Leasehold and Freehold Reform Bill

Baroness Pinnock Excerpts

Committee stage
Wednesday 24th April 2024 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)]

My Lords, I thank the noble Baroness, Lady Andrews, for her Amendments 23 and 24 on development value. I also thank her very much for meeting me on this subject.

The amendments would introduce a scheme where enfranchising leaseholders would not pay development value if they guaranteed that they would not develop for a period of 10 years. Under the current law, lease- holders are sometimes required to pay development value when collectively enfranchising a block of flats. This is the value of the potential future development of the property, such as through adding another storey to the building, as we have heard. We recognise that development value can make the cost of enfranchisement prohibitively high.

We are committed to bringing forward a workable scheme and are exploring this area further. It is, as we have found, however, an area fraught with loopholes and technical detail. To be honest, it will take us time to get this right.

Before I finish, I want to bring up permitted development, because all noble Lords have brought this up. As noble Lords probably know, the Government have recently consulted on making changes to various permitted development rights. The consultation ran for eight weeks from 13 February to 9 April. We are considering the responses and I am sure we will have a debate on those in this House in due course.

The noble Baroness, Lady Andrews, is right about this issue. We know about it and we support her, but it is difficult. I would like to meet her again, and anybody else who would like to come, to go through her amendments in detail and take things forward in that way.

[Baroness Pinnock (LD)]

Could the Minister tell the Committee whether the problem that the noble Baroness, Lady Andrews, has defined could be resolved by removing permitted development rights altogether on these blocks of flats? This goes back to what was the case. If any development was proposed, it had to go through the normal application to the local planning authority.

[Baroness Scott of Bybrook (Con)]

I do not think that would be a sensible solution, because there might be times when permitted development might be the correct thing to do and everybody might be happy about it, including those leaseholders who have enfranchised. We need to take this steadily because it is fraught with complexity.

--- Later in debate ---

There is one last point here, which has been made already. This is a matter of confidence in the system that we have: do we have a rules-based system or do we not? What would happen to our wider reputation as a country where investment in property and this sort of thing can be made? What else might be taken away at a moment’s notice? I fear for that. If we are not to have greater reticence and a response to risk in terms of short-termism and a degree of hedging of bets—which, in valuation terms, leads to higher costs and lower values—we need to be very careful about what we are doing. On that point, I will sit down.

[Baroness Pinnock (LD)]

My Lords, the debate on this group of amendments has taken an interesting turn. I was not expecting to be discussing expropriation or to hear reference to the European Court of Human Rights, particularly from those who have in the past criticised it. I was not expecting the debate to hinge on the rule of law, of which I had thought we had a good example in previous days.

[Lord Moylan (Con)]

I am very grateful to the noble Baroness for giving way. If there is any suggestion that I have been critical of the European Convention on Human Rights, if that remark was addressed to me, I should be glad to know when that was the case because I have never said that we should withdraw from that convention. I do not know whether the remark was addressed to my noble friend Lord Howard of Rising and not me. If that was the case, I apologise for intervening.

[Baroness Pinnock (LD)]

There was, of course, no mention of or reference to any noble Lord in this Chamber. It was a general reference to criticisms of that court under the human rights legislation. We have heard in debates in your Lordships’ House over the past weeks that have hinged on the rule of law. So it is most interesting, for those of us who have felt that the rule of law had been breached in the decisions that have been made, that it is now being raised in defence of these amendments. The debate has become emotive on this issue.

I hope that we can draw back from that rather, because what we have here is the Government’s intention to rebalance the rights of leaseholders as against the rights of freeholders. From these Benches, we support the rebalancing of those rights. In many cases, we think that the Government are not going far enough, but there ought to be a rebalancing of those rights. That is not referencing in this case the fact that there seems to be an argument among those who have moved or supported the amendment, that the loss of value can be defined as an expropriation. I find that difficult to accept because all along, in changes to legislation on major infrastructure projects, property is infringed and property holders feel abused. But it is for the state to make those decisions. So I am not sure why we are going to the barricades on this issue.

[Lord Moylan (Con)]

I am grateful to the noble Baroness for giving way. In the case of infrastructure, it is certainly true that private property owners can have their property taken away from them to allow infrastructure to be built. But this is under a compulsory purchase regime whereby they receive something approaching the market value, normally plus a premium of so many per cent on top. My amendment would ensure that those expropriated of their marriage value would receive that. Is the noble Baroness, in fact, swinging in behind my amendment? There is a clear difference between what is proposed today and the compulsory purchase regime.

[Baroness Pinnock (LD)]

I thank the noble Lord for his intervention. To me, the issue here is quite simple. We expect leaseholders to fund the enfranchisement of their lease—to pay the costs of the enfranchisement—and then to share the increased value of the lease with the freeholder, who has made no financial input to the extension of the lease. From a leaseholder’s point of view—although I do not have a leasehold myself—that seems to me to be the wrong balance. This is what the proposals in the Bill are attempting to put right. From that perspective, we would want to agree with that.

We are constantly warned that no investments can be regarded as safeguarded for all time. That must be true for property as it is for any other investments. We have heard arguments this afternoon about protecting freeholders, seemingly for ever. I accept the argument of the noble Baroness, Lady Deech, that phasing might be an answer to freeholders’ difficulties, but you cannot keep things in aspic for ever. Change is on the move and the Government are right to try to provide a better balance of rights and responsibilities between freeholders and leaseholders.

We on these Benches would prefer to move entirely to commonhold—but that argument has yet to be completed. I accept that the situation is very complex. Whenever we have a substantial change in legal rights, there is a loss on one side and arguments about that, and benefits on the other. Nobody can be absolutely clear and certain how the balance will be reset.

[The Earl of Lytton (CB)]

I take the noble Baroness’s point about things changing, but I ask her to cast her mind back—although she was not there at the time, any more than I was—to the great reforms in the Law of Property Act 1925. There was a big discussion about all sorts of matters to do with tenure and getting rid of things such as entails, and modernising the system. If we are to make a seismic change—and I think this Bill will produce something of a wobble—there ought to have been that big discussion about the fundamentals of property law. Does the noble Baroness not agree that, instead of tinkering around piecemeal with this and trying to shoehorn it into the unfortunate focal point of leasehold reform and the balance between leasehold and freehold, that discussion should have taken place first?

[Baroness Pinnock (LD)]

I thank the noble Earl for that intervention, because he is right in many cases. I am not a lawyer, but I know that the 1925 property Act made a huge change away from the old system, which was feudal at that point, and modernised property legislation. This Bill may do the same. In some instances, as we have heard this afternoon, it will have big consequences—for freeholders, in the context of this set of amendments. I accept that maybe there ought to have been—as we heard on Monday from the noble Lord, Lord Young of Cookham—a draft Bill on commonhold. Maybe it requires an in-depth, cross-House, cross-party committee to get into the detail, rather than the 300 or so pages of the Bill that we have in front of us, in order to get to grips with the consequences of what is being proposed.

I go back to the principle, and the principle has to be right. We are trying to rebalance the rights between freehold and leasehold. There is frequent talk on the Conservative Benches that the basis of Conservative philosophy is a property-owning democracy, but leaseholders will not be full participants in that until these changes are made. So it will be interesting to hear what the Minister has to say with regard to this very challenging debate.

[Lord Khan of Burnley (Lab)]

My Lords, this has been a more wide-ranging debate than was anticipated at the beginning of the group. The noble Lords, Lord Howard and Lord Moylan, made some interesting points in introducing their amendments, and it is for the Minister to clarify and address her noble friends’ concerns. All three amendments in this group attempt to make changes to Schedule 4, which is where the market- value element of the premium for any enfranchisement claim is determined.

I listened to the noble Baroness, Lady Fox of Buckley, in relation to the European Convention on Human Rights. Although we have differing views on that, it is interesting how legislation and the regard for international law are debated in different debates in this House—without pinpointing any noble Lord in particular.

The noble Baroness, Lady Deech, laid out and stipulated the complexity of the issue as a teacher in property law, while the noble Lord, Lord Thurlow, as a student of property law, made some interesting points about complexity and about working and bringing change in a fair manner.

In conclusion, I ask the Minister what consideration the Government have given to the principles of grandfathering for leases of various lengths and other conditions when developing the Bill? For example, in the instance of a lease of a very short length, when the Bill becomes law, what are the ramifications of the Bill as it is written? Do the Government think that some shorter leases are going to be treated in a way that may be fairer on wider principle but do not seem appropriate, given the shorter lengths? If so, did they consider any mitigation?

I finish by referring to my noble friend Lord Truscott, who advocated in a diligent manner the ending of marriage value and talked about the wider unfairness in leasehold properties. I look forward to the Minister’s response.

--- Later in debate ---

[The Earl of Lytton (CB)]

I believe it means that it cannot be disposed of away from the purposes of the charity. I am not a lawyer and I am afraid I do not know exactly, but I understood it to be the term contained in the Minister’s letter to the right reverend Prelate, which is why I used it.

I want to make it clear that the organisation of a charity is necessarily of a commercial nature but devoted, ultimately, to its charitable purposes. It cannot be otherwise; it must use its assets optimally, and it is required to do so. I can see no discernible difference between something like the National Trust and an organisation such as the Church of England. Any such charity acquires, disposes and otherwise deals with its land assets as a matter of course. It is required to do so if it is disposing according to a set of rules, with which I am familiar, under the Charity Commission: CC 28, which state that you have to get best value for the asset, or words to that effect.

I am concerned about the potential hybridity aspect of the Bill, to which the right reverend Prelate did not refer, but it is implicit in what he is asking. It is a question that needs to be raised and is a procedural one for this House. I would very much like to know the answer, and if the Minister, who has not had any warning, cannot give it today perhaps she would be kind enough to write and copy in other noble Lords who are listening.

[Baroness Pinnock (LD)]

My Lords, I thank the right reverend Prelate the Bishop of Manchester for drawing our attention to the fact that when you make complex changes, the consequences cannot always be predicted and may not be ones we would wish to support.

The issue is one I hope the Minister will be able to help us resolve. The right reverend Prelate cited the balance between justice and simplicity. He said to always come down on the side of justice, and so would I. However, in this case, we have competing justices. The principle being advocated throughout the Bill is the justice of rebalancing the rights and responsibilities between freeholders and leaseholders to the benefit of leaseholders—a principle most of us support. The difficulty is that the justice we support has a consequence we would not support: reducing the funds available to charities whose income is based on freehold property. So, there is a conundrum for us.

The right reverend Prelate listed the charities that he thought were affected by these changes. I noted they were all London-based, no doubt because of land values in London. It is important for us to know whether this is a more extensive problem, or a London-based one. The first question we need to ask is, what other charities will be affected?

I do not have an answer to the next question: is there a workaround that mitigates the effect of the principal changes the Bill seeks to implement? I am sure the bright young things in the department could come up with a way of mitigating the outcome, so that charities do not lose their income, which is in nobody’s interest. I am confident that somebody will come up with a great way of overcoming this problem, while retaining the other justice: fairness towards leaseholders.

So, there are questions but no answers, and I look forward to hearing what the Government might be able to do.

