled by my noble friend Lord Bailey of Paddington. We recognise that the participation requirement can cause difficulties if leaseholders cannot reach the threshold. But a participation requirement of one-half of the residential units is proportionate, ensuring that a minority of leaseholders are prevented from exercising the right to manage, which may be against the wishes of the majority of leaseholders in a building.
Reducing the participation requirement to 35% is disproportionate and could lead to undesirable outcomes, such as an increase in disputes. It would risk a situation where competing groups of minority leaseholders could make repeated claims against each other. The Government accept the Law Commission’s recommendation to keep the participation threshold as it is. For these reasons, I ask that my noble friend does not press his amendment.
Lord Moylan (Con)
My Lords, there is no better illustration of the sheer folly of trying to deal with this complex issue in wash-up. We have discussed a point that was raised and discussed in Committee, during which one answer was given by a Minister. It was discussed in a meeting at which officials were present. I have not tabled my amendments late; some of my amendments have been down for some time. It is a point that Minsters knew was likely to come up on Report, but they have not been able to give clarity.
There are two possible routes. Is one of them available? Is what the Minister said in Committee correct or not? I am still really no clearer about the whole subject unless I construe the Minister’s words, as opposed to having them stated plainly for me. It is simply an illustration of why we should not be progressing this Bill in this fashion and in this way. With that comment, I beg leave to withdraw my amendment.
Lord Moylan
“(1A) Subsection (1) does not apply to non-profit or resident-led entities which have the right to enforce payment of a service charge.(1B) Entities described in subsection (1A) include but are not limited to—(a) a Resident Management Company, being a body corporate which is party to a lease of a building where—(i) the members of that body are leaseholders, or(ii) the majority of the shares of that body are held by leaseholders;(b) a Right to Manage Company constituted under the Commonhold and Leasehold Reform Act 2002, and(c) a landlord wholly owned by the tenants whether through a corporate structure or otherwise.(1C) Subsection (1) does not apply to entities with repairing obligations to but no legal interest in a building.(1D) Entities described in subsection (1C) include but are not limited to—(a) managers appointed under Section 24 of the Landlord and Tenant Act 1987, and(b) named managers appointed under the lease as being the party with managing and repairing obligations in relation to the building but separate from the landlord and with no legal interest in the land or building.(1E) Where subsections 1A or 1C apply, section 20C of this Act continues to apply.”Member’s explanatory statement
This would allow non-profit and/or resident-run lease operators and other entities with repairing obligations but no legal interest in the building to continue to recoup legal costs through the service charge in the first instance. The proposed Section (1E) introduces a protection for tenants by reinstating Section 20C of the Landlord and Tenant Act 1985.
Lord Moylan (Con)
My Lords, this amendment relates to the question of the ability of right-to-manage companies and similar bodies to recover their legal costs. I made remarks in the debate on the first group which largely addressed this. This issue has also been raised by the right reverend Prelate the Bishop of Southwell.
I see no reason, given the pressure of time, to add further to my arguments or comments on this amendment. I will simply have to accept, with a degree of gratitude—I suppose I have to be fair—that Amendments 54 to 58 proposed by the Government go some modest way towards addressing my concern. We will leave ourselves in the hands of the Secretary of State and hope that, whoever that is, they will be kind to us—but who knows? I beg to move.
Lord Gascoigne (Con)
My Lords, I thank my noble friend Lord Moylan for his amendment to Clause 61. The Government have laid Amendments 54 to 58, which will in part introduce a power to set regulations to suspend the requirement for certain landlords to apply to the relevant court or tribunal to recover their litigation costs until an event set out in regulations occurs.
This will mean that the Secretary of State or Welsh Ministers will have the power to allow certain landlords to demand money from leaseholders to fund litigation ahead of proceedings without the need to apply to the court or tribunal for permission to do so. Importantly, it would still require the same landlords to apply to the court or tribunal for their costs after “a specified event” in regulations occurs, ensuring that leaseholders are still protected.
