Social Housing

Lee Rowley Excerpts

Tuesday 30th January 2024 Written Statements

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

Social housing is a finite resource and in any compassionate society it is incumbent upon the Government of the day to ensure it is utilised in the most effective way to support those who truly need it and those who play by the rules. This is not least because those fortunate enough to get a social home benefit from paying below market rents and almost all will have the security of that social home for life.

Over 1 million households are on the social housing waiting list and around a quarter-of-million new tenancies are agreed each year. It is therefore important that social housing is fairly allocated. The British public want to know that decent and hard-working people who have contributed to this country can secure a home in their local community. People already living in social homes want to know that anyone moving near them will be respectful of their neighbours. That is why the Government are going to make sure that all applicants and tenants benefit from a system that rewards responsible behaviour and protects local households, while supporting the most vulnerable and those in priority need.

Today we are launching a consultation on our proposed reforms regarding who is eligible and who qualifies for social housing, and how local housing authorities decide to allocate social housing stock where demand exceeds supply. The changes seek to prevent people who abuse the system from benefiting at the expense of those who have played by the rules.

The reforms would apply both to new applicants in England and those who are already on a social housing waiting list. The introduction of a UK connection test and new qualification tests—local connection test, terrorism and antisocial behaviour tests, false statement test and income test—will apply to new social housing applicants and those on a waiting list, meaning those currently living in social housing would not be subject to these new tests. The new ground for eviction for unspent terrorism convictions, as well as the “three strikes and you’re out” policy for antisocial behaviour, would apply to those currently living in social housing as well as future tenants.

When drawing up qualification tests, local housing authorities decide on matters including when to prioritise those newly arrived in the country or a local area over local families; and under which circumstances they should allocate a social home to a high-income household over a lower income one, or to grant social housing to those who commit antisocial behaviour. Our proposals seek to set a national minimum standard for qualification tests while still allowing for local flexibility.

Social housing waiting lists have stabilised at around 1.2 million after rising from 1 million in 1997 to 1.7 million in 2010 under the last Labour Government. The waiting list remains too high, but it is also essential that local housing authorities do not disproportionately allocate social housing to those newly arrived in the country or local area while local families are left on waiting lists. In Labour-run Brent, 40% of new social lets in 2021-22 were to non-British citizens. In Labour-run Oxford the figure was 25% and in Labour-run Haringey the figure was 24%.

The Government believe that everyone has the right to a safe, decent and warm home that meets their needs. We have made significant progress both to increase the quality and quantity of social housing, and at the same time to hold negligent landlords to account.

Under the affordable homes programme, the Government are spending over £11.5 billion of taxpayers’ money to deliver more than 100,000 affordable homes, among them tens of thousands specifically for social rent. This will unlock a further £38 billion in public and private spending in affordable housing. It builds on the Government’s record since 2010—with over 696,000 new affordable homes delivered, including over 172,000 for social rent. Through the Social Housing (Regulation) Act 2023, we have strengthened the powers of the Regulator of Social Housing, and improved residents’ ability to seek redress by granting new powers to the Housing Ombudsman.

Overview of proposals



The new set of tests on which we are seeking views are as follows:

UK connection test—requiring people to be a British citizen, Irish citizen, Commonwealth citizen with a right of abode, or EEA or Swiss citizen with equal treatment rights in matters of housing under the withdrawal agreement, the EEA-EFTA separation agreement or the Swiss citizens’ rights agreement, or otherwise to have been lawfully resident in the UK for 10 years, in order to be eligible for social housing. We are consulting on an exemption for those arriving via safe and legal resettlement routes and the Ukrainian temporary visa schemes. This will allow for the allocation of more social homes to those with the strongest connection to the UK, while enabling the Government to continue to deliver their commitments to provide urgent humanitarian support.

Local connection test—preventing individuals from being allocated social housing if they have not had links to the local authority area for two years—for example, through residence or work. This will ensure greater consistency across the country and ensure more local people can access social housing in the area they call home where they need it, supporting people to put down roots and maintain links to family and community.

Income test—households earning above a maximum threshold —to be defined following responses to the consultation—would not qualify for social housing. This would only apply to new tenants and existing tenants would be unaffected.

Antisocial behaviour test—disqualifying people who have unspent convictions for certain criminal antisocial behaviour offences, as well as certain civil orders, from social housing for a defined period.

Terrorism test—we propose that people who have unspent terrorism convictions should be disqualified from social housing unless excluding them would increase the risk to public safety.

False statement test—mandating a period of disqualification for those who knowingly or recklessly make false statements when applying for social housing.

The Government do not believe that those who repeatedly commit acts of antisocial behaviour or have unspent terrorism offences should continue to access social homes while law-abiding individuals remain on waiting lists. We are keen that all social landlords should be able to evict those who have unspent convictions for terrorist offences; we are also committed to a “three strikes and you’re out” expectation of social housing landlords, as set out in the “Anti-Social Behaviour Action Plan” published last year. This means that they will be expected to evict tenants whose behaviour is disruptive to neighbours and jeopardises community cohesion.

To ensure that the reforms are informed by the expertise of local housing authorities, social landlords, tenants and the wider public, the full consultation launched today will run for eight weeks. Reforms based on the consultation responses will ensure that waiting lists are managed effectively and that more social housing is allocated to those with the closest connection to the UK and their local area. Changes will be delivered by secondary legislation at the earliest opportunity.

The proposals will help to fulfil the Government’s pledge to tackle antisocial behaviour, and ensure we preserve and protect the country’s social housing.

A copy of the consultation document will be placed in the Libraries of both Houses and published on www.gov.uk.

[HCWS225]

Teesworks Joint Venture

Lee Rowley Excerpts

Monday 29th January 2024 Commons Chamber

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

With permission, I would like to update the House on the independent review into the South Tees Development Corporation and the Teesworks joint venture, which the Government are publishing today, having received the final report last week.

Before turning to the specifics of the report, it is important that I remind the House of the significance and sheer scale of this project. Teesworks, in north-east England, is the United Kingdom’s largest industrial zone. Remediating and regenerating the former Redcar steelworks is a highly complex brownfield regeneration opportunity, the alternative to which is a massive liability to taxpayers in clean-up costs and an annual multimillion pound bill just to maintain a highly contaminated site. Most importantly, as Michael Heseltine said in his 2016 landmark report on the Tees valley, the site is also part of “a much bigger picture”, and one that provides an opportunity for regeneration that is unrivalled not only in size and scale, but in potential opportunity, as we are seeing with the development of the freeport. That is why it is too important to the communities of the north-east for Teesworks to be used as a political football.

Over the course of the last year, using parliamentary privilege, the hon. Member for Middlesbrough (Andy McDonald), who is not in his place, has made a series of allegations about Teesworks. This culminated in April and May 2023, when the hon. Member spoke, and I quote for the record, of the existence of “industrial-level corruption” and “dubious dealings”. These accusations are about the most serious that can be made. If true, they would almost certainly be criminal.

[Ian Lavery (Wansbeck) (Lab)]

On a point of order, Madam Deputy Speaker. The Minister has just said that my hon. Friend the Member for Middlesbrough (Andy McDonald) is not in his place. He should recognise that my hon. Friend has been through some serious surgery and has a proxy vote for the foreseeable future. Will he acknowledge that that is the case, instead of having a snide go at my hon. Friend?

[Madam Deputy Speaker (Dame Rosie Winterton)]

I thank the hon. Gentleman for his point of order. I had assumed that the Minister had informed the hon. Member for Middlesbrough (Andy McDonald) that he was going to refer to him, so I had also assumed that the Minister will have known of the circumstances.

[Lee Rowley]

indicated assent.

[Madam Deputy Speaker]

In that case, yes, the Minister might like to acknowledge that he recognises there is a reason why the Member is not in his place.

[Lee Rowley]

I am absolutely happy to acknowledge to all Members that the Member is not in his place for a reason. Equally, however, the Member made a series of statements previously and I am seeking to respond to those.

[Madam Deputy Speaker]

Order. That is not really—[Interruption.] Excuse me, but I can handle this, thank you. That is not really what I was referring to. I was just referring to the fact that there is a reason why the Member is not in his place, not the other points the Minister is making. Minister, do carry on.