[Baroness Taylor of Stevenage (Lab)]

My Lords, this debate has again outlined what a huge benefit it would be to have proper, detailed pre-legislative scrutiny of Bills such as this. I hope that will take place when we get a commonhold Bill, whoever brings it forward.

In principle, I am in much of the same mind as my noble friend Lord Truscott when it comes to special pleading on marriage value. I fear that the amendments in the name of the right reverend Prelate the Bishop of Manchester are in danger of being an almighty sledge- hammer to crack not a very big nut, and my comments are made on that basis.

First, I thank the right reverend Prelate and Lynne Guyton, from John Lyon’s Charity, for meeting me yesterday to explain the issue in more detail. The issues set out by the right reverend Prelate affect a very small number of charities, such as the ones in central London that he has outlined. They have been in place for centuries and, as was explained to me, use marriage value on lease extensions as a critical contribution to the funding of their charitable work. The leaseholders of these properties are largely offshore companies or non-residential wealthy owners, so the argument put forward by the charities is that, in this case, the benefit of marriage value has what the right reverend Prelate described as the “reverse Robin Hood effect”. The benefit currently accrues to the beneficiaries of the charity, such as youth clubs, arts projects, emotional well-being initiatives, supplementary schools, parental support schemes, sports programmes, academic bursaries and similar projects. I thank the noble Lord, Lord Bailey, for his personal testimony in this respect.

The fear is that, after the Bill has passed, the benefits will then accrue to the said wealthy offshore companies and leaseholders. I believe the Government have been in conversation with the charities concerned and have promised to look at what can be done to ensure that a very limited exception is considered. However, it is our understanding that this has not been forthcoming, and I hope the Minister will tell us where the Government have got to. Have the Government carried out any impact assessment of the way the Bill will affect charities that have long-standing property endowments solely for the purpose of enabling their charitable aims?

However, as with group 2, these amendments would amend Schedule 4, which is where the market value element of the premium for any enfranchisement claim is determined. The second amendment tabled by the right reverend Prelate the Bishop of Manchester has also applied it to the later section on loss suffered, in paragraph 32, which refers back to assumption 2. Straightforwardly, these amendments would disapply assumption 2 for charities, and thereby include marriage and hope values in determining market value.

As I said during the first Committee sitting on the Bill, we genuinely appreciate the intention behind supporting what is argued to be the unique circumstances of this small group of charities. However—and it is a big “however”—the amendment as drafted is almost certainly far too broad to encompass only their very unusual circumstances. Perhaps the Government will continue to work with right reverend Prelate and the charities concerned to see what can be done to support them; otherwise, we fear that a general amendment such as the one tabled could open a big Pandora’s box and encourage those wishing to avoid the new system of enfranchisement—which we support, of course—and there may be plenty who wish to do so, to misuse charitable status for that purpose.

The noble Earl, Lord Lytton, referred to exemptions created for the National Trust, which the Government felt were justified. Presumably, the Government feel that some exemptions are justified.

While we do not feel that the amendment as tabled would avoid some of the obvious pitfalls of creating a loophole in the stated aims of the Bill—with which we agree—I look forward to the response of the Minister about whether any progress can be made in this respect.

--- Later in debate ---

[Lord Young of Cookham (Con)]

My Lords, I am grateful to my noble friend Lord Borwick for allowing what I hope will be a short debate on the deferment rate. I am conscious that I am a very inadequate substitute for the noble Lord, Lord Forsyth.

The deferment rate is very important, as my noble friend Lord Moylan explained. It is the current value of the vacant possession of a flat when the lease expires. According to what deferment rate you choose, it affects the premium that is paid by the leaseholder. My understanding is that the current deferment rate was set in a Court of Appeal case in 2007—the so-called Sportelli case—which ended up with the two rates that I think my noble friend Lord Moylan referred to: 4.75% for houses and 5% for flats. That was fixed nearly 20 years ago. There was a recent appeal decision in a Welsh court—I have the name in front of me but, like many Welsh names, it has a large number of consonants and very few vowels, so I am afraid that I cannot pronounce it. The appeal failed because the land valuer was not an economist, but it opened the way to an appeal to alter the rate. My noble friend Lord Moylan touched on my first question: when will the Secretary of State come to a decision? It affects what leaseholders do at the moment: whether they should wait for a preferential rate, which might be fixed by the Secretary of State, or whether they should try now, in case it moves the wrong way.

I want to raise a totally different point. At the moment, there already is a deferment rate set by the Government under the personal damages Act 1996. Using exactly the same basis as a deferment rate for leasehold, the Lord Chancellor sets the deferment rate for personal injury damages. Unlike what is proposed in this Bill, that rate changes quite often. In 2017, the rate was changed, and it was a negative rate for some time. It was changed again in 2019, and then again in 2023. It is now 0.5% for short-term cases and 3% for long-term cases. My question for the Government is: will we have two separate Secretaries of State fixing deferment rates at different times and coming up with different rates, or is there a case for rationalising the Government’s view as to what is an appropriate deferment rate?

One opportunity would be for the Secretary of State simply to replicate what the Lord Chancellor does. The Lord Chancellor has recently had a consultation on how to fix deferment rates and has come up with a short-term rate and a long-term rate. It seems odd to me to have two totally separate systems in the Government for basically coming to the same decision—that is, deciding what the long-term rate is on a risk-free investment. I wonder whether my noble friend the Minister has had discussions with the Lord Chancellor’s department to see whether we can have a common approach to this important issue.

[Baroness Pinnock (LD)]

My Lords, for me, this is a very technical set of amendments, but they are very important. As we have heard, this issue can have significant implications.

I always go back to first principles. One of the aims of the Bill is to make enfranchisement cheaper than it is currently, and so more readily available. However, as we have heard, that will entirely depend on the deferment rate and how it is set. My understanding was that the current deferment rate was set by the Court of Appeal in 2007, as the noble Lord, Lord Young of Cookham, said. The debate is around whether it is right for that to continue; whether another process should be used, such as that proposed by the noble Lord, Lord Borwick, in his amendment about using the bank rate as a base for setting a deferment rate; or whether, as in the Bill, the responsibility is passed to the Secretary of State to determine the deferment rate. I have to agree with the noble Lords, Lord Moylan and Lord Young of Cookham, that the latter does not seem right.

When I was investigating the deferment rate issue, I noticed that Homehold Services Ltd gave evidence to the Commons Public Bill Committee that was very telling. It criticised the fact that the “applicable deferment rate” was referenced throughout the Bill

“without specifying what this will be”.

It provided an example of what effect a change in the deferment rate could have on the cost of enfranchisement. It said:

“A lease extension … on a £200k flat with 80 years unexpired and no ground rent would be c. £4,000”.


That is the example given by Homehold Services Ltd; as it is one of the experts, I thought it might be right. It continues:

“If the deferment rate was reduced from 5% to 4%, the premium would increase to c. £8,500. At 3.5% it would be … £12,000”.


Those small changes in percentages have very high consequences for the leaseholders. This is important—that is what the evidence told me when I read it.

The argument from Homehold Services Ltd was that the deferment rate must be set no lower than that set by the appeal judgment in 2007. Otherwise, the consequence is that the rate can escalate considerably, as the noble Lord, Lord Moylan, pointed out. The cost of enfranchisement would increase, removing the ability of many leaseholders to continue with the process—contrary to one of the objectives of the Bill. Can the Minister say what consideration the Government have given to the deferment rate?

The noble Lord, Lord Young of Cookham, said that the Chancellor’s department has had a consultation on this and come up with some figures. Why are those not being adopted in this instance to set the rate in the Bill? As we have heard, it is very important to know exactly what the deferment rate will be. I do not believe that it is satisfactory to leave the applicable deferment rate to be set by a statutory instrument some time in the future. Surely, if the Government’s intentions are as they are set out in the Bill—to make it cheaper for leaseholders to enfranchise—one of the key rates must be this one. Therefore, I would have thought that we would want to see it set during the course of this Bill, rather than wait for a statutory instrument.

I have a lot of sympathy with the arguments that have been made by the mover of the amendment and others about the need for certainty here, rather than a principle and uncertainty as to the exact figure at which the deferment rate will be set.

[Lord Khan of Burnley (Lab)]

My Lords, I will speak to Amendment 42 in the name of my noble friend Lady Taylor of Stevenage, which was well supported by my noble friend Lord Truscott in his earlier remarks.

Deferment rates are a phenomenally complex area to understand, and the standard valuation method in Schedule 4 is extremely technical. The Law Commission set out options. It did not make recommendations, but the Government have chosen to allow the Secretary of State to prescribe the applicable deferment rate. I thank the noble Lord, Lord Borwick, for his contribution and for seeking to make the process for setting the deferment rate more efficient and asking for more clarity and certainty.

Our amendment is clear and would ensure that, when determining the applicable deferment rate,

“the Secretary of State must have regard to the desirability of encouraging leaseholders to acquire their freehold at the lowest possible cost”.

We understand that the 2007 Cadogan v Sportelli judgment, which has broadly set deferment rates, was made in the context of 0.5% interest rates. If the Government are minded to remain of the view that the Secretary of State should fix the deferment rates, how best should they do that? Although it may work in London, what would need to be taken into account for other parts of the country? Is there a need to set multiple rates for different parts of the country to deal with the variations?

--- Later in debate ---

[Lord Mann (Non-Afl)]

My Lords, I shall make a brief contribution to support the amendment moved by the noble Lord, Lord Young of Cookham. I want to make one additional point to add to the problems he clearly outlined for a person in this situation—to quote him unfairly—and the impact that has on them.

I have not been an elected representative for some years, but I took on many cases involving every kind of issue, and I have dealt with these issues. My files were rightly shredded some years ago when I entered this House, so I do not have the precise detail available, only my vague memories. However, I have one distinct memory. There are two types of people who have this kind of problem—those who have solicitors and are used to dealing with solicitors, and those who do not.

Occasionally those who had solicitors would come to me, normally when they were wondering whether there was a way of minimising the costs. I always used to listen for the mention of counsel’s opinion having been suggested: the thousands then started to ring up on the till instantly, because not all solicitors had quite the expertise in such matters as others might have had.

The more concerning cases were the people who came to see me who were not familiar with dealing with solicitors, and who were horrified at the predicament they were in, and the potential costs—not just the costs from the other side, but they costs that they might have to bear. The prospect was one of an unlimited amount of costs, well beyond their comprehension, their budget and their expectations. The psychological impact of that, as well as the risk, would lead to an incredible feeling of relief if someone like me, in an amateur but persistent way, was prepared to take on their case. That I remember distinctly, in precisely this kind of case. So the common sense that has been suggested is worthy not just of consideration but of enactment, by all sides of the House. I commend the amendment, which is highly appropriate.

[Baroness Pinnock (LD)]

My Lords, I congratulate the noble Lords, Lord Young of Cookham and Lord Berkeley, on exposing and exploring the exceptions to the general rule in the legislation and its application. If we live in a democracy, the rule of law should apply to everyone without heed or hindrance, so I am grateful to both noble Lords for bringing this to the attention of the House. I hope that when the Minister responds she will be able to confirm that the Bill will apply to the Crown Estate and the Duchy of Cornwall, because it ought to.

