Leasehold Reform (Ground Rent) Bill [HL]

Debate between Baroness Grender and Lord Young of Cookham

Committee stage
Monday 14th June 2021 Grand Committee

[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.

--- Later in debate ---

[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.

Tenant Fees Bill

Debate between Baroness Grender and Lord Young of Cookham

Report stage (Hansard): House of Lords
Tuesday 11th December 2018 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, the co-pilot is in charge of this last amendment, which relates to the charges that can be imposed for variation, assignment or novation of a tenancy. I am grateful to the noble Baroness, Lady Grender, for focusing the amendment, which we discussed in Committee, on capping fees on a narrower range of circumstances than originally proposed, namely where the outgoing tenant finds a replacement. I agree that this should reduce the costs for the landlord and therefore the amount he can charge, because, as the noble Baroness said, the tenant would have done all the donkey work.

However, we have previously agreed that it is not fair to ask landlords and agents to pay fees arising from the action or request of a tenant that varies the original contract they both signed. The Bill provides that a landlord or agent can charge a tenant for a change of sharer, but such fees are capped at £50 or reasonably incurred costs if higher. We do not want to impose a hard cap on the amount.

Landlords and agents should feel able to agree reasonable requests to vary a tenancy. While we do not expect this charge to exceed £50, it is only fair that where it does so landlords and agents can recover their reasonably incurred costs. Further, we do not want to create a situation—I am sure the noble Baroness does not either—where landlords are reluctant to agree to a change of sharer because they think that they will not be able to recover their reasonable costs. This would not help the tenants, who would be required to break their contract if they wanted to leave.

I understand and support the principle of the noble Baroness’s amendment, but I do not think it is necessary. Landlords and agents will need to be able to demonstrate when challenged that their costs are reasonable—for example, if they have incurred a loss in rent from agreeing to a change of sharer. If, therefore, a tenant found a suitable replacement who took over the tenancy and the landlord or agent suffered no loss it would not be reasonable to charge for this and any amount charged in those circumstances would be prohibited by the Bill. A landlord or agent could not double-charge rent.

However, to focus specifically on the noble Baroness’s amendment, there could be circumstances where, even though the tenant found a suitable replacement—I take the point from the noble Earl, Lord Lytton, that it is suitable for the tenant but not necessarily for the landlord—the costs incurred by the landlord or agent could exceed £50. This could occur, for example, if more significant referencing were needed with the replacement tenant or there were disagreements respecting the return of the tenancy deposit that required additional time and renegotiation. Although we envisage such a scenario to be rare, it would not be fair to penalise the agent or landlord in those circumstances. We also would not want the landlord to refuse the replacement tenant found on the basis that referencing and other pre-tenancy checks were likely to be more complicated.

The landlord or agent is not permitted to charge more than is reasonable, so would have to be able to evidence any such additional costs. Our guidance makes the position under the Bill and existing law clear to tenants, landlords and agents. With these assurances, although I understand the disappointment clearly etched on her face, I hope the noble Baroness feels able to withdraw her amendment against the assurances I have given.

[Baroness Grender]

I thank the Minister for his reassurances. I will stick there, since I have the noble Earl, Lord Lytton, backing something I have suggested. With all the amendments we now have in the Bill, which are extremely welcome, we need it to go through as quickly as possible. With that in mind, I beg leave to withdraw the amendment.

Tenant Fees Bill

Debate between Baroness Grender and Lord Young of Cookham

Committee: 1st sitting (Hansard): House of Lords
Tuesday 20th November 2018 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, I am grateful to all noble Lords who have taken part in this short debate relating to the charges that can be imposed for variation, assignment, novation or termination of a tenancy where these are requested by the tenant. We have previously set out that it is not fair to ask landlords and agents to pay reasonable fees where these arise from the action or request of a tenant. Following pre-legislative scrutiny, we clarified that both early termination and change of sharer costs were permitted, so long as these were fair. As a result, the Bill provides that a landlord or agent can charge a tenant in these circumstances, but such fees are capped at £50—one-tenth of the fee charged in the case cited by the noble Lord, Lord Best—or reasonably incurred costs if higher.

Amendments 27 and 28 seek to impose a hard cap on the amount that can be charged and to prohibit this charge in relation to a change of sharer. When considering how to manage these amendments, we share the caution mentioned by the noble Earl, Lord Lytton. We want to ensure that landlords and tenants can agree reasonable requests to vary a tenancy. Although we do not expect this charge to exceed £50, it is only fair that, where it does so, landlords and agents are able to recover their reasonably incurred costs. For example, if a landlord is required to undertake a search, conduct reference checks and amend tenancy deposit protection arrangements for a new tenant with no help whatever from the outgoing tenant, those costs may be higher than normal. Landlords and agents will need to be able to demonstrate, if challenged, that their costs are reasonable. They will have to justify them and, if they cannot do so, trading standards officers may have a case to investigate.