The Government will work closely with stakeholders to ensure the application requirement is suspended only where appropriate. An example might be for resident-led buildings or assetless landlords. In addition, the power is subject to the affirmative procedure, meaning it will be scrutinised in both Houses. I hope this reassures my noble friend and that, on that basis, he will withdraw his amendment.
Lord Moylan (Con)
My Lords, I beg leave to withdraw my amendment.
Lord Gascoigne
“(6A) See section 20CB for powers of the appropriate authority to provide for other exceptions to subsection (1).”Member’s explanatory statement
This amendment would signpost the new section 20CB.
“20CB Section 20CA: powers to provide for exceptions(1) The appropriate authority may by regulations provide for circumstances in which—(a) section 20CA(1) does not apply, or(b) the effect of section 20CA(1) is to be suspended until an event of a specified description occurs.(2) The circumstances may include, among other things, that—(a) the litigation costs,(b) the relevant proceedings, or(c) the landlord,are of a specified description.(3) Where, by virtue of regulations under subsection (1)(b), the effect of section 20CA(1) is suspended until an event of a specified description occurs—(a) section 20CA(1) does not have effect before the event, but(b) section 20CA(1) does have effect on or after the event in relation to a variable service charge paid or payable before the event.(4) Accordingly, if—(a) a variable service charge was paid before the event, and(b) the landlord’s litigation costs were regarded as relevant costs to be taken into account in determining the amount of that charge until the event because the effect of section 20CA(1) was suspended,the landlord may retain the amount of those costs after the event only if the relevant court or tribunal makes an order under section 20CA(2) in relation to that charge.(5) In this section— “litigation costs” ,“relevant proceedings” and“the relevant court or tribunal” have the same meaning as in section 20CA;“specified” means specified in regulations under this section.(6) Regulations under this section—(a) are to be made by statutory instrument;(b) may make provision generally or only in relation to specific cases;(c) may make different provision for different purposes;(d) may include supplementary, incidental, transitional or saving provision.(7) A statutory instrument containing regulations under this section (whether alone or with other provision) is subject to the affirmative procedure.”Member’s explanatory statement
This amendment would introduce a new section 20CB to allow the appropriate authority (subject to the affirmative procedure) to make further exceptions to new section 20CA(1), and to provide for the effect of new section 20CA(1) to be suspended in certain circumstances.
“(5A) In section 178(4) (orders and regulations), after “171” insert “, paragraph 5C of Schedule 11”.”Member’s explanatory statement
This amendment would make regulations under the new paragraph 5C of Schedule 11 subject to the affirmative procedure.
“(5A) See paragraph 5C for powers of the appropriate national authority to provide for other exceptions to sub-paragraph (1).”Member’s explanatory statement
This amendment would signpost the new paragraph 5C.
“Paragraph 5B: powers to provide for exceptions
5C (1) The appropriate national authority may by regulations provide for circumstances in which—(a) paragraph 5B(1) does not apply, or(b) the effect of paragraph 5B(1) is to be suspended until an event of a specified description occurs.(2) The circumstances may include, among other things, that—(a) the litigation costs,(b) the relevant proceedings, or(c) the landlord,are of a specified description.(3) Where, by virtue of regulations under sub-paragraph (1)(b), the effect of paragraph 5B(1) is suspended until an event of a specified description occurs—(a) paragraph 5B(1) does not have effect before the event, but(b) paragraph 5B(1) does have effect on or after the event in relation to an administration charge paid or payable before the event.(4) Accordingly, if an administration charge was paid before the event in respect of the landlord’s litigation costs because the effect of paragraph 5B(1) was suspended, the landlord may retain the amount of that charge after the event only if the relevant court or tribunal makes an order under paragraph 5B(2) in relation to that charge. (5) In this paragraph—“litigation costs” ,“relevant proceedings” and“the relevant court or tribunal” have the same meaning as in paragraph 5B;“specified” means specified in regulations under this paragraph.”Member’s explanatory statement
This amendment would introduce a new paragraph 5C to allow the appropriate authority (subject to the affirmative procedure) to make further exceptions to new paragraph 5B(1), and to provide for the effect of new paragraph 5B(1) to be suspended in certain circumstances.