[Lord Khan of Burnley (Lab)]

My Lords, I rise briefly to thank the noble Lord, Lord Young of Cookham, and my noble friend Lord Berkeley for providing the detail, with diligence and eloquence, in calling for what the noble Lord, Lord Young, called a level and equitable playing field for all leaseholders in that situation, particularly in relation to Crown land. I want to press the Minister on getting information from the Government about to what extent Crown and Duchy of Cornwall land would be affected by the amendments, and on providing clarification on the important and pertinent points that both noble Lords raised.

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—

--- Later in debate ---

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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

Leasehold and Freehold Reform Bill

Baroness Pinnock Excerpts

Committee stage
Monday 22nd April 2024 Lords Chamber

[Lord Young of Cookham (Con)]

I want to raise a slightly different point from the one raised by the noble Baroness, who is worried that there are loopholes in the schedule. My concern is slightly different, in that the schedule currently bans a form of lease that is actually beneficial. I refer to an arrangement called Home for Life, which has been operating for some time and is based on somebody who is over 60 selling their home. Homewise, which operates Home for Life, then buys the property to which the person moves and grants them a lifetime lease. That enables them to vacate a large family home, gives them the security of the home they move to and, in many cases, releases a sum of money that enables them to expand their income.

There are a number of exemptions under the schedule; this scheme is not one of them. This is, in fact, contrary to what the Government said when they consulted on this a few years ago, when they made it absolutely clear that they would exempt these leases. I quote from paragraph 252 of the Government’s response to a consultation document, Implementing Reforms to the Leasehold System in England:

“It is not the intention of the policy to affect lease-based financial products (home reversion plans—equity release, home purchase plans—lifetime leases and Islamic/Sharia compliant finance), so long as they do not provide a loophole from which to evade the ban. For both home reversion and home purchase plans the provider acquires the freehold and the consumer has a non-assignable lifetime lease. Because these leases are not assignable to another party there is no risk of such leasehold houses coming onto the open market”.


They concluded:

“We will provide an exemption from the ban for these financial products”.


The product I have just mentioned falls squarely within the terms of the exemption that I just read out, but I am afraid it is caught by the Bill as it now stands. I hope my noble friend the Minister will be able to say that this is an unintentional capture of a worthwhile type of lease and that the Government will provide the necessary amendment downstream so that Home for Life can continue to provide a worthwhile service, which I do not think is a loophole of the kind described by the noble Baroness, Lady Taylor.

[Baroness Pinnock (LD)]

My Lords, this Bill is really very important. It has been a long time since Second Reading, so I think it is worth reiterating some of the fundamentals that we hope it will achieve.

The first is that this is obviously a huge opportunity to reform the leasehold/freehold property rights and relationships. That is certainly one of the key aspects that we on these Benches will pursue with vigour. It is also an opportunity to tackle the huge omissions in the Building Safety Act to provide remedies for those leaseholders and tenants living in blocks of flats that are under 11 metres or five storeys. As we have all through the debates and discussions on the Fire Safety Act, the Building Safety Act and the levelling-up Act, we on these Benches will continue to pursue the safety of leaseholders and tenants in those blocks of flats, because that is the right thing to do.

On these amendments, we on these Benches acknowledge that there will, of course, be areas in the leasehold/freehold arrangement where the abolition of leasehold impinges on other important rights, so we accept that there will be examples where an exception is justifiably made. However, the noble Baroness, Lady Taylor of Stevenage, is absolutely right to probe the reasons for these exceptions, in this group and in the following group, and has drawn attention to them individually. For example, the noble Baroness drew attention to a situation where the developer has a head lease and has yet to build out to the development. She asked the pertinent question of what happens if leasehold is going to be abolished for houses. Where does that fit in with a development that is ongoing that will be developed under the terms of a leasehold? That is not explained either in the Bill or in the Explanatory Notes.

We on these Benches understand the importance of this for historic estates that are now owned by the National Trust in England, Wales and Scotland. The purpose of the leases in those instances ought to be protected, because the overwhelming responsibility is the protection of our national heritage. That makes good sense. However, although the schedule provides details of which properties are eligible for what was described as “permitted leases” under the tribunal certification, what is not clear in either the clauses or the schedule, or in the Explanatory Notes, is what criteria the Government are using to enable some leaseholds to be described as permitted. Can the Minister provide the reasons for the choices made by the Government in determining permitted leases in Schedule 1? This is important because the legislation will be challenged in the future. It is therefore vital that, before we get to Report, we understand the reasons, as well as the purpose, behind the tribunal certification. Perhaps the Minister can provide the details of the regulations that are to be provided to the tribunal for making those decisions.

The two examples used by the noble Baroness, Lady Taylor of Stevenage, and the noble Lord, Lord Young of Cookham, relating to retirement housing and homes for life, strike me as being very important in our discussions. Those of us who have been involved in leasehold, and in the debate about leasehold and some of the criticisms of the way in which leasehold is implemented in practice, have been astonished by the way in which some retirement housing service charges have risen exponentially, without, it seems, any recourse to an explanation or a reduction. It is important to understand, for both homes for life and retirement housing—one of which is referred to in the schedule and the other which is not, as the noble Lord, Lord Young of Cookham has said—how protections will be provided for these very important areas of housing in order to provide protection for the leaseholders in these arrangements.

We support the probing amendments of the noble Baroness, Lady Taylor of Stevenage, and look forward to the detailed response, I hope, from the Minister.

[The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)]

My Lords, it gives me great pleasure to open Committee on the Leasehold and Freehold Reform Bill. Before turning to the debate on the amendments that have been tabled, it would be remiss of me if I did not take this opportunity to thank those Peers who have engaged with the Bill and those who have long championed the rights of leaseholders. I also thank colleagues from the Law Commission, without whose advice much of this vital legislation may not have been possible.

--- Later in debate ---

[Baroness Pinnock (LD)]

Before the Minister sits down, she referenced in the early part of her response the number of houses that were likely to be developed under circumstances where a lease had already been granted before the commencement of this Bill. Is she able to give the Committee a ballpark figure of the number of houses that would be caught up in this situation?

[Baroness Scott of Bybrook (Con)]

I am not prepared to give any ballpark figures from the Dispatch Box, but I will look into it and let the noble Baroness know. I apologise that I do not have that figure with me today.

Before I finish on this group, I have government Amendment 8, which makes minor clarificatory changes to the definition of shared ownership leases permitted under the leasehold house ban to clarify its intent. The amendment adds a further condition to permitted shared ownership leases, confirming that where a shared ownership leaseholder has acquired 100% of the equity in the house, they will then be transferred the freehold of the house at no extra cost. This brings the definition into line with government funding programmes and definitions elsewhere in the Bill. I look forward to hearing—

--- Later in debate ---

[Lord Young of Cookham (Con)]

My Lords, I will speak to Amendment 7 in my name, which deals with shared ownership—one of the issues touched on by the noble Lord, Lord Khan. Shared ownership was developed in the 1980s and I claim some paternal responsibility for it. It was a route into affordable homes, and there are now some 200,000 shared owners.

There is a risk that shared owners will fall between the cracks between conventional leaseholders and those who rent. The Government are doing a lot for the conventional leaseholder. Under the Renters (Reform) Bill, they plan to do a lot for the conventional renter, and as I said, there is a risk of shared owners falling between the cracks. If one looks, for example, at the New Homes Ombudsman Service, which I greatly welcome, and the new homes quality code under it, the protection does not extend to affordable homes—namely, those sold under a shared-ownership scheme.

The reason for this amendment is a report, which I am sure my noble friend has seen, from the Select Committee in another place published on 26 March entitled Shared Ownership. The crucial thing to remember about this is that it was published after the Bill left the other place. Therefore, these are comments on the Bill as we see it today. I will briefly quote from three relevant paragraphs from that report.

Paragraph 80 states:

“When we asked Baroness Penn about this issue”—


shared ownership—

“she told us that the provisions of the Leasehold and Freehold Reform Bill are intended to make it easier for those on the old form of the lease to extend when needed. However, Shared Ownership Resources have said that shared owners will not benefit from the leasehold enfranchisement reforms included in the Bill, as, as assured tenants, they do not have statutory rights to leasehold enfranchisement”.

I hope my noble friend can assure me that shared owners do have the right referred to in that statement—the right to enfranchise—and that the fact they are technically assured tenants does not mean they are precluded from the rights in the Bill. Paragraph 92 reaffirms that point:

“We also believe that it is unacceptable that shared owners do not have the same statutory right to leasehold extension as other leaseholders”.


My final quote is from paragraph 94:

“Finally, the Government should ensure that any legislation passing through Parliament which has provisions to reduce the cost of, and simplify, the process of leasehold extension (for example, as in the Leasehold and Freehold Reform Bill) also applies to leaseholders in shared ownership properties, so that shared owners have the same statutory right to leasehold extensions as all other leaseholders”.


It is clear from those quotes from the recent report that the Select Committee holds serious doubts about the entitlement of shared owners to some of the rights in the Bill.

Shared-ownership leases are often complex. Leases on flats, for example, with multiple sub-lessees with different rights and responsibilities, can add further complexity. It is worth mentioning that shared owners are liable for all legal and other administrative costs of superior leaseholders and freeholders, although they only own, for example, 50% of the property. As a result, they can be paying more in service charges than other people in the block, simply because they have that extra relationship with the registered provider as well as the freeholder.

When a shared-ownership owner, for example, extends the lease and the property is valued, they pay 100% of the legal costs, although they only own 50% of the property. The explanatory notes to the Bill state, on page 8, paragraph 20:

“The Bill also gives shared ownership leaseholders the right to a lease extension for 990 years”.


However, the registered provider—the shared ownership’s immediate landlord—may have only a short-term interest in the lease as a head lessee or a sublessee. So, what happens when the shared-ownership leaseholder exercises the right, but the registered holder says, “I’m very sorry but I don’t have 990 years available; I only have a short lease”? Is there an obligation in the Bill for that registered provider to get a long lease, which, in turn, is passed on to the shared owner?

Turning to Condition C in the Bill, which my probing amendment addresses, I wonder whether this precludes certain shared owners from the right to a lease extension. Paragraph 6(6), on page 136, states:

“Condition C: the lease allows for the tenant’s share in the house to reach 100%”.


However, some shared-ownership leases have caps. They have caps at 80% in a designated protected area, and a cap of 75% in older persons shared ownership. So, are these groups excluded, or does paragraph 6(2) come into play, which says that the Secretary of State can exclude Condition C if the lease is of a description he has specified? Again, I would be grateful for an assurance on this.

My final point, which was also raised by the Select Committee, is that there is a broader risk of a two-tier market in shared-ownership leases following the changes in lease terms as part of the affordable homes programme.

My noble friend the Minister may want to reply to this in a letter, but shared owners want an assurance that their entitlements have been properly take on board during the Bill’s drafting, particularly against the background of the Select Committee report that I have just referred to, which makes it clear that there are anxieties that the interests of shared owners are not adequately reflected in the Bill.

[Baroness Pinnock (LD)]

My Lords, there are two elements of this category of permitted leases that are worthy of further exploration. One—on which the noble Lord, Lord Young of Cookham, has gone into great detail, questioning how it will work—relates to shared ownership. The second is to do with agricultural leases.

