Private Rented Sector: Affordable Rents
Baroness Grender Excerpts(1 month, 1 week ago)
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Baroness Grender
To ask His Majesty’s Government what plans they have to ensure that rents in the private rented sector are affordable.
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Taylor of Stevenage) (Lab)
My Lords, the Government entirely understand concerns about the affordability of rents. We have inherited a private rented sector that is failing many low-income renters. The Renters’ Rights Bill will empower tenants to challenge unreasonable rent increases, as well as taking practical steps to end the practice of rental bidding and prohibiting landlords from demanding large amounts of upfront rent. In addition, the Government are committed to building 1.5 million safe and decent homes in England over this Parliament. This boost to supply is critical to improving housing affordability.
Baroness Grender (LD)
I thank the Minister for her response, but current rents remain unaffordable for the 34% of renters in poverty—a figure likely to rise with the freeze of local housing allowance. Private rents increased by more than 8% last year and market rates are already out of reach for so many. The First-tier Tribunal will not resolve any of these issues. Are the Government considering any form of rent stabilisation?
Baroness Taylor of Stevenage (Lab)
I thank the noble Baroness for her question. We have discussed this in the Chamber before, and the Government have been clear: we do not support rent controls. Heavy-handed rent controls tend to mean higher rents at the start of a tenancy, and they can make it much harder for prospective tenants to find a home. They also encourage the growth of unregulated sub-letting, which can leave the most vulnerable tenants very exposed to higher costs and minimal protections. Those rent controls always come at a cost, often in reduced investment in housing supply and quality standards. We prefer to use this mechanism to strengthen tenants’ rights.
Renters’ Rights Bill
Baroness Grender Excerpts(1 month, 4 weeks ago)
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Baroness Grender (LD)
My Lords, the Liberal Democrats welcome the Bill and support the fundamental principles in it of rebalancing the relationship between landlord and tenant. We thank the Minister for the meetings so far and look forward to working with her to make progress. We also look forward to hearing the maiden speeches of the noble Lord, Lord Wilson, and the noble Baroness, Lady Brown.
We are particularly supportive of the measures to immediately ban Section 21 eviction notices. Frankly, this change cannot come soon enough for so many, and we owe it to the almost 1 million renters who have been on the receiving end of a no-fault eviction since the change was promised in the 2019 Conservative manifesto. They are only a small fraction of the vast numbers who have lived with the insecurities of the now most common form of tenure—assured shorthold tenancies—since they were first introduced in 1988. Given all the similarities to the previous Renters (Reform) Bill—in particular, on scrapping no-fault evictions—it was so disappointing to see the Conservatives in the other place attempting to block the Bill altogether. They need to deliver on their original promise. This much- heralded but delayed change by the previous Government remains nothing short of a scandal and has left a legacy for tenants that we should have uppermost in our minds during the progress of the Bill.
The promise to ban no-fault evictions followed by dither and delay made, if possible, the market even worse for tenants, prompting a 30% growth in Airbnb short-term lets and taking away even more security of tenure from other tenants. There is one small silver lining: the sector itself has had significant notice of this change and therefore time to prepare for no-fault evictions bans.
Tenants are aptly described as the
“People on the Frontline of Britain’s Housing Emergency”
in Vicky Spratt’s excellent book, Tenants, in which she outlines the ever-widening gaps between those who own and those who rent. All issues, from inequality to fuel poverty, mental and physical ill health, the cost of living and lack of social mobility, are impacted by insecurity of tenure—or a home that you simply cannot rely on. The direct link between being evicted as a tenant and homeless is well documented by, among others, the Local Government Association.
At the heart of this issue is lack of supply of suitable homes. We strongly support the Government’s ambitions to end homelessness, but that needs to be matched with greater ambition to build social and council homes for rent—150,000 per year, which was in our manifesto, along with a programme of insulation for all housing, a planning use change to control second homes and new powers for councils to halt right to buy based on local needs.
Of course, the elephant in the room with the private rented sector is rents, and we on these Benches regret the lack of progress on this issue. Although we welcome the ban on bidding wars, which in turn drive up rent, this Bill still does not deal with the chronic levels of rent increases. Private rent inflation may have slowed down, but it is still rising faster than the CPI. The Renters’ Reform Coalition, which I thank for its briefing, rightly highlights that this will continue to leave open significant increases in rent as a means to evict. As the Renters’ Reform Coalition makes clear, England’s rents as a share of disposable income are some of the highest in Europe, with two-thirds of in-work private renters struggling to pay. This Government’s housebuilding plans will not change the supply crisis for years and will not fix this rent problem. Amendments by our Liberal Democrat colleague Gideon Amos MP linked rent rises to the Bank of England base rate, and we will look at options, such as the CPI or national wage growth, in Committee.
Given the poor condition of so many private lets, with the 2023-24 English Housing Survey highlighting that the private rented sector has the highest proportion of non-decent dwellings at 21%, we welcome the extension of the decent homes standard and the introduction of Awaab’s law across the PRS. However, we have significant concerns about enforcement, which other colleagues will elaborate on. Likewise, we welcome the protections for renters who are on benefits and those with children.
Instability in this area cannot be overstated, given that a quarter of all private renters have lived in three or more homes in the past five years. Therefore, we welcome the 12-month protected period at the start of new tenancies, and we will continue to explore the possibility of another extended period of tenancy guaranteed as an incentive to landlords to build to rent.
We will look to improve the Bill—for example, by supporting those who serve the whole nation in our military and give the ultimate service. In the previous Parliament, our colleague Helen Morgan MP campaigned to ensure that MoD housing was included under decent homes. The Kerslake commission report, Homes Unfit for Heroes, commissioned by John Healey MP, lays bare how poor the standards are. I ask the Minister to let us know the possibility of including service accommodation in this Bill. We live in an uncertain world, and putting our Armed Forces and their families into shoddy and inadequate housing, which impacts health and morale, is a failure of our duty to them.
Finally, my noble friend Lady Thornhill will lead us in our attempts to improve and expand the database. The majority of landlords that we know about—the ones that will participate in this debate or have briefed us—are the ones we can see and who will immediately join the database and ombudsman scheme. They, like the majority of tenants, are responsible landlords—but we know so little. It is the landlords we cannot see about whom we have limited knowledge, information and transparency. A database can be either a tick-box exercise or a significant game-changer on this. I hope the Bill progresses and that it will be the latter.
Tonight, as we speak, a primary school child will be in their third rental in a year and will know the insecurity no child should have to bear: health-defining, future-defining and life-defining. We owe it to that future generation to get this right, but to do it soon.
Local Government Reorganisation
Baroness Grender Excerpts(2 months, 2 weeks ago)
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Baroness Taylor of Stevenage (Lab)
I thank the right reverend Prelate for his question and for his continued interest in rural communities. We believe that part of the process of devolution will mean that the people who are taking the decisions for rural communities will be people who have skin in the game in those rural areas; that is very important. Places with a significant rural population will, on average, receive an increase of around 5% in their core spending power next year, which is a real-terms increase. The rural service delivery grant does not properly account for need, and a large number of predominantly rural councils receive nothing from it. That is clearly not right, and a sign that we need to allocate funding more effectively. We are keen to hear about rural councils, as well as others, as we go through the spending review, so that we can work on what would work best for them in the new funding system.
Baroness Grender (LD)
My Lords, no doubt the Minister will be aware of the eye-watering debts of over £2 billion left to the people of Woking by their former Conservative council. What is the level of risk to other local authorities if they are merged with Woking? What analysis have the Government undertaken of chronic failures of financial management, such as Woking, and the likely impact on reorganisations if the Government fail to find a way to resolve a debt of this nature?