Lord Gascoigne
“(5) A statutory instrument containing regulations under this section is subject to the negative procedure.”Member's explanatory statement
This amendment would ensure that a statutory instrument containing regulations under clause 83 is subject to the negative procedure.
Lord Gascoigne
Member's explanatory statement
This amendment would correct an error, given that Welsh Ministers may approve a code of practice under section 87 of the LRHUDA 1993.
Lord Gascoigne
Member's explanatory statement
This amendment would correct an error, given that Welsh Ministers may approve a code of practice under section 87 of the LRHUDA 1993.
Lord Young of Cookham
“Training and qualifications of property agents(1) The Secretary of State may by regulations require that individuals undertaking the activities of a property agent in respect of—(a) estate management of leasehold properties, (b) sale of leasehold properties, and(c) sale of freehold properties subject to estate management or service chargesmust have, or be working toward, specific mandatory qualifications, as defined by regulations made under subsection (2), to demonstrate competency to undertake their property agency roles.(2) Regulations under this section—(a) are to be made by statutory instrument,(b) may make provision generally or only in relation to specific cases,(c) may make different provision for different purposes,(d) may include supplementary, incidental, or transitional provision,(e) may specify classes or types of employees who must be qualified and the appropriate qualification level for each such group,(f) may specify syllabuses and testing methods for qualifications,(g) may specify means of training provision and minimum training hours, and(h) may approve providers for the provision of training and qualifications.(3) A statutory instrument containing regulations under this section is subject to the negative procedure.”
Lord Young of Cookham (Con)
My Lords, I hear the bell ringing as we enter the last lap. This amendment is also in the names of the noble Lord, Lord Best, and the noble Baroness, Lady Hayter, neither of whom can be in their places at the moment. It deals with the regulation of property managing agents.
In 2017, the Government committed themselves to regulating property managing agents to,
“protect leaseholders and freeholders alike”.
They then set up a working group, chaired by the noble Lord, Lord Best, which reported in 2019. In Committee, the noble Lord, Lord Best, introduced Amendment 94, which would have empowered the Secretary of State to establish an independent, statutory regulator of property agents who sell and manage leasehold property. It received widespread support from all sides of the House, but was a step too far for the Government.
The amendment before us this afternoon is in fact slightly weaker. It does not require the Government to set up that organisation; it simply requires mandatory qualifications of property managing agents. This is something that the Government have already done for the social housing sector, and it could quite easily be expanded to protect leaseholders and private tenants. I beg to move.
Lord Bailey of Paddington (Con)
My Lords, I speak to my Amendment 67. When Parliament passed the Building Safety Act 2022, there was a major error within it. Anyone could be an accountable person except a manager appointed under Section 24 of the Landlord and Tenant Act 1987. Section 24 is a lifeline right for flat leaseholders with bad landlords, sky-high service charges and rundown buildings. Again, I return to my theme of control and the ability to remove a bad freeholder and a bad landlord—not a good one. Sadly, by barring Section 24 managers from being an accountable person, or at least from assuming that function, Section 24 is blown up.
Again, I just say that these are practical things that leaseholders will need. I believe that Labour colleagues also support this amendment. I would really like to hear from my noble friend the Minister why this cannot be done. It is a practical step, it does not seem to have any cost, and it would make a great deal of difference to the leaseholders involved.
Baroness Fox of Buckley (Non-Afl)
My Lords, we are really close to the end. This is a very similar amendment to one that I proposed in Committee. In following on from what the noble Lord, Lord Moylan, said about the meeting with the Minister, I also had a meeting with the Minister half an hour before the election was announced, in which it was indicated that there was some interest by the Government in supporting this amendment. It is, of course, frustrating to be in this position in wash-up with regard to some of these details. For example, it was said only last week that, even if we were not going to get peppercorn ground rent, we might have had a very low £250 ground rent. We were all anticipating that Report would be a very positive and creative time to improve this Bill.