I would like the Minister to explain, first, why agricultural leases cannot be subject to tribunal certification, rather than the current self-certification process. There does not seem to be a reason why that does not occur under the first element of permitted leases.

There are other issues, such as shared ownership and self-certification, that are not necessarily covered in the details the noble Lord, Lord Young of Cookham, went into, but which are very important. I would like to understand how self-certification will be subject to challenge, what the process is and how such situations can be resolved. Will it be a costly process? If so, granting permitted leases for shared ownership, and agricultural leases, becomes an expensive legal minefield for those caught up in it.

So, I would like to understand why agricultural leases are not in the first set of certifications for permitted leases, and how challenges can be resolved. I look forward to what the Minister has to say.

[Baroness Scott of Bybrook (Con)]

My Lords, I thank the noble Baroness, Lady Taylor of Stevenage, for Amendments 5, 6, 9, 10 and 11. I thank the noble Lord, Lord Khan, for speaking to those amendments to Part 2 of Schedule 1. These amendments would remove exemptions to the ban on the grant of new leases on houses.

As I stated when addressing Amendments 1 to 4, the Government are aware that certain housing or financial products which support home ownership rely on granting a lease. We have therefore consulted extensively on scenarios where this may be justified. For example, shared ownership, a vital home-ownership product, relies on the use of a lease. We cannot surely be saying that the thousands of new shared ownership houses built each year should not be sold any longer. Equally, we cannot say that the use of home purchase plans—including, for example, through use of Islamic finance, a vital option for the purchase of houses for those who cannot, for faith-based reasons, apply for an interest-charging mortgage—should not be allowed, or that owners of existing leasehold houses cannot extend their leases.

For any of the exceptions in Part 2 of the schedule, including shared ownership, home finance plans, lease extensions, agricultural tenancies, or contracts on leases agreed pre commencement, it should be clear and unambiguous to consumers buying these that they are getting a lease on a house, and why that lease is needed. Because of this, the Government will not require these types of leases to obtain tribunal certification. However, again, we have taken powers in the Bill to adjust the definition if there is evidence of abuse, or to move permitted leases into Part 1 of the schedule, should there be a need for tribunal involvement. The Government will continue to monitor market behaviour and act accordingly.

The noble Lord, Lord Khan, asked for some more details of these groups of homes or products. On exempting shared ownership, I should say that shared ownership is one of the Government’s key affordable housing products, which helps consumers to get on to the property ladder. Consumers purchase shares in the property over time through the payment of rent to a provider, and a lease facilitates this arrangement between the two parties. The Bill therefore permits the grant of new shared ownership leases on houses.

When we go to financial products, the Bill includes an exemption to the ban on new leasehold houses for lease-based financial products, as I said, which can help people to buy a home or release equity from it. Here a lease is required because a third-party provider acquires a freehold on the consumer’s behalf as part of the financing of the purchase. Ownership is required by two parties and is best facilitated via a lease.

The noble Baroness, Lady Pinnock, and the noble Lord, Lord Khan, asked about agricultural tenancies. Farm businesses and agricultural landlords negotiate the length of a tenure to suit their business needs, and it is intended that this should continue, as longer-term leases can help to ensure that farmers have security to invest in their businesses over time. The Bill makes it clear that agricultural tenancies will be the permitted lease for the purposes of the ban on new leases of houses, and explicit exemption is provided in the Bill for tenancies that fall under the Agricultural Holdings Act 1986 or the Agricultural Tenancies Act 1995.

We are exempting lease extensions when a home owner extends their lease; often the original lease is surrendered and a new one granted in its place. While this is technically a new lease, the homeowner remains the leaseholder of the same property. Therefore, we believe that this should be treated as an existing rather than new lease, and warrants an exemption. In practice, we envisage that most leaseholders will purchase their freehold, where they are able to do so.

We are exempting agreements for lease. These AFLs are a contract between the prospective leaseholder and landlord to enter into a lease in the future. Where an AFL was agreed prior to commencement of the Bill, it is right that this contract should be honoured, and the lease granted. For this reason, an AFL entered into prior to the commencement of the ban will be treated as a permitted lease, as both parties have agreed on the terms of the lease and are aware that they will be entering into a lease. A tribunal certificate and a warning notice are not therefore required, we believe.

--- Later in debate ---

[Lord Bailey of Paddington (Con)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Taylor of Stevenage. I do not want to rehearse the reasons why I think that a mandatory share of the freehold is necessary, in the way that the noble Baroness laid out. I want to speak more to the contact that I have had with so many different groups and individuals who feel that they are trapped in their leasehold.

The number one thing that comes up is, of course, service charge abuse. Which? did a study in 2011 which suggested that 700 million service charges had been overcharged. The market for that has grown now to 6.7 billion, so we can only assume that this overcharging has grown along with it.

The challenge becomes: how do we make this market fair? How do we make sure that these abuses are washed away? That is to give the people paying the bills control, and not to lock them into the monopoly that leaseholders are currently locked into. Ultimately, the answer would be commonhold, but while commonhold is not on the table, we need to look at a share of the freehold. It should be mandatory, and it should happen straightaway. The noble Baroness laid out very eloquently the benefits that this would give to leaseholders.

We must understand that leaseholders do not want a landlord; that is why they have left the private rented sector—to avoid landlords. These amendments should stand. They really give leaseholders what they want. I have tabled an amendment which asks the Government to retain the power to bring forward a share of the freehold on new flats. That is the most important thing going on here.

[Baroness Pinnock (LD)]

My Lords, we on these Benches far prefer a move to commonhold. The journey towards commonhold is a solution to the leasehold/freehold issue.

I understand why the noble Baroness, Lady Taylor of Stevenage, and the noble Lord, Lord Bailey, have proposed a share of freehold as a route towards commonhold as being the ideal solution, as recommended by the detailed report from the Law Commission in 2020. However, it is only a small step, and it is an option that is already being exercised by some flat owners.

It seems to me that the disadvantage of share of freehold is that, in practice, it will be possible only for blocks of flats with a small number of units. Where there is a large number of units in a single block, it would be very difficult to have a share of freehold for some but not others. It will be interesting to hear what the Minister and the noble Baroness, Lady Taylor of Stevenage, think.

--- Later in debate ---

Moved by

[Baroness Pinnock]

13: After Clause 25, insert the following new Clause—
“Commonhold and Leasehold Reform Act 2002: commonhold threshold(1) Within six months of the day on which this Act is passed the Secretary of State must make regulations to amend the Commonhold and Leasehold Reform Act 2002 to lower the threshold of supportive eligible leaseholders needed to enter into a commonhold to 50%.(2) Regulations under subsection (1) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”Member’s explanatory statement
This amendment would require the Government to legislate for conversions from leasehold to commonhold where 50% of eligible leaseholders in a building support the conversion, rather than 100% as it currently stands, in line with the recommendation from the Law Commission.

[Baroness Pinnock (LD)]

My Lords, this amendment is on commonhold. I was pleased to hear the Minister emphasise that the Government intend to ensure that commonhold becomes the norm, although it was unfortunate that the phrase that followed was “in due course”.

This conversation about leasehold reform has been going on for a very long time. I accept that it is complex and that that there are competing financial interests. I accept that it will be difficult to find a route to ensuring that leaseholders become commonholders. However, the legal work has been done by the extensive and authoritative report from the Law Commission, The Future of Home Ownership, which was published in July 2020. The commission published three massive reports—one of them is over 800 pages. Therefore, the Government have at their disposal the combined thoughts of the Law Commission on how home ownership should be extended to leaseholders, and it has explained how that is done in a straightforward way.

The amendment in my name presses the Government to legislate for conversions to commonhold where only 50% of eligible leaseholders in a building support the conversion—rather than having it at 100%, which is obviously a barrier to commonhold ownership—and is in line with the recommendation from the Law Commission.

Everyone in the Committee will be well aware that the leasehold/freehold arrangement is very unusual in western European countries. The historic norm in the rest of western Europe is the equivalent of commonhold; that is how people who live in flats organise their affairs. It was introduced in England and Wales in 2002 but, for various reasons explained by the Law Commission, it has not taken off as an alternative to leasehold.

--- Later in debate ---

[Lord Kennedy of Southwark (Lab Co-op)]

It is good to hear that they have a strategy; maybe the Minister can explain to the Committee what the strategy is. All I see at the moment is that there is a lot of support for commonhold—everyone is committed to it and wants to bring it in in due course—but I would like to see some sort of timeline. When are we going to get it? They will have had this report from the Law Commission for four years in July. Where is the plan? If they had a plan they could set out for the Committee, I am sure they would get a lot of support from us here, but the worry is that we will be sitting here in another four years. What is the plan from the Government?

[Baroness Pinnock (LD)]

My Lords—

[Lord Kennedy of Southwark (Lab Co-op)]

I am sorry, but I asked a couple of questions there and I am hoping for a response.

--- Later in debate ---

[Baroness Scott of Bybrook (Con)]

I do not think I have anything further to add.

[Baroness Pinnock (LD)]

My Lords, the purpose of Amendment 13 in my name was to encourage a debate on commonhold and the route to achieving it, and in that it has been successful. I am pleased about that and thank all noble Lords for their involvement. It has been a long time since the first legislative proposal was made to abolish leasehold. I think it was in the Liberal Government of 1906, so we are going back a long way.

[Lord Kennedy of Southwark (Lab Co-op)]

It was 1880, with Henry Broadhurst.

[Baroness Pinnock (LD)]

I do not think that that was a legislative proposal—I was very careful in the words I used. What this debate has achieved is that it is very clear across the Committee that there is overwhelming support for the move to commonhold. That is very positive. The next achievement is that it has brought forward three different ways, or perhaps four, in which the Government can move. One is a draft Bill, which seems to me to be a very interesting proposal and one that again I think would get support across the House, because the move to commonhold is complex. I and everybody else who has spoken accept that, so let us find a way of working together to achieve that common end.

The second proposal was a “Let’s get something done” type of proposal for a sunset clause. If nothing else happens, let us adopt that. The third proposal, from the noble Baroness, Lady Taylor of Stevenage, was similar to a draft Bill: to get the Government to agree a draft strategy. Unfortunately, the Minister used the phrase “in due course” a number of times. The trouble with “in due course” is that the due course can go on for a very long time, as it has already. Some of us are concerned to enable all existing leaseholders to achieve commonhold and be part of home ownership. The party opposite always talks about that, so you would think it is in its interest to push it. That is why it is very disappointing to hear the Minister say “in due course” and, “We are considering the recommendations of the Law Commission”, which was four years ago now.

Finally, we have heard from various Members on the Labour Benches that, if they ever have the privilege to serve—that is the phrase they are using—this will happen quickly. I look forward to maybe 2025 when we might see whether the Minister will bring forward a proposal for a draft Bill on commonhold or whether somebody from the Labour Benches will do so, in which case we will make progress. We on these Benches will hold both parties to account if they fail to do that at the earliest possible moment. I beg leave to withdraw the amendment.

Amendment 13 withdrawn.

