Leasehold and Freehold Reform Bill

Debate between Baroness Jones of Moulsecoomb and Earl of Lytton

Committee stage
Monday 29th April 2024 Lords Chamber

[The Earl of Lytton (CB)]

I will be very brief. Some of the costs that have arisen are as a result of Fire Safety Act and Building Safety Act provisions set up by the Government. Some time ago, I asked the people I work with to set up an online resource, which I commend to noble Lords. It is www.buildingsafetyscheme.org. I hope that it will help a number of people to unpick what is a very complex situation.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, the number of amendments discussed today highlights just how many issues there are with the exploitation of leaseholders. The noble Baroness, Lady Taylor, mentioned the option of some pre-scrutiny with people who have expertise in this area—although I am not suggesting that I am one of them. That might have benefited this legislation.

Normally, with leasehold properties, people think that they are buying a house or a flat, but then they are laden with decades of financial obligations to a landlord who can charge a ridiculously long list of things to the leaseholders. That does not seem to be a very fair system. There are far more problems than your Lordships’ Committee will be able to resolve, so there is clearly a need for further legislation when a new Government come to power. I hope that the new Government will consider the issues raised in Committee, including my Amendment 78B, which shines a light on the growing trend of public assets being funded by leaseholders. For example, green spaces, play areas and roads are often being charged to leaseholders, even when they are freely accessed by the wider community.

These leaseholders are facing a double taxation: they are paying their council tax, which is used to fund play areas and roads provided by the local authority, and they are also being charged by their landlord for play areas and roads that are within the estate. There seems to a case for these publicly available assets to be brought into local authority management, ownership and funding. I would appreciate it if the Minister, and any budding future Ministers, could give their thoughts on the issue and perhaps undertake to look at it further.

Levelling-up and Regeneration Bill

Debate between Baroness Jones of Moulsecoomb and Earl of Lytton

Wednesday 3rd May 2023 Lords Chamber

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I rise to speak to Amendment 411, in the name of my noble friend Lady Bennett, who cannot be here at the moment. Before I do that, I would like to pay tribute to the Government Front Bench and the Opposition Front Bench for showing real stamina, tenacity and forbearance on this Bill. It is far too big and the only good thing about it—well, it does introduce some good things—is that it stops us discussing even worse Bills.

On 411, I am a former councillor and I had thought that this was possible for councils—but, if there is any doubt at all, we have to make sure that it goes in, because it is incredibly important that we start to increase our supply of affordable housing and social housing. The whole right-to-buy privatisation was very successful for some but, of course, those houses have never been replaced, and with a rising population it is incredibly important that people have a home that is affordable and secure.

The rental sector is failing at the moment. I gather that a lot of people who have bought to rent are leaving the market because it is so complex. So there are houses, but they are mostly going up for auction and being sold mostly to developers; I have absolutely no idea whether that will help.

I am not convinced about hope value, I am afraid. It sounds like an extremely Tory motivator to increase the value of your property immediately before it gets bought. It sounds like greed to me—forgive me—so I will not support any of those amendments.

On Amendment 411, if there is no clarity on whether it is possible to buy land in that way, we will bring this back on Report.

[The Earl of Lytton (CB)]

My Lords, I rise to speak to the question of whether Clauses 174 and 175 should stand part and, to some extent, to government Amendment 412D. I thank the noble Lord, Lord Carrington, for his masterly introduction.

I intend to focus more on what I hope will be the technical side. I have a sort of background here. I dare say that I am the only person in this House—probably in the Palace of Westminster—who had to deal with a development land tax calculation when I worked in public service. I recall those years very well, because the entire land supply dried up during that period. I will try to give a bit of technical background without making it overly complicated.

I, too, am grateful to the Compulsory Purchase Association and Mr Raj Gupta of Town Legal for their comments. Mr Gupta kindly gave me permission to quote from one of his emails, which I may do later.

This is all to do with the question of hope value. If I can loosely paraphrase, this is regarded as an excessive element of value that is so far divorced from current purpose, use and enjoyment that it is regarded as offensive. The first thing you have to know about hope value is that there is a lot of it about. On the outskirts of every village and town in every municipality, there is land that is tied up by legal agreements or whatever that are to do with this inflated hope value. So the first thing we need to bear in mind is: what do you do about the bits where stuff is already in the pipeline? If you put a block on that, it will have consequences.