Baroness Taylor of Stevenage (Lab)
The noble Baroness is quite right to point out that there are councils that may be in scope for this programme which have significant debt. We are working through a programme with those councils—Woking is one of them and Thurrock is another. It should not be for people outside those areas to pick up that debt. This is not helped by the fact that our Government have inherited a broken local audit system. For the financial year 2022-23, just 1% of audited accounts were published by the original deadline. That is not good enough. We are working on fixing that, and we will be working through a process with the councils concerned.
National Policy Planning Framework: Housing
Baroness Grender Excerpts(2 months, 4 weeks ago)
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Baroness Grender
To ask His Majesty’s Government what steps they have taken to compare the need for affordable housing with the need for council and social housing as part of the National Planning Policy Framework.
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Taylor of Stevenage) (Lab)
My Lords, I add my tribute to Baroness Randerson and offer my condolences to her family and friends. Her wisdom and experience were greats asset to this House, and she will be missed.
Our Government are committed to delivering the biggest increase in social and affordable housing in a generation; I hope we have shown that through our movement. Our revised National Planning Policy Framework reflects the commitment to building a greater share of genuinely affordable homes and prioritising the building of new social rent homes in particular. It is, though, for local authorities to judge the right mix of affordable homes for ownership and for rent that will meet the needs of their communities.
Baroness Grender (LD)
My Lords, while the NPPF is welcome, does the Minister share the widespread concern that the technical term “affordable” does not mean affordable to those in acute need? Research by the National Housing Federation and the charity Crisis shows that at least 90,000 social homes a year are required to end homelessness. Will the Minister consider expressly requiring local planning authorities to reflect that acute need within their plans? It includes those who are on housing registers in need of supported housing, rough sleepers and the homeless.
Baroness Taylor of Stevenage (Lab)
I agree with the noble Baroness that the terms “affordable housing” and “social housing” have sometimes been conflated, with unfortunate consequences. To make clear the priority that we attach to delivering homes for social rent, we are amending the definition of affordable housing. It will be carved out as a separate category, distinct from social housing for rent. I hope that that gives the noble Baroness a sign of our intention. We will expect local authorities to assess the need in their areas, including in all the categories that she mentioned, and to make provision to meet that need in their local plans.
Housebuilding Targets
Baroness Grender Excerpts(3 months, 3 weeks ago)
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Baroness Taylor of Stevenage (Lab)
I thank my noble friend. I am happy to assure her that we are working across government and with industry to deliver sufficient high-quality training opportunities and build a diverse workforce that is fit for the future. She is quite right to identify that this is a real issue in getting the 1.5 million homes built. To support business and boost opportunity, we are transforming the apprenticeship levy into a growth and skills levy, which will allow employers to invest in a wider range of training and empower them to train and upskill workforces for current and future challenges.
Baroness Grender (LD)
My Lords, does the Minister agree that the large housebuilding companies have too much power when it comes to deciding what homes to build, where to build and when to build? Can she tell us how her Government’s NPPF can possibly be delivered without strong and effective “use it or lose it” sanctions to get the 1 million homes built that are shovel-ready, with planning permission already given?
Baroness Taylor of Stevenage (Lab)
The noble Baroness is quite right to point to that as an issue. We have set up the housing acceleration unit in the department, which I mentioned earlier, to help with that. We want to be quite clear within the National Planning Policy Framework that, where sites are allocated, they should be built out as quickly as possible. There will be follow-up where that is not the case.
Housing Supply and Homelessness
Baroness Grender Excerpts(3 months, 4 weeks ago)
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Baroness Grender (LD)
My Lords, I congratulate the noble Baroness, Lady Warwick, on leading us in this debate. It is an absolute honour to speak along with so many noble Lords who have dedicated their lives to this issue. In a way, my disappointment is that we are still here making the same case. For me, it is reminiscent of when I first started working at the charity Shelter in the 1990s. Our aim, and that of all who had tirelessly campaigned in this area before us, was simple: to create the circumstances in which we were no longer needed.
So it is with a slightly heavy heart that I see this noble group of housing warriors getting the band back together again. In the past, we have been tantalisingly close to making some forms of homelessness a distant memory—once under the stewardship of the noble Baroness, Lady Armstrong, and once during Covid. Of course, both times the Government of the day had the not-so-secret weapon of the noble Baroness, Lady Casey of Blackstock. Both these experiences, though, tell us that solving this is possible, so we have to believe that the aim—to end homelessness—can be achieved.
As many noble Lords have said, the current situation could not be more shocking for a G7 nation. Right now, today, each night, just under 160,000 children go to bed in often appalling circumstances in temporary accommodation. Again, this was brought down before, so we know it can be done, and at relative speed.
Select Committees at both ends of this building have been clear and have reported again and again that one of the primary causes of homelessness is the severe shortage of social homes for rent. Social homes for rent are the absolute, healthy bedrock of our mixed-tenure system. The rest of the system cannot exist without them, as was explained so eloquently by my noble friend Lord Shipley. That is why we put in our Liberal Democrat manifesto a target to build 150,000 social homes a year for rent, some delivered through garden cities but above all, through thousands of small-scale community-led developments.
Like others, we worry that setting a target and imposing it without engaging communities and bringing them with you will mean that these laudable aims to build will inevitably fall short. In councils that we run, such as Eastleigh, Cambridge and Portsmouth, we have shown that it is possible to work with communities to deliver, at scale, social housing for rent. In Kingston last year we celebrated the first council flats being built in over 30 years. That is the case across the country—council flats being just a badly remembered thing of the past. That was overseen by the council’s housing lead, Councillor Emily Davey, working with the community and delivering sustainable housing—and not a retrofit needed in sight.
Housing associations have expressed their concern about reaching the Government’s new target. Peabody, for instance, has welcomed the extra £500 million for the current affordable homes programme in the Budget but makes clear that this will not allow the sector to deliver large-scale new homes at the pace required. Last year, Peabody alone spent £500 million on new homes. That gives a little perspective on the current allocation.
When it comes to homelessness, the policy platform we fought on at the last general election was to set and agree long-term measures that cross-cut Whitehall, and we welcome that initiative now. We want to include exempting homeless people from the shared accommodation rate, which makes housing unaffordable for many. We also want to see local authorities given proper funding so that they are better able to deliver the Homelessness Reduction Act. We would introduce a new “somewhere safe to stay” legal duty, which would give people emergency accommodation with an assessment of their needs.
So many of the briefings we received for this debate have identified the lack of social housing stock as the critical problem. Right to buy has played its part in the diminution of stock. That is why the Liberal Democrats would give local authorities the power to end right to buy in their area based on their local need and their local knowledge.
Above all, we called for, welcome and look forward to the ban on forced evictions under Section 21, which all research suggests is a major underlying cause of homelessness today. The woeful snail’s pace of delivery of this change in the law, first promised in 2019, has left in its wake countless individual stories of eviction and homelessness. Crisis estimates that there have been as many as 110,000 evictions since that promise was made.
As well as long-term and lasting solutions, there are some quick fixes that organisations such as Crisis have suggested. I particularly ask the Minister to respond to some of the proposals that have come forward to bring empty homes back into use and to take a look at the Welsh Government’s experience of having delivered that using enforcement officers.
I again congratulate the noble Baroness, Lady Warwick, on securing this debate. I am very hopeful that when we next meet, progress will have been made.