Leasehold and Freehold Reform Bill

Baroness Pinnock Excerpts

2nd reading
Wednesday 27th March 2024 Lords Chamber

[Baroness Thornhill (LD)]

My Lords, it is an absolute pleasure to follow the noble Baroness, Lady Taylor of Stevenage, with her meticulous attention to detail. I too thank all those who have contributed to getting the Bill to where it is now. It is noticeable that MPs across all parties have worked tirelessly on this Bill— I will not name names because you always miss someone out—in the other place. That is a sure sign that there really is a consensus and a need to drive this forward.

To say that this Bill is needed and well overdue is an understatement. The Secretary of State himself said that the leasehold system was “outdated” and “feudal” and a lot more besides. Millions of property owners own their homes through leases in England and Wales, which along with Australia are the only places in the world where this system still exists. As there have been numerous parliamentary and independent reports from organisations ranging from the aforementioned Law Commission to the Competition and Markets Authority giving incredibly similar recommendations, you would think this Bill would be relatively straightforward—but not so. We are disappointed that there are no proposals to really reinvigorate, which is the word being used, commonhold nor a clear pathway to it becoming the main tenure.

Liberals have actually been campaigning against leasehold since—wait for it—Lloyd George’s People’s Budget—

[Baroness Pinnock (LD)]

Of 1909.

[Baroness Thornhill (LD)]

Of 1909—I am glad that my noble friend Lady Pinnock knows that.

This system is so engrained in our history that there is inevitably going to be a chasm between the Secretary of State’s theatrical rhetoric and harsh reality. There are also going to be winners and losers. Indeed, the Secretary of State pledged to

“squeeze every possible income stream”.—[Official Report, Commons, 11/12/23; col. 659.]

that freeholders have under the unfair feudal leasehold system. But we do not feel that the Bill as it stands does this. As has already been said, the devil will be in the detail, and we will hope to work with some of that detail.

The Government are demonstrably vulnerable to extensive lobbying, and this has weakened both the Government and the Bill, most recently regarding ground rent, which we feel should eventually be abolished. There is no hiding our disappointment that promises to abolish leasehold have been watered down, particularly the fact that flats are exempt; we would seek to include them, the more so because they make up 70% of leasehold properties. Retirement homes are also exempt. Why developers of retirement properties get a special carve-out is beyond me—surely the Government should be on the side of the elderly and vulnerable, at that time in their lives, who have downsized, freeing up family homes. However, they are unwillingly extorted in their new home and when they or their relatives come to sell, there are further charges—the so-called event fees.

The exemptions will mean that significant numbers of leasehold homes will still be built. The rhetoric has turned to “reform” rather than “abolish”. It is a disappointment but perhaps understandable in a Government that are now too weak to deliver big changes such as this and perhaps have too many of those with vested interests in their ranks or on their donor lists. Add to this the quiet death of the Renters (Reform) Bill—I hope the Minister will have an update on that—and it certainly leaves much for the next Government to get their teeth into.

On these Benches, our biggest concerns are building safety and cladding, which my noble friend Lady Pinnock, of Cleckheaton, will continue to work on as she has done since the very early days of the Grenfell tragedy.

The other big one for us is the lack of real reform regarding regulation of property agents and their management fees. These are a right rip-off and a licence to print money for doing nothing or next to nothing. The report from the noble Lord, Lord Best, in 2019 made many sensible recommendations as did the Law Commission in the same year. These should be implemented in full.

My own recent casework reminded me sharply of how vulnerable elderly leaseholders are when demands are made for payment for repairs that they deemed were completely overpriced. To prove their point, they went to the trouble of getting three quotes from local builders for the same work. The range within the local builders’ quotes was very little, but the difference between the landlord’s quotation and the most expensive local builder was thousands of pounds—for fencing.

A closer inspection of the last years’ invoices revealed the kind of stories we are now all too familiar with: huge sinking funds; many contingency cushions; eye-watering rises, all with no reasonable—an interesting word that we will no doubt talk about during the passage of the Bill—explanation. The residents decided collectively not to pay their most recent management bill. The company responded with threatening letters, which of course were intended to intimidate them into paying. I will not name the company, as following my involvement things began to be sorted out—we do have our uses—and moneys were reimbursed to residents. But this Bill will offer them very little to ensure that they are not ripped off again, and in this situation the fact that the digging was done by two retired accountants, who have now left the scheme, made me realise that even with the right to manage some residents may not want to manage for themselves and will need to employ a property management company. These are currently unregulated and unscrupulous in far too many cases.

I will, however, praise the work of the Property Institute, which represents thousands of property managers and aims to raise standards and improve transparency for residents. We need to remember that there are always good guys—and gals—out there who also hate their reputation being trashed by those less scrupulous.

The Bill will ban the sale of leasehold houses, but not so-called fleecehold estates: the practice that has developed over the past 10 to 15 years of the public spaces that were once adopted and maintained by the local authority now being in private hands—a management company—with the residents footing all the bills for communal repair and maintenance. What a nasty surprise for them on moving into their new home. First, they may not have known that they were liable for such costs. Often, people are told, “Oh, you’ll just be paying for the grass to be cut a couple of times a year”, before they realise that it is also for the playgrounds, roads, fencing and everything else. There is evidence to show that there is mis-selling in this area. Secondly, those people may not have realised that they would be paying for services that have already been done by the council. In effect, they are paying twice for facilities that others can also use, as well as paying full council tax. Freeholders refusing to pay the so-called rent charge could find their freehold changed to leasehold.

To be fair, the Bill really is trying to put some of this right, but it is all a little bit uncertain—there are more consultations, and more this and more that—as to how things will work; for example, on the ability to appoint a substitute manager. I look forward to the details of how that will happen, along with the proposals that give leaseholders a new right to request information about service charges and the management of their building. That is good but it, too, will need fleshing out, as it feels like the power of what is released and how is still very much in the hands of the management company.

Likewise, the proposals for right to manage will come to naught if leaseholders are not supported to transition. Current charities, such as the Leasehold Advisory Service and others, will need more tools and resources to help this transition and make it work. It is disappointing that commonhold has not taken off in the way that we expected, so we clearly need to give more support to make these really positive changes work.

Key to all of this working at all is to regulate managing agents. Without that, many of the measures will not be successful, or not as successful as they could and should be. We must raise standards and increase competence across the sector and, ultimately, have a fair and transparent system that residents feel is fair—and, if not, that there is a simple and accessible form of redress, unlike the current recourse to the First-tier Tribunal, which, when I explored it for those elderly residents, was neither simple nor accessible. We feel that this fleecehold practice should be abolished altogether and revert to local authority control, with developers contributing to the council coffers towards the upkeep of the estate.

I make a final plea to the Minister that there are potentially thousands of leaseholders who are in a bit of a quandary at the moment about whether they should extend their lease or wait for the legislation—will they be be winners or losers?—depending on which way things go. If the Government could give clear guidelines and guidance as soon as possible to all those who are thinking of selling or remortgaging, I am sure that would be welcome.

Of course, it would be churlish not to say that there is much to welcome in the Bill. I am sure that, by the end of it, we will all be a lot wiser as to marriage value, the extension of leases, enfranchisement, forfeiture, and much more. We look forward to working across the House to table amendments to improve this well-intentioned but somewhat disappointing Bill. In particular, we would like to ensure that the rhetoric around the Bill is borne out in reality.

--- Later in debate ---

[Baroness Pinnock (LD)]

My Lords, I thank the Minister for being so generous with her time in discussing the content of this Bill and for being willing, on behalf of the Government, to front it. As we have heard, there is wide support for the Bill, but significant shortcomings have been noted from all quarters and all sides.

Reform of this archaic property ownership arrangement is long overdue. There has been a welcome focus on general consumer rights and protections over recent years. However, the leasehold/freehold arrangement has remained largely unchanged, to the considerable detriment of leaseholders. Liberal Democrats have long supported radical reform of the leasehold/freehold arrangement. As my noble friend Lady Thornhill reminded us, it was David Lloyd George in 1909, in the People’s Budget, who first laid down that reform was essential, not just to extend, as the Bill does, the rights of leaseholders but to deal with the concept of an outmoded system that harks back to times when everyone was beholden to the landowner.

As we have heard, this is a Bill of 123 clauses and 12 schedules—and that is just at the last count. Since the Bill’s introduction in the Commons, the Government have added 224 amendments, which illustrates its complexity and, as the noble Baroness, Lady Andrews, pointed out, developing legislation on the hoof—or as my noble friend Lord Stunell said, the Government chasing their tail.

The Bill seeks a number of key changes to the leasehold/freehold relationship which are positive. Unfortunately, the Government have failed to use this opportunity to really grasp the nettle and set down a complete reform of the system. The Government have long promised a fundamental reform to replace freehold with commonhold, which is more in line with property rights across western Europe. Despite the 2022 Act, commonhold remains a rarity. Why have the Government failed to use this opportunity to end freehold and introduce commonhold for all property, including flats?

It is extremely disappointing that, according to media reports, the Government are even backtracking on reform of ground rents. The Secretary of State announced only last November that the proposal will “save leaseholders thousands” by slashing ground rents and setting them at a peppercorn. That is another promise abandoned. Evidence shows that some freeholders increase ground rents substantially year on year, as we have heard this afternoon, and yet other ground rents remain so low that they are not worth collecting but remain as a charge on the property. Ground rent really is paying something for nothing and should be confined to history. However, I accept that there are financial interests, such as pension funds and charities, the concerns of which must be taken into account as reform proceeds. Nevertheless, a solution that achieves abolition can and must be found.

The other significant omission in the Bill is the abolition of draconian forfeiture, whereby the failure to keep up with ground rent payments can result in the forfeit of the property to the freeholder. There can be no justification in any circumstances for this to remain on the statute book. I hope that the Minister is able to respond to the numerous questions about the lack of action on forfeiture in the Bill.

This much-diluted reform Bill does, however, contain some positive changes, even if they are rather muted. Scrapping the presumption that leaseholders are required to pay landlords’ legal costs is putting right a plain wrong. Leaseholders’ service charges have been exploited by some freeholders and managing agents to such an extent that these have, on occasion, risen by up to 1,000%. The proposal in the Bill is to insist on transparency and reasonableness—but what is reasonable? How will it be defined? This leaves too many loopholes for the unscrupulous to continue to exploit. Can the Minister explain how exploitative behaviour by some freeholders, or their managing agents, will be prevented, given the wording of the clause?

That brings me to insurance charges. Since the terrible tragedy of Grenfell Tower, insurance costs for leaseholders in flats have escalated to the point at which some are paying more than £3,000 a year for buildings insurance—a travesty, considering that leaseholders do not own the bricks and mortar being insured. Of course, there must be some arrangement by which the building is insured, but to put the commissioning rights in the hands of the freeholder or agent is like putting the cat in charge of the cream. Clause 57 seeks to protect leaseholders from the worst excesses of insurance commissioning, but it is not at all clear that it will be effective. Perhaps the Minister will be able to demonstrate that the days of milking the buildings insurance to the benefit of those not paying the insurance will completely end.

So-called fleecehold is another money-making wheeze by developers and property agents. Developers, having realised that local authorities were not in a position to take on further liabilities, have devised a system whereby house owners on newly constructed estates pay a service charge for maintenance of green spaces, play areas and even roads, as my noble friend Lady Thornhill so eloquently exposed. The same householders will also be paying council tax to cover such maintenance in other estates in their district. Undoubtedly, what will happen is that, as an estate gets older, more maintenance will be required, especially if the estate road was not built to adoptable standards in the first place. The liability will fall on home owners, who may not be able to suddenly pay out for a new road. So it is good that the Bill proposes in Clause 98 to insist on a redress scheme, but how much better it would be if assets in new estates were forced to be adopted by the local authority in perpetuity.