Crucially—this point was mentioned by the noble Earl, Lord Lytton—we do not want to create a situation where landlords are reluctant to agree to a change of sharer because they do not believe they can recover their reasonable, justifiable costs. This would not help tenants, who would be required to break their contract if they wanted to leave, nor would it help those hoping to move in to replace the sharer moving out. This matter was discussed during pre-legislative scrutiny and tenant representative bodies recognised the need for the ability to charge in such circumstances, provided that the risk of abuse was mitigated, which we have done by imposing a cap of £50 and requiring any additional costs to be reasonable. In its report, the Housing, Communities and Local Government Committee said that:

“We welcome the Government’s intention to clarify the legislation and to permit charges related to a change of sharer where these are requested by the tenant”.


Amendments 29 and 30 would place an obligation on the landlord to take reasonable steps to re-let the property where they have agreed to terminate a tenancy early. These amendments would also limit the loss a landlord can recover to the period reasonably required to find a new tenant, even if he was unable to find one.

An assured shorthold tenancy is a contract where a tenant commits to pay the landlord rent for a given period of time, the fixed term. The landlord is entitled to the rent for the entirety of that term. If the tenant seeks to leave the tenancy before the end of it, then they would need to seek agreement of the landlord to do so. Where possible, landlords should agree to this, and can ask the existing tenant to find a suitable replacement. We encourage them to do so through our guidance.

Turning to the amendment introduced by the noble Baroness, Lady Grender, paragraph 6(2) of Schedule 1 says:

“But if the amount of the payment exceeds the loss suffered by the landlord as a result of the termination of the tenancy, the amount of the excess is a prohibited payment”.


In other words, the landlord can only recover any loss they incur in permitting a tenant to leave early. They cannot double-charge for the same period of time. They are entitled to recover only the sum of any rental payments which would not be met by the start of a new tenancy. If a replacement tenant is found and there are no void periods, we would expect no early termination charge to be levied to the outgoing tenant. This has been reiterated in the consumer guidance for tenants and landlords, and we welcome the constructive comments made by the noble Baroness on our draft guidance.

However, looking at the amendment, we cannot necessarily expect landlords to know how long would reasonably be required to find a replacement tenant. This depends on several factors, including the rental market in the local area. Therefore, we expect landlords and tenants to consider on a case-by-case basis the likely void period and any reasonable charge for early termination. Again, we do not want to harm tenants by disincentivising landlords agreeing to a reasonable request to end a tenancy early or to a variation of a tenancy. That is not what this Bill is seeking to achieve, but there is a real risk of this if the amendments are agreed to. On that basis, I hope that the noble Baroness will withdraw her amendment.

[Baroness Grender]

My Lords, I thank noble Lords who have spoken about these amendments. When the noble Earl, Lord Lytton, talks about how one defines “reasonable”, a good look through the guidance will drive him in the direction of asking that question quite a lot, because quite a lot hinges on “reasonable” on both sides of the argument. The idea that we do not expect landlords to charge more than £50, rather than that they should not charge more than £50, is the issue here. I am trying to ensure a proper balance between tenant and landlord when a tenancy ends. I will seek to discover if there is a better way of drafting my amendment for Report or if there is a better way of clarifying this in guidance, and with that in mind I beg leave to withdraw the amendment.

Tenant Fees Bill

Debate between Baroness Grender and Lord Young of Cookham

Monday 5th November 2018 Grand Committee

[Baroness Grender]

My Lords, I support these amendments. I have already raised my considerable concern about the timings. As the noble Lord, Lord Kennedy, said, the Government announced this measure in the autumn of 2016, at the same time as my Private Member’s Bill was progressing through the House, and I was absolutely delighted at their announcement. However, it feels as though it is taking a very long time. I know that the Ministers concerned are not responsible for that—they have worked very hard to push this through.

When the Government first started consulting on this issue, they rightly changed their mind and agreed to take a look at it. The consultation showed that the poorest tenants are being ripped off time and again, and that will not stop. If anything, it will get worse in the intervening period before this legislation is introduced. I am hugely in support of the legislation being introduced as quickly as possible. Generation Rent was talking to me about this only this morning. It is receiving evidence that letting agents are becoming more assertive over their administration fees to make up for what they believe to be a shortfall.