Landlords: Long-term Rentals
Baroness Grender Excerpts(4 months, 1 week ago)
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Baroness Taylor of Stevenage (Lab)
First of all, I would say that the number of people who were able to own their own properties actually fell under the last Government. I am surprised, with the record that we have heard many times in this House of the number of people who are currently on housing waiting lists and 150,000 people in temporary and emergency accommodation, that the previous Government want to stand up and question this issue in the House. The PRS has doubled in size since 2002. We will continue to do what we can to support both landlords and tenants in that sector. We are about to introduce the Renters’ Rights Bill to this House. I am grateful to all noble Lords who have already engaged on that. If there is anybody who has not yet, do get in touch with me, but I look forward to working with the House to deliver a very effective piece of renters’ rights legislation.
Baroness Grender (LD)
My Lords, does the Minister agree that two of the most profound underlying causes of children, the most reluctant tenants of all, being in temporary accommodation—150,000 of them in England alone—are forced evictions and affordability? Does she therefore, like many in this sector who care about this issue, have some cause for concern that the housing allowance has been frozen until 2026 and was not used as an opportunity in the Budget? I ask because there is very welcome legislation coming down the track—but right here, right now, tonight, for 150,000 children, what is the quick solution?
Baroness Taylor of Stevenage (Lab)
I am grateful to the noble Baroness for raising that important issue. We have looked at local housing allowance, but increasing that even slightly puts a huge pressure on the overall fiscal picture in the country. So it has not been possible to do that this time, because we had to fill the £22 billion black hole that was left to us as a legacy from the other side. We have put £500 million into delivering more affordable housing, taking us to £3.1 billion in total for affordable housing. We have also increased discretionary housing payments and have put back in the household support grant, which would have run out at the end of September because there were no government plans to meet those costs until the end of the year. That will provide some relief for the most deprived families.
Private Sector Renters: Eviction Protection
Baroness Grender Excerpts(1 year, 6 months ago)
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Baroness Grender
To ask His Majesty’s Government what steps they are taking to protect renters in the private sector who are seeking help with energy-saving improvements from eviction.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, the Government are committed to ending Section 21 no-fault evictions. We introduced the Renters (Reform) Bill in the other place to do this. Without the fear of retaliatory eviction, once Section 21 is abolished, tenants will be more empowered to act within their legal rights, complain about unacceptable standards and seek improvements. Private rented properties should be warm and decent, and we have several schemes to support energy-saving improvements to provide this.
Baroness Grender (LD)
Does the Minister agree that the balance is wrong if, according to a report by Generation Rent, nearly 40% of fuel-poor households rent privately but only 14% of energy company obligation grants help them in any way? Will the Minister ensure that the Renters (Reform) Bill protects tenants from either eviction or prohibitive rent rises if they get these grants? That is surely urgent, and important above other tenures.
Baroness Scott of Bybrook (Con)
I agree. I looked at the figures showing where private renters were utilising the Government’s grants for energy efficiency in their homes, and I think we should be spending more time trying to improve take-up. The Renters (Reform) Bill is important because it will deliver a fairer, more secure and higher-quality private rented sector. It will deliver the Government’s commitments to a better deal for renters, as well as for landlords, by improving the system for responsible tenants and the good-faith landlords who are in the majority.
Leasehold Reform (Ground Rent) Bill [HL]
Baroness Grender ExcerptsMonday 14th June 2021
(3 years, 9 months ago)
Grand CommitteeRead Full debate Leasehold Reform (Ground Rent) Act 2022 View all Leasehold Reform (Ground Rent) Act 2022 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-III Provisional third marshalled list for Grand Committee - (11 Jun 2021)
Baroness Grender
Member’s explanatory statement
This amendment would raise the minimum financial penalty under the Bill from £500 to £5,000.
Baroness Grender (LD)
My Lords, this group of amendments is an attempt to ensure that enforcement bodies have sufficient financial long-term sustainability. It also ensures that there are appropriate deterrents in the Bill to incentivise freehold landlords to understand just how serious a breach will be and the impact it will have on their current portfolio of properties. The additional aim is to create an incentive for local authorities to pursue financial penalties.
Today, of course, is the fourth anniversary of the Grenfell Tower fire where 72 people lost their lives, and I am sure that we are all thinking of those bereaved families, survivors and residents as they remember their loved ones. That tragedy underlines just how important it is that homes are safe and secure, and one of the first lines of defence is the enforcement authorities.
In addition to moving Amendment 14, I will speak to Amendment 15. While we appreciate that the Minister stressed at Second Reading that the fines would be for each individual lease, the danger remains that an enforcement authority will receive only £5,000. Indeed, Clause 9(3) states:
“Where the same landlord has committed more than one breach of section 3(1) in relation to the same lease, only one financial penalty may be imposed on the landlord in respect of all of those breaches committed in the period”.
Several noble Lords at Second Reading raised the issue of enforcement and resources to enforce. Local authorities’ trading standards departments have experienced staff cuts of at least 50% since 2010. It is not unusual for skilled and experienced—and therefore more expensive—staff to have been replaced with less skilled and lower-salaried staff. Sometimes trading standards has been contracted out to third parties completely. Local authority trading standards departments need greater sustainable long-term resource and that means generating greater levels of income.
Therefore, there should be a wider range for the fines and a higher start point for the penalty. The amount should be consistent with the Tenant Fees Act 2019 where landlords breach Sections 1 and 2 of the Act on more than one occasion. If you are a leaseholder, you are not a home owner, and therefore the levels of potential fines should surely be similar to those for rogue landlords in the Tenant Fees Act. The Bill relies on local weights and measures authorities—namely, trading standards departments—to oversee this new law. The Government will already be well aware of the sluggish approach to fining and banning rogue landlords under the Tenant Fees Act 2019. When originally launched, the Government predicted that there were 10,500 rogue landlords; so far, only 43 have been registered. Speak to many local authorities and they will report that an operation of this nature requires early up-front investment, but other priorities such as social care with chronic records of poor funding will inevitably come first. As Liam Spender, a trustee of the Leaseholder Knowledge Partnership, points out:
“It is likely most local authorities will decline to get involved, as they do in most private sector housing disputes now, on the grounds that leaseholders have civil claims they can use to recover any prohibited ground rent.”
Waiting for the next local government settlement is a short-term solution and, frankly, unlikely to solve this problem given other competing demands on local authorities. Now the Government are adding another task with too limited financial reward: as the fines currently stand in the Bill, the incentive to take the necessary action to fine a freeholder will not be worth the effort.
Amendments 14 and 15 would raise the minimum financial penalty from £500 to £5,000 and the maximum financial penalty from £5,000 to £30,000. The potential of greater fines would give local authorities an opportunity to invest in this operation, charge rogue landlords and freeholders and therefore sustain a longer-term, fully budgeted operation. If the Government are opposed to this increase, perhaps the Minister could share what level of financial penalty would make it worth while for a local authority to pursue a freeholder. If the argument is that this will have an impact if it is a penalty on a developer across several leases, what level of fine do the Government anticipate?
On Amendment 16, in my name and that of my noble friend Lord Stunell, the arguments are similar. It contains a new clause that would be inserted after Clause 12 that would extend the banning order regime under the Housing and Planning Act 2016, with an exception for rent recovery orders. It would ban landlords who received three or more penalties in any six-year period from collecting some or all of the monetary ground rents arising under pre-commencement leases. That should be a clear signal to persistent offenders that, under Clause 9 of the Bill, if the maximum penalty has been charged three or more times against the same landlord or a person acting on their behalf, there will be restrictions and penalties.