Part 8 amends the Building Safety Act 2022 to ensure that the landlord will be responsible for remedying or mitigating relevant defects in a building. Some of us who have spoken today spent many happy hours debating the Building Safety Bill and drawing attention to its defects at the time, and it is a great pity that the Government have failed to grasp this new opportunity to redress the serious limitations of that Act and extend rights to leaseholders in buildings under 11 metres, and enfranchised leaseholders.

The Minister will not be surprised to hear that we on these Benches will seek to put right the wrongs that have still not been addressed by the Government in their legislation. As others have said, people are living in flats that are unsafe, unable to be sold and unmortgageable because this Government have failed to deal with wrongs that are not of the residents’ making but of the making of the developers and construction firms which built those flats in the first place. We will pursue amendments along those lines.

There are some real positives in the Bill, such as removing the duty on leaseholders to pay the freeholder’s legal costs in a dispute. The various redress proposals have considerable merit. Enabling existing leaseholders to extend the lease or purchase the freehold in a new way is another positive step, as are the measures in relation to some regulation of property agents, although this does not go far enough, as the noble Lord, Lord Best, and my noble friend Lady Thornhill pointed out. I recognise that, having said at the outset that the Bill is a step in the right direction of reform, I have then spelled out the many glaring omissions and the lack of bold endeavour which are a feature of the Bill as it stands.

The debate has exposed the controversy surrounding any reform, but we on these Benches will use the remaining stages of the Bill to probe the detail and propose amendments in areas where the Bill is deficient, which are various and numerous. I look forward to the Minister’s response.

Building Safety

Baroness Pinnock Excerpts

Wednesday 27th March 2024 Lords Chamber

[Baroness Taylor of Stevenage (Lab)]

My Lords, as this is the last business, I wish all noble Lords a restful and peaceful Easter.

I thank the Government for this update, given yesterday in the House of Commons. There are more than 4 million people in the UK living in buildings over 11 metres tall, including 1.3 million in buildings over 18 metres. That is why it is of the utmost importance that this building safety issue moves forward without any further delay.

As my noble friend Lord Kennedy and other noble Lords pointed out in the debate this afternoon, we are now more than seven years on from the tragedy of the fire at Grenfell Tower and the loss of 72 lives. It seems, at last, some progress is being made to address the multitude of issues that arose from that catastrophic fire and previous dreadful fires, such as that at Lakanal House in Camberwell—which I remind noble Lords was in 2009.

I pay tribute to the determination and commitment of the survivors of Grenfell and other campaigners, such as the Manchester Cladiators, the National Leasehold Campaign, End Our Cladding Scandal and the UK Cladding Action Group. Their powerful voices and front-line witness have kept the issue right at the top of the agenda and enabled the progress of which this Statement forms the latest step. However, it is just not good enough that they have had to wait so long. Will the Minister tell us whether the Government are now going to set a deadline by which remediation work must be completed?

It is important that both Houses are updated regularly on progress to tackle the scandalous building safety crisis, and this Statement indicates some progress. However, I hope there is no complacency in moving this forward at greater pace, because the figures produced by the Government last week showed that only 21% of high-rise blocks have been fully remediated and that hundreds of thousands of families are still stuck in flats with dangerous, flammable defects, whether that is cladding, missing fire breaks or wooden balconies. We cannot underestimate the seriousness of the impact on their lives. Dreams of home ownership are shattered as they battle with freeholders to get this remediation carried out, and family finances are broken by remediation costs, exorbitant insurance and the nightmare of being trapped in flats that people are too scared to live in but cannot sell.

What progress is being made in working with lenders to ensure that properties caught up in the cladding scandal can be sold or remortgaged? Even those that have had remediation done are suffering from problems with this. Progress remains slow. What progress has been made, for example, on the registration of building control inspectors? The deadline had to be extended by an additional 13 weeks from the original deadline of 6 April. What assurances can the Minister give that that extended deadline will be met?

This building safety Statement refers only to buildings over 11 metres. I know from the discussions on the Building Safety Act and subsequent statutory instruments that your Lordships’ House remains concerned about buildings up to 11 metres in height. Indeed, it was raised again today in the debate on leasehold. I would be grateful if the Minister could reiterate to the department that we still have outstanding concerns in this regard and would appreciate a full response in due course. Although in the leasehold debate the Minister said that the Government were taking the risk to life most seriously, lenders and mortgage providers are taking a much more risk-averse approach than the Government.

The Minister will know that I have mentioned before the dreadful situation that residents of Vista Tower in Stevenage face, so I was pleased to see the Minister in the other place specifically mention in this Statement that legal action against Grey GR in that respect is imminent. We note that other legal action is pending, but can the Minister please let us know how quickly leaseholders who have been forced to use their own money for remediation, and that spent by taxpayers, will be able to receive recompense following remediation contribution orders? Will there be any accountability for the manufacturers involved in building safety defects, so that all those responsible for the building safety crisis have to face the financial consequences of their actions?

Can the Minister update us any further on the long-awaited second staircase guidance? I note the Minister in the other place said it would appear this week, but as we are right on the last sitting day before recess I thought it worth flagging up again that it is still due. Absence of this guidance is holding up the construction of thousands of safe homes across the country.

At last, we are moving to a point where the respective responsibilities for resolving the crisis between the construction and development industry, freeholders, statutory agencies and the regulator are becoming clearer. Importantly, we are moving to a point where those responsible for failure can be held accountable for their actions, although we must keep our eye on enforcement processes, as it seems they are not the strongest part of the new regime. For example, although additional funding for councils to undertake enforcement is welcome, we must not forget the backdrop of the extreme funding pressures councils are under, which continues to make the increasing regulatory and enforcement burdens an added strain. I hope the whole burden of this will not be forced on councils and that the department will continue to play an active and robust role.

Lastly, I raise the issues relating to the extraordinary burden being placed on leaseholders because of shocking increases in insurance premiums—up to 1,000% increases in some cases—even after buildings have been remediated and made safe. Can the Minister update us on what discussions the department has held with the insurance industry to set out the Government’s expectations in this regard and how they plan to mitigate this awful further burden on leaseholders?

We are grateful to the Minister for her constructive approach to working with opposition parties on this issue. It is clear that the will across your Lordships’ House is to move this on at pace and to continue to press for full remediation for all building safety defects to be completed as quickly as possible. Everybody deserves to feel safe in their own home, and it is taking too long. Those who have profited from not paying enough attention to that safety need either to put matters right or to be brought to justice without any further delay.

[Baroness Pinnock (LD)]

My Lords, in reference to the Statement, I have to say how irritating it is that statistics are selected to project a positive picture of progress made on the remediation of building defects as a result of the Building Safety Act and how refreshing it would be if the Government were able to reflect on the poor rate of progress, instead of trying to spin a success story. Spinning the progress made is not doing anybody any favours. It is certainly not helping the thousands of leaseholders who are still stuck in limbo in flats where work has not been started and where even an assessment of whether work is needed has not been made. Perhaps an honest appraisal of the situation would put some government energy into trying to resolve this issue. As the noble Baroness, Lady Taylor of Stevenage, has just asked, what is the timetable? How long have leaseholders to wait while this scheme is making snail-like progress towards some remediation?

In Inside Housing last week, a piece by the investigative journalist, Peter Apps, provided some very different numbers from those given by the Government in the Statement. I am not accusing the Government of having inaccurate figures, but they were very selective. I have no reason to challenge the report in Inside Housing, which says:

“As it stands, of 3,839 buildings above 11 metres being monitored by the government due to the need for cladding remediation, 2,286 have not even started works yet”.


The terrible Grenfell Tower fire was nearly seven years ago, and 2,000-plus buildings have not even had work started yet. But the report in Inside Housing went on to say that

“the 3,839 figure could eventually rise by as much as 5,000”.

based on the Government’s own estimates. We really do not know how many are in desperate need of remediation.

So my question to the Government is: can we have a full and final estimate—which surely should be possible nearly seven years after Grenfell—of how many blocks of flats are in need of remediation? How many of them are over 18 metres and most at risk? How many are over 11 metres? What consideration is being given to those under 11 metres, given that many thousands of leaseholders and tenants live in such flats, which the Government regard as being relatively safe but which insurance companies and service charges and all the rest do not? They are in total limbo, waiting for some action to unlock the situation that they are in. That is my first question.

Secondly, in January, there was a fire in Petworth Court in Wembley, which is a social housing building. The social landlord knew that work needed to be done and the original builder accepted that work needed to be done, but they have been in dispute ever since about how much responsibility each should take for it. That is another issue which desperately needs to be addressed because, at the end of it, it is leaseholders who are stuck in this awful situation of going to bed every night knowing that their buildings are unsafe and vulnerable to very serious fires. So another question that I want answered, please, is about how the Government are going to resolve the disputes between what are sometimes leaseholders and sometimes social landlords and the developers and builders.

My third point is this. According to the Statement, the Government are going to drip another £6 million of public money into council enforcement action. Now, I am absolutely fed up with the answer to any problem being that the Government will spend another bit of money trying to do something about it, instead of accepting what the fundamental issue is here. If you do not fund the public services on which we all rely—such as building regulations and building enforcement—properly in the first place, when there is a problem we are forever going to have the answer, “We’re going to drip another £2 million or £3 million in to try to solve it”—and it will not. It will deal with a little bit this time, but nobody can plan with little bits of money being dripped into public services in this way. So, please, at least take this back to the Government: fund the thing properly rather than dripping in money.

[The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Swinburne) (Con)]

I agree with the noble Baronesses, Lady Taylor and Lady Pinnock, that too many residents in England continue to live in unsafe buildings, while irresponsible building owners fail to set things right. Last year saw a fundamental step change in our programme to fix unsafe buildings, with the launch of the cladding safety scheme last July. All private sector residential buildings above 11 metres in England now have a pathway to fix unsafe cladding. Following intensive talks with the homebuilding sector, we have also secured a solution that will see the original developers of defective buildings take responsibility to pay for and fix historical safety defects. Where developers are building owners and not currently funding cladding remediation, the Government have committed more than £5 billion to ensure that residents are safe—and feel safe—in their homes. However, there is still more that we can and will do.

Where building owners are failing to fix unsafe buildings quickly enough, enforcement action by our regulatory partners is critical. That is why we are announcing a new comprehensive package of support for regulators to boost enforcement. We continue to accelerate our remediation programmes. Over 4,000 buildings of over 11 metres are now in our remediation schemes; this is double the number of buildings in our schemes a year ago. The number of buildings reported to have started or completed remediation work has also more than doubled since February 2023.

From the start, we have prioritised the remediation of the highest-risk buildings. The ACM cladding remediation scheme, which funds the removal of the most dangerous Grenfell-style cladding, is nearing completion, with 98% of those buildings having started or completed works by the end of this month. This figure rises to 100% in the social sector. Over 50% of high-rise buildings in our building safety fund, which deals with buildings over 18 metres in height with non-ACM cladding, have also started or completed work. I apologise for the statistics, but these are real numbers, so I think the House deserves to know. For 346 buildings identified as requiring works under the developer remediation contract, remediation work is expected to start by January 2025.

