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.