We recognise how significant the failure is of this part of the Housing and Planning Act 2016. On 9 January 2018 the then MHCLG Minister, Jake Berry MP, said the Government’s estimate was that
“about 600 banning orders per year will be made”.—[Official Report, Commons, Fifth Delegated Legislation Committee , 9/1/18; col. 12.]
In April, the Housing Minister, Christopher Pincher MP, confirmed that just seven landlords had so far been issued with a banning order. As the National Residential Landlords Association says of this failure:
“The Government needs to work with local authorities to understand the true extent of the pressures faced by environmental health departments responsible for enforcing many regulations”
affecting this sector.
“Too often, government has introduced initiatives to crackdown on”,
for instance,
“criminal landlords without properly understanding whether councils have the resources and staff to properly enforce them. In short, regulations and laws to protect tenants”—
and to protect leaseholders from bad practice—
“mean nothing without them being properly enforced.”
When we look at the level of these fines, we must remember that this industry is vast. The MHCLG’s own estimate is that, of the 4.5 million leasehold properties in the UK, approximately 2.5 million are owner-occupied. All these people are likely to be paying some level of ground rent. The companies behind the freehold interests receiving these ground rents are huge undertakings. They are more than a match for any local authority seeking a £5,000 fine. For example, Proxima GR, a key company in the Vincent Tchenguiz freehold portfolio, reports in its most recent accounts that it expects to receive £2.4 billion in ground rent between 2019 and 2080. It is believed to control a portfolio consisting of freehold interests over hundreds of thousands of leasehold properties. The same accounts report cash income of £24 million in the same year. A fine of £500 or £5,000 for multiple breaches is no disincentive to any organisation of that scale. Information on other ground rent investors is hard to come by but, from the limited information available, there are many other substantial operators out there. For example, in 2016, leasehold properties worth £64.8 billion were sold. Of these, new-build properties were worth £13.7 billion, leasehold house numbers doubled, and developers made £300 million to £500 million a year from ground rent sales. Looked at from that perspective, £5,000 seems a very small sum to put as a maximum. Has the Minister considered an industry-funded redress scheme to support enforcement?
To conclude, there should be greater detail in the Bill about how to resource penalties and sanctions to sustain longer-term planning and funding. These are large industries with significant levels of income and profit: they need to be aware that their days of exploiting leaseholders are over and failure to recognise that will cost them dearly. I beg to move.
Lord Naseby (Con)
My Lords, I am delighted to support the noble Baroness on Amendments 14 and 15. I was just reflecting on how important this issue is: hundreds of thousands, maybe millions, of families are affected. The problem probably goes back over half a century. It is to the great credit of my noble friend on the Front Bench that the Bill is before the Committee now, and I say to him “Well done.” In 1968—I see my noble friend Lord Young sitting opposite me—I had the privilege of being elected, somewhat against the odds, as the potential leader of the London Borough of Islington. We won 57 out of 60 seats; we did a deal with the other three, because they were a local community group. I was then elected to be leader and chairman of the housing committee. Sitting here this afternoon, I still remember working really closely with the officers of that authority, from the town clerk down. It was not entirely to do with leaseholds, but it was to do with property and rogue landlords. Two in particular come to mind: a local one called De Lusignan and the one whom we all remember, Rachman. Those rogues and their successors have not gone away—the noble Baroness is absolutely right; they may well have multiplied for all I know. They were a huge problem even in those days.
There is another element, which I can talk about, though some noble Lords might have more difficulty. I have lived and worked in Pakistan, India and Sri Lanka. I have the greatest respect for those countries. I would go as far as to say that I love them dearly; I know them extremely well. As far as I can see, there is a rogue element, particularly in the poorer parts of our country, which exploits vulnerable migrants. That is wrong, and we know that it is wrong, but some local authorities appear to be slow, resistant, unwilling or too conscious of the social situation. In my view, as someone who has taken a deep interest in housing all my political life, that rogue element has to be addressed—it does not matter who they are.
The noble Baroness is right about the figures that are in the Bill. In today’s world, £500 is absolutely no deterrent to anybody: you only have to see what is happening out there in the market. She is right that £5,000 is the beginning of a reasonable deterrent. Personally, I would do a multiplier by five, because £25,000 somehow—perhaps it is the advertising man in me—sings out as even stronger than £30,000. I do not know why that is, but I thought about this when I was working on it over the weekend. I agree with the noble Baroness that £5,000 is the beginning of a proper deterrent, and I think that £25,000 should be the maximum.
Of course, it is for my noble friend on the Front Bench to decide what Her Majesty’s Government believe is appropriate, but all I say to him is that this area needs dealing with, and here is an opportunity to do it. I again congratulate my noble friend and his colleagues on bringing this Bill forward. Let us make a really good job of it.
Baroness Grender (LD)
I thank the Minister for his response. I am very interested in his response about redress schemes—that is something that we could possibly explore at Report. Just to put things in perspective, the Government have recently published a draft online safety Bill which would enable a new online regulator to fine companies up to £18 million or 10% of their annual global turnover, whichever is higher. We are looking at those kinds of equivalents here.
The point about local authorities contemplating a possible windfall is the very opposite of the current scenario, where a local authority will look at a potential freeholder and ask whether, if it goes down the route of attempting to fine for breach of lease, three days’ work alone by somebody with no legal skills will use up the £500 that it would get from the fine. While I appreciate that, as I said in my opening remarks, fines would be across all leases, there is a problem when, if there are multiple breaches for one lease, that is not recognised in the legislation as drafted.
The most important issue is that we need to understand that the penalties and punishments will actually work. We know that there are significant challenges for local authorities to enforce the current systems and that these new systems will seriously struggle and be seriously challenged.
I thank all noble Lords who have expressed their support for these arguments and amendments. Obviously, we will want to revisit this. We will look at the Official Report and see what can be done to continue to pursue this issue, which is all-important because, without enforcement, the Bill is simply not going to work. I beg leave to withdraw the amendment.
Lord Young of Cookham (Con)
My Lords, one of the themes in our debate on Second Reading was the need for a clear definition of what exactly a ground rent is. In addition to those who have taken part in Committee, I recall the contribution of my noble friend Lord Hammond of Runnymede, who drew on his experience in this area to outline some issues about definition. The helpful briefing that we have all had from the Law Society has as its first priority the need to amend the definition of rent in the Bill. It says:
“The main issue with the Bill at present is the failure to distinguish between different types of rent. Although the Government’s clear intention is to tackle ground rents alone, the Bill does not make this focus clear.”
During the proceedings this afternoon, I have had a further email from Mr Hugo Forshaw of the Law Society saying that he is supportive of the spirit of my amendment; he has offered support for a tweaked amendment on Report because, apparently, mine is not absolutely perfect, in his view.
Amendment 21 deals with this important issue. We need an effective and clear definition if the legislation is to work in practice. There is no current clear definition. Clause 22(2) says:
“‘rent’ includes anything in the nature of rent, whatever it is called”.
If I may say so, that is reminiscent of the controversy about self-identification and the context of gender identification—that if you say something is the case, then it is. The Government’s current approach will, I fear, result in litigation to determine the scope of what counts as ground rent. While such litigation is ongoing, leaseholders will have to continue to pay ground rents in all but name to avoid forfeiture. It is therefore essential that there is a workable definition from the day this legislation is commenced, without leaseholders needing to engage in litigation with landlords to establish that definition.
