Grenfell Tower Inquiry Report

Earl of Lytton Excerpts

Friday 22nd November 2024 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, it is a pleasure to take part in this debate. The great advantage of being a fair way down the list is that it enables me to strike out some of the things that I would have said in more detail. I too pay tribute to Sir Martin Moore-Bick’s report, as I do to the forbearance of the families of the 72 people who died in the Grenfell tragedy.

The phase 2 report is weighty, forensic and sobering in its implications. As a chartered surveyor, a patron of the Chartered Association of Building Engineers and a member of the fire safety APPG, I find the implications very profound and far reaching.

I cannot not thank your Lordships’ Library, which provided a very helpful and useful briefing note, and all those who have written to me. I must also thank my eldest son, who is my researcher and has been doing some work for me on this, and fellow professionals who have been happy to share some very candid views.

I turn to a point that was raised by the noble Lord, Lord Carter of Haslemere: we were warned. There were earlier fires, here and abroad, coroners’ reports, reports in particular that followed the Lakanal House fire, and Select Committee and other public body reports. They were noted and filed, with responses made—but, sadly, lessons were largely unlearned. That has to change.

The phase 2 report, in its technical and forensic detail, speaks for itself. I fundamentally agree with all its findings and recommendations, but I need to look at the wider context.

Professor Shane Ewen notes in his book Before Grenfell—I recommend it to any noble Lord—that what he describes as the “neoliberal agenda” of burning red tape and moving to individual responsibility also failed to maintain consistency of oversight, enforce regulation or impose sanctions. The moral hazard that sits behind that arrangement does not need any further explanation from me, but there is a risk of doing this again. The principles of a proportionate approach to fire safety, a tolerable risk, and—it has become a further undefined term—“life-critical” fire safety are all untested. Arguably, they may make things less safe than the building regulations requirements that constructors were supposed to follow and adhere to prior to Grenfell.

This matters in particular to remediation and the requirements of what I can describe only as the rather equivocal PAS 9980. I think that needs a review to make its wording clearer. It is also particularly important to the building regulations’ assumption of “stay put”. Noble Lords will be familiar with fire-resistance criteria of half an hour, one hour or one and a half hours. They have been in regulations since 1965; they were the regulations I grew up with, as it were, when I studied for my profession. They assume that a building has sufficient fire resistance and compartmentation to enable firefighters to access and put out the fire. That is their fundamental purpose.

Adding to the fuel load by incorporating lightweight components—doubtless with the best intention to reduce greenhouse gas emissions—has altered that fundamental understanding entirely, and it has done so while nobody seemed to be taking any notice of what was happening or what the consequences might be. It has all sorts of implications for establishing adequate fire safety in existing buildings. One hopes that new regulations will deal with the ones that will be constructed in the future.

The point made by the noble Lord, Lord Porter of Spalding, on the complexity of buildings is apposite. I have always said that lower height does not necessarily equate to lower risk. I was glad to see the noble Baroness, Lady Pinnock, nodding, because she and I have argued that, up hill and down dale, in this House, particularly during the passage of the Building Safety Bill.

My point is that safe buildings—in other words, those that resist fire and its spread if it occurs—also protect people: that has to be the fundamental. So I cannot see that a risk-to-life approach that does not start with robust buildings makes logical sense. I invite the Minister to comment on that or perhaps write to me.

The people who had full agency here were those constructing the buildings. It was their choice as to whether they had a clerk of works, what specification they used, which architect and supplier they used, which product they substituted during the process, their relationships with their subcontractors and all the other things—many of which are highlighted by the Farmer report, Modernise or Die, and other reports about the construction sector.

These people need to be held to account, and I yield to no one on this point. It is not good enough to say that if you make a voluntary contribution of however many billions, we will let you off the hook. That must not happen. This has to be dealt with in a way that enables the funding mentioned by the noble Baroness, Lady Pidgeon, to be provided for somebody who may be made legally responsible for carrying out work but has no means to do so. That has to be dealt with as well.

We have inadequate information on residential block types and their construction risks, despite the seven years we have had to collect that data in detail. We do not account properly. The NAO report earlier this month does not take any account of non-cladding defects, which the House of Commons committee has heard are likely to be equal in scale and cost to the cladding defects. If you are talking about the budget for fixing cladding, you may need to double that figure for the rest of what needs doing.

We are doing nothing about buildings below 11 metres. We do not even know how many there are, how they are constructed or what the risks are, which goes back to my earlier point.

The report does not deal with the residual value attrition of life safety measures on the value of the building. It is all very well saying that something should be life critical. That deals with the human side of things but not the writedown of the property asset itself. It is the property asset that insurers are insuring. When they do not want to insure something, that is what they look at. They do not want the asset reduced to a pile of sticks. This goes back to my earlier point that we need robust buildings to protect people.

We do know some statistics. We have an estimate from the MHCLG of £16.6 billion as a low median figure to remedy cladding defects. According to my calculations, that represents around £50,000 per affected flat—or roughly a fifth of the average value of a flat in England, which is £254,000. To further contextualise, 1,300 buildings in London are under simultaneous evacuation orders as at September 2024. That is a departure from the building regulations “stay put” principle I referred to earlier. But in single staircase buildings, which most of them are, that has implications for people getting out in the event of a fire, and the fire services trying to get in, with fire doors being opened and closed, compromising the rescue process. That is where the second staircase argument comes in. How we will deal with that is an unresolved matter.

Some 11,000 people in England have been decanted from their homes because they are deemed too risky to live in—and the number continues to rise. To put this in a further economic context, house prices across the residential sector in general have risen by 34% since the Grenfell disaster, beating consumer price inflation which is 30%. Leasehold flat prices have risen by just 12% in the same period. If you take inflation into account, it is a negative return. That has significant implications for the inventory value. More to the point, it affects individual households’ spending power, their sense of well-being and their ability to build equity. It affects banks and lenders’ ability to generate money and has a significant effect on the overall economy. I have not tried to work that out, but it ought to be dealt with.

We are not out of the woods yet. The Grenfell report suggests bringing building control under a public body not driven by conflicts of interest. I agree with that but, needless to say, the industry out there is starting to shift as we speak. There is some evidence that those who have been involved in building regulation inspections are migrating to other roles. Why would they not? It is becoming a bit of a toxic area to be involved with. It is probably quite difficult to get professional indemnity insurance and so on. There is attrition going on in their numbers, and the training cannot keep up. If we are not careful, we will run into a situation where projects that might legitimately be expected to go ahead will be stalled because there is not the personnel to keep ahead of that.

There are other areas of specialist expertise—cladding, smoke extraction, staircase design and wider fire safety assessment. We are in deficit of people able to deal with them. Who is to do that and how is it to be funded? I am told that in the year ending September just gone, some 4,000 construction firms became insolvent. That is a very difficult thing to deal with.

The noble Baroness, Lady Pidgeon, touched on the last point that I wish to make. Ultimately, we are talking about people in their homes—a place that should have been their secure residence from which they conducted their lives, operated their work/life balance, maybe brought up children, established friendships, put down roots and became part of society. The problems that we are faced with of unmortgageable property, sky-high insurance costs and very high fees for general maintenance and management—many of these things were imposed under the Fire Safety Act—are becoming a corrosive factor in what should be these people’s secure place. The mental stress and strain, the repossessions and sell-offs that are still going on, and the fact that people are not being allowed to extend their mortgages—putting them at a real financial disadvantage—must be the most terrifying things that affect home owners in this category. That really has to be addressed because I fear that a very large cohort—it may be 300,000, 400,000 or half a million homes—are affected by this. This has to be looked at most carefully, and I hope the Minister is taking good note of that.

Renters (Reform) Bill

Earl of Lytton Excerpts

2nd reading
Wednesday 15th May 2024 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, it is a pleasure to speak in this debate. I have interests to declare as a chartered surveyor and a small-scale private rented sector landlord, both of some 50-plus years’ standing.

I welcome the Bill, which contains much good, for no other reason than that I hope it consolidates the good and prevents a small proportion of bad actors from providing a reason for criticism and discord. I thank the Minister for her willingness to engage, although I remind her that I sent her a list of questions beforehand that are not covered in what I have to say, and I hope she will be able to answer them.

The test will be whether the Bill results in more choice, supply and competition, with better outcomes for renters, while providing a balance of flexibility, opportunity and returns for lessors. The Minister said much about existing standards by landlords but nothing about ensuring good behaviour by tenants, and I suggest that we need both. There would be little purpose in giving renters a better deal if overall supply failed to grow or even shrank, so a polarised critique of supply side is rather unhelpful.

Current PRS market dynamics are opaque at best; the statistics are not sufficiently granular to enable cause or immediate effect to be established. Recent research by Savills, generally considered a reliable sector source, shows a modest but potentially significant decline in rental stock, but the reasons remain unclear. Some suggest that highly geared buy-to-let investors are put off by poor returns due to higher interest rates and fiscal changes. Even the Bank of England, in its note on that subsector, admits that it cannot definitively establish cause and effect. There are too many variations in circumstances and aspirations to reach a pan-sector conclusion.

I am particularly interested in an excellent piece on right to buy in the latest House magazine by the noble Lord, Lord Bird. I know of no focused research into lessor views other than that of the CLA, of which I am a member, and that only in the rural context, where it suggests that its member lessors are spooked. Poor yields and higher risks discourage new entrants—that must be obvious—and it is safe to say that the private rented sector, with its costs of entry, exit and interim returns, competes with other investment opportunities here at home or anywhere else in the world. There is nothing special that mandates investor participation in the PRS or that it must match unmet need for a place to live. The impact assessment suggests a ready replacement of departing lessors, but without evidence or research into that—and I find none—I conclude that the policy enters unknown territory. So far, not so good.

It is a common ground here that there are currently large numbers of people wanting to rent and far too few available properties. It is likely demand is rising because of severe social housing shortages, and because getting on the housing ladder has become so expensive—this despite those already having mortgages and in occupation having lower debt servicing costs compared with equivalent rental payments. However, I must say at this point that that is a bit like comparing apples and pears. More broadly, I consider that this is due to other government policies impacting on a sector that has become more volatile over the years. Such policies are characterised by the word “buy”—right to buy, help to buy, buy to let—and other fiscal prompts and exhortations to build, build, build, which cannot keep up. Stoking demand which necessitates housebuilding rates never achieved without council housebuilding—a point made by the noble Lord, Lord Adonis—is at best unwise. Relying on affordable housing on the back of market sales while selling off existing social housing at a discount is equally questionable, however popular that might be.

Near where I live, new market housing totally unaffordable to the locals is being offered to Far East buyers. We need a new model altogether for providing housing that the nation can afford, and to take some of the heat out of the PRS demand sector. My fear is that we are tinkering with the fallout from much bigger historic decisions about commoditisation of the roof over one’s head, stretching back to the Thatcher era. We have little or no idea what the effects of this Bill will be. The intention seems simply to accommodate demand. On supply, for which it has obvious implications, if it does not foster an increase then the policy will simply fail.

In turning to some of the Bill’s specific provisions, I will keep clear of the Section 21 question for a moment but simply remind your Lordships that the exit route under the Housing Act 1988 from the 25-year impasse of rent control and security of tenure created in the 1960s was to free up and revitalise the PRS through something called a shorthold tenancy. Superimposing longer-term aspirations of some renters on an essentially short-term model designed to give mobility both of occupation and investor finance may be a tactical error. Proper provision should be made in parallel for longer-term lettings. Measures which now make things less flexible inevitably alter supply-side dynamics. Demanding higher levels of competence and compliance raises fears of added cost and risk. These may increase rents, as we have already heard, especially if quality improves and/or the numbers of available properties, or of lessors, shrink.

On the exceptions in the Bill, I note the points made by the CLA that carving out an exemption for agricultural and forestry workers fails to address the wider diversified rural business need, where parks, gardens, hotels, food processing and the like also involve providing staff with accommodation. Dealing with the normal turnover in staff housing needs has to be considered further.

A promise that Section 8 terminations will not be caught up in a severely underresourced court system— I am grateful to other noble Lords who have pointed this out—does not remove the suggestion of a process less certain and more contestable, protracted and costly. In the market, you cannot achieve vacant possession value if there is a tenant in place as it prevents immediate occupation by a purchaser. For a lessor intending to sell, this can impede choice of the moment to enter the market—a market characterised by seasonal fluctuations, with political and financial sector volatility. It is how markets work and how investors react.

As to blanket bans, I totally accept that unfair discrimination is completely unconscionable. A prudent lessor who already has responsibility for checking a renter is entitled to be in the UK—which I always thought to be a UK Border Force task until this Government decreed otherwise—should not object to complying with standards many already observe, or to acting with proper probity. These are likely no more onerous than the scrutiny that they themselves apply to would-be renters. However, I would venture to suggest that deliberate misrepresentations by either party to the other should have consequences, and merit access either way—from a landlord or a tenant point of view—to dispute resolution.

The renter should be no less fit for purpose and conduct than the lessor and the description of the property. Logically, the renter’s net income should be sufficient to pay the rent and outgoings and meet living expenses, as a minimum. After all, if the renter subsequently finds that they cannot afford the heating costs, the property and the renter’s health are both at risk. I remind your Lordships that the majority of PRS lessors are not big corporates but, as we have heard, private individuals who are just as entitled to the reasonable use and enjoyment of their assets as the renter is to quiet enjoyment of a residence that may or may not be their only home. Professionally, over the years, I have encountered both poor renters and rubbish landlords.