Registered providers of housing also report that remediation work is complete or due to be completed for 87% of identified buildings with cladding related to defects by September 2028. The bulk of the outstanding buildings requiring remediation are between 11 metres and 18 metres in height. These medium-rise buildings now have a funded route to remediation, following the launch of the cladding safety scheme in July 2023. We expect the number of medium-rise buildings starting and completing remediation to increase as applicants enter and progress through the scheme.

Our focus is now on getting more buildings into our funds and accelerating their remediation process, including through robust enforcement action where needed. The data published this week in our new enforcement league table shows that levels of enforcement activity vary by regulator and region. Some regulators are doing a commendable job. For example, Newham Council recently won a landmark case and successfully prosecuted a building owner for delaying vital remediation work on unsafe cladding. However, as today’s data shows, some councils and fire and rescue authorities need to do more to ensure the safety of residents in their area.

Last year, the department published a joint statement with building safety bodies committing to see buildings made safer faster through a robust regime. The building safety regulator, the Local Government Association and the National Fire Chiefs Council all put their names to this statement. This week, we are delivering on this commitment by announcing our next package of support for our regulatory partners.

In response to the noble Baroness, Lady Pinnock, I support allocating the further £6 million for the next financial year in grant funding to councils, in addition to establishing a new grant funding scheme to support councils and fire and rescue services with complex enforcement. It is needed; the work is additional work, and therefore we are putting in the money to enable them to do it properly.

To ensure that regulators have the tools they need to harness this funding and drive remediation, we are publishing a new suite of guidance this spring. New enforcement data also increases transparency for the public and empowers communities to see how their authorities are using their funding and powers to keep them safe.

The noble Baroness, Lady Taylor of Stevenage, asked about a number of things, including progress made on registration of building control inspectors and other safety measures. Together with the noble Baroness, Lady Pinnock, she asked about buildings below 11 metres. I will seek to answer as many of those questions as possible. If I miss any, I apologise and will write to the noble Baronesses.

The noble Baroness, Lady Taylor, asked what progress has been made on the registration of building control inspectors. The deadline for registering with the building safety regulator is 6 April. All building inspectors must be registered at least class 1 by that point. However, the building safety regulator has taken the decision to extend the registration period for experienced building inspectors in England who have not yet completed their competency assessment. To benefit from the extension period, they must be registered as class 1 before 6 April and be enrolled on a validation scheme in order to have their competency assessed at the level at which they intend to practise. They will have until 6 July to complete the assessment process. It is crucial that the sector continue to undertake the validation and registration processes in order to meet the competence requirements set by the building safety regulator.

Regarding second staircases, following public consultation and liaison with expert bodies, there is a recommendation that all new tall residential buildings over 18 metres have a second staircase. This will provide an additional means of escape for residents, and I am sure it is supported across the House. We will publish the updated approved document and guidance. I am told, with some authority, by my department, that that will still be by the end of March. Therefore, I am assuming that it will be in the next day or two. I will report to the House if that does not happen—but I hope that it will.

With respect to buildings under 11 metres, it is generally accepted that the safety risk is proportional to the height of the buildings. The risk to life from historic fire safety defects in buildings lower than 11 metres is less. Therefore, building safety-related remediation works are required in a very small number of buildings under 11 metres. A fire risk assessment and accompanying fire risk appraisal of external walls, conducted in accordance with PAS 9980 principles, will often find that lower-cost mitigations are more appropriate in low-rise buildings.

To give some assurance, in rare cases where remediation work is required in buildings under 11 metres, the Government have retrospectively extended the limitation period under Section 1 of the Defective Premises Act 1972. This enables legal action to be taken against developers and contractors where works completed in the last 30 years make a dwelling not fit for habitation.

With regard to the accountability of manufacturers involved in building safety defects, the Defective Premises Act has been amended to cover refurbishment and refitting work for works completed after the Building Safety Act came into force on 28 June 2022. Civil claims can therefore be brought against manufacturers for defective or mis-sold construction products where these products contributed to the dwelling being unfit for habitation. This provision applies to all dwellings and has retrospective effect for cladding products within a 30-year period. The Building Safety Act also gives courts new powers to extend liability to the associated companies of developers.

With regard to the way in which leaseholders and taxpayers will retrieve money they have paid towards a remediation scheme, under the Building Safety Act 2022 we have granted leaseholders the power to apply to the First-tier Tribunal for remediation contribution orders. The First-tier Tribunal has the discretionary power to decide a timeframe in which the money must be paid to the specified person. In the first ever RCO issued, the respondent was required to pay the amount specified in the order within 14 days of the decision date. If the respondent does not pay the specified person within the deadline set by the tribunal, the order can be enforced through the county court system.

Discussions have been taking place with the insurance sector. A lot of discussions have happened and, indeed, where buildings comply with building regulations or align with the industry-accepted PAS 9980 standards, insurers should now offer affordable premiums and should not prescribe additional remedial works. The Association of British Insurers and its members have stated that premiums should reduce where buildings have completed remediation or have become PAS 9980 compliant in the external wall assessment and have therefore shown a marked risk reduction. We expect insurers to honour their commitments and ensure that premiums are priced fairly and appropriately, given the level of work that will have been done.

With regard to selective statistics, monthly data is now being released that can be seen by all, and the progress can be seen; therefore, rather than selective data, the whole dataset will be available for people to observe. Indeed, when taken together with the transparency and enforcement measures through the enforcement league table, I hope that will allow not just this House and its Members but the wider public to keep up the pressure on remediation, making sure that it all happens at pace.

With regard to additional estimates, the numbers have not changed since they were released as prevalence estimates. The publicly available data suggests that 4,092 residential buildings of 11 metres and over with unsafe cladding are being monitored by DLUHC. This comprises just over 2,500 18 metre-plus buildings and 1,500 buildings of 11 to 18 metres. We will continue to bring more buildings into the remediation scheme and provide monthly updates on that progress as and when we have it.

I thank the two noble Baronesses for their comments and look forward to working with noble Lords to try to make sure that we continue at pace to make sure that people live in safe homes.

Local Government Finances

Baroness Pinnock Excerpts

Thursday 21st March 2024 Lords Chamber

[Baroness Pinnock (LD)]

My Lords, I thank my noble friend Lord Shipley for securing this debate, and for his excellent and analytical introduction, and all noble Lords for the many local examples that they have shared and for their eloquent contributions. I have relevant interests as a councillor for nearly 40 years and as a vice-president of the Local Government Association.

The words “local government” were once synonymous with pride of place and pride of people. Councils were duly elected and took action to improve that place, be it through housing improvements, creating parks or ensuring public health reforms. It is a sentiment that the right reverend Prelate the Bishop of Manchester also expressed. The demise of the once great vision of what elected bodies could achieve for their place has been gradual. The question is whether we are reaching an endgame in that vision. My noble friends Lady Scott of Needham Market and Lady Hamwee have exposed and expressed that as a real threat.

Local government is shorthand for the provision and delivery of services that make a tangible difference to the lives of individuals, families and communities, be they in villages, towns or cities. That is why this debate is so important. Cutting funds to councils means real reductions in services that provide basic support to people in need, blocking opportunities for young people and leaving the place that people call home in a state of decline.

The challenge for the Minister is to demonstrate that the Government understand that local government is not about the delivery of disparate services defined only by central government. Local government, at its best, is far greater than the sum of its parts. It is local government that is the key to preventing difficulties becoming crises. For example, closing swimming pools and leisure centres as well as reducing youth provision will mean that young people have fewer places to go and fewer interests to enjoy, and the consequence can be a rise in anti-social behaviour.

My noble friend Lord Shipley has rightly focused on sources of income for local government. That is something that we really need to think about in this debate. A SIGOMA briefing stated—and I thought that this was really telling—that there has been a move away from providing local government funding based on need to one based on local tax-raising ability, so that councils in more affluent areas are able to raise far more through council tax than councils in more deprived areas. Can the Minister confirm that that is the case and that government claims of increasing core spending power include a requirement for councils to raise council tax by the limit set by the Government?

All that adds up to not very much in the sense of levelling up, which sounds ever more a hollow promise, as many noble Lords have said. Does the Minister agree that the social care precept is a new tax, introduced by the Government to help fund social care? That tax adds a further 2% on council tax bills in the higher-tier authorities and unitary councils and 2% more on the bills of hard-pressed council tax payers. In my own council, that means, for the average council tax payer, an additional £200-plus per year. As we all know, council tax is regressive, so is that a fair way of raising more funding for social care services?

As my noble friend Lord Shipley has rightly pointed out, 69% of local councils’ total spend is on adult and children’s social care, leaving 31% for everything else: highways, leisure, parks, libraries, culture, the arts—we could go on. I remind the Minister that my noble friend also said that the Government seem to be knowingly letting things get worse, in terms of the consequences of cuts to all the other services. We are still waiting for the fair funding review.

Of course, there are other forms of income for local government. The Government have been pushing for councils to use their reserves, but this is such a short-term and short-sighted approach to local government funding. As reserves can be used only once, this props up a budget for one year only and leaves an even bigger gap the following year. It is not sustainable for the Department for Levelling Up, Housing and Communities to push councils to use their reserves, especially because, as we have been reminded, the OBR has assessed that local government is facing further significant cuts to its funding as the proportion of GDP will fall by 3% over the next few years.

My noble friend Lady Hamwee contrasted being a local councillor 30 years ago with how local government is now—so constrained by government that it is in straitjacket. There is, as she says, little local discretion now available to local councils. That means, of course, that local councils are not able to respond effectively to real local need, because if there is no discretion, there can be no response.

Quite rightly, we have a real focus on arts, culture and libraries. The noble Baroness, Lady Bull, the noble Earl, Lord Clancarty, the noble Lord, Lord Freyberg, and my noble friends Lord Foster and Lady Miller all raised the vital role that culture, the arts and libraries play in the life of a place, and their economic importance in attracting business and investment. There are also the life chances they open up and the opportunities they provide for enhancing life and well-being. The tragedy is that these are the areas of local government funding that have had huge cuts, and there is no sense of the Government recognising the impact of the cuts, and no sense that the cuts will be replaced, except by these odd little pots of money that can be applied for and go somewhere—but, in the scheme of things, go nowhere. My noble friend Lady Miller had the telling statistic that more people go to libraries every year than watch football—I am up for that, as a statistic.

My noble friend Lady Scott of Needham Market pointed to the value of parish and town councils, and the enormous work they are doing. I know that my colleagues in Somerset Council, which is struggling with huge cuts to services, has sought a bigger and better partnership with its local parish councils to make up the difference.

To conclude, there is a crisis in local government. As we have heard, one in five councils are anticipating effective bankruptcy. Selling off council assets permanently reduces councils’ ability to serve local residents. Local councils matter. As we have heard, people are passionate about what local councils at their best can do. That is why the gradual decline of local government matters. We on these Benches value what councils can do; we will support and enhance them. The question to the Government is, will they?