I listened to my noble friend the Minister’s point at Second Reading that the drafting of “rent” had been left deliberately wide so as to avoid providing a target for landlords to work around, but I am not sure this is wise. The drafters of our tax legislation face similar challenges, for example, yet manage to achieve a greater degree of precision than has been achieved here. There is value in ensuring that future leaseholders and their advisers can determine with certainty what is and what is not ground rent. That way, they can at least seek amendments to a proposed lease to avoid ever agreeing to pay a disguised ground rent. This broad definition risks capturing sums often reserved in the lease as rent, and therefore called rent, which may be perfectly legitimate service charges or insurance contributions. As my noble friend Lord Hammond said at Second Reading, they risk capturing market rents granted under a long lease, which is not the Government’s intention.
Leading law firms have echoed the Law Society and my noble friend Lord Hammond in requesting a clear definition of ground rent, lest there be serious unintended consequences. For example, Herbert Smith Freehills says:
“As currently drafted, the form of the legislation does not differentiate between ground rent and any other kind of rent: in short, anything reserved as rent (eg service charge, insurance rent) would be cancelled and unenforceable. Similarly, there is no reference to the rent being of the nature of a ground rent, so if the lease exceeds 21 years, there would, as the Bill currently is drafted, be no way of granting a long residential lease without a premium and at a market rent. We expect these points are likely to be addressed as the Bill proceeds through Parliamentary readings.”
The definition I offer is based on that found in Section 4 of the Leasehold Reform Act 1967, which is also the definition recommended by the Law Society. But I have added to that definition words that relate to any fixed charge, or a charge which varies or may vary by reference to an amount of money, a fixed measure—for example, RPI inflation—or a period of time: for example, a charge which doubles every 10 years. The aim of this drafting is to include within the definition of ground rent any charge that does not vary in accordance with the cost of providing a service or an item. This is done using the well-known and well-understood definition of “relevant costs” in Section 18 of the Landlord and Tenant Act 1985, for which there is already much case law.
The wording of Amendment 21 is deliberately extended to include fixed service charges, for which currently leaseholders have no means of redress. At least one set of barristers’ chambers—Landmark Chambers—has already identified this as a potential weak point in the legislation, allowing ground rents to continue in a different guise. The aim of this drafting is to ensure that charges made in exchange for a tangible service, which may vary in accordance with the cost of a tangible service, are not within the definition of ground rent. That reflects the Government’s policy, as set out in the Explanatory Notes. This strikes a necessary balance between bona fide service charges reserved as rent and any attempt to circumvent the ban on monetary ground rents by adding fixed service charges or index-linked service charges, or escalating fixed service charges which function as ground rents but which are not given that label.
My noble friend may say that, as the Bill applies only to future leases, some of these uncertainties can be resolved by drafting new standard leases for future use. But if either this Bill is amended or a future Bill implements government policy to enable existing leaseholders to buy out their ground rents, this definition may well be used to cover existing leases, so the need for clarity is even greater.
Paradoxically, the existing definition may catch items that are not ground rents— the case mentioned by my noble friend Lord Hammond—but may not capture fixed service charges that should be caught. On that basis, I beg to move my amendment.
Baroness Grender (LD)
My Lords, the definition of rent is an area that requires detailed scrutiny when looking at loopholes during the passage of the Bill. As we heard from the noble Lord, Lord Young of Cookham, at present, as drafted in Clause 22(2),
“‘rent’ includes anything in the nature of rent, whatever it is called.”
This wide definition has set alarm bells ringing. We therefore strongly support this probing amendment by the noble Lord, Lord Young.
As I described in the debate on the first group of amendments today, this is a billion-pound industry which will not let its grip on the market go lightly. It relies heavily on borrowed money to acquire freeholds, all secured on the basis of future ground rents. With the potential of a “rent” unpaid and forfeiture as the pot at the end of the rainbow, we need to make sure that there is some very specific detail in the Bill as to what “rent” means.
The danger is clear, especially on forfeiture, as defining any service charge as “rent” means it must be paid to avoid that forfeiture before a leaseholder can even protest or start to take legal action against the amount charged. The Leasehold Knowledge Partnership has warned that “rent” or a contractual arrangement, as we heard from the noble Lord, Lord Young, could take the form of a fixed payment for arranging buildings insurance or for appointing and supervising the managing agent. Can the Minister say whether, for instance, it is possible to include in a future lease a payment of, say, £200 per year rising in line with CPI inflation as a payment for the landlord’s expenses in arranging buildings insurance if that exists as a fixed service charge rather than a prohibited ground rent caught by the new law? Does he accept or recognise that it would not be possible for leaseholders to challenge that payment as the law stands or is proposed in the Bill? What measures has the Minister’s department taken to ameliorate this all-important issue?
The Bill says that no rent under a lease other than a peppercorn is permitted unless the lease is one of the types of lease excepted from the Bill. But in the Explanatory Notes we are told that the Act is intended to capture any payment under a lease that does not impose an obligation on the landlord to provide a service. LKP trustee Liam Spender put it this way:
“In modern leases, and modern case law, ‘rent’ often has a broader meaning. Many modern leases will define ‘rent’ as including both ground rent and service charges. Some modern leases also specify separate ‘insurance rents’ to cover the costs of buildings insurance arranged by the landlord. It is uncertain if the bill intends to force future leases to be redrafted so that these provisions are no longer described as part of the ‘rent’, or if the bill is not intended to capture these provisions because they are payments for tangible services.”
I look forward to the Minister clarifying some of those points.
Lord Young of Cookham (Con)
My Lords, before I speak in strong support of Amendment 26, I raise an issue on commencement, which I think I raised at Second Reading—namely, whether it is possible to have different commencement dates in England and Wales. It is not entirely clear from Clause 25, as I read it, whether one could specify different dates and whether the possibility exists, for example, for the Welsh Assembly to come to the Minister and say, “We would very much like this Bill to be enacted in Wales way ahead of what you are minded to do in England.”
I turn to Amendment 26. During our first Sitting, my noble friend said:
“In order to move on to further legislative action on leasehold reform, we need to get this Bill through as speedily as possible.”—[Official Report, 9/6/21; col. GC 283.]
When he replied to Amendments 19 and 20 this afternoon he repeated that imperative for speed. This need for a swift passage has been behind the resistance to amendments even when, as we discovered last week, it was an amendment that delivered government policy.
As my noble friend Lord Blencathra said, the force of the Government’s argument is weakened if they will not give a firm date for implementation. All we know is that retirement homes will not be affected for another two years. It seems entirely reasonable for my noble friend Lord Blencathra to argue, as in Amendment 26, for a quid pro quo: swift passage in return for swift implementation.
The other leg of the Government’s argument has been, “Don’t worry if this Bill doesn’t do everything. Another one is right behind.” I expressed some scepticism about this last week; we are still waiting for stage 2 of Lords reform promised in 1997. I know my noble friend’s heart is in the right place but all he has been able to say is that stage 2 will be later in this Parliament, which is scheduled to last until December 2024. That legislation could then have a later enactment date, as this Bill does, so I think it fair to press the Government for clarity. Why not publish a draft Bill later in this Session and introduce it in the next one?
I end with a comment that adds weight to this need for clarity. This Bill was introduced in your Lordships’ House and has had a relatively easy ride, but the other place is full of MPs under pressure from leaseholders in their constituencies. Even the at times assertive language of my noble friend Lord Blencathra will pale in comparison with what Ministers will hear in the Commons, so I strongly urge my noble friend to develop what is known in the trade as a concession strategy on dates if the Government really do want to see the Bill proceed to the statute book without delay.