On decent homes, I agree with the principle although I have yet to see a revised standard. Arguably, quite a lot of PRS properties are of older construction and may be difficult to upgrade to anywhere near modern thermal standards. If this becomes a fitness issue, there will be failed properties that become uneconomic to rent and will go on to the freehold sale market. The Bill is silent, however, on what happens if a property cannot be upgraded without the tenant moving out. That needs clarification.

I accept some of the generality of the claim that terminations of tenancies are a major source of homelessness, but it rather overlooks the practice of local authorities insisting on an eviction order before acting by stepping in themselves, thus exacerbating an already difficult situation and making even reasonable lessors look like ogres. I hope the Bill will improve that, but if the view is that it is the role of the PRS to underwrite social support and be a safety net for those who would otherwise be homeless, then that needs a better and upfront justification.

There is provision for possession on grounds of redevelopment, but I am unsure what this means in practice. If a lessor has a project substantially to convert, remodel or otherwise carry out major works—it might be a developer assembling a site—with a view to eventual sale or re-letting but in the meantime decides they wish to let short term, do the Government consider that reasonable or would they rather that such properties were held vacant? It is a waste of a resource if you cannot let short term.

That is where I have concerns about the elimination of the fixed-term lease. It quite obviously suits lots of people if they are on secondment or whatever it happens to be—they may be away on a job or know that something is going to happen—that they can enter into a fixed-term contract. It is perfectly legitimate for a renter to decide they want only that. What is it about adults that we cannot trust them to freely contract in a market environment? I find that really strange. Clearly, there must be some safeguards against misuse, but I really do not see what the problem is. I would like to know what would happen to a sublet flat in a block requiring a decant for fire safety remediation, a matter that I have raised on many occasions in this House. Will frustration of that renter’s contract apply?

Other noble Lords have said that the private rented sector has a fundamental and pivotal role in housing provision. Much ultimately depends on whether there is political consensus on the measures in the Bill or whether the Opposition would wish to go further. It is unlikely that the availability of homes to rent will be improved until this is settled, possibly at some stage after the next general election. Much doubt and uncertainty are generated by this political fog. If there is an identifiable, serious decline in the availability of homes to rent, that will be a significant part of the reason. The language we use, therefore, has considerable significance for how things turn out.

Leasehold and Freehold Reform Bill

Earl of Lytton Excerpts

Committee stage
Wednesday 1st May 2024 Lords Chamber

Moved by

[The Earl of Lytton]

93B: After Schedule 12, insert the following new Schedule—
“SCHEDULEBUILDING SAFETY REMEDIATION SCHEMEDuty to establish the scheme
1 (1) The Secretary of State must establish, or make arrangements for the establishment of, a Building Safety Remediation Scheme (“the BSRS”).(2) The purpose of the BSRS must be to ensure that residential blocks of flats with building safety risks are made safe, mortgageable and insurable at no cost to leaseholders or landlords. (3) For the purposes of this Schedule “building safety remediation principle” is the principle that—(a) so far as reasonably practicable, remediation costs for relevant buildings with building safety risks arising from defective construction or additional building work should be met by the developer, the principal contractor or both, and(b) where that is not reasonably practicable, or where building safety risks do not arise from defective construction or additional building work, costs should be met by the building industry.Scope of the scheme
2 The BSRS must be framed so as to apply to relevant buildings which—(a) were constructed, or subject to additional building work, on or after 1 June 1992, and(b) present building safety risks.Operation of the scheme
3 (1) The BSRS must provide for persons (including freeholders and leaseholders) to apply—(a) for a building to be recognised as a relevant building, and(b) for a relevant building to be recognised as eligible for grants in respect of the cost of remediation works.(2) The BSRS must provide—(a) for the appointment of persons (“BSRS adjudicators”) with appropriate expertise to determine, on behalf of the Secretary of State, applications under sub-paragraph (1)(a) and (b), and(b) for BSRS adjudicators to be required to exercise operational independence in making determinations under the scheme.(3) For the purposes of sub-paragraph (2), the BSRS may provide for appointments to be made by the Secretary of State or by one or more persons designated for that purpose by the Secretary of State under the scheme.(4) The BSRS must provide that determinations of BSRS adjudicators in respect of building eligibility for the scheme under paragraph 4 are final (but nothing in this sub-paragraph prevents the exercise by the High Court of its judicial review jurisdiction).Scheme supplementary regulations
4 (1) The Secretary of State must make regulations (“scheme supplementary regulations”) in respect of the BSRS.(2) Scheme supplementary regulations, in particular—(a) may make provision for determining what is to be, or not to be, treated as a relevant building for the purposes of the scheme;(b) may make provision for determining the date on which buildings were constructed or subject to additional building work;(c) may make provision for determining who is entitled to make an application under the scheme in respect of a relevant building;(d) may specify criteria to be applied by BSRS adjudicators in determining whether a relevant building presents building safety risks as a result of defective construction (and the criteria may, in particular, make provision wholly or partly by reference to building regulations or other enactments in force at the time of construction or by reference to specified classes of document);(e) may make provision permitting or requiring BSRS adjudicators to conduct tests, and requiring owners and occupiers of relevant buildings to cooperate with BSRS adjudicators in conducting tests; (f) may make provision permitting BSRS adjudicators to require local authorities or other specified classes of person to provide information or documents, and requiring persons to comply with any requirements imposed;(g) may make provision about the timing of applications and determinations;(h) may make provision about evidence to be adduced in support of an application;(i) may require or permit BSRS adjudicators to operate a rebuttable presumption of defective construction where specified classes of fact have been proved (for which purpose the regulations may make provision similar to, or applying with or without modification, any enactment);(j) may make provision about the making, processing and determination of applications under the scheme;(k) may make provision about the giving of notice to developers and others;(l) may make provision about the payment of awards;(m) may make provision about monitoring expenditure on remediation works;(n) may set a threshold for the estimated or quoted cost of remediation works below which an application for recognition cannot be made;(o) may make provision for determining, having regard in particular to the need for proportionality, the nature and extent of remediation costs which may be funded by the scheme (for which purpose “remediation costs” means any class of expenditure related to building safety risks, including, in particular, repair costs, the costs of interim mitigation or safety measures and reimbursement of or compensation for increases in insurance premiums);(p) may make provision for account to be taken of grants provided in respect of remediation works by any other scheme established by enactment or by a public authority;(q) may make provision for financial assistance provided by any other scheme established by enactment or by a public authority to be repaid out of grants under the remediation scheme;(r) may permit or require the amalgamation of multiple applications in respect of one relevant building, or of applications on behalf of the residents of one or more relevant buildings;(s) may permit or require representative applications on behalf of the residents of one or more relevant buildings;(t) may make provision about the qualifications, appointment, remuneration and conduct of BSRS adjudicators, and the regulations may, in particular—(i) provide for adjudicators to be remunerated from BSRS funds;(ii) provide for indemnities in respect of decisions taken by adjudicators (for which purpose the regulations may apply an enactment (with or without modification));(u) must include provision requiring the maintenance and publication of records of applications and determinations under the BSRS;(v) must confer a right to appeal to the First-tier Tribunal in respect of determinations as to whether a building safety risk arose from defective construction or additional building work.Scheme funding regulations
5 (1) The Secretary of State must make regulations about the funding of the BSRS and of grants made under it (“scheme funding regulations”).and of grants made under it (“scheme funding regulations”). (2) Scheme funding regulations must aim to apply the building safety remediation principle so far as practicable.(3) For that purpose, scheme funding regulations must aim to ensure that a grant awarded under the BSRS is funded—(a) so far as possible where building safety risks arise from defective construction or additional building work, by the developer or principal contractor of the building in respect of which the grant is awarded, and(b) failing that (whether by reason of the dissolution of a developer or principal contractor, insolvency or otherwise), or where building safety risks do not arise from defective construction or additional building work, by money paid into a fund maintained through a levy on the building industry in general, or specified parts of the building industry.(4) For the purposes of achieving the objective in sub-paragraph (3)(a)—(a) the reference to the developer of a building includes a reference to any person who arranged for its construction or additional building work and for the sale of units in the building;(b) the reference to the principal contractor is a reference to the person who was responsible to the developer for the construction of a building or undertaking additional building work;(c) scheme funding regulations must permit a BSRS adjudicator to provide for an award under the scheme to be paid by one or more persons specified by the adjudicator (and awards may, in particular, provide for joint and several liability);(d) scheme funding regulations must confer a right to appeal to the First-tier Tribunal;(e) scheme funding regulations may include provision permitting a BSRS adjudicator to permit or require an award for payment by a specified person to be satisfied wholly or partly by a person connected to that person (within the meaning of the regulations, for which purpose the regulations may apply, with or without modification, section 121 of the Building Safety Act 2022 and any enactment relating to joint ventures);(f) scheme funding regulations may include provision about enforcement of liability to satisfy awards, which may, in particular—(i) provide for collection of awards as a statutory debt,(ii) include provision for interest or penalties,(iii) provide for liability to make payments pending appeal or review, and(iv) create criminal offences in connection with evasion.(5) For the purposes of achieving the objective in sub-paragraph (3)(b), scheme funding regulations—(a) must establish one or more levies to be paid by specified businesses or classes of business;(b) must make provision for determining liability to pay the levy;(c) may confer functions on BSRS adjudicators or other specified persons (which may include the Secretary of State) in respect of determination of liability to pay the levy;(d) must confer on a person determined to be liable to pay the levy the right to appeal to the First-tier Tribunal;(e) may provide for different amounts of levy to be paid by different classes of person;(f) may provide for the levy to be paid by way of one-off payments, periodic payments or both; (g) may include provision about enforcement of liability to pay the levy (which may, in particular, provide for collection of the levy as a statutory debt, include provision for interest or penalties and create criminal offences in connection with evasion);(h) must include provision about the administration of the levy by the Secretary of State, including provision as to the maintenance and publication of estimates, accounts and other records;(i) may include supplemental provision about the levy.(6) In making regulations under sub-paragraph (5), and in particular in assessing the proportionality and other fairness of any levy imposed by regulations under sub-paragraph (5), the Secretary of State must—(a) have regard to any other levy or similar imposition that appears to have a similar purpose as a levy under the scheme funding regulations, and(b) must consult persons appearing to him or her to represent the interests of persons affected by other relevant levies and impositions.(7) Scheme funding regulations may include provision about—(a) application of awards, levies and grants, including provision for holding (or return) of surplus funds;(b) the nature and extent of obligations imposed by awards (which may, in particular, provide for payments in money or services or money’s worth);(c) processes and procedures to be applied in determining applications for grants and questions of liability to awards (which may, in particular, include provision for determination wholly, partly, absolutely or contingently by arbitration, mediation or any other kind of process or procedure the Secretary of State thinks appropriate);(d) terms and conditions of awards, levies and grants;(e) appraisals, appeals and enforcement.Apportionment
6 (1) Scheme funding regulations may make provision about apportionment of liability for defective construction.(2) In particular, scheme funding regulations may provide that where a person is required to pay an award under the BSRS, that person may bring proceedings to recover a contribution from one or more persons who share responsibility for the defects in respect of which the award is made.(3) Provision made by virtue of this paragraph may—(a) confer jurisdiction on the First-tier Tribunal or on any other specified court or tribunal;(b) apply (with or without modifications) any enactment about third- party liability.Interim payments
7 (1) The Secretary of State may make interim grants to persons whom the Secretary of State believes are likely to be entitled to benefit from the remediation scheme.(2) Interim grants may be made on such terms and conditions (including as to repayment) as the Secretary of State may specify.(3) Scheme supplementary regulations—(a) may include provision for account to be taken of interim grants under this paragraph, and(b) may include other provision about interim grants under this paragraph (including provision about applications for grants, eligibility for grants and determination of applications for grants). Interpretation
8 For the purposes of this Schedule— “building safety risk” has the meaning given in section 120(5) of the Building Safety Act 2022;“building industry” has the meaning given in section 127(7) of the Building Safety Act 2022;“construction” includes any kind of building work (whether part of the original construction of a building or not) including works of improvement, repair and extension;“class” includes description;“defective construction or other building work” means construction or additional building work that—(a) contravened building regulations or other enactments in force at the time of the construction or additional building work, or(b) satisfies any other criteria specified in the BSRS or in scheme supplementary regulations;“BSRS funding regulations” has the meaning given by paragraph 5;“BSRS scheme” has the meaning given by paragraph 1;“BSRS adjudicator” has the meaning given by paragraph 3;“grant” includes loans and any other form of financial assistance (for which purpose a reference to payment includes a reference to the provision of assistance);“building safety remediation principle” has the meaning given by paragraph 1;“landlord” means means the landlord under the lease or any superior landlord.“remediation costs” has the meaning given by paragraph 4;“relevant building” means a self-contained building, or self-contained part of a building that contains at least two dwellings;“scheme supplementary regulations” has the meaning given by paragraph 4.Consultation
9 Before making the scheme, the scheme supplementary regulations and the scheme funding regulations, the Secretary of State must consult—(a) persons appearing to represent the interests of freeholders, leaseholders or occupiers of blocks of flats with building safety risks;(b) persons appearing to represent the interests of the construction industry and related industries, and(c) such other persons as the Secretary of State thinks appropriate.Regulations
10 (1) Scheme supplementary regulations and scheme funding regulations—(a) may make provision that applies generally or only for specified purposes,(b) may make different provision for different purposes,(c) may confer functions (including discretionary functions) on specified persons or classes of person, and may provide for the Secretary of State to appoint persons to exercise functions under the regulations or the remediation scheme (whether or not on behalf of the Secretary of State), and(d) may include supplemental, consequential or transitional provision.(2) Scheme funding regulations may not be made unless a draft has been laid before, and approved by resolution of, each House of Parliament.(3) Scheme supplementary regulations are subject to annulment in pursuance of a resolution of either House of Parliament.” Member's explanatory statement
This new Schedule would implement a building safety remediation scheme to ensure that buildings with building safety risks are put right without costs to leaseholders.