That was not to be the case; but for whoever takes on this brief in the future, the implication earlier today in some of the crosser exchanges was that nobody had thought about the implications of what this Bill was about. Many of us are bored of thinking of the implications and this issue has gone on for decades and decades and decades. Political parties of both sides have promised that they would resolve some of the anomalies associated with leasehold and move us on to commonhold. We are now in a situation where, through bad luck, we cannot have a full discussion on this particular Bill—it was inadequate anyway. At least we got it into wash-up, and I say simply that I found the department, the noble Baroness, Lady Scott, and the noble Lord, Lord Gascoigne, to be incredibly helpful.
Baroness Pinnock (LD)
My Lords, we on these Benches totally support Amendments 62 and 63 in the name of the noble Lord, Lord Best, and moved and spoken to by the noble Lord, Lord Young of Cookham. The most unfortunate part of doing this Bill in wash-up is that we have lost the opportunity to address some of the omissions in and failures of the Building Safety Act. Many leaseholders who are stuck in their properties with high and escalating insurance rates and service charges that are growing inexorably and still have a fire safety issue. These two will be issues that will I ensure are addressed by the next Government, whoever they are.
I thank those on the Front Bench for the helpful comments and the co-operation they have provided during this Bill. Most of us are of one mind: it is such a shame that this Bill is being lost without the changes that many of us would want to have put into it; but with that, I end my contribution for today.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I will, very briefly, just add our support for Amendments 62, 63 and 67. The noble Lord, Lord Bailey, presents a way forward for addressing those issues as well. I wish we could be doing them, and I think it is disappointing we are not, but I will leave it there.
Lord Gascoigne (Con)
I thank the noble Lord, Lord Best, the noble Baroness, Lady Hayter, and my noble friends Lord Bailey of Paddington and Lord Young for their amendments, and all who have spoken in the final group of this Bill.
I will start with the amendments regarding the regulation of property agents. I thank the noble Lord, Lord Best—I appreciate he is not here—for raising the issue with the Minister recently; I know that it is something which he is passionate about, and I hope that he continues to engage extensively with the noble Baroness, Lady Scott. The Government are committed to driving up professionalism and standards among property agents. Leaseholders deserve a good service for the money they pay, whether that is from from their landlord or their managing agent, where one is in place. Industry plays an important role in driving up standards, and we welcome the ongoing work it is undertaking to support this. This includes industry-backed qualifications, as well as the preparations of codes of practice. Furthermore, the measures in the Bill, alongside existing protections in place and work being undertaken by industry, seek to make managing agents more accountable to those who pay for their services. That includes making it easier for leaseholders to take on management of their buildings themselves, where they can directly appoint or replace agents. The measures above will, I believe, contribute substantially to that objective.
In addition, we need to consider the question of standards for all property agents in the round rather than in a piecemeal fashion. That was the original purpose behind the idea of a regulator for property agents. While I recognise the intentions and desired outcomes of these amendments, I do not consider that now is the right time to introduce them.
I turn to Amendment 87. I trust that your Lordships will understand that the Government cannot accept these proposed amendments. Defining a Section 24 manager as “an accountable person” would move financial and criminal liabilities away from the existing accountable person to the Section 24 manager. It was the intent of the Building Safety Act that financial and criminal responsibility for certain aspects of maintaining the building should always remain with the accountable person and accountable persons cannot delegate this responsibility to a third party. Given these assurances, I hope that the noble Lord will withdraw his amendment and that other noble Lords will not press their amendments.
Lord Young of Cookham (Con)
My Lords, I am grateful to all those who took part in this decade. I want to pick up a point raised by my noble friend Lord Bailey when he moved his amendment to the Building Safety Act, a point also picked up by the noble Baroness, Lady Pinnock. Had this Bill proceeded in the normal way, there would have been a whole series of amendments to the Building Safety Act to deal with some of the problems mentioned by the noble Baroness but also to address the distinction between qualifying and non-qualifying leaseholders. I think there would have been a very good chance that we would have asked the other place to think again on a number of those issues—but that is for another day.
