Leasehold and Freehold Reform Bill

Baroness Pinnock Excerpts

Committee stage
Wednesday 24th April 2024 Lords Chamber

[Baroness Pinnock (LD)]

My Lords, I have added my name to Amendment 55, in the name of the noble Baroness, Lady Taylor of Stevenage, because it seems to me, as it does to the noble Baroness, that this is one of the clear injustices in the current leaseholder-freeholder relationship. The amendment is rightly restricted to the abolition of forfeiture of a long lease.

I thought it was straightforward until I heard the noble Lord, Lord Truscott, outline some of the issues that he believed could be addressed only through forfeiture. I was surprised that we have to go to such draconian ends to deal with a fairly straightforward neighbour dispute.

[Lord Truscott (Non-Afl)]

The problem is that, if you try to enforce a lease, what is your route? The only other route would be to go to the High Court, and that would be a very lengthy process. I am saying that the threat of forfeiture is often enough for people to see sense. I have never come across a case in which people have actually gone through the whole process of forfeiture.

[Baroness Pinnock (LD)]

I thank the noble Lord for expanding on that.

It would be interesting to hear from the Minister whether there are any statistics regarding freeholders using the forfeiture system to address not the issues that are normally referenced—failure to pay ground rent or an accumulation of three years or more of debt—but breaches of the lease. It would be helpful to understand all that.

As the noble Baroness, Lady Taylor, has said, if the payment in lieu is more than £350, or is outstanding for more than three years, the freeholder is entitled to claim repossession—and then all the equity in the property is lost, of course. When I first looked at this, I could not see how it could possibly be right. I remember that, at Second Reading—I was just trying to find it in Hansard—the Minister said that the Government were considering bringing forward an amendment to address this issue. It is unfortunate that that has not been forthcoming in the time that has elapsed between Second Reading and Committee. Perhaps in her reply, the Minister can say whether the Government intend to bring an amendment on Report. It would help us resolve what is, on the face of it, a complete injustice. It would be sufficient if the Minister said that that is going to happen, and maybe those of us who have signed the amendments could have a meeting with her to discuss it, if necessary.

[Lord Bailey of Paddington (Con)]

I support this amendment. Although in his intervention the noble Lord talked about how to control peoples’ behaviour when they have misbehaved and breached their lease, it should be taken into account that the threat of forfeiture is held over leaseholders, in a very draconian fashion, for the smallest infraction. More importantly, it is used to enforce such things as the flagrant and inequitable boosting of service charges. If you are in dispute in this situation, you are told you will end up having to pay court fees. You are told that, if you do not pay—

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Moved by

[Baroness Pinnock]

63: After Clause 50, insert the following new Clause—
“Report: restrictions around ground rent investments(1) Within six months of the day on which this Act is passed the Secretary of State must lay before Parliament a report outlining the impact of this Act on ground rent investments.(2) The report in subsection (1) must also make an assessment of the impact of—(a) prohibiting future ground rent investments, and(b) encouraging divestment from existing ground rent investmentson leaseholders and freeholders.(3) In this section “ground rent investment” means investment by a pension fund or other type of fund in leaseholds for the purpose of collecting ground rent.”Member’s explanatory statement
This is a probing amendment that would require the Government report on the impact of this Act on ground rent investments, and the impact of prohibiting future ground rent investments and encouraging divestment from existing ground rent investments on leaseholders and freeholders.

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[Baroness Pinnock (LD)]

My Lords, Amendment 63 in my name was tabled to probe the impact of the proposals in the Bill on ground rent investments, and the effect of prohibiting future ground rent investments, and encouraging divestment from existing ground rent investments, on leaseholders and freeholders. The Government’s intentions appeared to be clear. In 2022, the Leasehold Reform (Ground Rent) Act effectively set the ground rent on new leases at zero, so the direction of travel seemed set. Further, last November, the Government launched a consultation on ground rents, which included capping the charge at a peppercorn rate for existing leaseholders.

The Secretary of State said at the time that the aim was to help protect those leaseholders who

“can be faced with ground rent clauses in their leases which result in spiralling payments with no benefit in return”.

Now, apparently, the Government have backed off from a fundamental reform and seem set on phasing out ground rents over a period of 20 years and setting a cap on ground rents at £250 per annum.

The fundamental question we have to ask is: what benefit do leaseholders accrue from paying a ground rent of, for example, £250 a year? The answer, is, of course, that ground rents really are a something-for-nothing payment—I bet you would not get away with this in Yorkshire. If the Government are determined, as they initially said they were, to bring fairness to leaseholders, then ground rents would be consigned to history.

However, on the other hand, ground rents provide a steady income for institutions as well as individual freeholders. It seems that the pressure on the Government to row back from abolition or peppercorn was sufficient to cause considerable backpedalling.

The Society of Pension Professionals—which the noble Lord, Lord Truscott, referred to six hours ago—has examined this issue as a result of much being made about the potential impact on pension funds of reducing ground rents to either £250 or zero. The following is a statement from the Society of Pension Professionals:

“Freeholders are already prevented from charging ground rents on new long leases (of more than 21 years), so it’s perhaps understandable that the government wants something similar for existing long leaseholders. The government estimates that capping ground rents at £250 a year would decrease the value of affected property assets by £14.6 bn or £27.3 bn if rents are reduced to a peppercorn. If these proposals become law, there may be some short-term impact on pension fund investors through asset values being written down. Certain pension funds may also be impacted where they own freehold titles directly, although that will be less common. The effect of these proposed adjustments is likely to be more significant for such investors than the loss of annual ground rent income over the term of the lease”—


I emphasise this next part—

“but the scale relative to total assets is probably not that significant for most in the long-run”

That is an authoritative statement, and I would like to hear a full response from the Minister—probably in writing given the late stage of the evening—as this reform is a critical part of leasehold reform. Before Report, we need to see the detailed proposals from the Government and a full explanation of their reasons.

In conclusion, these Benches want the iniquitous system of ground rents to be abolished or at least reduced by introducing a peppercorn as the set fee. I beg to move.

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[Baroness Scott of Bybrook (Con)]

The Government have no control over what goes into the media, and it is something that the Government have to accept.

[Baroness Pinnock (LD)]

Let us end on a positive. I thank the Minister for her response. There is agreement that unregulated ground rents are unacceptable, and that some freeholders are unscrupulous and exploit their leaseholders, holding them to ransom, as the noble Baroness, Lady Taylor of Stevenage, said.

However, it would be really helpful if, as we complete the various stages of the Bill, the Minister could confirm that the Government will be able to bring forward a detailed amendment regarding ground rents before Report; otherwise, those of us who raised this issue in Committee will raise it again on Report. Unfortunately, this will put the Minister in a difficult position, one in which she has to say, “In due course, something is going to turn up”. Let us send a message to the department that “in due course” means “before Report”.

Amendment 63 withdrawn.