[The Earl of Lytton (CB)]

My Lords, in moving Amendment 93B I will also speak to linked Amendment 107 and Amendments 105C to 105G standing in my name. These amendments offer a range of proposals to enhance the protection of leaseholders from the costs of remedying fire protection or other structural defects.

I make no apology for returning, once again, to this matter of basic consumer protection for leaseholders and for going over some old ground. My mailbox tells me that the issues are far from resolved. Too many leaseholders remain seriously encumbered by the defects in the original construction of flats that they occupy or own. The plain truth is that the Building Safety Act—I shall refer to it as the BSA—is not delivering the protection that leaseholders ought to expect as a basic right, and this Bill serves to undermine it further in certain material respects.

There is cross-party consensus that the BSA needs amendment. I pay tribute to colleagues who, with me, continue to press the Government to make changes. I support the other amendments in this group for reasons that will become apparent. The BSA is convoluted. It complicates, excludes, creates uncertainty and risk, and delays remediation. It leaves some leaseholders—and their lenders—with permanently impaired assets. Where before there was one market, the BSA creates three tiers of flat ownership, with such complex rules that conveyancers frequently decline instructions and, increasingly, insurers are unwilling to offer professional indemnity cover to practitioners.

The Government have placed substantial remediation obligations on landlords. The courts should be the last resort, yet the BSA and the Bill force landlords to take legal action as a first resort on initial unfunded remediation and, thereafter, to recover the costs of defects that they did not cause from the developers. Where the developer no longer exists, they must fund it themselves. There is no automatic developer liability to meet any of the costs in the 85% of buildings not covered by the developer contract. There is no legal obligation on any contracting developer to cover non-life-critical fire defects and structural defects. Landlords are the backstop if public funding for cladding costs happens to prove insufficient. Construction inflation, moreover, has risen by a quarter since the announcement of the building safety fund in March 2020, so my first question is: what assurance exists that all eligible claims on the building safety fund and the cladding safety scheme will be met even if they exceed those historic cost budgets?

More broadly, this model seems to be based on little more than political bias and destined to fail, and fail in a way that will ultimately harm leaseholders and the leasehold market. I have questioned previously whether the major landlord groups can afford to fulfil their remediation obligations as demanded. I was therefore surprised to learn that under the Bill, and despite relying on landlords to fund non-cladding remediation works or related legal action, the Government proposed to eliminate or reduce the ground rent income. I was further surprised to learn from the noble Baroness, Lady Swinburne, in a letter last week, that the Government have no estimates of the risk of freeholder insolvency.

The main asset of many landlord groups is ground rent income, as we have heard before in discussions on the Bill. It is used to repay the long-term bonds or loans over many decades. If the income is removed, some will likely declare insolvency: the Government acknowledge this risk in their own impact assessment. I mention this again because it is critical to the remediation obligation. So that leaseholders are not left completely exposed if their landlords are insolvent, I trust that the Minister will regard as an essential lifeline my amendments, which are the only ones providing for alternative remediation funding sources. I would like to know what contingency plans the Government have in place apart from this, should buildings with remediation obligations escheat to the Crown, an eventuality the Minister alluded to on Monday.

Valuers are already marking down portfolio valuations because of material uncertainty. Permanent impairment of leaseholder and lender assets is also risked under the Government’s model. Basel III pillar 1 standards come into force next year. Lenders will have to revalue a loan if an

“event occurs resulting in a permanent reduction of the property value”.

Leaseholders will also be hit by these provisions; specifically the unprotected and partially protected—that is, the capped liability leaseholders—and those leaseholds covered by the developer contract. The contract allows combustible materials, now banned, to remain on buildings so long as they do not cause that “life-critical fire safety risk”. I put that in quotes: it is a non-statutory definition and my Question for Written Answer on this still awaits a response. But leaving these in place gives rise to a B1 category of building risk rather than the fully remediated A1 classification. At the same time, these flaws are evident to the market, which values an asset not according to life safety but according to the risk of material loss. The result is permanently higher insurance premiums. Ministers may wag the finger at the FCA in relation to its insurer members but, in truth, the market has spoken on the BSA and on building and professional indemnity cover risks, and no amount of political manipulation is going to alter that.

There is one group that faces a very bleak outcome, unless the Government change course, and that is in enfranchised leaseholders. Theirs are, in the terms of the BSA, “not relevant buildings”, a point that the noble Lord, Lord Young, makes in his amendments. The limit of any new protection afforded to resident management companies is the cost of obtaining a remediation contribution order, so can the Minister explain how enfranchised leaseholders will deal with non-cladding defects or effectively force the original developer to make a contribution, especially if it happens not to exist any longer?

Better policy is clearly needed. Simply, the BSA should be amended to protect all leaseholders, regardless of circumstances, in buildings of all heights. A separate, dedicated funding stream is needed so that leaseholders are not left in limbo, particularly when their landlord becomes insolvent.

The Committee will be familiar with Amendments 93B and 107 from the debates on the levelling-up Bill and the then Building Safety Bill, so I will try not to labour the point too much. Amendment 107 requires the Government to establish a building safety remediation scheme and Amendment 93B proposes a new schedule setting out the scheme’s key features. The scheme would serve to protect all leaseholders, without exclusion, from building safety remediation and interim safety costs. As drafted, it is fully funded.

Joint and several liability for remediating building safety defects is placed on the developer and principal contractor where a building did not comply with regulations at the time of construction. If neither can pay, or if the regulations have moved on and a building is retrospectively deemed unsafe, remediation funding comes from a levy across the wider building and materials industry. That approach has been extensively scrutinised by a range of legal and other professionals. In particular, I thank David Sawtell KC, of 39 Essex Chambers, for making himself available when I recently met with the Minister, whom I thank for facilitating the meeting.

I have added a second option for good measure. Amendments 105C to 105G amend certain arrangements already in the BSA. The developer contract limits developer responsibility to undefined “life-critical fire safety defects”. That means that all other defects are excluded. Amendment 105C closes that loophole by requiring developers to remedy all defects defined in the BSA. That brings all fire and structural defects within the scope of the developer contract—and, therefore, the responsible actors scheme—and puts that in line with primary legislation. It ends the arrangement whereby Parliament set in legislation one definition of defects requiring remediation while the Secretary of State entered into some side agreement with the industry for something rather different. At present, the government scheme requires developers only to remediate their own buildings. The Secretary of State has not given effect to Section 126(4)(b) of the BSA on the costs of remediating other buildings. Amendment 105D would put that right by amending the responsible actors scheme regulations.

Amendments 105E and 105F set out to end the three- tier system of leaseholder exclusions from remediation cost protection. Amendment 105E removes the exclusions according to building height and type of lease set out in the BSA. Amendment 105F removes the conditions and exclusions around remediation cost protection in Schedule 8 to the BSA.

The risk of major landlord insolvency is real. Amendment 105G reinstates and expands the original BSA provisions on insolvent landlords. It obliges insolvency practitioners and Law of Property Act receivers to commence or continue remediation work. Remediation costs are to be considered part of their expenses and therefore paid ahead of other creditors. It also reinstates their power to apply for a remediation contribution order, which the Government seek to remove through the Bill. But—this is a very big “but”—insolvency practitioners need secure funding if that is to work.

In closing, I draw attention to the great gulf between the Government’s self-praise about what they are doing—although, to a great degree, there is a lot of good in the Bill—and the reality. That reality is measured in the anguish and distress of hundreds of thousands of leaseholders who bought properties in good faith and now cannot sell them, get mortgages or move on with their lives. It is measured in the 15,000 people evacuated from their homes, as reported three days ago in the Sunday Times and referred to by the noble Baroness, Lady Thornhill, on Monday. It is measured in the 37% defect rate found in developer-contract buildings; in the glacial progress of remediation revealed in the Government’s most recent progress statistics; and in the FCA’s frank warning that insurers price risk not according to the loss of life, as the Government may wish, but according to the stronger test of total loss of asset. It is measured by the fact that this debate continues to play out seven years after the Grenfell fire.

This inequitable scattering of liability across innocent parties begs the question: why do the Government not make the wider construction industry, which designed, built, sold and banked the profits from these defective properties, the primary backstop for the damage done? We do not have an answer to that.

I have provided in these amendments two possible routes to effective protection of leaseholders, the most vulnerable group in this sorry tale of shame. I ask the Minister and noble Lords: if not by these proposals, how? When will the Government act to protect all innocent, home-owning consumers from market failure, and are they content to risk their reputation and legacy on simply making this a problem for the next Government? I beg to move.

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With those clarifications, I hope that noble Lords will feel able not to press their amendments.

[The Earl of Lytton (CB)]

My Lords, I thank all noble Lords who have spoken in this debate. Needless to say, too many further questions arise out of all this, and there are too many points for me to be able to address anything other than the odd one—other than by making a very long speech and incurring the wrath of the Government Whip for the second time in the week.

I preface my further remarks by saying a word about Lord Stunell. His death is a great loss to all of us. He was forensically well-informed and always delivered his contributions with care, tact and supreme authority. I had the great honour of serving with him on the Built Environment Committee and, of course, I was with him throughout the Fire Safety Bill and the Building Safety Bill, as well as the levelling up Bill. He will leave a very great hole in our deliberations.

There is a fundamental common purpose between what the noble Lord, Lord Young, and I are trying to achieve. I simply say that I look forward to working with him to see whether we can find a common way forward—and indeed with other noble Lords, such as the noble Baronesses, Lady Thornhill and Lady Taylor, and the Minister, because there is a consensus that something needs to be done.

The right reverend Prelate and all the Bishops have been fantastic in their support on this—right the way through the passage of the now Building Safety Act and Levelling-up and Regeneration Act, and again on this Bill—in order to get justice for innocent leaseholders.

The noble Baroness, Lady Thornhill, referred to the wider liability and systemic failures. I get that, which is why I keep referring to the wider construction industry. There are lots of people involved there and they all have some responsibility.

The noble Lord, Lord Empey, referred to building control. This takes us back to the Building Act 1984 measures, which allowed for approved inspectors—as privatised entities—effectively to take over the role of local authority building control. The local authority then lost control of the process at that stage. The construction sector gamed the system. Indeed, I know at least one large body that had its own wholly owned subsidiary as its approved inspector. Where is the objectivity there?

The noble Lord, Lord Rooker, was absolutely right on the question of electrical safety, which is a subset of the fire safety issue.

The noble Baroness, Lady Taylor of Stevenage, has always been a fantastic supporter of what I am trying to do; I say to her and to all noble Lords that I am not set on the particular solution that I have put forward, but I am dead set on wanting something that protects consumers and protects leaseholders in their own home—this is the recurring theme. The chickens are going to come home to roost: the bottom line is that this will always end up with leaseholders by default picking up the pieces; they are the most vulnerable. The problems do not go away; whether you kick the political can down the road or whether you do not, it just leads to more grief.

I will not go through the comments of the Minister, but I thank her for them and will look at them with very great care. I am sorry that the argument still seems to be that, because this matter was raised in the passage of the then Building Safety Bill and levelling up Bill, it somehow should not be discussed any more. The point is that the problem has not gone away. The Minister may not want to listen to me—certainly not for much longer this afternoon—but she needs to listen carefully to what leaseholders are saying about their experiences. We in Parliament may start turning a tin ear to what is happening out there, but it is evident in the media and in emails to me and other noble Lords, and it cannot be ignored or avoided any longer. The mercury in this respect is going up the tube quite fast, and this will become more and more of an issue.

If my proposals are destined to slow down the process, all I can say is that, politically, I suspect that this is going to start speeding up very rapidly. The Government may say that they will take further action if the players do not perform, but this is another bit of finger-wagging. We know that something needs to be done and that it needs to be done now.

I end by saying that I will consult with other noble Lords about how we can take this forward. I certainly may return to this matter on Report. None of us wants to delay this Bill but, unamended, the agony for lease- holders will go on and on. On that note, I beg leave to withdraw Amendment 93B.

Amendment 93B withdrawn.