Baroness Grender (LD)
My Lords, I am really confused by the Government’s approach on this. It seems to be summarised as follows: “Give us this Bill as quickly as possible so that we can take as long as we can and as long as we like to implement it.” The problem is that there is a whole load of future leaseholders out there—and more importantly the marketplace, which believes that this lacks clarity.
Please do not take my word for it. I was reading a blog by Gary Murphy, an auctioneer on behalf of Allsop, which at the moment sells almost half of all London ground rents traded at auction. He notes the intention for this to change over a very long period of time, in the Landlord and Tenant Act 1987, the Leasehold Reform, Housing and Urban Development Act 1993 and the Commonhold and Leasehold Reform Act 2002. He goes on to say:
“Before freeholders panic, and new investors smell blood, we have to remember that reforms in this area have been on the cards since 2017. Recent announcements have amounted to little more than a press release. Whilst effective in courting headlines, they have changed nothing for the immediate future.”
The critical issue is that the marketplace, which needs to be convinced the most that this change is imminent and about to happen, is even less convinced than the noble Lords from whom the Committee has heard this afternoon. Until it is this market will continue, even if it is traded at slightly lower reserves.
The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)
I thought I had a request from the noble Baroness, Lady Grender, to speak after the Minister. Does she now not want to do so?
Baroness Grender (LD)
I will take the opportunity, since I have created so much confusion. I thank the Minister for saying that he will go back and see whether it is at least possible to specify some kind of commencement date. I would very much like to say to him that I think all sides of this House will happily work with him and his department and take recommendations if it is at all possible to specify a date in order to counter the market scepticism that I described to him. If it is at all possible to put a date by the end of this process, we would be very grateful for that move.
Lord Greenhalgh (Con)
Of course, as a Minister I would like to have stronger lines at this stage but it is important to recognise that we need to lay the regulations and ensure that the enforcement of this works, and there are communications challenges. However, taking that all into account, I am sure that we can reach a situation where we provide much greater clarity and we can be more specific around commencement dates. We can work towards that as the Bill moves through this House and on to the next stage.
Leasehold Reform (Ground Rent) Bill [HL]
Baroness Grender ExcerptsWednesday 9th June 2021
(3 years, 9 months ago)
Grand CommitteeRead Full debate Leasehold Reform (Ground Rent) Act 2022 View all Leasehold Reform (Ground Rent) Act 2022 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-II Second marshalled list for Grand Committee - (9 Jun 2021)
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
I call the next speaker, the noble and learned Lord, Lord Mackay of Clashfern. Lord Mackay, could you unmute, please? I will move on to the next speaker, the noble Baroness, Lady Grender.
Baroness Grender (LD)
My Lords, the debate so far has underlined the urgent need for reform across the entire leasehold sector and has reflected some of the strongly made arguments at Second Reading. In particular, many of the amendments are about the 4.5 million current leaseholders who are still captured by this unfair legacy and the failure to shift to commonhold, initiated in the 2002 Act.
I start by taking this opportunity to thank the Minister for discussions in advance of Committee and to stress our strong support for the Bill’s intentions. Its primary purpose is to chop off the head of the snake: the continuing supply of investment opportunities for freeholders on which they can base their borrowing for the next batch of unsuspecting leaseholders. I therefore hope that it goes through the parliamentary process with considerable speed. That said, what we cannot afford is any loopholes that enable this “something for nothing” industry to continue. When we debate later clauses, noble Lords will see that I believe there is a significant loophole that will be exploited: informal extensions, more ON which later.
As the relevant Committee, it is vital that we continue to remind ourselves of the shocking unfairness out there for many leaseholders. Last month, the Daily Mail featured a story about Carole Patterson, aged 44, an administrator in human resources whose ground rent on her flat in south London doubles every five years, rising to £1 million a year in 50 years’ time. The freeholder, MEA Real Estate Ltd, is prepared to waive the ground rent for a one-off payment of a whopping £100,000, described as
“a quarter of the value of the property”.
Given the value of that property, it is now almost impossible for her to sell on. Currently, leaseholders exist in a climate that was probably signed off by a solicitor, supposedly on their behalf. For all the Caroles, it is critical that this reform begin, and soon.
I therefore thank the noble Lords, Lord Kennedy and Lord Lennie, for Amendment 18, which I have also put my name to. It addresses the critical need for a swift resolution to the problem of existing leaseholders, and therefore asks for the next Bill to be delivered in draft form as quickly as possible. We recognise that the Law Commission has suggested a longer period, but the Government do not always do what it recommends. At present, a third of Law Commission recommendations are not implemented, some due to timing, but others because the Government have decided not to implement them. At certain points, politicians need to decide and act. With chronic unfairness built into the system for 4.5 million leaseholders, this is one of those moments.
Regarding the readiness for this change on the part of the freehold investment sector and the ongoing oligopoly of housebuilders, it is possible to argue that, since the leasehold reforms of 2002 or perhaps earlier, they have been forewarned that the clear intention over time of various Governments, of all parties, has been to move out of the leasehold system. If they are not prepared for that scenario, the problem belongs fully with them and not with the Government.
As my noble friend Lord Stunell—also a member of the former Chief Whips club in our own party—said, we of course support the intention of Amendments 1 and 2, in the name of the noble Lord, Lord Blencathra, to move more swiftly to cover all leaseholds. We also support his Amendment 11, which would limit ground rents with a relevant cap of £250 and provide for reimbursement. It is an interesting approach, given that, as I understand it, a property in London with a ground rent of more than £1,000 a year, or of over £250 per annum in the rest of the country, now falls into the definition bracket of an assured shorthold tenancy. That means that for some aspects of leasehold obligations, the courts do not have jurisdiction, especially regarding forfeiture, which was much discussed at Second Reading. I therefore look forward with interest to the Minister’s response to this issue.
Lord Naseby (Con) [V]
My Lords, I too pay tribute to the noble Lord, Lord Best. I am in my 80s and, from talking among friends, I am aware of at least two couples who are beginning to think about retirement homes. The noble Lord, Lord Best, is quite right. We discussed this issue before I even knew it was coming up in the Bill.
This sector of the market is, first, growing—that in itself is very encouraging—and as a country we have been a bit slow in this area compared with other countries. Secondly, it is growing in the sense that it was clear, back in my days as an MP, that there was a scepticism about retirement homes with all these extra facilities, but now it is taken as the norm and people are particularly fussy. If, as the noble Lord, Lord Best, says, a number are caught by this time dimension, it seems sensible that any business that started by the dates he puts in his amendment should be exempt.
I do not understand why 55 was chosen. The retirement age is still going up, so 55 seems a bit generous, frankly. Another 10 on top of it would not have gone amiss, but that is a minor issue. I hope Her Majesty’s Government take the points made by the noble Lord, Lord Best, very seriously; they need addressing.
Baroness Grender (LD)
My Lords, developing adequate housing stock for an ageing population is a significant challenge for this and future Governments. The work of the noble Lord, Lord Best, and the publications by his APPG for Housing and Care for Older People have been essential reading in this area. While we recognise that what is now in the Bill is a compromise achieved following a total exemption for retirement homes in the original consultation, and in spite of the arguments of the noble Lord, Lord Best—whose expertise in this area is significant—when the Minister responds, I still want to understand where the essential difference lies between retirement and other leaseholders, in his or the Government’s opinion. If the straight answer is money required to be spent on common parts, surely a more honest and transparent way to do that is in either the original price or the service charges. However, I hear what the noble Lord, Lord Best, has said today and will study his explanation.