[Lee Rowley]

These accusations are about the most serious that can be made. If true, they would almost certainly be criminal, and their mere existence threatens confidence in this immensely important, complicated and challenging project. At the request of the Tees Valley Mayor, an extraordinary independent review was launched by my right hon. Friend the Secretary of State for Levelling Up, Housing and Communities, to consider the allegations as well as the combined authority’s oversight role. Today we have the answers to the primary question about the extremely serious charges of corruption and illegality—they are not correct; they are untrue. For the avoidance of doubt, let me repeat that: no corruption, no illegality. There is no evidence to back up the worst of the allegations repeatedly thrown at the local parties managing the project, no referrals onwards to other bodies for further review, and no substance to the most serious of allegations.

In addition, and at the Secretary of State’s request, the panel has also made a series of constructive recommendations, including strengthening governance and increasing transparency. We welcome that oversight, as does the Mayor of the Tees Valley, who has confirmed that he intends, in principle, to accept all the recommendations relevant to him and his authority. For the two recommendations relevant to central Government, the Department will carefully consider how to support the continued success of mayoral development corporations across the country.

I know that colleagues in the Department for Environment, Food and Rural Affairs and His Majesty’s Treasury will also consider the recommendation regarding landfill tax. My right hon. Friend the Secretary of State has today written to the Tees Valley Mayor, asking that he responds to the panel’s recommendations, with an initial response within six weeks. My right hon. Friend will of course wait to review those proposals before deciding on further action, but the central point bears repeating: nothing was found by the reviewers to support the very serious allegations made.

This report has been a detailed and thorough piece of work, and I place on the record my great thanks to the three-strong panel for their thorough and well informed work over recent months. I thank Angie Ridgwell, chief executive of Lancashire County Council; Richard Paver, previously first treasurer of the Greater Manchester Combined Authority; and Quentin Baker, director of law and governance at Hertfordshire County Council. Copies of the review, and my right hon. Friend the Secretary of State’s subsequent correspondence with the Mayor and the panel, will be placed in the Library of the House.

Finally, I wish to remind right hon. and hon. Members about the rich heritage of Tees Valley. It has a proud industrial history and this Government are committed to giving it the proudest possible future, putting it front and centre of our mission to level up the country, and supporting all our regions to prosper and flourish by making sure that local people have projects they can champion. The independent review has cleared the Tees Valley Mayor and the combined authority of lurid allegations of corruption and illegality, and it has recommended improvements that I am confident will be driven by local stakeholders. We are delighted to support a project that is bringing huge benefits to the people of Teesside and the rest of the UK, and for all those reasons I commend this statement to the House.

[Justin Madders (Ellesmere Port and Neston) (Lab)]

I thank the Minister for an advance copy of the statement, but we know that a draft of this report has been floating around the Department since November, so why has it only surfaced today? How is it that the media were reporting the outcome of the report this morning, when it was only released by the Department at 4.20 this afternoon? Although we have only been given just over an hour to consider the 75-page report before coming to the Dispatch Box, it is immediately clear why the Government waited until the last possible minute to release it, because it is damning.

The issue has always been one of value for money, and on that the report shows that taxpayers’ money was not being spent in the way the public should expect. Let me quote directly from the report:

“The governance and financial management arrangements are not of themselves sufficiently robust or transparent to evidence value for money.”

On transparency it states:

“We found evidence of inaccuracies and omissions in reports which undermines decisions”,

and

“We did not see sufficient information provided to the Board to allow them to provide effective challenge and undertake the level of due diligence expected of a commercial Board.”

It also states:

“There is no oversight of Teesworks Ltd, despite requests from various combined authority members and Committees”.

Finally it states that

“there is not a robustness within the system. Inappropriate decisions and a lack of transparency which fail to guard against allegations of wrongdoing are occurring, and the principles of spending public money are not being consistently observed.”

Those are not minor, trifling concerns; they reveal a systemic and flawed decision-making process that hinders transparency and fails to show value for money. This scandal has exposed gaps in accountability, and serious questions remain about the lack of local democratic scrutiny throughout the process. It is now clearer than ever that that needs to be investigated by the National Audit Office.

It was an astonishing decision in the first place for the Government to ignore the calls for a fully independent investigation into the serious allegations that have arisen, not just from Labour Members but from the Tees Valley Mayor in question, three Select Committee Chairs and Members across the House. Even the NAO said that it was “willing and able” to carry out the probe. Instead, the Government hand-picked a panel to investigate only the most serious allegations.

I will ask the Minister three questions, in the hope that we can finally begin to uncover the answers necessary to draw this saga to a close. First, will he now refer the situation to the National Audit Office, not only to give the people of Teesside answers but to give the public confidence that it will never be repeated again? Secondly, will he assure the House that no one was prevented from providing evidence to the inquiry as a result of non-disclosure agreements? Finally, can he tell the House with confidence that the Teesworks project represents value for money?

Earlier this month, the Secretary of State, in evidence to the Business and Trade Committee, said that he wanted people

“to make a judgment on the basis of the facts.”

Well, these are the facts: a publicly owned asset has been turned into a cash machine for private investors, earning them at least £124 million so far. That eye-watering return required no investment and involved no risk on the part of private investors, and nobody else was given the opportunity to participate in the venture. The report does not change those facts—indeed, it confirms them—and no amount of spin from Government Members will change that, no amount of bluster will make this a good deal for the taxpayer, and nothing said today will change the view still held by many that something is seriously wrong in the Tees Valley.

[Lee Rowley]

I am grateful to the hon. Gentleman for his valiant attempt to try to move the discussion on. The basic facts are that Opposition Front-Bench Members asked for a review, and they got a review. They inferred that there were significant problems, and it has been proven comprehensively through an independent review that there was no corruption and there was no illegality.

The hon. Gentleman asked why the report only surfaced today. We received the final report last week. To support the transparency that hon. Members in the House seek, and the comprehensiveness they wish for, we have sought to get the report out as quickly as possible, and it is here today for people to comment on and to misrepresent if they so choose. It appears that some may choose to do so.

The hon. Gentleman quoted from the report. I am also happy to quote from the report. As I indicated in my statement, the serious allegations that were the genesis of the report have been proven to be incorrect. Where there are things that can be improved, that will happen, and the Mayor of Tees Valley has already indicated that he will do that. But it is important that we put this in context. The hon. Gentleman talked about governance, and at paragraph 22.3 the report says:

“The Board largely feel engaged and make unanimous decisions.”

At paragraph 11.3, it says:

“The Panel noted the largely positive assurances provided by internal audit.”

Paragraph 22.3 says that

“there is much that does follow due process”.

Most crucially, given that the whole challenge was about ensuring that the benefits of Teesworks come to the people of the north-east at the earliest possible opportunity, the report says clearly at paragraph 22.1 that

“much has been achieved in a relatively short space of time”.

That is thanks to the Mayor of the Tees Valley and the Conservatives in the north-east.

[Sir Simon Clarke (Middlesbrough South and East Cleveland) (Con)]

I am pleased that the report has been published today and thank the Minister for his statement. Teesworks is critical for my constituents and the whole of Teesside, and the report confirms that for every £1 of public money that has been invested, the taxpayer will receive £9.50 back, and that is on the basis that only 17% of the site has been developed.

As my hon. Friend the Minister said, the hon. Member for Middlesbrough (Andy McDonald) alleged “industrial-scale corruption” in the House. He did so for overtly political reasons, which sadly Opposition Front-Bench Members have repeated today. Labour wants Teesworks to fail.

[Sir Simon Clarke]

Labour puts politics before people, and the furious denials of the hon. Member for Stockton North (Alex Cunningham) do nothing to disguise the fact that he and his colleagues have connived in making malicious allegations that this afternoon have been fundamentally proven to be false. The independent review confirmed that no illegality occurred. Does my hon. Friend agree that the hon. Member for Middlesbrough ought to apologise to the House, and to all those who were named in the report and falsely accused by him? Does he also agree that the hon. Member for Middlesbrough should resign for acting against the interests of the constituency that he serves and, indeed, against the interest of the whole Tees Valley?

[Lee Rowley]

My right hon. Friend speaks loudly for Teesside and his constituency. I will take the steer of Madam Deputy Speaker and keep my remarks solely to the statements made previously. The hon. Member for Middlesbrough stated clearly, on 20 April in this place, that there had been

“truly shocking, industrial-scale corruption on Teesside.”—[Official Report, 20 April 2023; Vol. 731, c. 383.]