Non-Domestic Rating (Rates Retention: Miscellaneous Amendments) Regulations 2024

Baroness Pinnock Excerpts

Tuesday 27th February 2024 Grand Committee

[Baroness Pinnock (LD)]

My Lords, I draw the Committee’s attention to my interests as a councillor and a vice-president of the Local Government Association. I thank the Minister for her detailed introduction. The Liberal Democrats support these technical changes. I do not know how we could oppose them without having a very detailed understanding of all the complexities of the changes that the Minister has outlined today. As she said, the purpose is to ensure that local authorities receive the correct payments from business rates, which are a very important source of income for local authorities.

This is indeed a very technical SI, and the formulae for calculating the redistributive mechanisms are also very complex, as I have read in the paper that we are considering. However, it seems to me that the greater the complexity, the greater the likelihood of unintended inequities creeping in. So my first point to the Minister is this: the Explanatory Memorandum states:

“There is no, or no significant, foreseen impact on the public sector”


and that the intention is to

“minimise the impacts on local authorities as far as is practicable”.

Now, as the Minister will know, local authorities are in very challenging financial times, so every penny in the council coffers will make a difference. Can the Minister put parameters on

“as far as is practicable”?

Are we talking thousands or hundreds of thousands of pounds? I hope it is not millions. What are the parameters that the Government have used for describing

“as far as is practicable”?

I appreciate it will never be absolutely precise, because it is so complex.

The Minister will appreciate that business rate income is a very important source of funding. On the other hand, councils have a responsibility to ensure vibrant high streets. The result of that is councils wanting business rate bills to be reduced to help retailers. There were some changes in the last piece of legislation to which this SI refers to do that. It was reported last year in the Times, and referenced on Report on the Bill, that some retailers have business rates bills that are equal to or higher than their rental costs. That cannot be right. It leads me to suggest that root and branch reform of the business rates system is urgently needed.

Part of the solution to this gross unfairness is the way that the existing system overly favours online retailers that operate from very large warehouses. An example could be Amazon. The Minister will repeat that the Government have adjusted business rates so that these giants of the retail world pay a bigger share towards the local services they use, but these changes were minimal, resulting in a drop in the financial ocean for large online retailers. For example, it cost Amazon £29 million when its business model is in the billions. Yet the system still overwhelmingly favours online retail, despite government commitments in the levelling-up Act to reinvigorate the high street.

A radical change to create a fairer balance between what is known as “bricks and clicks” would go a long way to achieving what the Government are committed to doing—and which I support—as regards the high street. So can the Minister provide any hope at all that such a change is somewhere on the agenda? It is a key lever in reinvigorating our high streets and ensuring that major online retailers pay a fair share.

The Minister in response may point to small business rate relief. She would be absolutely right that many small shops have 100% rate relief, but that just further emphasises the point that I make. Any system that relies on substantial reliefs and complex redistribution mechanisms while failing to capture income from completely new business types—the online businesses—is ripe for fundamental reform.

I appreciate that this has gone slightly off-piste but, when we are considering the redistribution of business rates, which are a very important element of local government funding, it seems to me that we should use any opportunity we can to remind the Government that, to achieve some of their key objectives, a fundamental reform of business rates is absolutely essential. However, I support the technical changes that are introduced by this statutory instrument.

[Baroness Taylor of Stevenage (Lab)]

My Lords, I draw attention to my interests in the register as a vice-president of the Local Government Association and as a serving councillor on Stevenage Borough Council and Hertfordshire County Council. I thank the Minister for her introduction to this statutory instrument and I am very grateful for her explanation of the relaying of it, which was informative.

I suppose that this instrument is necessarily complex and technical in content, but, if we look through it, we see that in many ways it demonstrates exactly how far business rates—or non-domestic rates, as we have to call them—have got from their objectives. They are intended to ensure that businesses make a contribution to the communities that allow them to thrive, to link them with the people and public services of their local area. They should recognise the differentiation between small, start-up and local businesses and the multinational corporates, when in fact non-domestic rates sometimes penalise them in inverse proportion to their ability to pay. They should also ensure that areas wishing to improve, increase or regenerate economic activity are able to vary the business rates to incentivise according to local circumstances.

Looking through the pages of mathematical formulae and complex calculations in this SI, I say that it would not be surprising if any average business doing so felt that we had somewhat lost the plot. The complexities of the system do not really benefit most councils, either, although we appreciate the funding that comes from them. For example, my borough raises over £61 million in non-domestic rates but, after all these calculations and the turning of the Government’s sausage machine, we get around £4 million of that—in spite of having three of the most deprived wards in the country.

So we need to refocus business rates back on to what they were intended to do. That is why they are part of Labour’s plan to support the vast majority of businesses in this country that are SMEs. They employ 16.7 million people and boost our economy by £2.4 trillion; they breathe life into our high streets; they deliver services that make our life easier: and they provide the goods we need to thrive. While SMEs welcomed the support they got during Covid, many of them now feel neglected as they struggle to survive the cost of living crisis, the recession and the complexities of this business rates system, which can seem utterly overwhelming, as the noble Baroness, Lady Pinnock, set out.

Labour’s plan for small businesses will be an important milestone in recognising their value to the economy and the essential role that they have in ensuring the economic growth that we need. We will undertake a fundamental reform of business rates, which will reshape this antiquated system and refocus it on business not bureaucrats’ objectives. We want to make sure that bricks-and-mortar businesses do not continue to pay disproportionately more than their online competitors. We want to take the burden from high streets and the businesses that sit at the heart of our communities, such as the local café that makes our morning coffee, the mortgage broker on our high street who went above and beyond to help you get your first home, the plumbers who come out of hours when you have water pouring through the ceiling. We want a new system that incentivises businesses to invest, rather than discourages them doing so. Our plan for business rates sits within a comprehensive plan for small business, which tackles all the issues that our many conversations with those businesses have told us are key to their future.

We had the chance to speak on the wasted opportunity to revise non-domestic rates during last year’s debates on the Bill, as the Minister said. We recognise that, for now, this technical paper is necessary to put in place the mechanism for the current system, so we will not be putting forward any formal objections, but I have some questions for the Minister. Can she comment any further on the Government’s plans to shift the current disproportionate burden of non-domestic rates taxation from small local businesses to online corporates or, potentially, on alternative forms of income for local government, including an e-commerce levy, with the funding retained by local government?

The retailers that we know and love on our high street, such as M&S, Boots, WHSmith and small, local businesses, seem to have a dramatic penalty in the business rates system over big online retailers such as Amazon. The current top-up and tariffs system is now outdated and, in view of the extraordinary cuts to which local government has been subjected, it often penalises areas of deprivation just because areas around them may be more economically vibrant. Can the Minister comment on what recent assessment has been carried out on the validity of the tariffs and top-up system?

What progress has been made on the Government’s promised consultation on business rates avoidance and evasion? The LGA, for example, has called for a review of exemptions, such as where businesses happen to be located on farms, and further clamp-downs on business rates avoidance, along the lines of those introduced in Wales and Scotland, to ensure that the rules on reliefs, such as empty property and charitable relief, are applied fairly.

The Minister knows that the LGA is also in favour of giving councils more flexibility on business rates reliefs, such as charitable and empty property relief, and the ability to set their own business rates multipliers or, at the very least, to set a multiplier above and below the nationally set multiplier. Have the Government given any further consideration to those proposals? Lastly, could she comment on the glacial speed of the appeals process, which distorts council finances and reserves, as councils often have to hold funds for not just months but years while they wait for the outcome of business rate appeals?

As I said, we understand that this instrument is necessary to move forward non-domestic rates for this year, but we hope that there is an understanding that sticking plasters, even complicated and technical ones such as this, are the problem and not the solution.

Leasehold: Property Management Companies

Baroness Pinnock Excerpts

Monday 19th February 2024 Lords Chamber

[Baroness Penn (Con)]

My Lords, the Bill aims to grant freehold homeowners on private or mixed-tenure estates the same rights of redress as leaseholders in this area—equivalent rights to transparency on estate charges and the ability to challenge those charges at tribunal. I believe the CMA is also looking into this matter, and we look forward to receiving its final report.

[Baroness Pinnock (LD)]

My Lords, some freeholders, although not all, treat their leaseholders as a cash cow. I have two examples for the Minister. First, there was a ground rent increase—and there is no value at all to the leaseholder in a ground rent—of 113% this year, which was backdated three years, and the sum was demanded to be paid in full in four weeks. Secondly, there was a 23% increase in service charges this year. There is no accountability. Transparency there is, and challenge there can be, but nothing comes of it—and it seems that nothing in the Bill will change that. Can the Minister tell me that it will?

[Baroness Penn (Con)]

I can. The Government have consulted on a range of options to reform existing ground rents, having legislated in 2022 to set all new ground rents at a peppercorn rate. Following the outcome of that consultation, we aim to legislate in the current Bill before Parliament. As I say, not only will we give leaseholders greater rights to transparency on what service charges are charged for, to ensure that they are reasonable, but we are changing the cost regime in the courts so they can challenge those charges where they think they are unreasonable.

Local Planning Authorities: Staffing

Baroness Pinnock Excerpts

Monday 12th February 2024 Lords Chamber

[Baroness Penn (Con)]

My Lords, one of the things we have done in our recent changes is make provision for the indexing of planning fees going forward. That will ensure not only that local authorities will benefit from the substantial increase in fees that were put in place in December this year but that, on an annual basis, the value of those fees will be retained in future.

[Baroness Pinnock (LD)]

My Lords, the Minister mentioned the increase in planning fees, and she is quite right, but when the Government made that increase they knew that it would not cover the costs of planning applications. Can the Minister justify why hard-pressed councils have to take funding from other public services to pay for planning applications?

[Baroness Penn (Con)]

My Lords, we want to proceed in a measured way, providing additional resourcing without disproportionately impacting businesses and householders. Full cost recovery now could result in a substantial rise in some fees, which would adversely impact some developments. Of course, further to the fee increases and the additional specific funding through the planning skills delivery fund, we have made provision for an increase in the settlement to local authorities overall this year.

Temporary Accommodation Costs

Baroness Pinnock Excerpts

Wednesday 31st January 2024 Lords Chamber

[Baroness Scott of Bybrook (Con)]

Through their powers, local authorities can look to purchase accommodation. In the last two Budgets, we have given special dispensation to local councils, first, on special borrowing and, secondly, on their moneys from the right to buy. It is up to local authorities to look at the ways they can provide those houses, but I will take that back to the department as an idea.

[Baroness Pinnock (LD)]

My Lords, as the Minister has rightly said, the Government are allocating £1 billion to reduce homelessness. Unfortunately, it is clearly not working, as homelessness is at a 25-year high, with the result that local authorities have to spend increasing proportions of their budget on their statutory duty—which they want to undertake—to house people without a home. For example, Eastbourne Borough Council has an annual budget of £15 million but is spending £4.9 million each year on its statutory homeless duty. That is not sustainable. What are the Government to do?

[Baroness Scott of Bybrook (Con)]

As I have said, on 24 January, the Government announced additional measures for local authority funding worth £600 million, including £500 million of new funding for adult and children’s social care. It means that core spending powers will be up by £4.5 billion next year. This is what we are doing to help local authorities with all the pressures on their budgets at this time.