Given that ground rents appear to serve no purpose, as we have already discussed several times and at Second Reading, other than profit for the freeholder or security to borrow to develop more properties, why is this different when applied to retirement homes? I am sure that noble Lords are familiar with the Times investigation into this in November 2019, but it bears revisiting. It uses the example of one retirement property bought for £197,000, in 2009, from the FTSE 250 development company McCarthy & Stone, which was sold for only £26,000 six years later. By the time the flat owner died, she was paying the management company almost £8,000 a year.
The Times went on to say:
“Housebuilders such as McCarthy & Stone argue that without the money they make selling the freehold to management companies they could not afford to provide communal areas for their properties. Yet this is a poor excuse when there are far more transparent ways to raise revenue, such as simply selling their properties for a higher price.”
They often cover that in the service charge. The article continued:
“They insist, moreover, that the majority of their homes have increased in value.”
However, the Times then went on to find that
“one McCarthy & Stone property had lost £45,000 between 2015, when it was bought,”
and 2019. The same investigation found that, as with other leaseholders, elderly relatives are persuaded to use a solicitor who the developer has recommended, who turns out to be the very opposite of an advocate on behalf of the retiree. As the noble Lord, Lord Best, has explained, this group can often be exploited and manipulated.
For those reasons, we are minded to support the amendments in the names of the noble Lords, Lord Kennedy and Lord Lennie, but look forward to hearing the arguments in the closing stages of this debate.
Lord Lennie (Lab) [V]
My Lords, the welcome provisions of this Bill will not apply to retirement properties until at least April 2023, despite previous suggestions by the Government that these properties would be included. This is echoed by the contribution of the noble Baroness, Lady Grender. It represents a clear U-turn, without any explanation, and for this reason I have tabled Amendment 25 with my noble friend Lord Kennedy, intended to bring retirement properties in line with all other homes.
If the Government had placed the April 2023 date in the hope of creating a transition period, the Minister should explain to the Committee exactly why this is needed, when it has been accepted that no period is necessary for other properties, as part of this. Given that over 50,000 people in the UK live in retirement community units, I hope the Minister can explain what consultation has taken place with groups representing those residents and their families.
I am pleased that the noble Lord, Lord Best, who is deeply knowledgeable, has tabled an amendment to consider the application of this legislation to retirement homes where development has begun prior to commencement. I hope the Minister will offer an explanation of what steps the Government will take to support residents, which this clause relates to.
Lord Mackay of Clashfern (Con) [V]
My Lords, this is an amendment on the principles that my noble friend Lord Young of Cookham explained when speaking to his amendment. The only reason why I thought of doing it this way was to make it part of the legislation now, if that was acceptable, with a degree of flexibility in the Secretary of State’s powers to fix the way payment would be adjusted or assessed. I thought it might help to deal with this situation now rather than later. As I said, this is based to an extent on the way feu duty was dealt with in Scotland when it was made compulsory to stop it altogether as we departed from the feudal system. My suggestion may be attractive in the sense that it avoids dealing with a lot of detail now. On the other hand, it may not be very wise to leave it so doubtful, especially when there are other concerns associated with the payment of ground rent, such as the maintenance of insurance policies and so on. I beg to move.
Baroness Grender (LD)
As in the earlier group, we support the principle of this amendment. I reiterate that the elegant drafting by the noble Lord, Lord Young of Cookham, in the earlier group is the drafting that we would prefer—and very much look forward to seeing on Report.
On Amendment 5, our concern would be about any kind of delay in this process, which would be driven by having to produce subsequent drafting of regulations for how the amounts would be calculated. Therefore, we would prefer the wording used by the noble Lord, Lord Young of Cookham.
I also take this opportunity, given that the Minister, in his summing up of the first group of amendments on trying to extend to existing leaseholders, made an argument about the proportion and percentage of pension funds that are currently invested in freehold property and the disruption that this might cause to pension funds, to ask him to elaborate on what kind of proportion that might affect, and what the balance is between the 4.5 million leaseholders who currently experience quite a significant negative impact in terms of ground rent in particular in the abuse of this system, and the pension fund system.
Lord Lennie (Lab) [V]
My Lords, this amendment returns the debate to the question of existing leaseholders and appears to allow existing leaseholders to pay a fee to exempt them from ground rent. As I said in the earlier group, ground rent arrangements are overwhelmingly balanced to benefit landlords and the system needs urgent reform for all involved.
I am grateful to the noble and learned Lord, Lord Mackay, for explaining that this was based on the Scots departing from the previous feudal system, but I am concerned that his amendment, if applied literally, could lead to landlords charging extortionate termination fees. None the less, I appreciate that he sees the need for reforming the system and I look forward to the Minister’s response.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
I have received one request to speak after the Minister from the noble Baroness, Lady Grender.
Baroness Grender (LD)
I should just like to ask the Minister to perhaps write to all Members involved in this debate to give a bit more detail about what proportion of pension funds are impacted, given that my understanding is that the pension funds are fully aware of the intention to abolish ground rents and extend that to existing leaseholders. I should still like to understand the balance of impact between the 4.5 million leaseholders and the pension funds, if that is to be deployed as a significant argument in this issue. I am very happy for the Minister to write to us later about this.
Lord Greenhalgh (Con)
My Lords, I shall try a second time, because obviously I did not manage it the first time. We have not made a commitment to abolish by fiat existing ground rents. We have committed to make it as easy as possible for leaseholders to enfranchise or to buy themselves out of the ground rent obligation. That of course then becomes a phased approach to the 4.5 million people who are paying ground rents. Of course, we are looking to the Competition and Markets Authority to deal with the issue of onerous ground rents. That is the policy position; the noble Baroness is implying something that we have not committed to.
Baroness Grender
“Existing leases: transparency requirement
(1) In this Act an “existing lease” means a lease which meets the following conditions— (a) it is a long lease of a dwelling,(b) it is not an excepted lease, and(c) it was granted before the relevant commencement day of any section of this Act that would make it a regulated lease.(2) Before requiring a payment of rent under an existing lease the landlord must provide the tenant in writing with a justification for the cost of the rent, and an explanation of what the payment will be used for.(3) Section 83 of the Consumer Rights Act 2015 (duty of letting agents to publicise fees etc) is amended in accordance with subsection (4).(4) After subsection (7) insert—“(7A) This section also applies in relation to a payment of ground rent.””Member’s explanatory statement
This amendment would require landlords charging ground rent on leases granted before this Act came into force to explain what the rent is for. It would also require lettings agents to make details of any ground rents available to prospective leaseholders.
Baroness Grender (LD)
My Lords, this is a fairly small amendment but may make a big difference for leaseholders. In a way, it is about replicating what I thought was a very successful late-stage amendment to the Tenant Fees Act. We are trying to introduce a greater level of transparency for leaseholders.
Before being required to pay a rent under an existing lease, the landlord must provide the tenant in writing with the justification for the cost of the rent and an explanation of what the payment will be used for. I fully understand and recognise, given the arguments made at Second Reading and those made so far today, that in reality, a lot of us would say that the ground rent is used for absolutely nothing—except buying a new Porsche for a very wealthy freeholder, for instance. However, I still believe that there should be an explanation and accountability and that we should use the opportunity of the Bill to ensure greater accountability. A lot of people who campaign in the area of leasehold reform want to see a display of comprehensive, accurate data on properties. They want to see how long the lease is, what the ground rent is and what the nature of the ground rent is. We already heard in the debate at Second Reading that some people are charged a ground rent without any notification; suddenly they are asked for a particular sum and they may then get into dangerous grounds of forfeiture if they cannot pay it.