In the same business questions session, he repeated “industrial-scale corruption”. A few days later, in another business questions, he referred to “dubious dealings”. Those remarks have proven to be incorrect, and I hope that he withdraws them as soon as he is able to do so.

[Alex Cunningham]

I apologise for my outburst, Madam Deputy Speaker.

Will the Minister join me in congratulating Mayor Houchen’s partners, Musgrave and Corney, for pulling off the business coup of the 21st century? Without spending a penny, they secretly acquired 90% of the shares in Teesworks, which has had hundreds of millions of pounds of taxpayers’ money invested in it. They have done multi-million-pound deals to lease it to others, including the combined authority, have made over £100 million in profit in just one year, and have secured control of the business development at Teesside airport when no one else got a look in.

That is all in the gift of Mayor Houchen, who, the report says very clearly, has failed on both governance and transparency—something I have said time and again. That is the accusation that I have made. Does the Minister accept that this is a terrible deal for the taxpayer and the people of Teesside? Will he now hand it over the NAO, as others have requested, so that all aspects of the business at Teesworks—not just those chosen by the Secretary of State—can be independently investigated?

--- Later in debate ---

[Lee Rowley]

Again the Labour party attempts to move the discussion elsewhere, and I will call it out every time. The report was set up because of extremely serious allegations of industrial-scale corruption, which have proven to be incorrect. The least that Labour Members could do when standing up to read their pre-prepared speeches is to acknowledge that they were wrong.

[Peter Gibson (Darlington) (Con)]

I thank the Minister for his statement, which will give my constituents the reassurance they need that Tees Valley Mayor Ben Houchen is doing things by the book and for the benefit of our region. The uncertainty and suspicion raised has been damaging to our region’s reputation and to investment prospects. The whole Tees Valley has benefited from Ben’s vision and leadership, which has led to jobs, investment and a renewed sense of Tees pride. Now that, thankfully, we have this report, does my hon. Friend agree that unfounded and scurrilous allegations should not be aired in this place? Does he further agree that Teesside is not well served by continually being talked down by the Labour party, and that those who have peddled damaging allegations should apologise?

[Lee Rowley]

My hon. Friend speaks up loudly for the north-east and his constituents. He is absolutely correct that this is a huge opportunity for the north-east, and about the transformative potential of Teesworks. He is also absolutely correct that it is the responsibility of all Members of the House to be cautious and careful in their language to ensure that those benefits are realised for the people who matter the most—the people of the north-east.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

Over the weekend, when the right hon. Member for Middlesbrough South and East Cleveland (Sir Simon Clarke) and I appeared on the excellent local media programme “Politics North”, it became obvious that Members on the Government Benches had an insight into the publication date and contents of the report, which Opposition Members did not. I am very glad that the report has been published, but to spin it as some kind of vindication of Mayor Ben Houchen is absolute nonsense. Given that is the spin that the Conservatives are going for, why will the Minister not demonstrate that Teesworks provides the value of money that he asserts by having an independent inquiry by the National Audit Office? The north-east gets little enough investment; we must make sure that every pound counts. Why can the National Audit Office not be allowed to demonstrate that?

[Lee Rowley]

I am grateful to the hon. Lady; I have the greatest respect for her, and she provides immensely important contributions in this place. But she will recognise, I hope, when we move away from the talking points, that there has already been a review, which was already independent and has already followed due processes—the same processes, by the way, that were followed for Labour-controlled Birmingham, when the council there lost £1 billion; the same processes that were followed with Labour-controlled Croydon, which lost hundreds of millions of pounds and had serious governance issues; and the same processes that were followed with Labour-controlled Slough, when it did something similar. If those processes were good enough and independent enough for Labour in those instances, when Labour was in charge of those authorities, why are they not good enough here? Is it simply because Labour is trying to make a party political point because an election is coming up?

[Paul Howell (Sedgefield) (Con)]

The hon. Member for Middlesbrough (Andy McDonald) clearly made comments that were not just wrong, but extraordinarily emotive and designed to do nothing other than undermine confidence in the tremendous investment work that has been done by the Conservative Tees Valley Mayor, Ben Houchen. Voices in this place can be hugely negative and can roll over to become hugely destructive when things are said in the way they were said by the hon. Member—or, indeed, when they are not said. I just do not get Labour’s position on business. NETPark in my constituency is fantastic; I have mentioned it more times than my predecessor did in the previous 12 years. Does the Minister think that Labour actually understands business, given that the Member responsible for this debate was on the shortlist to be the Chair of the Business and Trade Committee?

[Lee Rowley]

I am grateful to my hon. Friend—another example of speaking up for the north-east. He asked a hugely important question about the importance of business and private enterprise to our success and wealth creation in this country. It is vital that we support business in order to make the wealth that allows us to support the public services we all need. The transformative opportunities of things like Teesworks will ensure that the north-east has those public services and the taxpayer revenue needed to support them in the coming years and decades.

[Ian Lavery (Wansbeck) (Lab)]

The report was published in November ’23—published in nearly February ’24. Can the Minister explain the delay? I must say, there are suspicions that the report has been diluted. Can the Minister say whether the report has been altered because of discussions or communications between the author and the Government? Will he ensure—for the sake of transparency—that all communications between the author and the Department are published?

[Lee Rowley]

If I have misheard the hon. Gentleman, I apologise in advance, but I am pretty sure that he just said that the report was published in November 2023. That was not the case. The report was received by the Department last week, and we have published it within a week of receipt.

[Sir Robert Goodwill (Scarborough and Whitby) (Con)]

I wish to inform you that in line with the convention of the House, Madam Deputy Speaker, I informed the hon. Member for Middlesbrough (Andy McDonald) that I would be raising this matter, and we had quite an interesting exchange of text messages—but suffice it to say I wish him a speedy recovery.

I have to say, however, that the hon. Gentleman does have previous form on this issue. First, he ignored scientific evidence to try to prevent dredging in connection with the freeport development, and today we discover he has levelled vile, unfounded accusations of corruption and dishonesty at the Tees Valley Mayor. Does the Minister agree that jobs and economic development are more important to the people of Teesside—including those who live in Middlesbrough, incidentally—than scoring political points on the basis of incorrect and unfounded allegations? Does he share my disappointment that rather than apologising on behalf of their colleague, the Opposition Front Benchers are doubling down on some of these allegations, which have now been blown completely out of the water by the report?

[Lee Rowley]

My right hon. Friend is absolutely right: the report in front of us says explicitly that the accusations levelled at this project are not true. It is beholden on Members in this place, when they get things wrong, to say that that is the case; and it is vital that we ensure that this project gets going, keeps going, accelerates even further and gets the benefits for Tees Valley as soon as possible.

[Julie Elliott (Sunderland Central) (Lab)]

The report says:

“We did not see sufficient information provided to Board to allow them to provide effective challenge and undertake the level of due diligence expected of a commercial Board”?

Does the Minister think that is acceptable? Can he expect the people of Teesside to have confidence that decisions being taken in this way are in their best interests or will deliver best value for money? Is it not time to get the National Audit Office to look at the matter?

[Lee Rowley]

The hon. Lady needs to ensure that when she quotes from that report, she does so with completeness. It is also the case that paragraph 4.8 of the report says:

“we have sufficient evidence and consistency of views to form our conclusions as set out in the report.”

The hon. Lady was in this place a few months ago saying that the report would not be sufficient and referring to the pretence of an “independent” inquiry, which she is now quoting from. Labour Members cannot have it both ways. They cannot say that the inquiry does not work and then, when conclusions come out that they do not like, seek to disregard them.

[Grahame Morris (Easington) (Lab)]

May I pass on my best wishes for a speedy recovery to the good and hon. Member for Middlesbrough (Andy McDonald), and commend his bravery in raising this issue? Clearly, the Minister does not like use of the C-word, but he will be telling us next that the personal protective equipment contracts represented good value for money and that no dubious practice was involved in the awarding of those contracts—stretch the truth thin enough and people start to see through it.

I want to ask about value for money and scrap. Apparently, there are 500,000 tonnes of scrap metal on the site. Sales have so far raised £90 million, with £45 million going straight to private developers Musgrave and Corney, without any risk or investment themselves. How on earth does that represent good value for money? Will the Minister or the Secretary of State instruct the National Audit Office to begin a full value for money investigation into the goings-on at the Teesworks site?

[Lee Rowley]

The hon. Gentleman, again, is inferring continued corruption. This report said—

[Grahame Morris]

I did not!