As I said at Second Reading, other organisations are playing a significant role in this matter. OpenRent, which I will mention in later arguments, started in 2012 and is now the largest letting agent in England and Wales. It has made a profitable model on the basis of never charging fees to tenants. Therefore, it is perfectly possible for an industry to be ahead of the legislation. However, with the exceptions that I have described, this particular industry is not ahead of the legislation, although it has been warned again and again. There has been working group after working group on this issue.

I was absolutely delighted that the Government decided, very wisely, in the Autumn Budget Statement of 2016 to flex their muscles and get on with this, but we need to do it. I would find any further delay, or suggestion of it, in the Bill extremely worrying, which is why I support the amendment.

[Lord Young of Cookham]

I am grateful to noble Lords for taking part in the debate. They have made their impatience over the date of commencement absolutely clear. We agree that we want this legislation to come into force as soon as possible, not least to protect the tenants referred to by noble Lords.

However, we need to strike a fair balance between protecting tenants and allowing landlords and letting agents time to become compliant with the legislation. The ban is not about unfairly penalising landlords and letting agents or driving them out of business. We have said that implementation will not be before April 2019; we intend it to be as soon as possible after that. Of course, at the moment we do not know when it might get Royal Assent. I understand that but we believe that there needs to be a reasonable gap between it reaching the statute book and it being implemented.

Turning to Amendment 13, the transitional provisions in Clause 28 provide that for the period of a year, the ban will not apply to tenancies whose terms were agreed prior to commencement. Similar transitional provisions are made for agents’ agreements with tenants. The amendment moved by the noble Lord, Lord Kennedy, seeks to reduce the period in which a landlord or agent could accept a payment prohibited by Clause 1 from one year to six months. We have already sought to give tenants greater clarity and protection with respect to the commencement date. Crucially, we have revised our position from that in the draft Bill, where there was no end date by which fees could be charged in pre-commencement tenancies. There has been a considerable shift towards protecting those who have already signed their contracts.

The noble Lord, Lord Kennedy, recognised that a transition period is necessary—his amendment proposes a slightly shorter one—because although most fees are charged at the outset of a tenancy, some landlords and agents will have agreed that tenants should pay other fees, such as a check-out inventory fee, at a later stage. Tenants will have signed contracts accordingly; we need to allow time for landlords and agents to renegotiate them to ensure that the legislation does not have a significant retrospective effect.

Our view is that 12 months is fair for the transition period. Data from the English Housing Survey shows that 45% of tenants had an initial tenancy of 12 months and 36% had one of six months. Reducing the period in which a landlord or agent could accept a payment prohibited by Clause 1 would mean that more landlords and agents with pre-commencement tenancies would be at risk of not being able to renegotiate their contracts and would not receive fees that the tenant had previously agreed to pay. Again, we do not believe that this would be fair.

We recognise the importance of having a clear point where the fees ban applies to all tenancies. As drafted, the transitional provisions mean that all tenants will receive the benefits of the fees ban one year after it comes into force; as I said earlier, initially there was no such arrangement. Unlike the proposed amendment, the provisions ensure that agents and landlords will not be significantly impacted on financially and will have the opportunity to review their contracts during the transitional year. I hope that the noble Lord will feel able to withdraw his amendment against the background of that explanation.

Housing Associations

Debate between Baroness Grender and Lord Young of Cookham

Thursday 8th February 2018 Lords Chamber

[Lord Young of Cookham]

The stock of social housing fell by 420,000 under the last Labour Government. More council houses—social houses—were sold than built. We have reversed that: more social houses are now being built than sold and the stock has increased by 86,000 since 2010. The receipts from right to buy are reinvested in social housing. Far from the policy of generating receipts disadvantaging those on the housing list, by generating more receipts for local authorities to reinvest it increases investment in social housing.

[Baroness Grender (LD)]

My Lords, does the Minister believe that there is a crisis in this area, given that last year saw more homeless children than we have seen in a decade? Does he recognise that it is hard to believe that this Government see it as a crisis if expenditure is 79% on private housing and 21% on affordable housing? As he well knows, “affordable” is not really affordable for families on low incomes.

[Lord Young of Cookham]

The noble Baroness will know that, for any given sum of public investment in housing, you can build either more houses at slightly higher rents or fewer houses at slightly lower rents. In 2010, her party and mine decided to go for the higher-output option. That was the right decision at the time to make faster progress in adding to the stock of good-quality, permanent homes for rent. In October last year, the Prime Minister announced an extra £2 billion for affordable housing and made it clear that a big chunk of that should be redirected towards social housing, as the noble Baroness suggests. We have listened to the representations from housing providers. The £2 billion will be available for social rents as opposed to affordable rents, and by lifting the cap on what local authorities can borrow we are enabling local authorities to build more council houses.