The sentiment I am particularly trying to push for—I will be very happy if the Minister says that the wording is not quite right, but that he understands and recognises the sentiment and will come back with further drafting on Report—is that people who currently have to pay freeholders ground rent should get some sense of accountability regarding the amount, the future amount and what it goes towards.
I also take this opportunity to point out that ground rent demands already have to be accompanied by a statement of leaseholder rights, so there is absolutely no reason why the Government cannot prescribe a standard form of information to be given to leaseholders in this area.
Also, could the Minister in summing up answer a question I asked on Second Reading about the CMA’s action against Countryside and Taylor Wimpey? I asked whether, if the process the CMA is currently undergoing fails and it has to go to court, the Minister would consider putting more emphasis in the Bill on consumer protection law. With that I mind, I beg to move.
Lord Mackay of Clashfern (Con) [V]
My Lords, I support this. It is highly important that a person buying a property which is subject to this kind of rental arrangement should know precisely what its details are, as a necessary condition of the purchase. It seems essential to me to point out the whole nature of the responsibility for ground rent and what can happen, not only next year but in years to come. A person buying a property is entitled to know all the burdens on it at the time of purchase.
Baroness Grender (LD)
I thank the Minister and all noble Lords who spoke in the debate. We have not got to Amendment 13 yet, so I hope we can have a bit more discussion about it in the next group. I thank the Minister, in particular for his point about the CMA. I fully understand what he said. I hope that Ministers feel able to state an intent if the CMA court action is unsuccessful, simply to underline the need for particular developers who are currently on the naughty step to change their ways. I should very much like to revisit that, potentially on Report.
I thank the noble and learned Lord, Lord Mackay of Clashfern, for his support and my noble friend Lord Stunell for his example in Leicester, which I think still holds true in this discussion. I hope to take another look, read the Minister’s words and revisit this on Report. I want to ensure as much transparency as possible for leaseholders. I think we all agree that leaseholders are not given full transparency or provided with full information. That is why so many leaseholders are so aggrieved, particularly the 4.5 million current leaseholders, as opposed to future leaseholders. With all that in mind, I beg leave to withdraw the amendment.
Baroness Grender
This group has two purposes. The first would be to remove Clause 6 altogether to ensure that informal extensions come under the regulations proposed in the Bill; the second, less dramatic amendment would increase transparency in both formal and informal renegotiations or extensions of the existing lease. I shall deal with Clause 6 stand part first.
We see informal leasehold extensions as a significant potential loophole and the next obvious area to exploit for the “something for nothing” industry in this area. Therefore, we wish to ensure that informal leasehold extensions are regulated in the same way. I appreciate that there may be extenuating circumstances where there is a need for an informal extension—for example, if someone inherits a home and needs to make a relatively quick sale on a very short lease—but those circumstances should be the exception, not the rule. I fear that this will become standard practice unless the Government find a comprehensive way to restrict its use. If noble Lords who speak after me in this debate have concerns and examples of the advantages that an informal leasehold extension provides, I am more than happy to hear suggestions of better solutions than this, but the key question for this debate is how to prevent informal extensions being used, as they currently are, to exploit leaseholders and how that can be reflected in the Bill.
I will be using, in particular, specific examples provided in a detailed blog on this issue by Louie Burns. Sadly, he died a year ago. He was a trustee of the Leasehold Knowledge Partnership and an expert practitioner in the area of leasehold extensions. I have taken the liberty of sharing the link to his blog with noble Lords participating in the debate on this group of amendments.
Louie Burns called such offers “Trojan horse offers”. He described an offer from a real case he dealt with, made by a large London-based freeholder, on a property valued at £230,000 with a ground rent of £75 a year, doubling every 33 years, and a current lease of 75 years. The cost of extending the lease using statutory legal rights would be a total of £13,250, securing a lease of 165 years with zero ground rent.
Often, the freeholders in this scenario are professional money makers. They make money from licensing fees hidden in the lease, through claiming a finder fee for the building insurance, when people have no choice as to who building insurance is provided by, through service charges and ground rent—and, of course, through money paid to extend the lease.
The freeholder writes to the leaseholder offering to extend the lease back up to 99 years—which means that, 17 years later, the lease will need extending again —for £10,200, plus VAT of £1,000, with ground rent at £250 doubling every 10 years, with a short deadline of 30 days to make a decision offered by the freeholder. In the small print, of course, the leasehold is extended only to 99 years—or the freeholder may offer 125 years, without explaining that the extension is from the date that the lease was originally granted, not the date of the extension offered.
Louie Burns went on to explain how the costs described, over a 24-year period, added up to more than £100,000, which will go to the freeholder. Please remember that this is a specific real case, which he provided as an example. When compared, unfavourably, with the statutory route, costing about £13,000, with zero future ground rent, that is beyond shocking. We need to bring this sharp practice under some form of regulation.
The other option is to accept Amendment 13, which would impose an obligation to explain. If leaseholders had the full picture and knew both their statutory rights and the full costs over 24 years, say, they would have much greater control. The alternative is an informal extension to 99 years—which, as I said, would have to be renewed 17 years later, and then in turn makes the flat impossible to sell, and prohibitively expensive to maintain, with the ground rent alone.
An informal extension of a lease also means that the leaseholder is not protected by the law, and the freeholder can make changes by saying things such as:
“We are not looking to amend your lease in any way, we will only modernise the terms of your lease.”
Louie Burns, in his blog, told people to beware of the term “modernise” as used here, because it means “amend”. An informal leasehold extension is a quick route for a freeholder to add additional payment. It is also a quick route for a solicitor to receive a fee—which may explain why, often, solicitors do not give a warning.
The statutory route is slower. With banks and building societies now showing reluctance to lend for such leasehold arrangements, yet again, the person who suffers the most, and is caught between freeholder and lender, and cannot sell, is the leaseholder, who has received minimal information. Sometimes Ministers like to solve such transparency issues through guidance. But if the aim is to ensure that the freeholder complies with the law, I suggest that the transparency approach should be in the Bill. I beg to move.
Lord Naseby (Con) [V]
My Lords, the noble Baroness has done us a great service. We have all read about these situations. I am not aware of the details of any of them, but there has been enough coverage in the responsible media for me to see that this is a problem. I hope my noble friend on the Front Bench will be able to address it.
I assume that in this group we are also dealing with my noble friend Lord Young’s Amendment 12, although I notice that it is not listed. It says “After Clause 6”. Is that after this debate?
Baroness Grender (LD)
I thank the noble Lord and all Ministers for participating in this part of the discussion. I fully recognise the need for some level of flexibility and that there is a case for informal extensions. As I said in my opening remarks, I still think there is a danger of this being a loophole through which the industry, which we know is not very responsible or kind to leaseholders, will travel. It will exploit any and every available gap in the law in order to perpetuate itself. For example, when the Government said they were going to ban leasehold houses, the industry rapidly moved to deploy estate rentcharge schemes attached to freehold houses. This ensured that there were still two profits on the sale of every plot and that investors could still access a certain income stream, albeit by a different name. As a result, the consumer—the leaseholder —continues to suffer.
I very much appreciate the Minister’s intention and hope that we continue discussions about how this significant loophole can be closed. I particularly thank the noble Lords, Lord Naseby and Lord Lennie, and the noble and learned Lord, Lord Mackay of Clashfern, for their support for these amendments. Like my noble friend Lord Stunell, I hope that we move to a pragmatic remedy. There is potential for compromise and, with that in mind and an optimistic sense that there will be some compromise on Report, I beg leave to withdraw the Motion that Clause 6 do not stand part of the Bill.