--- Later in debate ---

[Lee Rowley]

The hon. Gentleman said “the C-word”. That is inferring corruption, which has been absolutely comprehensively disproven in this report. The hon. Gentleman then went on to talk about value for money and the financial position, which is important. It is vital we put on record that the liability of this site—a massive site, which had liabilities in the hundreds of millions of pounds, if not more, and was costing the best part of £20 million a year just to keep in its dirty state prior to any clean-up—was falling on the taxpayer in the main.

The only reason these changes and the joint venture have been brought forward is to transform the area for the good of the area in the long term. I note, once again, what happens when Labour Members do not like a report that they called for—when it does not have the conclusions that they asked for and does not get to the place they wanted it to. What do they do? They just call for another one.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I am glad to hear that nothing illegal has happened, but sometimes in this world it is what is legal that really shocks us. Like me, the Minister probably remembers that when the Secretary of State for Levelling Up, Housing and Communities came before the Business and Trade Committee, he said that this freeport was a flagship for the policy. Yet paragraph 1.7 of the report concludes:

“a number of decisions taken by the bodies involved do not meet the standards expected when managing public funds.”

The firm was allowed to buy 100 acres of land at £1 an acre; it was given rights to sell scrap metal of £50 million; it then went on to sell the lease it had for, I think, about £93 million; and it has booked £124 million of profit in the course of two years. Surely there are lessons to be drawn about how we absolutely maximise value for money in what is still a novel and important policy. It is for that reason that it would benefit all of us in this House if the NAO was allowed to get to the bottom of the question of how we ensure that profits like these are not just extracted from the taxpayer.

[Lee Rowley]

The right hon. Gentleman has clearly read some of the report. I just want to draw his attention to some other elements of it. Paragraph 12.7 states:

“The project is described as the largest regeneration project undertaken in the UK covering thousands of acres of land. The project is complex and the JV between the public and private sectors brings the inevitable cultural tensions between the desire to move at pace unencumbered by bureaucracy as opposed to the expectations of accountability and transparency”.

The report itself says that there was a debate to be weighed up on that, but it also states in paragraph 6.14, on the very point about the involvement of business and regeneration, that there was “no obvious viable commercial” proposition for regenerating part of the land, and that the joint venture

“was critical to being able to reach agreement with the Thai Banks”

to start it in the first place. It was necessary, it has been done, and it will be transformative for the people of Tees Valley.

[Matt Western (Warwick and Leamington) (Lab)]

The Minister talks about this being a complex project, but I am not quite sure exactly how complex it is. As I see it, Teesworks reported a turnover of £143 million, on which it made a £50 million profit—a 35% return. The only similar return I have seen recently was Baroness Mone’s, for her personal protective equipment. Given the scale of what I think is a scandal and many view as a scandal, the public expect the NAO to undertake an independent report. I admire the Minister’s conviction, but will he not support an independent NAO report to corroborate and validate his own?

[Lee Rowley]

The hon. Gentleman appears to be questioning whether the site is complex. These are not my words, but the words of the review, which many of his colleagues have used, often out of context in the past half an hour, to throw accusations around the place. He stood up once before, on 7 June 2023, to indicate that he thought the project was “a scam”. He was not choosing his words carefully then and he is not choosing his words carefully now. He should consider whether he wants to withdraw any of them.

[John McDonnell (Hayes and Harlington) (Lab)]

I am choosing my words carefully. For past similar projects we have had NAO investigations after the event. Many of us have been disappointed by our own decision-making process of not producing reports soon enough. The issue here is that there are potential allegations of excess profits, so would it not be better to have the NAO vet the project with regard to excess profits at this stage, rather than run the risk of trying to learn lessons after the event?

[Lee Rowley]

I am grateful to the right hon. Gentleman for bringing that up. I repeat that we have just had an independent inquiry—an independent inquiry which went through a process that the Labour party, when last in government, set up. If the Labour party is so desperate to have an independent inquiry into the Tees Valley after one has already been completed, I would love to hear from them where their calls are for independent inquiries into Birmingham, Croydon, Slough and Liverpool, all areas where mistakes have been made by Labour administrations but which they do not want to talk about.

[Andrew Gwynne (Denton and Reddish) (Lab)]

The report into the Teesworks joint venture highlights gaps in the oversight and accountability of mayoral development corporations and such joint ventures. Given that the mechanisms of mayoral development corporations are being rolled out across England, will the Minister say what thoughts he and his Department have given to greater scrutiny and probity not just of the work of metro mayors, but in particular of the work of mayoral development corporations?

[Lee Rowley]

I am grateful to the hon. Gentleman for his question. Mayors and mayoral development corporations have the potential to be transformative for their areas, and both Conservative and Labour mayors have clearly made significant progress on that over the past decade or so. As I said in my opening remarks, we will carefully consider the recommendation that has been brought forward for the Department for Levelling Up, Housing and Communities, but it is absolutely important to remember—I will say it once more for the avoidance of doubt—that the charge was corruption and illegality and that has been proven to be incorrect. The report states that it is incorrect, and it is important that that is on the record and repeated again and again and again.

Leasehold and Freehold Reform Bill (Eighth sitting)

Lee Rowley Excerpts

Committee stage
Thursday 25th January 2024 Public Bill Committees

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

I beg to move amendment 46, in clause 26, page 42, line 19, leave out “, and subsection (2)”.

This amendment is consequential on NC6.

[The Chair]

With this it will be convenient to discuss the following:

Clause stand part.

Government new clause 6—Notice of future service charge demands.

[Lee Rowley]

The amendment is consequential on Government new clause 6, which introduces a requirement for landlords to provide a future demand notice under section 20B of the Landlord and Tenant Act 1985 if the landlord has incurred costs and cannot issue a demand for those costs within 18 months. The new clause makes it clear that a future demand notice applies only in respect of variable service charges; as a result, there is no longer a need to include the reference to section 20B(2) in clause 26, which otherwise seeks to provide clarity on what measures apply to all service charges and what measures apply only to variable service charges. I commend the new clause to the Committee.

I turn to clause 26. It is important that all leaseholders have access to appropriate information on what they are paying for and the condition of their building. That will help them to determine whether their landlord is providing an adequate service or whether they are being overcharged. Many landlords already provide a good service; however, some do not, and that must change. The existing regime is geared up to protect leaseholders who pay variable service charges. There are some leaseholders who pay fixed service charges, and those leaseholders do not enjoy the same protections. Leaseholders who pay fixed charges have a right to receive a good-quality service, which means having a better understanding of how their funds are being used, as well as having access to key information on matters that are important to them, as we discussed before we adjourned.

Clause 26 extends part of the regulatory framework on the provision of information to cover leaseholders who pay fixed service charges. Subsection (2) amends section 18 of the Landlord and Tenant Act 1985 to create separate definitions of “service charge” and “variable service charge”. That enables the Government to provide clarity on which provisions in the 1985 Act apply only to variable service charges. Subsections (3) and (4) amend the 1985 Act to ensure that parts of the regulatory regime continue to apply only to leaseholders who pay variable service charges—that includes, for example, the ability to challenge the reasonableness of the service charge under section 19 of the Act. The measure will ensure that leaseholders paying fixed service charges are entitled to receive information of relevance to them. I commend the clause to the Committee.

I return to Government new clause 6. When section 20 major works are undertaken, landlords may require a leaseholder to pay for costs up front or pass on costs to the leaseholder once the work has been carried out. Where leaseholders are charged after work is completed, the leaseholder must be issued with a demand for payment within 18 months of the costs having been incurred or, alternatively, be notified in writing within the 18-month period that they will be liable to pay the costs in the future. Failure to meet one of those two conditions will mean that leaseholders are not liable.

There is no prescribed form or content of a notice under section 20B(2) of the Landlord and Tenant Act 1985, which has led to confusion regarding the meaning and effect of the section, and much case law has followed. It has also left leaseholders with uncertainty on whether they will be required to contribute, the amount of their contribution and when the demand for payment could be served; the new clause seeks to provide clarity on all of those. New clause 6 introduces new subsections (3) to (9) into section 20B of the 1985 Act, which will require landlords to specify the amount of costs incurred, the leaseholder’s expected contribution and the date by which the demand will be served. The intention is to give leaseholders certainty on costs that have been incurred by the landlord, their own individual liability and when they are likely to receive the demand.