Leasehold and Freehold Reform Bill

Earl of Lytton Excerpts

Committee stage
Monday 29th April 2024 Lords Chamber

[Baroness Thornhill (LD)]

I am pleased to say the good news is that we are all on the same page in this regard. The noble Baronesses, Lady Taylor of Stevenage and Lady Finn, have set out the context and the evidence for this. Like the noble Baroness, Lady Taylor, I too had many meetings in my former role about the fact that this issue affected individuals, whether with regard to roads or, in one particular acrimonious case, to playgrounds. So I think we all know which way we are going.

I shall speak to the amendments in my name and make a few general comments about this whole set-up. Amendments 86 and 91 deal with what we now know as the fleecehold issue. As has been said, we all know exactly what that entails. The commercial substance of the arrangement that is eventually arrived at really is a leasehold. Homeowners are often fleeced by the management company, which charges exorbitant fees for maintenance, and may be unable to force directors to hold annual general meetings or provide proper accounts, which I feel should be a basic right. However, leaseholders do not want to publicise the issue because it will reduce their ability to sell the property when they leave, a matter that has not been touched on. You do not want to tell a potential buyer what they are letting themselves in for, which is why the transparency measures in the Bill are important.

Management companies are often non-profit-making, passing on costs of maintenance to owners of homes, but are controlled by the original developer and outsource maintenance work to businesses connected to that developer. There is a body of evidence showing that that leads to increased costs, as local companies could often do the work far more cheaply. A significant problem is that homeowners do not have the resources to take the company to court or force it to hold meetings or to get competitive quotes for required work. In many cases their conveyancing solicitor was recommended by the developer, so the initial advice given was not truly independent.

Amendment 91 would ensure that residents could take ownership of an estate management company if the company had not provided residents with a copy of its annual budget, invited residents to an annual general meeting or acknowledged correspondence from residents. There are existing provisions that allow leaseholders to gain control of their freehold or the right to manage their own lease, but freeholders are assumed not to need that kind of provision. This amendment seeks to address circumstances where freeholders are trapped in a situation where they are being taken advantage of. Crucially, it would allow them to take control of the assets that are vital for the proper enjoyment of their homes.

I say to the Minister that I note the Government are bringing forward the appointment of a substitute manager, which I think is very similar, beginning in Clause 88. However, the householders in that situation would have to prove to a tribunal that the existing management was at fault, which can be difficult. It is the complexities in getting a substitute manager appointed that my amendment highlights. They may be up against the other side’s lawyer, and it is not unusual for KCs to be brought into tribunals in circumstances like this. It is indeed a fault-based policy, and it is a very complex matter to get redress. You cannot just sack the company if you want to take control with your own residents’ management company. Simply put, the amendment is a short cut to being able to take control without such complexities and is less adversarial.

Similarly, Amendment 86 would mean that services or works that would ordinarily be provided by local authorities were not relevant costs for the purpose of estate management charges. I make no apology for saying that this amendment is our statement of principle; we believe it is a matter of principle. The amendment would prevent freeholders being charged twice, first through council tax and then through their management company, for essential services such as roads and pavements. We are aware that there are significant issues as to how and why this situation has arisen, and we urge the Government to look into it further.

Among the other amendments, I single out Amendment 87 from the noble Baroness, Lady Taylor, which seems entirely sensible. It seeks to ensure that householders are not bailing out private developers for shoddy construction or defective homes. It is not right that someone who has paid a premium for their home is then expected to pay maintenance costs to sort out the mess left by the original developer cutting corners or, in some instances, breaching building regulations.

On the other amendments in this group, the Minister is well aware of the thrust and direction that we are all pushing in. I am aware that the business models for development are predicated on whether or not these assets remain the responsibility of the freeholder, the developer or the local authorities. The arguments for this are very varied, ranging from—and I have heard this said—“Local authorities are strapped for cash and we do not want to maintain these amenities” to “Local authorities are asking for impossible standards that are not set centrally and that will add to our costs”, or “Local authorities set standards that mitigate against creating decent workplaces that people want to live in”. A similar example that I had to deal with was there being no trees on the pavements because the local authority felt that they were too difficult to maintain and added cost for looking after both the pavements and the trees. Who wants to live on an estate with no trees?

We need to return to this issue on Report, as the noble Baroness, Lady Finn, said—otherwise, we are piling up problems for tomorrow.

[The Earl of Lytton (CB)]

My Lords, the themes that have been touched on by the three noble Baronesses who have spoken to this group are familiar to me as a professional. They all pivot around these common realm assets—if I can call them that—that are left behind or, at any rate, put into some sort of park mode when the rest of the estate has been built out. These are things that have not been adopted and are placed in the care of an estate management company.

Local authorities may have all sorts of good reasons, within their own scope, for not wanting to adopt novel surfacing, additional lighting, planters or special features. But alongside this there are allied issues because, if they do not adopt, the construction cannot be guaranteed to meet adoption standards—by that I mean roads, drains and all the other things that would normally meet standards that are very often laid down in legislation.

This is an open goal for corner-cutting, which goes on. I cannot tell your Lordships how many times I have been asked to advise on the fact that there are defective drains outside the property, somewhere in the common realm—under the road, common parking areas or landscaped areas—and nobody knows what has happened. It can be not only drains and road construction but engineered embankments, landscaping and ponds: these do not necessarily get constructed to the right standards either, but it can be hugely expensive to try to fix them after the event, and that is where the problem is. The question of just parking them in a management company that then charges whatever it likes goes to the heart of standards, responsibility and the funding of the maintenance of them.

The accountability of management companies seems to be in many instances next to zero. The burden on the freeholders, where the costs charged to them reach that magic figure at which lenders start putting their ears back and question whether they want to lend, results in the sort of lock-in that we well know affects leasehold flats subject to remediation.

I very much support this group of amendments, although they probably need to go further in establishing responsibility and funding. That is something of which the Government really need to take notice, because this is an absolute scandal—not just for the fact that it has gained this moniker of “fleecehold” but because it affects people in their own homes and cannot be allowed to persist.

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[Baroness Scott of Bybrook (Con)]

My Lords, I will now speak to Amendments 66, 68 and 70 in my name. I start by noting that I fully recognise the challenges facing leaseholders, with rising service charges caused by the increased costs in managing and maintaining buildings. The Government are clear, however, that any increase in charges must always be reasonable. We also recognise that the existing statutory protections leaseholders have do not go far enough, which is why we are introducing measures in the Bill to empower leaseholders and help them better scrutinise and challenge the costs they are asked to pay.

Amendment 68 is a technical amendment to Clause 51. It provides further clarification on which parts of the regulatory regime should continue to apply only to landlords who charge and leaseholders who pay variable service charges. These are charges which will vary year on year, depending on the actual cost of providing services.

As currently drafted, the Bill provides such clarity only in respect of measures in the Landlord and Tenant Act 1985. This amendment makes it clear that certain measures and protections in the Landlord and Tenant Act 1987 and the Commonhold and Leasehold Reform Act 2002 should also apply only to leaseholders who pay variable service charges. These include, for example, the ability to appoint a manager and the requirement to hold service charge contributions in trust. Amendments 66 and 70 are minor consequential amendments because of these further changes to Clause 51.

I turn to Amendments 71 to 75 in my name. Amendment 71 clarifies what steps are required to ensure that the written statement of accounts is prepared properly. It follows feedback from and discussions with expert stakeholders after publication of the Bill. We are grateful for their observations. The amendment places an obligation on landlords to provide leaseholders with a report prepared in line with specified standards for the review of financial information. This report must also include a statement by the accountant that the report is a faithful representation of what the report purports to represent.

The amendment also makes it clear, for the avoidance of doubt, that leaseholders must make a fair and reasonable contribution towards the costs of the report. This permits landlords who are unable under the terms of the lease to recover such costs through the service charge to do so, to avoid financial difficulties. This may include right to manage or resident management companies.

Amendment 72 implies a term into the lease where the cost of the preparation of the report is to be payable through the variable service charge. Amendment 73 is a consequential amendment required because of the change to new Section 21D(2)(b).

Amendment 74 allows for the appropriate authority to expand the definition of

“the necessary qualification”

in Section 28(2) of the Landlord and Tenant Act 1985. This will allow the Secretary of State and Welsh Ministers to widen the description of people who are deemed capable of preparing the written report. Amendment 75 makes it clear that any regulations made will be subject to the affirmative procedure.

We will work closely with leaseholders, landlords and professional bodies to ensure we prescribe the right standards to be applied and the right level of detail. I beg to move Amendment 66 and hope noble Lords will support the other technical and essential amendments in my name. I look forward to hearing from noble Lords on their amendments relating to service charges.

[The Earl of Lytton (CB)]

My Lords, I do not think I am actually the next in line to speak on this, but I have Amendments 78C to 78G and 80A and 80B standing in my name. The intentions behind the Bill in relation to greater transparency and fairness are welcome, but, in my view, they do not go far or fast enough to deal with the current crop of egregious monetising schemes, where there seems to be no end to the inventiveness of the worst offenders.

My amendments go further than the Government’s proposals, for this reason. Some of what is in the Bill will take time to work through and, during that time, the same old abuses—or variants of them—will continue. I want the worst ones to stop immediately the Bill receives Royal Assent. It is part of an essential consumer protection package.

Amendments 78C to 78G, which I will deal with first, seek to close loopholes in the current law, require landlords to achieve value for money in the management of their buildings, promote competition in the property management sector and clamp down on the charging of unnecessary ancillary fees. Amendment 78C clarifies that the costs are to be treated as incurred as soon as there is an unconditional obligation to pay them, even if the whole or part of the cost is not required to be paid until a later date.

The moment when costs are incurred is particularly important in relation to Section 20B of the Landlord and Tenant Act 1985. That section prevented tenants being charged costs incurred more than 18 months before a demand for payment was made, unless they were informed that costs had been incurred and therefore would be payable.

Surprising as it may seem to your Lordships, there are conflicting decisions as to when costs are incurred for the purposes of Section 20B. In Jean-Paul v Southwark London Borough Council in 2011 in the UK Upper Tribunal, Lands Chamber, reference 178, it was held that costs are incurred only when payment is made; but, in OM Property Management Ltd v Burr in 2012, in the UK Upper Tribunal, Lands Chamber, reference 2, it was held that costs are incurred on the presentation of an invoice or on payment. Both leave it open to landlords to ask a supplier to delay the presentation of an invoice, or themselves to delay payment, to postpone the commencement of the 18-month time limit. I do not see this amendment as controversial, as it prevents abuse of the system and brings landlord and tenant law into line with accepted accounting practice.

Amendment 78D covers a situation under Section 19(1)(a) of the Landlord and Tenant Act 1985, where service charge costs are payable

“only to the extent that they are reasonably incurred”.

This amendment replaces the “reasonably incurred” test in relation to service charges with a stricter one of providing “value for money”.

It is established case law that, if a landlord has chosen a course of action that has led to a reasonable outcome, the costs of pursuing that course of action are reasonably incurred even if there was another cheaper outcome that was also reasonable. This wide margin of appreciation leaves leaseholders at risk of overcharging. A value for money test would require landlords to interrogate all options before spending leaseholders’ money. It is not an unreasonable test; it is one that most people use in daily life when considering any significant purchase.

Amendment 78E requires landlords to provide tenants with a range of information, and to update it regularly. It goes further than the Government’s Clause 55, under which landlords are required to provide information only on request. If leaseholders are to be encouraged to take greater interest in the management of their buildings, I do not think we should place obstacles in their way. It should not be difficult for a landlord of a well-manged building automatically to provide and keep up to date a data room of information.

Amendments 78F and 78G continue the consumer protection theme of these amendments by promoting competition in the property-management sector. Amendment 78F prevents landlords contracting with related parties or connected purposes, thus removing an obvious conflict of interest. The danger for leaseholders if a landlord company places contracts with its subsidiary is well illustrated by the Charter Quay case, in which the managing agent, which happened to be owned by the landlord company, was roundly criticised by the tribunal for placing onerous service contracts with other subsidiaries.

In the same vein, to promote competition through regular retendering, Amendment 78G places a maximum contract duration of five years. Although under current law landlords must consult leaseholders before entering into a qualifying long-term agreement—that is, a contract of more than 12 months—there is no limit on its duration. In practice, even limited consultation requirements are relatively easily avoided. Contracts between a holding company and one or more of its subsidiaries, or two or more subsidiaries of the same company, are not qualifying long-term agreements; neither are contracts for a year or less, even if they have been regularly renewed.

Amendment 78H seeks to reduce costs on leaseholders by setting out in statute details of cosmetic works that can be undertaken without approval from a landlord. Most leases contain very tightly drawn provisions in this respect, which are against undertaking virtually any type of work, no matter how insignificant, without the landlord’s consent. Provisions such as a prohibition of the

“cutting, maiming or injuring, or suffering to be cut, maimed or injured, any roof, wall or ceiling”,

are very common. The fees for consenting to some minor works often run into hundreds of pounds, so this amendment attempts to find a way to streamline that.

One may debate at length the areas where a more relaxed regime might impair the amenity of other residents, but I seek to establish the principle of getting away from the monetisation of consent for every mortal thing—from pets to paint colour, and light fittings to lino floors—and putting it in the past. There ought to be greater freedoms for leaseholders but, in noting that the Law Commission report implied that consent for floor coverings should be relaxed, I would only observe from experience that engineered timber floor finishes in particular are often a potent source of noise transmission affecting other residents—so the matter is nuanced. At this stage, I simply wish to sound out the Government’s willingness to draw up, say, a code of practice, or otherwise take steps to free up this area.