Yesterday, I think I had the last Oral Question and, unless something goes seriously wrong in another place, I may be the last speaker in this Parliament in this House. I take this opportunity to congratulate my noble friend Lord Gascoigne on the Front Bench. We have had a number of cricketing analogies about how he has coped with the googlies, but I prefer a footballing one. He is like the reserve goalkeeper who is summoned on to the pitch after full time and asked to save a large number of penalty kicks from some professional strikers. It is to his credit that he managed to tip most of the shots over the bar, although I think one or two may have got past him into the back of the net.
If the noble Baroness, Lady Scott, was watching his performance she will be well proud of what he did and, in thanking him, I also thank the noble Baroness, Lady Scott, whose patience I nearly exhausted with a number of meetings. On that basis, I beg leave to withdraw my amendment.
Lord Gascoigne
“(c) a county council in England,(ca) a district council,(cb) a London borough council,(cc) the Common Council of the City of London (in its capacity as a local authority),(cd) the Council of the Isles of Scilly, or”Member's explanatory statement
This amendment and the other Government amendment to this clause would replace the use of the defined term “local housing authority” (which is not used elsewhere in Part 6) with the specific authorities which are to be “enforcement authorities”, and add county councils in England as enforcement authorities.
65: Clause 110, page 124, leave out lines 29 to 34
Member's explanatory statement
See the explanatory statement to the other Government amendment to this clause.
Lord Moylan
“(2A) Section 36 comes into force at the end of the period of two months after the “applicable deferment rate(s)” and “applicable capitalisation rate(s)” defined in Schedule 4 have been prescribed in accordance with regulations made under that Schedule.”Member's explanatory statement
This amendment delays the entering into force of Clause 36 until two months after the applicable deferment rate(s) and applicable capitalisation rate(s) have been prescribed in regulations.
Lord Moylan (Con)
My Lords, I think it was Bismarck who said that the public should never see how laws or sausages are made.
Baroness Williams of Trafford (Con)
My Lords, I have it on command from His Majesty the King and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Leasehold and Freehold Reform Bill, have consented to place their interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
I will also take this opportunity to notify the House of the Crown undertaking for the Bill. The Crown authorities have confirmed that the Crown would act by analogy with the Leasehold and Freehold Reform Bill and the statutes that the Bill amends, subject to specific specified conditions. The Crown authorities have also confirmed that the Crown would as landlord and subject to specified conditions agree to enfranchisement or extension of residential long leases under the same qualifications and terms to lessees who hold from other landlords, and the Crown will not sell or grant new leases of houses subject to specified circumstances.
If the House will bear with me, I must now relay the exact wording of the Crown undertaking before the House.
The Crown as landlord, will, subject to the conditions described below, agree to the enfranchisement or extension of residential long leases or to the grant of new residential long leases under the same qualifications and terms which will apply by virtue of the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993, to lessees who hold from other landlords.
Enfranchisement will be refused where property stands on land which is held inalienably; where there are particular security considerations, on the advice of the appropriate security agency; where properties are in, or intimately connected with, the curtilage of historic Royal Parks and palaces; or where properties, or the areas in which they are situated, have a long historic or particular association with the Crown. The properties include old land revenue and the reverter properties and grace and favour properties. The areas include the off islands within the Isles of Scilly—which are St Agnes, Bryher, St Martin’s and Tresco—and the garrison on St Mary’s.
Where enfranchisement is refused on the grounds set out in paragraph 2(a) but the tenant would otherwise qualify for enfranchisement, lease extension or the grant of a new lease by analogy within the statutes, the Crown will be prepared to negotiate new leases. Where enfranchisement is refused on the grounds set out in paragraphs 2(b) or (c) but the tenant would otherwise qualify for enfranchisement, lease extension or the grant of a new lease by analogy with the statutes, the Crown will be prepared to negotiate new leases for a term of 990 years at a peppercorn rent.