The changes to subsections (2) and (3) require landlords to issue a future demand notice when they will be passing costs through the service charge more than 18 months after the costs have been incurred. Subsection (3) defines “future demand notice” as a notice in writing that relevant costs have been incurred, and that the leaseholder is required to contribute towards the cost by payment of a variable service charge. Subsection (4) sets out that the Secretary of State and Welsh Ministers can, by regulations, specify the form of the notice, the information to be included in it and the manner in which the future demand notice must be given to the leaseholder. Subsection (5) details that regulations by the Secretary of State and Welsh Ministers may specify that information to be included in the future demand notice should include an estimate of the costs incurred; an amount that the leaseholder is expected to contribute to those costs; and a date on or before which it is expected that the service charge will be demanded. We will work with landlords, managing agents and leaseholders to set out what a future demand notice may contain, to ensure that regulations require the right level of information.

Subsection (6) sets out that regulations may provide for a relevant rule to apply where the leaseholder has been given a future demand notice and the demand for payment is served more than 18 months after costs were incurred. Subsection (7) sets out the relevant rules and the leaseholder’s liability to pay the service charge where a future demand notice contains estimated costs, an expected contribution or an expected demand date. Subsection (8) also allows the landlord to extend the expected demand date in cases specified by regulations. That might be because of unexpected delays in completing the work, for example. The measures seek to provide leaseholders with more certainty on costs. I commend the new clause to the Committee.

Amendment 46 agreed to.

Clause 26, as amended, ordered to stand part of the Bill.

Clause 27

Service Charge Demands

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

I beg to move amendment 11, in clause 27, page 43, leave out line 12.

This amendment would remove provision for the appropriate authority to exempt certain categories of landlord from the requirements relating to service charge demands set out in subsection (1) of the clause.

Clause 27 replaces provisions in the 1985 Act with a new provision that imposes a simple requirement on landlords to demand payment of a service charge using a specified form, rather than, as is presently the case, in accordance with the terms under the lease in question—or, in the absence of any such provisions, in any manner that suits them. We very much welcome the clause, which should ensure that service charge demands and annual reports are provided to leaseholders in a standardised format. If it works well, the clause is likely to have the most widespread practical impact of any provision in the Bill, given that many hundreds of thousands of service charge demands each year will have to be in a prescribed form.

The clause will also ensure, by means of inserting proposed new section 21C into the 1985 Act, that where the demand for service charge payments is not in the specified form, containing the specified information and provided to the leaseholder in the specified manner, the lease provisions relating to late or non-payment do not apply to the charge in question, and there is no obligation to pay until they are met. There is also a new sanction for non-compliance, which we will consider in due course. The effectiveness of the provisions in the clause will ultimately rely on enforcement, but new section 21C should ensure that the majority of freeholders and managing agents comply with the requirement to issue a service charge in the standardised form.

We do, however, have two concerns about aspects of the clause. Amendment 11 addresses the first of those concerns, which relates to exemptions from the requirements being introduced. New section 21C(3) confers powers, by regulations subject to the negative procedure, on the appropriate authority to exempt certain landlords. We have reservations about the inclusion of such powers, because they could be used to exempt entire categories of landlords from the requirements set out in subsection (1), and thereby deny large numbers of leaseholders the benefits that they would otherwise secure as a result of their application. Amendment 11 simply deletes subsection (3)(a) to remove the power to provide exemptions from subsection (1) for certain types of landlords. We hope the Minister will consider accepting it. If not, we would be grateful for some clarity on what kind of landlords the Government believe might need to be legitimately exempted from the relevant requirements, and some reassurance that the power will be used sparingly and in an extremely limited manner.

--- Later in debate ---

[Lee Rowley]

I thank the shadow Minister for his amendment. We will resist it for reasons that I will give, and I hope I can reassure him to the extent that he does not seek to push it to a vote. I am happy to give at least one instance of a good reason for exempting landlords now or in future: there are cases where it may be too costly or disproportionate to expect a landlord to provide this degree of information, or where doing so is unnecessary. An example that I was not aware of before I was told is a freeholder of two flats who resides in one of them; that is known as a Tyneside or criss-cross lease, which became common in the north-east of England in the 19th century. Given the limited number of people who live in there, and the reason for that structure, we would deem it unnecessary to provide this form, hence the ability to exempt.

However, to address the hon. Gentleman’s key point, notwithstanding individual exemptions, I am happy to place on record that once we have consulted, understood people’s views, taken on the broad range of views about this, and potentially found other things like criss-cross leases, we would expect any list to be very small indeed. We share the clear hope that the power will be used only where it is absolutely necessary, and certainly not to the extent that the hon. Gentleman fears. I hope that, on that basis, he may consider withdrawing his amendment.

[Matthew Pennycook]

I thank the Minister for that response. I was also unaware of criss-cross or Tyneside leases, although the Opposition Whip, my hon. Friend the Member for North Tyneside, indicated to me during the Minister’s remarks that she used to live in one, so she will have some familiarity with them. On the basis of the Minister’s response, and given the reassurances that he has provided, I am happy to withdraw the amendment. It is our hope that the measure will apply to very limited categories of landlord, and I think that the Minister indicated as much, so very few leaseholds will be exempt from the requirements. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Lee Rowley]

I beg to move amendment 47, in clause 27, page 43, line 24, after “1987” insert “(‘the LTA 1987’)”

This amendment and Amendment 54 align references to the Landlord and Tenant Act 1987 with other references to Acts.

[The Chair]

With this it will be convenient to discuss Government amendments 54 and 124.

[Lee Rowley]

Amendments 47 and 54 are required because of new clause 9, which amends the Landlord and Tenant Act 1987. They ensure that references to the Landlord and Tenant Act 1987 are aligned with other references to Acts, by adopting the abbreviated reference. Amendment 124 is consequential on amendments 47 and 54; it aligns references to the Landlord and Tenant Act 1987 with other references to Acts in the Bill. I commend these amendments to the Committee.

Amendment 47 agreed to.

[Matthew Pennycook]

I beg to move amendment 12, in clause 27, page 43, line 38, at end insert—

“(c) in section 48 (notification by landlord of address for service of notices), after subsection (3) insert—

‘(3A) Subsections (2) and (3) do not apply in relation to a written demand for payment of a service charge if section 21C of the Landlord and Tenant Act 1985 requires the demand to include information which subsection (1) also requires to be provided to the tenant.’”

This amendment would ensure consistency between the information requirements provided for by Clause 27 and specific contractual requirements set out in leases.

Amendment 12 addresses our second concern with clause 27, which relates to consistency between it and existing contractual requirements. This issue came to our attention purely as a result of written evidence—actually, to be precise, I think it was as a result of a blog post—from Mark Loveday of Tanfield Chambers. He drew attention to the fact that the amended provisions in this clause are likely to supplement, rather than replace, contractual requirements in some existing leases about the form of demands for payment. There is therefore potentially a risk of confusion and duplication. Mr Loveday also highlighted the overlap between provisions in the 1987 Act relating to the information to be furnished to tenants, and the fact that clause 23(4) does not disapply the information requirements of section 48 of the 1987 Act.

I throw my hands up: this is far from my most elegantly drafted amendment. It is simply an attempt to probe the Government on the consistency between the information requirements provided for by this clause and provisions in 1987 Act relating to specific contractual requirements set out in leases. I look forward to hearing the Minister’s thoughts on the amendment, and on the general need to ensure complete consistency between the measures being introduced by clauses 26 to 30 and those in the 1985 and 1987 Acts that set out the main limitations on variable service charges in residential leases.

[Lee Rowley]

I thank the hon. Gentleman for his amendment. The advice that I have received is that the amendment is unnecessary. Sections 47 and 48 of the 1987 Act already prescribe that landlords must give details of their name, and an address in England or Wales where they can be served with notices, when making a demand for rent or other sums, including service charges. Clause 27(4) provides clarity on the fact that if there is an overlap between information required under proposed new section 21C of the LTA 1985 and the obligations under the 1987 Act, proposed new section 21C takes precedence. For example, if the new standardised service charge demand form requires a landlord to give the same information as is provided under sections 47 and 48 of the 1987 Act, proposed new section 21C would take precedence, and failure to provide the information would be dealt with by the provisions of the proposed new section.