I now turn to Amendments 80A and 80B, which are really rather different. I would have had them disaggregated had I been a bit more alert on Friday afternoon, because they relate to insurance moneys. Amendment 80A requires landlords to pay the proceeds of a building insurance policy into a separate fund that is held on trust for leaseholders. It also requires landlords, on receipt of insurance proceeds, to begin immediately to repair or rebuild a building, as far as reasonably practicable.

Service charge funds already have to be held on trust for leaseholders and I contend that building insurance payouts should be treated in the same way. As noble Lords are aware, I have raised my concerns about the risk of landlord insolvency. It has been suggested to me that, if a landlord became insolvent, any insurance proceeds held by the landlord on entering insolvency would form part of the company’s insolvent estate, leaving leaseholders in a damaged or destroyed building as unsecured creditors. Holding insurance proceeds on trust would go some way to protect them from risks relating to landlord borrowings—of which more in relation to Amendment 80B.

Most leases require landlords to reinstate damaged buildings—as, I think, does statute in the case of damage caused by fire. Subsection (3) of the proposed new clause in Amendment 80B places that duty beyond doubt. It requires landlords to move quickly to repair or rebuild the damaged or destroyed building. It goes some way to closing a loophole commonly found in leases that gives landlords the right to terminate where it is not possible to reinstate a building within a certain period. That is often three years, which is likely to be insufficient time to effect reinstatement of a larger or complex building.

Amendment 80B closes what I consider to be another loophole for insurance. Most leases require that the landlord insures the building, with the cost charged to leaseholders. However, what concerns me is the ability of landlords to assign the proceeds of insurance policies as security for their borrowings.

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[Lord Gascoigne (Con)]

Time.

[The Earl of Lytton (CB)]

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

[Baroness Jones of Moulsecoomb (GP)]

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

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

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

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Moved by

[The Earl of Lytton]

82C: After Clause 65, insert the following new Clause—
“Building trustee(1) A prescribed building must have a building trustee.(2) In this section a prescribed building is—(a) a higher-risk building as defined by section 65 of the Building Safety Act 2022, or(b) a building where—(i) 50 per cent or more of the internal floor of the building (taken as a whole) is not occupied for residential purposes, and(ii) the total service charge payable for the building exceeded £250,000 in the last financial year, or(c) a building where a recognised tenants’ association has requested the appointment of building trustee, or(d) a building where a court or tribunal has ordered the appointment of a building trustee.(3) The Secretary of State may by regulations amend the definition of prescribed building.(4) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.(5) In this section—“building” means a self-contained building, or self-contained part of a building, in England that contains at least two dwellings;“prescribed” means prescribed in regulations made by the Secretary of State;“recognised tenants’ association” has the same meaning as in section 29 of the Landlord and Tenant Act 1985.”Member's explanatory statement
This amendment requires higher-risk buildings (over 18m), and buildings where 50% or more of the floor space is not residential and with a total service charge of more than £250,000 to have a building trustee. A building trustee may also be appointed at the request of recognised tenants’ association, or by a court or tribunal.

[The Earl of Lytton (CB)]

My Lords, I move Amendment 82C and will speak to Amendments 82D to 82M standing in my name. These draw on good practice in the management of multiunit developments in Australia, Europe and North America and seek to replicate best practice here. They are also designed to address some of the concerns raised in earlier debates, particularly in the context of the proposed change to the threshold for enfranchisement in mixed-use developments from 25% to 50%. I suggest that similar amendments to a future commonhold Bill would go some way to meeting concerns that have been expressed about the risks associated with a wholesale move to that tenure.

The amendments provide for the appointment of a building trustee. It is proposed that this should apply in the largest and most complex developments. Building trustees might also be appointed at the request of a recognised tenants association or by the courts. The building trustee will be an independent and impartial figure whose primary role of auditing performance would ensure that interest rights, responsibilities and performance of the landlord were properly balanced with those of leaseholders and, more importantly, that the building is properly maintained and the service charge provides value for money. I noted in our earlier discussions the Minister’s comments to me about value for money, but it is the benchmark used by the National Audit Office for local authority finance, I believe—I eyeball noble Lords who have experience in that line of business.

Amendment 82C sets out the buildings this would apply to, and Amendment 82D outlines the trustee duties—I will rattle through the amendments at some speed. Amendment 82E is about the appointment process of the building trustee. Amendment 82F sets out the trustee entitlement to documents and information.

There is, of course, the question of who pays for the building trustee. It would be unreasonable—particularly during a cost of living crisis—to burden leaseholders, especially as many of the buildings covered by Amendment 82C are already facing increased service charges owing to the new safety requirements under the Building Safety Act. Instead, Amendment 82G provides that the costs of building trustees would be covered by a levy on providers of commercial and residential mortgages and block landlords, excluding enfranchised building and tenant right-to-manage companies.

Amendment 82H sets out what would be the baseline value-for-money benchmark. This is necessary because there is a risk of inevitable bias in the management under the auspices of a party to the leasehold arrangements. This might be perfectly reasonable in terms of the person instructing the management, but still fall well short of the optimal.

One of the Bill’s key aims is to make it cheaper and easier for leaseholders to enfranchise. I welcome that. My amendments are designed to augment these plans by providing a light-touch oversight to ensure effective, efficient and economic management of a building. This backstop would require reassurance to lenders, leaseholders and other stakeholders that a freeholder-managed or resident-managed building will be properly looked after.

The reassurance offered by the building trustee is needed, as there is strong evidence that, monetising policies by a few freeholders apart, leaseholders themselves are often reluctant, unable or lack the skills to take on the responsibility and liabilities for the management of increasingly complex buildings, or to direct the professional managers adequately. Indeed, some complaints reaching my mailbox are about residents’ own management companies, and the Government’s own research found that leaseholders were concerned about issues of working with neighbours, lack of time and reluctance to take on additional responsibilities beyond those necessary as a home owner.

That touches on a point raised by the noble Lord, Lord Moylan, in a previous group, because although most leaseholders will appoint a managing agent to undertake the day-to-day running of a building, they themselves remain responsible for key decisions and setting priorities, such as service charge levels, authorising maintenance schedules and dealing with arrears. It can be difficult to get collective agreement on these issues, with resultant detriment to the management of the building fabric. According to data from the Scottish House Condition Survey, half of all housing is in what it describes as “critical disrepair”, and almost half demands “urgent attention”. The situation is most acute in tenements, so I appreciate that this probably relates to older buildings, but paying for common repairs or maintenance was the most frequent cause of disputes in these buildings.

By taking a whole-life view of the building, the building trustee can seek to avoid that Scottish experience by providing an independent assessment of maintenance needs and condition, and ensuring sufficient provision is put aside to maintain the building properly. Amendments 82I and 82J would require landlords to provide a 10-year plan of anticipated expenditure on capital works and building maintenance, and to establish a sinking fund to avoid leaseholders facing large, unanticipated bills. The plan and the fund would be subject to an independent audit and assessment by the building trustee to ensure that necessary works, and only necessary works, were planned for and adequately funded.

In an open letter to lenders on taking commonhold as a security, dated 21 July 2020, the Law Commission recognised that

“the value of a lender’s security is inherently linked to the management and maintenance of the building in which a flat is located. A failure to keep the building in repair, to insure it properly, or to keep sound finances all have significant potential to jeopardise the value of a lender’s security”.

The same is, of course, true for leasehold buildings. That is why I believe that professional landlords and lenders should cover the cost. It is the banks and the building societies whose capital is at risk. The building trustee should provide a cost-effective way of reassuring them that the flats they have lent on are being properly managed, and of maintaining the value of the security. The same is true of commercial lenders on mixed-use developments. I envisage that the Secretary of State would outsource the appointing of building trustees to an external body, as provided for in Amendment 82E.

Two significant further powers would be conferred on the building trustee through Amendments 82H and 82K. Amendment 82H would allow the building trustee to apply to the tribunal on behalf of leaseholders to seek refunds of expenditure that does not provide value for money. Amendment 82K would allow the building trustee to adjudicate in disputes between landlord and leaseholder, and between leaseholders. One of the main areas where I see this provision being used is service charge arrears. It is particularly important in leaseholder-managed blocks that do not have the wider financial resources of the major landlord groups that service charges are paid promptly. Failure to do so prevents a building being managed properly, and in extreme cases places all residents at unnecessary risk. If essential safety works could not be undertaken or building insurance obtained, that would create real problems.

Evidence from other parts of the world suggests that condominium statutes do not have sharp enough teeth to recoup outstanding contributions efficiently and effectively. In England and Wales, we currently fall between two extremes. I have sympathy with those noble Lords who argued in a previous debate that forfeiture, with the exorbitant windfall that it can offer landlords, is inherently unreasonable. Equally, I recognise the point the Minister made in previous discussions that civil debt recovery proceedings can be lengthy. The building trustee’s power to adjudicate offers a faster and less formal route of dispute resolution than the court, and supports the building’s cash flow.

Amendment 82L would provide for the building trustee to take over the management of a building if its landlord becomes insolvent. Historically, this has happened to very few landlords. However, the Committee will recall that I have previously raised concerns that not all landlord groups have the funds needed to meet the building safety remediation liabilities and could therefore become insolvent. The financial position of these groups may get significantly worse, depending on the Government’s decision on ground rents. Some of the country’s largest landlord groups—I refer to E&J Estates, which is landlord to around 40,000 homes, Long Harbour, which is landlord to around 193,000 homes, and Regis Group, which is landlord to around 30,000 homes—have significant borrowings that are due to be repaid from ground rent income over the next 40 to 60 years.

To the best of my knowledge, the Government’s final position is still unknown but, based on press comments on the Secretary of State’s own preference, it is reasonable to assume that the finances of landlord groups dependent on ground rent income to repay their borrowings will come under further, if not fatal, stress. This is not just my view; it is also that of the Government, whose own impact assessment states that

“there may be potential insolvencies/forfeiture and associated costs where the freeholder defaults on contractual obligations as a result of the cap”.

However, it does not seem that there has been further assessment of just exactly what this would mean in practice.

The collapse of a major landlord group would be without precedent and could cause tens of thousands of leaseholders in hundreds of buildings to be in serious trouble. In blocks subject to intermediate leases, it is likely that contracts covering everyday management and maintenance would be at risk because there would be no landlord to provide instructions. Conveyancing and lending transactions, which are already under stress, would be paused as there would be no one to process essential documents such as notices, deeds of covenant, landlord certificates and leaseholder deeds of certificate. The ability of the building trustee to assume the management of a building in such circumstances, and prevention of possible management contract termination, is an essential backstop that prevents leaseholders being left in limbo for months while they try to set up an alternative arrangement for managing their buildings and/or await the outcome of the administration or liquidation.

Finally, Amendment 82M would simply ensure that the building trustee has relevant qualifications for the task.

I hope your Lordships will see the merit in these arrangements, and that the Minister will be able to agree that measures such as this are a necessary complement to the Bill’s intentions. While I commend these amendments to the Committee, I simply say that I am not set on this particular structure, but the principle needs further examination to provide the point that I have constantly been on about—namely, consumer protection. On that basis, I beg to move.

[Lord Foster of Bath (LD)]

My Lords, I will speak to Amendment 95A. The Long Title of the Bill is very clear. It includes the phrase

“in connection with the remediation of building defects”.

Much of the debate has been on the management and funding of remediation and maintenance, but the early identification of defects is clearly really important in order to avoid some of the problems that can occur, as, tragically, we have seen, for instance, in the Grenfell Tower fire.

That fire was caused by a faulty electrical appliance, but there is also a large number of fires caused by faulty electrical installations. Indeed, the charity Electrical Safety First has calculated that there are around nine such fires every single day in England and Wales. On average, they cost about £32,500, but they have in many cases ruined lives, and on a few occasions have meant, tragically, that people have lost their lives. Quite clearly, it makes a great deal of sense to identify faults at the earliest possible opportunity.

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The amendment would also create the precedent that leaseholders should not be expected to contribute fully to the ongoing management of their property. It is a fundamental principle of leasehold property that leaseholders are liable to pay through the service charge for the ongoing management of their property. I hope that, with these assurances about the action that the Government have taken and are taking, noble Lords will agree not to press their amendments.

[The Earl of Lytton (CB)]

My Lords, it is my privilege to thank all noble Lords for their contributions to the debate on this group. I pay tribute to the noble Lord, Lord Foster of Bath, for his contribution. As the noble Baroness, Lady Thornhill, said, he has been a doughty campaigner on this issue without pause for breath. It is absolutely right to consider electrical safety in buildings.

I also particularly mention the noble Baroness, Lady Fox of Buckley, for her important contribution. It raised something that has bothered me for a long time—namely, that I do not see a long queue of people wishing to be the accountable person. Indeed, I do not think this has been correctly thought out. There is an assumption in the Building Safety Act 2022, and again in this Bill, that somehow these things are going to be accepted and fall into place. When it comes to liabilities, they do not automatically happen and they do not just fall into place.