Hope value does not exist in isolation from the umbrella of market value. Market value combines various things; it may be a current use value, an alternative use value and a hope value. Wrapped together, they form this construct of market value. Things such as hope value are not objectively measurable in their own right, which becomes a bit of problem; I remember that problem from dealing with development land tax calculations, where the question was about the current use value that had to be entered on the form on which one was making the calculation.

However, market value has a clear, established, internationally recognised definition. It is capable of independent corroboration by what is happening in transactions, which are evidenced—that is, the evidence can be produced from within the marketplace. I will leave aside the complexities of specialist things such as going concern value, but this question of hope value rests on the belief that an asset is capable of being made to be worth more, with value being added in some way, such as through works or changes of use, possibly with the prospect of development but possibly by simply bettering what is already there.

Development, by definition, also includes permitted development rights; it is a form of development. The question about that is how to single out those things that society, until now, has regarded as being part of the entitlement of ownership—namely, permitted development rights—from these other excessive sums, if “excessive” is the right term.

The rules for compensation for compulsory purchase have been developed over nearly 180 years and, in modern terms, use market value as their baseline. They sit alongside issues of human rights in relation to, first, the reasonable enjoyment of one’s property and, secondly, the right not to have it taken away other than for demonstrably compelling reasons of public interest—of which more anon—and then only on the basis of fair compensation determined, in the event of a dispute, by an independent adjudicator. So far, so good, as I am not for one minute suggesting that human rights justify a hugely disproportionate level of value. But this is tied into this construct of market value. If one were to start filleting out market value, there would have to be a better definition or one closer to that referred to by my noble friend Lord Carrington.

Pivotal to all this is the concept of equivalence, and it will become apparent why I am talking about this. Equivalence is the ability to buy an equivalent asset from the money gained from the compulsory process. Put another way, the compensation should put the owner in the same position, as near as money can make it, as they would have been but for the compulsory acquisition. That principle was established long ago in a case called Horn v Sunderland.

Particular things need to be borne in mind here. First, the special interest of the acquiring authority is always to be disregarded where it could be realised only as part of the authority’s scheme. That is a given and has been a factor for a long time. Secondly, any reduction in value by virtue of the acquisition being compulsory should also be disregarded, and that is at both ends of the spectrum. Also, the compensation is to be paid in full at the time of taking the land or else interest runs thereon, and any reasonable costs or losses associated with and arising from the act of it being a compulsory acquisition should be paid as part of the compensation.

Clause 174 refers to “no-scheme” minor amendments, but in amending the Land Compensation Act 1961 it seems to go further than the strict purpose of simply eliminating those aspects of value that could be realised only by a scheme involving compulsory powers. It seems to dig deeper than that. The question is how deep and where that process ends. It also amends the definition of compulsory purchase purposes to a point where what it defines could be seen as part of the normal current use rights and not the sole preserve imported by the acquisition scheme itself. I refer to the words “re-development, regeneration and improvement”, which is a very broad definition.

Clause 175 sets out to reinforce this in relation to assumed developments under certificates of alternative development. This is clearly something that the Government want to make harder for claimants and, conversely, easier for acquiring authorities. I will not go any further on that, because my noble friend Lord Carrington covered it pretty well.

Government Amendment 412D introduces a new scheme of Secretary of State direction enabling acquisitions to be made at existing use value in certain circumstances. However, the provision is rather complex and has a sting in the tail in that, after 10 years, if the land has not been used for the specified purpose, which has to be specified up front, there is a potential claw-back. As I see it, it also muddles the justifications of public interest and the rationale for having CPO powers. The two are not the same.

With regard to the ostensible aim to provide more affordable housing, here are some home truths: the amount that the owner of bare, undeveloped land gets after the costs of obtaining the planning assent is typically in the range of 8% to 12% of the finished product value, otherwise known as the gross development value. The complaints about high land values—I know this from having analysed spreadsheets with all this information on them—often come from housebuilders and ignore the effect of the additional rolled-up cost of obtaining planning permission and the very substantial costs on risk of speculatively financing these. The whole planning process makes it more expensive.