Critically, the new standardised demand form will not restrict the amount of information that must be provided with a demand. Landlords will be able to provide additional information on the demand form if they wish. That may include any information set out in the lease. Unless we have missed something, we believe that, for that reason, the amendment is unnecessary, and request that it be withdrawn.

[Barry Gardiner (Brent North) (Lab)]

I think the Minister referred to section 47 of the Landlord and Tenant Act 1987. Is he entirely confident that that is effective? I have a case in my constituency, in Wembley Central Apartments. The co-developers have sold on and on, and the owner is now in the Cayman Islands. The UK address to which one can apply is that of the managing agents, Fidum, but Fidum says, “We have asked our principals, and they say that they have asked their principals,” and it goes all the way to the Cayman Islands, and one gets nothing back. The leaseholders have been desperately trying to access the information for months. They have served the correct notice to the correct address in the UK, but they still cannot get the information that they require.

[Lee Rowley]

I recognise that in some instance it is an incredibly frustrating process to go through. As I know the hon. Gentleman will appreciate, this is a pretty technical element of policy. The assurances that I have received from officials and experts involved is that the legislation should cover those bases. There will always be challenges around finding people and going through operational processes. There will be challenges in finding people who do not want to be found easily, but ultimately the law is clear that they need to be found. From that perspective, I think that the law is sufficient. We do not think anything has been missed, but if something has, we will happily receive further correspondence and consider it.

[Matthew Pennycook]

I will be brief. My hon. Friend the Member for Brent North raises an interesting point. Can the Minister—if not now, then perhaps in writing—expand on whether, where a landlord has not complied with the relevant requirements, proposed new section 21C means that the provisions relating to late or non-payment do not apply? Does it provide that level of protection? The hope is that it does.

On the general point, I welcome the clarification and assurances that the Minister has provided. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause, as amended, stand part of the Bill.

[Lee Rowley]

Service charge demands are one of the most important ways in which leaseholders receive information from their landlord, as we have been discussing. Under current arrangements, landlords are required to issue any service charge demand in accordance with the terms of the lease, or otherwise in a manner that suits them. That has led to variable practice in the sector, which has often been to the detriment of the leaseholder, who then gets confused about what they are paying for and has to spend time chasing the landlord for more information.

Proposed new section 21C enables the Secretary of State and Welsh Ministers to prescribe a standard form and the information that it should contain. We will work closely with leaseholders, landlords and managing agents to ensure that we prescribe both the right information and the right level of detail. Proposed new section 21C(2) makes it clear that a failure to provide information in the new standard format will mean that the leaseholder does not have to pay the charge until the failure is remedied, and any provisions in the lease for non-payment will not apply. The Secretary of State will also have the power to create any exemptions if our work with stakeholders demonstrates that there is a good case for any landlord being excluded, either now or in the future.

Clause 27(2) omits existing legislation relating to obtaining information on a summary of costs, as well as other unimplemented legislation surrounding service charge demands. Those measures will be superseded by the provisions we are implementing in part 3 of the Bill, so it is not necessary to retain them. That measure, alongside others, should ensure that landlords provide relevant information to leaseholders, and I commend the clause to the Committee.

Question put and agreed to.

Clause 27, as amended, accordingly ordered to stand part of the Bill.

Clause 28

Accounts and annual reports

[Barry Gardiner]

I beg to move amendment 130, in clause 28, page 44, line 17, at end insert—

“(iii) a statement of all transactions relating to any sinking fund or reserve fund.”

This amendment would require the written statement of account which the landlord will be required to provide to a tenant to include a statement of all transactions relating to any sinking fund or reserve fund in which their monies are held.

This amendment would require the written statement of account, which the landlord will be required to provide to a tenant, to include a statement of all transactions relating to any sinking or reserve fund in which their moneys are held. Sinking or reserve funds in England and Wales contain literally millions of pounds. Even the smallest block of flats will have a fund of tens of thousands of pounds, yet leaseholders find that they cannot get information about what is happening with it. A landlord may be raiding it to meet their cash-flow problems, in the hope—which is not always fulfilled—of putting the money back later. If millions of pounds is held in a reserve account, leaseholders want to know what interest they may be earning on those funds or whether it is being quietly siphoned off by the landlord.

The amendment would require the written statement of account, which the landlord will be required to provide to a tenant, to include a statement of all transactions relating to any sinking or reserve fund in which their moneys are held. As colleagues will remember from the evidence session that we had before we started our line-by-line scrutiny of the Bill, Martin Boyd of LEASE—the Leasehold Advisory Service—and Andrew Bulmer of The Property Institute said that this provision was really important to include; indeed, it is now part of their voluntary code. They pointed out that it was originally included in the Commonhold and Leasehold Reform Act 2002 but was never brought into force.

The provision is particularly dear to me because it is what started my campaigning for leasehold reform 26 years ago. A group of leaseholders in Mountaire Court came to me and explained that they had each paid £23,000 to their landlord, who was the head leaseholder. They lived in a block of 30 flats, so the total was well over £600,000. They said that the head leaseholder had gone into liquidation and that their money had gone. At that point, the freeholder came to them and said that they were prepared to do some of the work. The leaseholders had been arguing that the work should be done. The freeholder then came to them and said, “Yes, we’ll do the roof and the windows, but we need you to pay us £6,000 each to do that,” in addition to the £23,000 they had already incurred. They came to me and asked, “What guarantee do we have that our moneys are not going to be filched away in the same way as the original funds?”

I tracked back through Companies House—I think there were 156 different companies, which were ultimately registered, through Daejan Holdings, to Freshwater—to find out that the head leaseholder, who had gone into liquidation, had signed form 397, which allowed Freshwater to take any moneys that were left with the head leaseholder. All that money had gone back to Freshwater, and there was no way of accounting for it. The debate that I held with the then Minister at that time started the campaign. He said, “This is outrageous. These moneys should be held in some sort of escrow account.” They were not, however, and the leaseholders had no access to what was happening. It is important that there is real accountability for reserve funds, because at the moment it is being held blind from the people who are paying the money.

[Lee Rowley]

I am grateful to the hon. Member for his amendment. When I was a councillor in a location not too far away from him a number of years ago, I had similar experiences with the challenges of sinking funds, so I completely appreciate the point he makes. The amendment would prescribe that landlords provide specific information to leaseholders. I agree that they should have access to relevant information. My pushback is merely about where we put this as opposed to what we do, subject to consultation. I am very sympathetic to many of the points he made.

Clause 28(2) does give the appropriate authority the power to prescribe other matters that should be included as part of a written statement of account. We need a consultation to give relevant parties the ability to debate and discuss that and give their views. We must ensure that it is proportionate and cost-effective, but once we have gone through that consultation, I think there is a strong case for ensuring that there is sufficient information as he has outlined to some extent.

[Barry Gardiner]

I am grateful to the Minister for what he has said, but the strongest protection would be to have it on the face of the Bill. Even when it was on the face of the 2002 Act, the Government never brought it into force. So this is not something we have not had previously. It is right there in legislation for a leaseholder to have access to this information, but we have never brought it in. What the Minister is suggesting is actually a regressive step, taking leaseholders further away by saying, “We’ll do it through secondary legislation now.”

I really do think it is important to have this on the face of the Bill. We know how Committees work. I know the Minister cannot accept the amendment now, but I would ask him to go away and come back on Report. If he comes back with his own amendment to achieve the objective, I will be delighted.

--- Later in debate ---

[Barry Gardiner]

Oh yes, I was intervening.

[Lee Rowley]

Thank you, Mr Efford. Would my hon. Friend the Member for Redditch like to intervene on me?

[Rachel Maclean]

I thank my hon. Friend the Minister. Perhaps he would like to ask whether, given his extensive history and detailed knowledge on the subject, the hon. Member for Brent North knows why those provisions were not brought in following the 2002 Act. Or perhaps the Minister would like to update us if he has that knowledge for the Committee.

[Lee Rowley]

Sadly, I confess to not having that knowledge from back when I was at university; I probably was not studying the right things. I appreciate the point from my hon. Friend the Member for Redditch that there has been an opportunity for this to be implemented under Governments of both parties and it has not been done. I am always happy to listen to the hon. Member for Brent North, and I do appreciate the point he is making. It is this Government’s intention to move forward with this, albeit through secondary legislation, which I know he has concerns about. I am happy to put that on the record on the assumption and hope, at least on the Conservative side, that we are in government when this happens. I hope he will not press his amendment.