I thank the Minister very much for her comments on my amendments. She said they would create additional complexity for very little gain and that there were better ways to deliver the outcomes. I am not sure what she thinks those better ways are, given that we are dealing with a situation that is a legacy of the Building Safety Act—which is getting on for two years old—but has not been fixed, and meanwhile people are in great difficulties in their homes as a result. There needs to be legal responsibility, proper accountability without gaps and resource in terms of funding, from wherever that will come. There is a necessity to identify that secure and adequate resource, but we do not have that at present.

I will very likely return to these amendments—or these subjects, anyway—at later stages on the Bill. In the meantime, I beg leave to withdraw the amendment.

Amendment 82C withdrawn.

Leasehold and Freehold Reform Bill

Earl of Lytton Excerpts

Committee stage
Wednesday 24th April 2024 Lords Chamber

[Lord Thurlow (CB)]

My Lords, I support each of the three amendments in this group. I was going to say that the amendment from the noble Lord, Lord Moylan, concerning compensation, was so articulate that it really needed no reinforcement, but I was not expecting the fine history lesson just now, which has reinforced it with great skill and humour. The noble Baroness, Lady Deech, explained that she taught property law for many years. I studied property law for many years, and I am sure that, if I had studied under her—which would of course not have been appropriate at all in age terms—it would not have taken me so many years.

The expropriation is bad enough, but to add the retrospective characteristic in this legislation is shameful. My principal interest in contributing is the 80-year rule referred to by the noble Lord, Lord Howard of Rising, because that is a very sensible, intelligent compromise to the sledgehammer of absolute abolition of marriage value and hope value in the calculation being entirely reserved to the lessees. Many of the highest-value elements of this paragraph are, indeed, in central London and the south-east, and many are non-resident.

This clause would save the Treasury billions, in addition to earning it some billions, which we heard referred to by the noble Lord. There is logic to the 80 years proposed in his clause. That is the threshold below which mortgagees such as banks and building societies are very reluctant to lend on property. Lessees therefore have no choice but to negotiate an extension if they want to use borrowed money—and, of course, nearly all do. The 80-year rule is a compromise between the very long leases and those moving into the unmortgageable zone. It makes a great deal of sense to cut the pack in this way because it excludes those freeholders of over 80 years but encapsulates the value of the expiring leases. It should be supported.

[The Earl of Lytton (CB)]

My Lords, like the noble Baroness, Lady Deech, I come to this from a professional viewpoint. I am a chartered surveyor and, until recently, I was a registered valuer with my professional body. Coming from my background, I see the balance to be struck. When I was in the public sector, I was dealing with matters of compulsory purchase and compensation. Later on, after the passing of the Leasehold Reform, Housing and Urban Development Act 1993, I became the first chairman of the Leasehold Advisory Service. Although I was not a practitioner in the matter of leasehold enfranchisement, I had a very close up and personal involvement with what was happening there.

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[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.

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[The Earl of Lytton (CB)]

My Lords, I am very pleased to be able to speak to this amendment and very grateful to the right reverend Prelate for tabling it. His office asked me whether I would add my name, and I am afraid I neglected to do so. Implicit in what the right reverend Prelate and the noble Lord, Lord Moylan, said is that we have within the Bill a carve-out for the National Trust as a charity that does not apply to other charities. My understanding, and I think noble Lords will know the principle, is that this touches on and concerns the question of hybridity of a Bill. That is dangerous territory for somebody who is a non-lawyer, but none the less I raise the question, because public Bills should apply equally to all citizens and entities. If you single out one, you have to face the consequences of having a hybrid Bill.

I scanned around earlier to see how many legal minds there might be sitting around the Chamber, because I am not one and I stand to be shot down, not being a lawyer, but the matter did crop up on the levelling-up Bill and I had reason to look into that in some detail, although it was not debated in the Chamber. So I hope I am reasonably up to date in believing that the only workaround here is if the entity singled out in the legislation is what is known in the jargon of the legislator as “a class of one”. I have seen the letter dated 22 April to the right reverend Prelate from the Minister. She appears to allude to the uniqueness of the National Trust in that its lands are inalienable. I looked at the world wide web at lunchtime to see just how inalienable things actually are, because as I will explain, I am not sure that is necessarily a correct point on which to rest the case.

What I discovered, among other things, was “Battle over National Trust sale to developer”, which was a question of three acres of a meadow near Bovey Tracey in Devon in 2021. There was another freehold property on the market, and I think it was described as being a former National Trust property. I therefore assume that the National Trust is doing what other charities normally do—namely, that it gets property bequeathed to it, or it acquires property by public subscription, and that may contain bits that it wants and considers rightly inalienable, and other bits that it considers expendable. Any charitable organisation having property is required by the Charity Commissioners to make best use of its assets, and that means not having bits of deadwood floating around. It has to be organised, and that happens in any management process. So to what extent inalienability cuts into this, I am absolutely not sure.

[Lord Berkeley (Lab)]

I am grateful to the noble Lord for giving way. Can he explain what the word “inalienable” actually means?

[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.

Leasehold and Freehold Reform Bill

Earl of Lytton Excerpts

Committee stage
Monday 22nd April 2024 Lords Chamber

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

My Lords, I have a number of interests to declare: first, as a leaseholder, secondly, as chair of the Heart of Medway Housing Association and, thirdly, as a non-executive director of MHS Homes Ltd.

I spoke at Second Reading and I am sure that, as we go through these few days in Committee, we will largely agree with each other that there is a major problem. We all want to see leasehold reform and commonhold reform. Everybody backs it. I know that the noble Baroness, Lady Scott, and the noble Lord, Lord Gascoigne, back it. The problem is that we are not doing anything about it. That is the shame here.

The amendment from the noble Baroness, Lady Fox, absolutely takes us forward. She includes a day to end leasehold flats, which would deliver that Tory party manifesto commitment. We should all back her if, as I hope, she divides the House at the next stage. Her amendment would deliver the Tory party manifesto commitment, but will the Government support it? Of course not. We know that. We all agree in these debates, but what we will get from the Government Front Bench is, “When parliamentary time allows”, “The next steps will follow in due course”, “We are keeping it under review”, or “We will get back to you”. That is the problem.

This is a golden opportunity that the Government have completely failed to deal with. We have sat here for years. I have asked question after question. I have been assured, “It is coming” or “Don’t worry, don’t ask questions, we are going to sort it all out”. Yet here we are and what do we get? A Bill that delivers very little. On the point about service charges and transparency, I can assure the Government Front Bench that if a leaseholder has problems with the service charge, they know they have problems. What they want from the Government are the tools to sort them out. The Government have not delivered that. They can give more transparency—great, but we need the tools for the job and they are not doing that for us.

This is very frustrating. I think we will have lots of agreement but very little action. I hope that, when we get to Report, a number of amendments will be passed and many members of the Government will support us in delivering the commitments that their party made to leaseholders at the last general election. The amendments from the noble Baroness, Lady Fox of Buckley, in particular, are really good, giving an absolutely clear cut-off date.

My noble friend Lady Taylor of Stevenage asked the Government to set out their strategy for commonhold. What is it? I hope they can tell us. The current strategy seems to be, “We will get back to you. We know it is important, but we can’t do anything about it at the moment—sorry”. That is just not good enough. There are lots of great amendments here, but we need some action from the Government. I hope that, when we get to the next stage, we will divide the House many times. Where we have got to at the moment is just not good enough.

In 1880 Henry Broadhurst was elected as the Member of Parliament for Stoke-upon-Trent. He was then elected as a Member of Parliament for Nottingham West. He raised the problems of leasehold in the other place. We are still talking about them today. He was elected in 1880, and we have still made only limited progress. It is about time we made some progress here. We want more transparency and we want the Government to deliver their commitments. We want commonhold, and we want it now.

[The Earl of Lytton (CB)]

My Lords, I agree fundamentally with the point made by the noble Baroness, Lady Taylor of Stevenage, and with what other noble Lords have said with regard to the desirability of a transition to commonhold. I say that because, apart from anything else, conventional leasehold has clearly got itself an extremely bad press. Like it or not, that is something we have to take account of. However, although it is poorly regarded among leaseholders, it happens to be the commercial preference and the model on which a great deal of leaseholder and freeholder value rests. We have to be a bit careful about that.

My interest here is very much about consumer protection. I do not want us to enter a brave new world in which the existing leasehold situation is seen as in any way second class. Comments are made about the evils of monetisation of the management process, but I think that is a slightly different issue. I do not see that as intrinsic in the tenure. I see that as an abuse, a lack of transparency and another area in which consumer protection has not operated.

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On ground rents—again, as mentioned at Second Reading—the Competition and Markets Authority said that there was no legal or commercial reason to justify ground rents. I have just had a bill for £300 for my ground rent, for which I receive absolutely no service. Everyone involved knows full well that ground rents provide no service, are purely rent-seeking and are a legalised scam. If pension funds are invested in ground rents, as some are, they should find a better use for their money; for example, by investing in British companies. Our pension companies invest less in our own country’s companies and stock market than any of their international competitors—shame on them.

[The Earl of Lytton (CB)]

My Lords, I will speak to this group, as the noble Lord, Lord Truscott, mentioned my name, although I have not yet spoken. He represents one viewpoint and the noble Lords, Lord Thurlow and Lord Sandhurst, and the right reverend Prelate the Bishop of Manchester represent another. They are often portrayed as being mutually exclusive but, in property terms, that is not necessarily the case. Clearly, there are perfectly good managers who look after not only their residential tenants but their commercial tenants, and there are some are rotten managers. Some are good corporates while others are rotten—some are good resident management operations while others are pretty poor—so it is very difficult to make a standard rule for them all.

If one looks at the large urban estates across London, it is evident that there is a clear sense of purpose in trying to preserve the value, appearance and general amenity represented by the running of that estate. That inevitably comes at a cost, but I hope that that helps not only the commercial activities but the amenity of the residents.

Let us look at what happens if things start going wrong and getting fragmented. First, there becomes a distinction, if one is not very careful, between the purposes of long-term management in the view of the residents and the purposes of long-term management in the view of the commercial operator or landlord. Under the purposes of this Bill, if the enfranchisement of a 50% commercial ownership block goes ahead, there will be an enforced leaseback to the original freehold owner. Straightaway, you have an enforced leaseholder, whose business model was not quite hypothecated on that basis, who is none the less obliged to take it on but does not need to have the primary amenity and visual appeal functions that might be relevant to the residents.

I have seen that happen in historic high streets, where ownership has become fragmented in this way. We tend to find that when a shop becomes vacant, and if there are difficulties in the letting market, it will be let to a charity shop, a slot machine operator, a tanning shop, or some other type of operator, because the person who has it needs to move it on quickly. There is not that fat on the bone associated with having the larger estate, nor is there the fat on the bone to take on some assignee, as I have had to deal with in the past, who really runs a rather low-grade sort of business but is well funded. Therefore, you have to work out whether you can afford to fight an appeal, or fight a case, on an assignment of a lease in order to see off that person and their particular trade. If you cannot, there is a general deterioration of the area. It might be a fast-food takeaway that opens late at night; the police might be around every now and again; there might be people congregating there because it is late at night, and that sort of thing affects residents. If one is not careful, things like emptying bins and delivery of incoming goods to a retail operation can start being operated at times that are not that helpful to the interest of residents, who once might have been part of this overall concern. I can see both sides of this, and we have to be careful not to make standard rules about things where the decision is much more nuanced and difficult. It really depends on where one is starting from, the circumstances, and everything else.

As I said earlier, my interest is in consumer protection. I do not want to see degraded environments; I want to see environments that are lively and looked after and where everybody has confidence in them being managed. Fragmented management very seldom achieves that. The issue is about management being a slightly different issue to ownership. It is a big issue that we need to address, because it will not be dealt with by a local authority. That has no function there. Beyond the planning functions of a change of use, or licensing for some premises that needs it, it has very few powers of control. If overarching control is needed, and there may be an argument that ecclesiastical, heritage or possibly other environments do need it, we should very careful that we are not chucking out that baby with the bathwater and ending up with a slow process of attrition that suits nobody and ends up degrading the value not only of the freeholders, who can look after themselves by and large, but of the area and its appeal, which is ultimately to the detriment of residents. I do not want to go down that road without being clear about what we are doing, and making sure that there is some way we can pick up on processes of deterioration before they take root.

[Baroness Thornhill (LD)]

My Lords, this is my first intervention today—I spoke at Second Reading. I regret that this is yet another Bill that was heralded with robust rhetoric from the Secretary of State which has now come face to face with reality. I regret that some of that reality is from those with vested interests and therefore we are getting a watered-down Bill. We certainly believe on these Benches that it is a missed opportunity.

I turn to the group of amendments on enfranchisement. We on these Benches support the Government in Amendment 16. We need to see as many restrictions as possible on leaseholders’ ability to enfranchise removed by the Bill. After all, they have bought a home and should be able to extend their lease and buy their freeholds in a way that is easy and affordable, to use the Government’s own words.

It is perhaps no surprise that we also support Amendment 17 in the name of the noble Baroness, Lady Taylor, in so far as it would allow the Secretary of State to give more leaseholders rights to collective enfranchisement, and we note the detail of the noble Baroness’s reasons. However, the power cannot and must not be used to narrow the qualifying criteria or to exclude more leaseholders from freehold purchase. We are pleased that it would be subject to the affirmative resolution procedure, as this includes public consultation and the involvement of both Houses.