Where a lease has been extended in the circumstances under paragraph 4, the Crown will be entitled to insert a buy-back term, which gives the Crown the right to buy the whole or part of the extended leases, equivalent to that granted to the National Trust. The Duchies of Lancaster and Cornwall and the Crown Estate will publish their lease extension policies under the grounds set out in paragraphs 2(b) and (c). These policies will set out that each party is responsible for its own legal and valuation costs.
The Crown will follow the valuation bases set out in the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993. The Crown will agree to be bound by arbitration where there is dispute over valuation or other terms. The relevant tribunal will be empowered to act as the arbitration body, except in cases under paragraph 2, and will hear such disputes on voluntary reference. The Crown will not grant residential long leases of houses unless the property or the areas in which they are situated fall within one of the categories set out in paragraph 2(a), (b) or (c).
As this is probably my last outing of this Parliament at the Dispatch Box, I pay tribute to all noble Lords I have worked with in this House as Chief Whip, particularly the noble Lords opposite—the noble Lords, Lord Kennedy and Lord Coaker. At this time, I also remember Lord Rosser, with whom I worked for many years. He was a very dear man, and I will remember him fondly. I also thank my noble friend the Lord Privy Seal, who is not in the Chamber, and my absolutely wonderful Front Bench, who work so hard. Whether or not we agree with each other in this House, I think we can agree that we all work so professionally and constructively together, and I could not do it without the brilliant Ministers and Whips that we are so fortunate to have.
Lord Gascoigne (Con)
My Lords, I will first make a statement on the legislative consent process in relation to the Leasehold and Freehold Reform Bill.
The provisions in the Bill deliver a substantial package of reforms that will significantly increase leaseholders’ rights as consumers and home owners. To deliver these benefits to all leaseholders across England and Wales, we have sought support for legislative consent from the Welsh Government. We have engaged extensively with Welsh Government officials throughout the preparation and passage of the Bill, and I pay tribute to them for their constructive engagement.
Unfortunately, given the exceptional circumstances and the shortened timeline of passage, regrettably, we must proceed without a legislative consent Motion from the Senedd. However, I take this opportunity to reassure noble Lords that these measures were well received by the Welsh Government, and it is unfortunate that we were not able to conclude our discussions. We remain committed to ensuring that the Bill operates effectively across England and Wales, and we will continue to engage closely with the Welsh Government during the Bill’s implementation.
Lord Gascoigne (Con)
My Lords, in moving that the Bill do now pass, I recognise that we are now, finally, reaching the juddering climax of this Bill and this Parliament. As is only right and proper, there have been at times strongly held views about measures in the Bill. I am acutely aware that not everyone will be entirely satisfied with everything, but I remain encouraged and inspired by the passion that is felt across the House and by what has been evident yet again: the breadth, knowledge and experience of this House.
I am particularly grateful to all noble Lords across the House who have taken the time to engage directly with me and my noble friend Lady Scott of Bybrook. I thank both Opposition Benches for their sustained interest and engagement. In particular, I thank the noble Lords, Lord Truscott and Lord Best, the noble Baronesses, Lady Andrews, Lady Thornhill and Lady Fox of Buckley, the right reverend Prelate the Bishop of Manchester and the noble Earl, Lord Lytton. On our Benches, I thank my noble friends Lord Moylan, Lord Young of Cookham, Lord Bailey of Paddington and Lord Howard of Rising for their sustained engagement and helpful contributions during the debate. While we may not have been able to reach total agreement, I appreciate the concerns they are representing. Their careful examination of these measures has enabled the Government further to consider our policy and reinforce that our approach is correct. I am for ever grateful for their constructive scrutiny.
Speaking of my own Bench, I am sure it will not come as a surprise that today I feel a bit like Debbie McGee as there is one notable absence. I pay particular tribute to my noble friend Lady Scott. It has been a privilege to watch her work throughout the passage of the Bill and to work closely alongside her on much else. I am inspired by her impressive capacity to pick up technical issues and to work at pace and for her dedication to public service. My noble friend has done all of this and tolerated me with good humour.