[Barry Gardiner]

I will press the amendment to a vote because I think it is important that we have it on the record.

--- Later in debate ---

[Matthew Pennycook]

I rise to speak to speak to amendments 13 and 14. As I think my hon. Friend the Member for Brent North just touched upon, clause 28 inserts new sections 21D and 21E into the 1985 Act to create a new requirement for a written statement of account to be provided by landlords within six months of the end of the 12-month accounting period for which variable service charges apply. It also places an obligation on landlords to provide an annual report to leaseholders. We welcome the clause, as did my hon. Friend the Member for Brent North, for the reasons discussed in the evidence sessions last week. The 2002 attempt to mandate a form of regular service charge accounts and statements was ultimately unsuccessful, with the replacement section 21 of the 1985 Act never brought into force. As a result, service charge processes remain unstandardised.

A staggering range of different procedures are being used across the country. Some leases specify the form that annual budgets and accounts must take, while others do not. Some require certification by the freeholder, managing agent, management company, accountant or auditor, while others do not. Some prescribe deadlines by which budgets or accounts must be produced and make adherence to those conditions a precedent to liability to pay a service charge, while others do not.

Clause 28 clearly seeks to overhaul this fragmented patchwork of arrangements by introducing the new section 21D, making annual accounts and certification by a qualified accountant a mandatory requirement and, through new section 21E, introducing a statutory duty to provide leaseholders with an annual report about their service charges. By introducing the mandatory requirements that it does, new section 21D(2) implies a term into leases of dwellings with variable service charge provisions.

In our view, the decision to imply terms raises a number of questions and concerns. First, do the implied terms of new section 21D replace any equivalent existing provisions in the lease? If not, landlords and managers will potentially be forced to prepare two sets of accounts: one under the existing terms of the lease and the other under the new implied terms in section 21D. Secondly, why are no express sanctions for non-compliance included in new section 21D? That point was raised by Amanda Gourlay in the Committee evidence sessions.

Given that the implied terms are not covered by the enforcement provisions in new section 25A—provided for by clause 30—surely it is not the Government’s intention to require leaseholders to apply for specific performance through the courts when it comes to this matter. Thirdly, despite the clause including no right to recover implied costs, there is a risk that some landlords will nevertheless seek to recover the extra costs of complying with these requirements through service charges. Can we be sure that leaseholders will not find themselves picking up the bill for complying with the new mandatory requirements? I would welcome the Minister’s response to each of those questions and concerns, in writing if he is not able to address each in detail today—they are very specific and technical.

Perhaps the more significant question that arises from the decision to imply terms by means of new section 21D is whether the landlord’s compliance with those terms will be treated by the courts and the tribunal as a condition precedent to the lessee’s obligation to pay their service charges. We believe it is important that it is made clear in the Bill that compliance with the implied terms in question is a condition precedent to the lessee’s obligation to pay their service charges and that, by implication, leaseholders are not required to pay if the landlord does not comply with the implied terms. Amendments 13 and 14 would have that effect, with the same desired outcomes as the welcome amendment 131, in the name of my hon. Friend the Member for Brent North, but without the tribunal potentially having to arrive at a judgment on the state of mind of the leaseholder who is withholding their charge. I hope the Minister will accept those amendments as a means of providing the necessary clarification.

[Lee Rowley]

I thank the hon. Members for Brent North and for Greenwich and Woolwich for their amendments.

Amendment 131, in the name of the hon. Member for Brent North, seeks to enable leaseholders to withhold payment of their service charges when accounts are not provided within six months. I absolutely agree with the sentiment that information must be provided in a timely manner, and that there have to be consequences for not doing so. However, the question is whether withholding the service charge is a proportionate and effective means of doing so; the effective question is whether the risk of doing so creates unintended consequences. For example, were a leaseholder to withhold payments in circumstances where it is found that section 21D had been complied with, that may render the leaseholder liable to pay their landlord’s litigation costs, depending on the terms of the lease. Withholding payments also creates consequences for other leaseholders and may eventually mean that works are not carried out. I recognise that that is not the intention or the point that the hon. Gentleman is making, but in the portion that we are looking at, it is important that we consider all potential unintended consequences.

Services of certified accounts will, for most landlords, be a necessary step for a landlord to identify whether they have spent more than estimated during the accounting period and, where the costs incurred during that period are more than was estimated, the landlord will wish to serve a further demand to recover the shortfall. It is in the landlord’s interest to do that, but I recognise that not all landlords act in a completely rational way or a way that necessarily follows logic. Should a landlord, however, fail to issue a demand for costs within 18 months of those costs having been incurred, then through new clause 6, the leaseholder would not be liable to contribute towards those costs at all.

I realise that that answer will probably not address every part of the concern expressed by the hon. Member for Brent North; it is the same as when I applied that logic to the amendment in the name of the hon. Member for Greenwich and Woolwich. However, I hope it demonstrates both that we are clear that it should be done—that there is a logic, an incentive and a rationale for it to be done—and that there is ultimately a cliff at the end of it, a cut-off point in the event that they do not do it. I hope that provides some assurances; I will see whether that is enough to tempt the hon. Member for Brent North to withdraw his amendment.

[Barry Gardiner]

I appreciate what the Minister has said about that cliff edge of 18 months. We have talked about cynicism in this Committee before, but let me tell the Minister what I believe may happen. I think a landlord who is withholding information will decide that they can now do so with impunity for 17 months and 28 days, and then they will serve the required information up on a plate. The provision is almost tempting them to do that. If the Minister is going to rely on that, rather than looking at the question again in further detail, I urge him to reduce that timeframe substantially. I will not put a figure on it—I do not say that it should be 12 months, or nine months—but it should be reduced substantially. However, I am very happy to withdraw my amendment in favour of amendment 13.

[The Chair]

That was an intervention; I will come back to you.

[Lee Rowley]

I am grateful to the hon. Gentleman for his comments in that regard. To save time, the same logic applies from our perspective to amendments 13 and 14, and I hope that at least in part reassures him—I will wait to hear his comments, but I encourage him to withdraw his amendment if it does.

[Barry Gardiner]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Lee Rowley]

We have already talked about this, but in summary, most landlords are required under the terms of the lease to provide leaseholders with a written statement of accounts. Where leaseholders feel they have not been provided with sufficient information, they may ask for a written summary of costs for the past accounting period or, if the accounts have not been made up, for the period of 12 months ending with the date of the request.

We know that the current arrangements, as we have just discussed, do not provide adequate statutory protection. Although many landlords provide their leaseholders with sufficient information, others fail to do so. Subsection (2) of clause 28 introduces two new measures to address that. Proposed new section 21D of the 1987 Act implies into leases a new requirement for landlords who charge variable service charges and manage blocks of four or more dwellings. The threshold reflects existing arrangements for the preparation of a summary of costs. We are placing an obligation on such landlords to provide a written statement of account to leaseholders within six months of the end of the 12-month accounting period. This statement must be certified by a qualified accountant.

[Matthew Pennycook]

The Minister provides me with the opportunity to get my justification in, but, without going through it, he can answer the question that underpinned amendments 13 and 14 by simply telling me whether the decision to imply terms, as new section 21D does, means that a landlord’s compliance with them is to be treated as a condition precedent to the lessee’s obligation to pay their service charges.

[Lee Rowley]

I am grateful to the shadow Minister for his question, and, because of its specifical legal and technical nature, I will write to him. I know that members of the Committee may wish to seek assurances about the word “arising”, which was referenced in evidence last week. I am happy to give the assurance that we will consult accountants on to how to present these service charge accounts, which I hope will mean that there is a process to ensure that any necessary clarification of particular terminology will be clear to those who operate within it.

[Rachel Maclean]

In the same evidence session, we also heard Amanda Gourlay’s concern about the nature of the accounts being mandated, and she said that it is not something that she would recognise as a set of accounts because it does not have a balance sheet or expenditure. I think the Minister said that a chartered accountant will have to sign off on them. Can he reassure members of the Committee that that will address the concern raised with us by Amanda?

[Lee Rowley]

I thank my hon. Friend for her question. Yes, that is my understanding, and, as part of the response in writing, we will clarify that.

To conclude, new section 21E places an obligation on landlords to provide an annual report in respect of service charges and other matters likely to be of interest to the leaseholder arising in that period.