However, we know that cohorts of leaseholders will still not even qualify to buy their freehold under the Bill. For example, MPs in the Public Bill Committee in January heard from experts and campaigners that there really is a problem with leaseholders in mixed-use buildings—from our debate today, I would say we have a problem with mixed-use buildings that needs to be sorted out. The Government are admirably using the Bill to try to liberate leaseholders in mixed-use blocks by, as we have said, moving the 25% rule on non-residential premises to 50% and introducing mandatory leasebacks on commercial space to slash the cost of collective enfranchisement, but—and I find this strange—they have not lifted the restrictive regulations in the 1993 Act that mean that shared services, such as a plant room, would disqualify leaseholders from buying out their freehold. Apparently, there is even a regulation stipulating that the mere existence of pipes, cables or other fixed installations connecting residential and commercial premises in a mixed-use building would block leaseholders from buying their freedom. That means that many leaseholders who would otherwise stand to benefit from the changes on mixed use will be blocked from securing collective enfranchisement and being in control of their buildings. I ask the Minister whether we can discuss this aspect before Report.

Turning to what I will call the three “tricky” amendments, I noted that the noble Baroness, Lady Taylor, wisely hedged her bets on these. I suspect that it is because, like me, she knows that the intentions of the noble Lords speaking on them are based on good experience and a genuine wish to see the measures agreed, but she worries whether, in fact, they are just another means of putting commercial interests before residential interests and not getting that balance right.

Instinctively, like the noble Lord, Lord Truscott—I was relieved when he made his comments—we oppose these three amendments, because in our view they seek to row back. But I have listened attentively to what has been said and I am completely changing what I was going to say: I genuinely believe that there are some serious areas that need looking at. There is much experience in the Committee, but I am concerned that we have been subject to special pleadings.

Impact of Environmental Regulations on Development (Built Environment Committee Report)

Earl of Lytton Excerpts

Friday 19th April 2024 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, I very much welcome the opportunity to debate this hugely important subject. I declare an interest as a resident in the part of Sussex affected by water neutrality. I am also a supporter of the local group Save Rural Southwater—SRS—which focuses on excessive residential development in contravention of a made neighbourhood plan. Noble Lords will know that I am a chartered surveyor by profession and a former member of the Built Environment Committee. I pay tribute to its work in this area, in which I was not involved. I also pay tribute to the noble Lord, Lord Banner, on a most thought-provoking speech. He is no stranger to my profession or the hallowed portals of 12 Great George Street.

My first wider point is to reinforce the report’s implicit query as to how it has come about that damage to ecology, derived in my area from excessive water abstraction by a privatised utility under the noses of the Government’s Environment Agency and nature conservation adviser, has somehow alighted on the development control system rather than dealing with the supply-side mechanics and consumer demand management. That seems quite extraordinary. The report refers to a siloed approach, but it is more serious than that: it is bad public administrative architecture and a basic failure to co-ordinate environmental, economic and social factors.

I will start with a bit of data. A comment has just been made about housing. The report rightly describes the number of out-of-date local plans, but it does not query, at least in that context, the Government’s own data for household formation and thus housing need, which dates from 2013. My case rests on that point, but I question what we are doing about the inventory versus the flows in what we might call the creation of wealth.

In focusing on water neutrality, I acknowledge that this is not the only area of critical provision at issue. Communications, energy supply and distribution, waste and critical social infrastructure sit alongside air, water, light and sound pollution, many of which are difficult to price, but almost none is being planned for on a predictable basis or even consistently and objectively measured, let alone managed effectively. I am all for saving water. We are profligate in our use of it, which must be dealt with, but it is a wider societal issue.

The exemplar used in the report, which is the water off-setting scheme of Crawley Borough Council—14 miles from where I live—is apparently now being accepted by neighbouring local authorities as the model for dealing with this. However, it is a classic example of greenwash and is not fit for purpose. It devises an off-setting arrangement based on an aspirational water consumption metric of 85 litres per person per day. That is slightly more than is allowed in the desert Kingdom of Jordan. Although theoretically achievable, it is ludicrous in terms of current domestic practice. Data from Southern Water, our local utility, shows an average domestic daily per capita consumption of 136 litres per person per day, and the long-term objective of Part C of the building regulations is 110 litres. To see how absurd this is, I recommend that noble Lords visit the SRS website. Crawley’s own pilot scheme showed a consumption of 166 litres per person per day. You could scarcely make this up.

If this is to be the general way in which environmental regulation is to be circumvented or worked around, I am extremely fearful for where we may end up, with no objective metric for evaluating offset equivalence. In the limited circumstances of Crawley borough’s social housing, verifying ongoing compliance is absent, with no enforcement provision, no sanction for failure to perform and no authority possessing the intrusive powers necessary to achieve these. This is a recipe for profligate overconsumption, which will end up in tears.

This is an irresponsible approach and a dereliction of public duty. It will result in critical attrition of essential resources: not only water but nature and other things that are of extraordinary value to us. A holistic process is needed. When the report suggests shifting the balance between ecology and development, I reject that on the basis of the current situation, because it needs to look at the problem in a different way. The noble Lord, Lord Best, referred to balance and engagement. He is absolutely right, although I take that point from a different standpoint from his.

Ultimately, this is an issue for central government, utility companies and their regulators, for pricing into consumption the true costs of environmental compliance. We need a demand-side approach and the sort of thing that has encouraged consumers to save electricity and gas, recycle waste and gain a better understanding of the role that we all have to play as citizens.

Leasehold and Freehold Reform Bill

Earl of Lytton Excerpts

2nd reading
Wednesday 27th March 2024 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, I remind your Lordships of my profession as a chartered surveyor and my lifelong involvement with building, survey valuation and property management, for my sins. I thank the Minister for organising a drop-in session last week, and for her suggestion of a further meeting. I thank her particularly for the answers to several questions I raised after that session, which I received this morning. I will look at those with great care. I also thank the many bodies and individuals who have communicated with me about the Bill.

On the face of it, the Bill contains some very welcome measures. For all the reasons the Minister has given, I support its aim of better consumer protection, but it lacks coherence in many areas, particularly its interface with building safety.

We know the problems, and other noble Lords have explained them: the escalating and opaque charges demanded of leaseholders, the building safety crisis that aggravates cost and risk, a mercenary culture among those who control and manage blocks in which anything not expressly forbidden is fair game, mortgage-lending practices which exacerbate the wasting asset problem, and an opaque leasehold system that, while arguably not itself the prime cause, certainly facilitates abusive behaviours.

There are laws and regulations on our statute book relating to misrepresentation, unfair terms, quality of goods, fitness for purpose, and implied warranties and misdescriptions, to name just a few. To my knowledge, few are enforced to the satisfactory protection of leaseholders. Of course, the regulation of property agents is completely absent.

Let me point to progress in the remediation of defects which are plaguing leaseholders. Of the firms which signed a non-binding pledge with the Secretary of State, the best performer is understood to have remediated some 35% of the affected stock for which it was responsible. The worst performer remediated perhaps 8%. This was rather conveniently set out in the Mail on Sunday of 17 March.

The Government’s January statistics on the developer remediation contract also make uncomfortable reading. Developers have accepted responsibility for 5% of some 90,000 residential buildings of 11 metres in height and above. Some 37% of those where a determination had been made—more than a third—needed remediation of some sort. There was not a squeak about the homes in the 11 metre and below category, where residents might arguably be safer from loss of life but just as vulnerable to the remediation and financial loss trap. Building safety continues to foul up other leasehold issues.

The noble Lord, Lord Young of Cookham, referred to a two-tier market; I would describe it as a three-tier market of qualified, partially qualified and non-qualified leaseholders. This overlies a labyrinth of tests and exclusions regarding such matters as freeholder assets, cladding or non-cladding defects, building height and building information, particularly where landlord certificates are required and the landlord is not the managing agent. Leaseholders unable to contract are further let down by a level of complexity with which even professionals are reluctant to engage. There is a particular problem with conveyancers. While this overshadows some 1.6 million unqualified leases, the construction sector appears to have escaped the bulk of its true responsibilities. This Bill does not address the fundamental issue that all innocent owners should be protected from poor construction and management practices as a consumer right.

In the grand political gesture of this Bill—and there is something of that—the Government appear unaware of how interconnected construction, property and financial markets are. The policy on ground rents appears to be unravelling. All parts of this model have to be addressed together if we are to stand any chance of fixing the problem. The Government wag their finger at freehold—fair enough—and seek to remedy some of the leasehold issues by adjusting the tenure balance. Unfortunately, exploitative practices and building remediation do not entirely go away under this model. The same innocent home owners remain imprisoned in their unmortgageable, unsaleable and potentially uninsurable homes—homes that should have been a safe haven and a secure investment, but are consuming lives and livelihoods, and damaging life chances, productivity and health.

These reforms do not seem to be driven by benefit to leaseholders as consumers who need protecting, so much as by political risk management. Otherwise, why does the Bill seek to turn leaseholders into freeholders, while denying freeholders the protection the Government promised to give to leaseholders? This is an example of incoherence in the Bill.

The Government’s policy is to make freeholders, who may be innocent of creating the construction defects themselves, uniquely responsible for ensuring remediation; doing so at their own cost and risk; taking a legal punt on cost recovery from a developer, if one exists; and doing so out of resources to be depleted by the effects of the Bill. Do the Government think that freeholders are willing and able to do this for the primary benefit of leaseholders, or indeed solvent enough to enable them to do so?

It seems to me that the default here simply puts the matter back into the hands of leaseholders and lawyers. As somebody who is interested in property markets, that is something I want to avoid. I have even heard it suggested that insolvent freeholders’ administrators will hand over the freehold to residents, with all the supposed benefits and none of the remediation and other burdens. I regard that as completely naive.

The claim of abolishing marriage value in fact disguises a transfer of an identifiable element of value long recognised in valuation practice and statute. I do not necessarily advocate for or object to that; I merely state it as a matter of fact, but in future this will solely benefit the leaseholder. This has wider consequences for the financial model. I cannot say which way that will pan out, but it has consequences. Furthermore, it is unclear from the Government’s impact assessment whether any real net benefits would fall to leaseholders. In London and the south-east, most benefiting leaseholds seem to be owned by investors, and a significant number of them are non-UK resident. I do not necessarily object to that at all, but is that the object of the policy in transferring the benefit of this gain? By contrast, investors owning three or more units are actually denied the protections of the Building Safety Act. How do the Government explain that dichotomy?

I also point to Schedule 4, where the market value of assets is defined not by a relevant reference to the accepted national and international standards relating to that term—market value—which assumes a willing buyer and a willing seller, but by reference to a willing seller alone. Presumably they are deemed to be willing at whatever low price the buyer suggests, for that is the inevitable consequence. Can the Minister explain that, and does she subscribe to a rules-based approach to property evaluation?

The market is on notice about the direction of travel here. Even without peppercorn rents, the Bill is definitely going to shift the dial. I simply ask the Minister: where is the evaluation of all these direct and indirect effects? We need to know.

The Secretary of State’s views on the problem are well known and have been repeated by noble Lords. I am not sure whether it is the leasehold system as such or the culture and policies which attend it that is most at fault; presumably, it is a combination of the two. I really support the consumer protection measures in the Bill, but I counsel against wanton destruction of value, undermining people’s investment in their homes and the risk of market disruption. Those have to be avoided. I regard the Government’s proposals as a bit piecemeal and lacking in strategic foresight on replacing leasehold, which people generally feel has to be replaced. But in the meantime, it is going to continue for some time for certain people.

This is not good enough. There are around 5 million leasehold homes in England, worth at least £1.25 trillion. Home owners and their lenders need to be assured that there are plans in place for a smooth transition from one system to the other, whatever the regime happens to be, and that they do not lose out in the meantime. Process and cost have to be transparent—and, please, less profiteering.

There are opportunities in this highly complex Bill to deliver better consumer protections and I look forward to working with other noble Lords to progress them. But parts of the Bill are very far from transparent themselves and this is regrettable. I promised the Minister suggestions on ways of further clamping down on exploitative behaviour that has blighted leasehold over the past 20 years. I regret to tell her that I have not yet finalised these. However, drawing on experience from the continent and elsewhere, I shall elaborate on them as the Bill proceeds. I will certainly return to building safety issues in Committee, because things simply cannot continue as they are. The policy needs to be much more joined up.

In conclusion, lest they become a protracted legal battleground with much collateral damage, all these things have to be dealt with together and not considered piecemeal. If they are, great dangers arise from getting it wrong.

--- Later in debate ---

[Baroness Scott of Bybrook (Con)]

As I think I have said to the noble Lord many times from this Dispatch Box, this is a complicated issue. I think there are about 121 recommendations in the Law Commission’s framework and we just have not had the time to go through them. However, this takes us a good way towards commonhold for the future.

The Law Commission did fantastic work to review the commonhold framework, and, as I said, it set out 121 separate detailed recommendations on how to modernise it. I appreciate the points from the noble Lord, Lord Kennedy, about commonhold and his frustration that these reforms have not come forward. However, these are not trivial changes. Implementing them requires detailed consideration. It is a complex policy, and to make sure we get it right and so that commonhold does not fail to take off for a second time, we will take the time required to make it work. We will therefore set out our response to the Law Commission’s report as soon as that work is concluded.