I thank His Majesty’s loyal Opposition and the Front Benches opposite. I thank the noble Baronesses, Lady Taylor of Stevenage and Lady Pinnock, and the noble Lords, Lord Khan of Burnley and Lord Kennedy of Southwark, for their constructive interest in and engagement with these measures. I have been grateful for their willingness to work with this side on any matters of disagreement. It is both the first time and the last time in this Parliament when I am speaking to the noble Lord, Lord Kennedy, across this Dispatch Box. I would like to say something specific about him, if I may. While this may not necessarily be career-enhancing for both of us, in all the exchanges outside this Chamber, both formal and otherwise, he has been characteristically robust while courteous, approachable and friendly. As the new kid on the block, it has been appreciated.
I conclude by mentioning all the expert and extraordinarily comprehensive work that has gone into this legislation by the Law Commission, the Bill team and the officials behind the Bill, many of whom have been working on this legislation for many years, not to mention the extraordinary amount of work I imagine they have done over the past 24 hours due to wash-up. I spoke to the Minister first thing this morning, and on behalf of the Minister and myself, I thank them for their tireless support and professionalism.
Finally, as this is my last time in this Parliament to speak at the Dispatch Box, I say that my family were not political at all, so being a Member of your Lordships’ House alone is the honour of a lifetime, yet to be in His Majesty’s Government and to have played a small part in this Parliament has been beyond a privilege. I am grateful to everyone who has helped and supported me over the recent months in this Chamber, across the House and beyond. With that, I beg to move.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I thank the government team that worked on this Bill, particularly the noble Baroness, Lady Scott of Bybrook, and the noble Lord, Lord Gascoigne. I appreciate their generous remarks very much. I thank all the government officials for their work on the Bill, and noble Lords across the House who worked on it at every point. I thank the staff of the Opposition Whips’ Office. I pay particular tribute to my noble friends Lord Khan of Burnley and Lady Taylor of Stevenage. They took over doing the local government brief when I became the Opposition Chief Whip and did a far better job than I did. Sometimes I sit in my office in awe at how excellent they are—and how much better than I was.
I pay tribute to Lord Rosser and Lord McAvoy, who are missed by the whole House. They were always very kind to me when I arrived here. Lord McAvoy knew me for many years beforehand, and knew my mum very well as well; he always spoke very fondly of the time she was in the Members’ Tea Room in the House of Commons.
I thank the Labour Front Bench and the Labour Whips. They have done a fantastic job, and it has been an absolute privilege to serve as part of the Labour Front Bench over the last 14 years, and as one of the Labour Whips. I was privileged to arrive in the House 14 years ago. I am a kid from a council estate in Elephant and Castle, and I never thought I would end up here. To get here was a great thing, but to be the Opposition Chief Whip is something I have been immensely proud of, and I have tried to do my best in the last three years.
I pay tribute to the noble Baroness, Lady Williams of Trafford. We have followed each other around the House—when she was the Local Government Minister, I was the same over here, and then I went to the Home Office, and now we are against each other—or working with each other—in the usual channels. It is an absolute pleasure working with her in the usual channels: sometimes we agree and sometimes we do not agree, but it is all done in good humour, and usually over some chocolate in the noble Baroness’s office.
Lord Kennedy of Southwark (Lab Co-op)
Absolutely. We get on really well together, and I have always appreciated the way she deals with things. That is the best way for the House to work. At the end of the day, this House works by relying on the conventions, doing things properly and agreeing things properly.
Whoever forms the next Government—that will be decided by the people on 4 July—will have to deal with these big issues around leasehold. Whatever side of the House I am sitting on, whether on the Front Bench or the Back Bench, I will do my best to make sure that whatever the Government do, they deal with these issues properly.
It has been an absolute privilege to be here and to do the job of Opposition Chief Whip, and to come back today and do it for the last time. With that, I wish everyone a happy election—let us hope the best party wins.