On the comments made by the noble Baroness, Lady Thornhill, the noble Lord, Lord Stunell, my noble friends Lady Finn and Lord Moylan and many others about leasehold rights to manage, managing a large or complex building is not an easy feat, especially meeting building safety requirements, and some leaseholders may simply not want this responsibility. That is why the Government believe that leaseholders should therefore have the choice to manage their buildings, which they now do. The Bill delivers the most impactful of the Law Commission’s recommendations on right to manage, including increasing the non-residential limit to 50% in mixed-use buildings to give more leaseholders the right to take over management, and changing the rules to make each party pay their own process and litigation costs. These measures will help existing leaseholders now and save them many thousands of pounds into the future.

The Government recognise that the participation threshold of one-half can frustrate leaseholders if they cannot reach it. However, we agree with the Law Commission that the threshold is proportionate and ensures that a minority of leaseholders are prevented from acquiring the freehold against the wishes of the majority of leaseholders in the building. We are therefore very clear that we should hold the participation requirement at half of the total number of residential units in the premises.

The noble Baroness, Lady Thornhill, my noble friend Lord Moylan and many others have also made powerful arguments that the creation of new freehold estates must end, and that local authorities should be compelled to adopt all communal facilities on a new estate. It is up to the developers and the local planning authority to agree on specific issues relating to new development, including appropriate funding and maintenance arrangements. That said, we are carefully considering the findings and the recommendations of the Competition and Markets Authority report to address the issue that home owners on these estates face.

On the questions from the noble Baronesses, Lady Taylor and Lady Thornhill, about expanding the right to manage regime to cover the residents of freehold estates, the Government recognise the benefits that the right to manage regime on freehold estates would bring, empowering home owners to manage and take a greater control of the estate on which they live. However, there would be many detailed practical issues to work through to deliver this, which would all require careful handling since they affect property rights and existing contract law. Instead, we have introduced measures in this Bill to empower home owners and make estate management companies more accountable to them for how their money is spent, including the ability to apply to the appropriate tribunal to appoint a substitute manager.

The noble Lord, Lord Best, spoke extensively and eloquently about the regulation of property agents, which my noble friend Lord Young, the noble Lord, Lord Truscott, and many others, supported. This Government remain committed to driving up professionalisation and standards among property agents. We welcome the ongoing work being undertaken by the industry and others to drive up standards across the sector, including on codes of practice for property agents. I put on record my sincere thanks to the noble Lord, Lord Best, and the noble Baroness, Lady Taylor, for their valuable work on this issue. However, as a Secretary of State made clear at Second Reading, legislating to set up a new regulator would require significant additional legislative time of a kind that we simply do not have in the lifetime of this Parliament.

On cost, the Government believe that any regulation can and should be done in an appropriate and proportionate way that controls the cost to business. Managing agents must already belong to a redress scheme and leaseholders may apply to the tribunal to appoint a manager to provide services in cases of serious management failure. The Leasehold and Freehold Reform Bill will make it easier for leaseholders to scrutinise costs and challenge services provided by landlords and property managing agents, and ultimately for them to take on management of the buildings themselves, where they can directly appoint or replace agents. These measures, alongside existing protections and work undertaken by the industry, will seek to make property managing agents more accountable to the leaseholders who pay for their services.

The valuable work on the regulation done by the noble Lord, Lord Best, remains on the table, but this Bill is tightly focused on the fundamental improvements for leaseholders. These, alongside our building safety reforms, already make this a time of great change for managing agents, necessitating higher standards across the sector. We continue to listen and look carefully at the issues that Members across the House are raising on this.

My noble friend Lord Young spoke specifically about forfeiture, as did the noble Baronesses, Lady Taylor and Lady Twycross, my noble friend Lord Bailey and many others. As I said in my opening remarks, the Government recognise that this is a real and significant problem. There is huge inequity at stake. We have heard from colleagues today about why we should act. We think it is the job of government to go away and work through the detail of this, which we are doing. We will report back to the House shortly with more details as we consider the matter further.

My noble friend Lord Young, the noble Lord, Lord Stunell, the noble Earl, Lord Lytton, the noble Baroness, Lady Pinnock, and many others, raised several concerns about building safety, which I will try to address in some detail. The Government understand that many individuals are frustrated with the distinction between qualifying and non-qualifying leaseholders. We have been clear that the primary responsibility for resolving issues in buildings requiring remediation is with those who caused them. In circumstances where it does not prove possible to recover the cost of remediation from the developer, we have established a threshold that strikes a balance between leaseholders and landlords as to who should be paying for the costs of remediation. No leaseholder, whether qualifying or non-qualifying, can be charged more than they otherwise would have been in the absence of the leaseholder protections for costs relating to historical building safety defects.

A range of support is in place for leaseholders whose lease does not qualify for protection. All residential buildings above 11 metres in England now have a pathway to fix unsafe cladding, through either a taxpayer-funded scheme or a developer-funded scheme. With regard to buildings under 11 metres, it is generally accepted that the risk to life from fire is proportionate to the height of the building. Therefore, the risk to life from historic fire safety defects in buildings under 11 metres will require remediation only in exceptional circumstances.

[The Earl of Lytton (CB)]

In relation to critical fire safety, the Minister referred to the risk to human life. I understand that that is what the independent expert statement was intended to cover; namely, critical life safety. What would she say about the other critical issues: finances and the cost of remediation, which none the less continue and are the matters that concern insurers and finance houses, which are by and large less concerned with questions of human life?

[Baroness Scott of Bybrook (Con)]

We have taken the issue of human life as the important one. I think we will have further debates on 11 metres as we go through the Bill. I am conscious of time; if the noble Earl does not mind, we will deal with those matters in Committee.

Given the number of small buildings under 11 metres that need remediation, our assessment remains that extending leaseholder protections to below 11 metres is neither necessary nor proportionate, as I think the noble Baroness has heard many times before.

Regarding my noble friend Lord Young’s issue about enfranchised leaseholders, the Government decided that the leaseholder protection provisions in Part 5 of the Building Safety Act would not apply to leaseholder-owned buildings. That was because the freehold to the building is de facto owned by all or some of the residents who, as leaseholders, have collectively enfranchised and would still have to pay to remedy the safety defects in their buildings. However, leaseholders in those buildings, either individually or collectively, can pursue developers and their associated companies via a remediation contribution order for funds that they have spent or will spend remediating their buildings for relevant defects.

I turn to joint ownership. This Government understand that individuals are frustrated with the distinction between leaseholders who own properties jointly and those who do so independently. We are listening carefully to feedback from stakeholders on this matter. We have also published a call for evidence on jointly owned leasehold properties, which was launched on 22 March; this will enable the Government to understand the scale of the issue and consider whether any further changes can be proposed.

The noble Baroness, Lady Andrews, asked about development value. I am very grateful to her for engaging with me beforehand about this issue. I can say to the noble Baroness, as she acknowledged, that we committed to enabling leaseholders voluntarily to agree to a restriction on future development of their property to avoid paying development value as part of the collective enfranchisement claim. We are consulting on making changes to the existing permitted development right and are seeking views on whether sufficient mitigation is in place to limit potential impacts on leaseholders. I urge the noble Baroness to contribute her views to that consultation before it closes on 9 April. When it closes, the Government will carefully consider and review all the responses and see how the regime can be improved.

I was very sorry to hear of the personal difficulties of the noble Lord, Lord Campbell-Savours, when purchasing his freehold, and I hope that the reforms in this Bill will address the issues he raised. With regard to the point that he and my noble friend Lord Bailey raised on service charges, the level of service charges that leaseholders pay will depend on many factors, such as the terms of the lease and the age and condition of the building. This means that the cost of things such as repairs, maintenance of common areas and management of the building will differ considerably. The transparency and redress reforms in this Bill will empower leaseholders to take action against any unreasonable costs.

As well as speaking extensively about building safety issues, the noble Earl, Lord Lytton, made a compelling case for thinking about leasehold from the perspective of consumer protections. The Government are committed to improving consumer protections against abuse and poor service from landlords, managing agents and freehold estate managers. That is why we will set a maximum time and fee for the provision of information as part of the sales process for leasehold homes and those homes encumbered by estate management charges, and introduce rights of transparency over service charges, extended access to redress schemes and reform of legal costs. We consider that it is a powerful package of consumer rights and reforms, and, following Royal Assent, we will make sure that appropriate guidance is available for consumers. None the less, I look forward to meeting the noble Earl after Easter to discuss how this package can be further improved and well implemented.

The noble Lord, Lord Palmer, the noble Baroness, Lady Bray, and my noble friend Lord Howard asked about the Government’s policy on marriage value. Any suggestion of retaining marriage value—wholesale or in limited circumstances—would be counter to our aim of making it cheaper and easier for leaseholders to extend their lease or acquire their freehold. Such proposals would risk both perpetuating and creating a two-tier system—eroding the benefits that the Government are delivering through the Bill. Removing marriage value and hope value will deliver a level playing field and wide access for leaseholders who may otherwise find it prohibitively expensive to extend their lease or purchase their freehold. Our wider reforms to enfranchisement value will ensure that sufficient compensation is paid to landlords to reflect their legitimate property interests.

The right reverend Prelate the Bishop of Manchester spoke about the positive contribution that charities make to our society, which this Government wholly recognise. He asked specifically about exemptions from our reforms for charity. Although well-meaning, attempting to created carve-outs for specific groups of landlords—for example, charities—would complicate the system that we aim to simplify and would risk both perpetuating and creating a two-tier system. We appreciate the engagement that the right reverend Prelate has conducted with us so far and hope that we can continue that engagement on issues that we know, and he knows, are significant.

The noble Baroness, Lady Twycross, and the noble Lord, Lord Kennedy, brought up the renters Bill and assured tenancies. We are aware that leaseholders with ground rents of more than £250 per year can be legally regarded as assured tenants. In the Renters (Reform) Bill, we are addressing this problem by removing all leaseholders with a lease longer than seven years from the assured tenancy system. That Bill is progressing through Parliament, and our priority is to pass this vital legislation before the end of this Parliament.

The noble Lord, Lord Khan, brought up the issue of the Commonhold Council. The council has met regularly since it was established in 2021 and last met in September. The Government are currently reviewing the Law Commission’s proposal to reform the legal framework for commonhold and plan to reconvene the group ahead of finalising their response to the Law Commission.

If I have missed any other specific issues raised, I can only apologise. A tremendous amount has been said in this session—all of great value—and I reiterate my commitment to meeting any Member of this House who wishes to discuss the Bill further after Easter. I hope that is acceptable to the House.

The Leasehold and Freehold Reform Bill will deliver on the Government’s 2019 manifesto commitments, promoting fairness and transparency in the residential leasehold sector. I look forward to working with noble Lords during the passage of this most important Bill.

I have noted forfeiture, commonhold, the regulation of property agents, marriage value, ground rent and service charges as areas of serious interest to noble Lords, although others of equal importance have been raised. I am sure noble Lords will recognise that this is a very long list and there is little time remaining in the parliamentary Session. However, we are listening and looking carefully at what can be done on all those things.

Building Safety

Earl of Lytton Excerpts

Wednesday 27th March 2024 Lords Chamber

[Baroness Swinburne (Con)]

I thank my noble friend for that question. To start with the second question first, yes, I shall take that back to the department. Given that transparency is a tool that we are using, it would make sense to make that communication transparent. I shall report back to my noble friend on progress on that.

On whether I personally think that developers taking eight years to fix this is acceptable, absolutely not. These are people’s homes; they need to feel safe. The reason why that new money has become available for regulators is to ensure that enforcement action can happen and to increase the pace of the change that is required, ensuring that remediation takes place as soon as possible. Therefore, I suggest that, if there are specific instances, noble Lords should speak to the department so that we can make sure that pressure is put on.

[The Earl of Lytton (CB)]

In connection with building remediation, has the department any estimate of instances of potential freeholder insolvency? If a freeholder charged with building safety remediation becomes insolvent, what provisions will the Government make to ensure that those costs do not fall on the leaseholders?

[Baroness Swinburne (Con)]

I thank the noble Earl, Lord Lytton, for that question. I shall have to write to him with the answer, on the basis that I do not have the data with me.

Local Planning Authorities: Staffing

Earl of Lytton Excerpts

Monday 12th February 2024 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, given the clear impression that local authorities do not have the resources to draw up a robust local plan at the moment—this can be rectified only over time—and, even worse, that they do not have the resources to defend a local plan when it is challenged by speculative proposals on appeal, what does the Minister suggest for current issues around water and nutrient neutrality and biodiversity net gain, referred to by the noble Lord, Lord Crisp, given the existing lack of ability to monitor, let alone take enforcement action against, infractions?

[Baroness Penn (Con)]

My Lords, as noble Lords will know, the Government had a proposed solution on nutrient neutrality that was rejected by this House, including by the Front Bench opposite, holding back the building of thousands of additional homes. The point about more specialist skills is well made. That is why, as part of our planning capacity and capability programme, we are looking to boost specialist skills so that local planning authorities have the skills they need.