[Barry Gardiner]

Could the Minister clarify a point for me? Obviously, there are different forms of accounts, such as short-form accounts and audited accounts. In what he is proposing, as I understand it, there is no compulsion to have an audit of the service charges shown in those accounts. The certified accounts happened in blocks already, but they are pretty meaningless because the freeholder appoints the accountants and tells them what form they want them in. Surely the key is having not just the accounts but the service charges audited as proper.

[Lee Rowley]

I am going to include that in my written response, too, because I know that the specifics of the definition of audit are quite different from other aspects of this question. My understanding is that we will prescribe in secondary legislation what needs to be provided. Given that an accountant will be a part of that, they will have to ensure that the audit conforms to their usual codes of practice. I will write on the specifics to ensure that I have given sufficient information.

[Richard Fuller]

As the Minister is contemplating what he will put in his letter, including a response to the hon. Member for Brent North, could I gently remind him that auditing is an expensive procedure? There will be a number of instances where these accounts might fall short of what would be required under existing Companies House legislation. There are some metrics and things out there that the Government could use, but he should bear in the mind the cost of auditing.

[Lee Rowley]

My hon. Friend is absolutely right. One of the reasons why I want to write is that I want to ensure that the specific elements and substantive parts of the concept of audit are represented to the Committee in the most accurate way. We have to strike a balance by ensuring that sufficient information is made available for decisions to be made, but equally we cannot create a process that is so involved, for what I am sure are very good reasons, that it would be disproportionate, and then create a whole heap of new consequences on the other side, which is what we are trying to avoid.

To conclude, new section 21E places an obligation on landlords to provide an annual report. For service charges, that report must be provided within one month of starting a 12-month accounting period, although it can be provided earlier if it is expedient to do so. Both new sections allow the Secretary of State, as we have already discussed, and Welsh Ministers to prescribe the detailed content in secondary legislation. We will work closely with interested parties when we come to do that. Subsections (3) and (4) make consequential changes to the definition of “qualified accountant” under sections 28 and 39 of the 1985 Act to reflect these new sections. I commend the clause to the Committee.

Question put and agreed to.

Clause 28 accordingly ordered to stand part of the Bill.

Clause 29

Right to obtain information on request

[Matthew Pennycook]

I beg to move amendment 15, in clause 29, page 46, line 19, at end insert—

“(3) Information specified for the purposes of section (1) must include accruals and prepayments and digital copies of service charge accounts.”

This amendment would ensure that regulations made by the appropriate authority must provide tenants with the right to accruals and prepayments and digital copies of service charge accounts.

As things stand, leaseholders only enjoy the right to request a summary of relevant costs and inspect supporting documentation in relation to such a summary. Barring a disclosure order made during tribunal proceedings, there are few direct means for leaseholders to secure relevant information. Clause 29 makes a series of changes to the 1985 Act to provide for a new stand-alone right for leaseholders to request information from their landlord, and we welcome it.

Precisely what such a right will entail will largely be set out in regulations that will presumably not only specify the relevant categories of information that can be requested and obtained, but the relevant timelines for compliance. We take no issue in principle with the detail being brought forward by statutory instrument—for obvious reasons—but we have tabled amendment 15 to ensure that the information that ultimately can be lawfully requested by leaseholders under clause 29 includes accruals and prepayments, as well as digital copies of service charge accounts.

We feel that statutory access to accruals and prepayments is vital because they are prepared on a true and fair basis and are necessary to understand most service charge accounts. The case for ensuring that service charge account information can be accessed by leaseholders in a digital format is, we hope, self-evident. I hope the Minister will consider accepting the amendment or, if he feels that he cannot, will at least provide the Committee with robust assurances that the relevant regulations will in due course specifically include accruals and prepayments and digital copies of accounts in the categories of information that can be requested.

[Lee Rowley]

I do not seek to detain the Committee, and I hope the hon. Gentleman will accept my short response. I am not disregarding the substantive points of the amendment, but some of them we have discussed before. I accept that this is an important area and we have to get it right. We must make sure that the information prescribed in the process works and is comprehensive enough for people to get a true understanding of what is going on and proportionate enough to make it meaningful and not incur unnecessary costs. I agree with the hon. Member that leaseholders should have access to the relevant financial information and that that information should be clearly understood and articulated so that people can derive decisions and comfort from it.

The Government prefer that the detail is prescribed in secondary legislation and are committed to consulting. It is fair to say that the details will be key parts of a discussion about the feasibility of inclusion in the final decision when it is made.

[Matthew Pennycook]

I welcome that response from the Minister. On that basis, I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Matthew Pennycook]

Arguably of more importance in ensuring that clause 29 is beneficial to leaseholders than the type of information that they will henceforth have the right to request and what form it is shared in is the need to protect them from excessive charges levied for providing that information. As it stands, subsection (4) of new section 21G of the Landlord and Tenant Act 1985 would allow person P to charge person R for the costs of doing anything required under new section 21F or this new section, while subsection (6) renders those costs relevant for the purposes of a variable service charge. In other words, new section 21F includes an implied right for landlords to recover the costs of supplying the relevant categories of information to leaseholders through the service charges, with penalties for non-compliance under clause 30.

We obviously do not take issue with the right to recover reasonable costs of complying with the mandatory requirements introduced by the clause, but there is an obvious risk, given everything we know about how some landlords in the market operate, that some will charge excessive fees for supplying that information. We have tabled amendment 16 to give the Secretary of State the power, just as the Bill provides for in other respects, to set prescribed amounts with a view to ensuring that leaseholders are not subject to unreasonable costs should they feel they need to request certain categories of information. I hope the Minister can understand the very simple point that the amendment is driving at and will consider accepting it.

[Lee Rowley]

I am grateful to the hon. Gentleman for moving amendment 16. He does not deny that landlords will incur a cost for answering information requests. The level of cost will vary, depending on the volume of information, the complexity, the period, the timeline and a number of other factors. There may be difficulties in obtaining all that information. Landlords may also incur a cost in chasing other people who hold the information required to answer a leaseholder’s request, notwithstanding our earlier conversations about the reasonableness of the costs for talking to other parties.

Given the variety of different scenarios, we start from a place in which it is very difficult to set a cap that would not create another unintended consequence somewhere else. None the less, I note the hon. Gentleman’s concern and am happy to confirm that we are listening very carefully on this matter, but I hope he might consider withdrawing the amendment.

[Barry Gardiner]

Amendments 132 and 133 would prevent a landlord from recovering the cost of complying with a requirement to provide information imposed by new sections 21F and 21G of the 1985 Act, which is very much in line with what my hon. Friend the Member for Greenwich and Woolwich said.

Given that the Government are rightly focusing on reducing costs to leaseholders, these amendments would ensure that a landlord cannot charge leaseholders for giving them information about their home and their charges. We do not charge voters or taxpayers for complying with freedom of information requests, so I am not clear why there should be a distinction here. Many requests and information transfers will now be made electronically. The days when people had to go to the office to pull out hordes of receipts are, I hope, a thing of the past. These requests and transfers should not involve a great deal of expense.

Again, I do not want the Minister to think I am a cynical chap, because I am not, but I know what will happen. There will be the same hierarchies that we talked about earlier. Landlords will create arm’s length companies to hold this information in tiers and categories, and they will charge for providing information at each level. That is what they do. We have to understand that it is not a mistake or one bad apple. Many landlords adopt this practice as a way of securing revenue. Painful though it is to admit that our fellow citizens do this sort of thing to each other, they do. We are passing this legislation to try to protect people.

[Lee Rowley]

I will not detain the Committee, because my response will be similar to the one I gave to the hon. Member for Greenwich and Woolwich.

We accept the broad point made by the hon. Member for Brent North but, for the reasons I outlined previously, we think it would be difficult to do this. There is at least an argument that proportionality has to be considered. However, I am happy to confirm that we are listening very carefully. On that basis, I hope the hon. Member for Greenwich and Woolwich may be willing to withdraw amendment 16.

[Matthew Pennycook]

I appreciate what the Minister has said, both about the variety of circumstances that need to be covered and about the difficulties with imposing a flat cap. I take on board what he said about the Government listening carefully.

I am minded to press the amendment to a vote purely to indicate how strongly we feel about this issue. The thrust of the five provisions is, “Let’s increase transparency and let’s increase the enforcement measures,” all ultimately to ensure that leaseholders have a better ability to bear down on unreasonable costs, and it is of great concern to us that while we are trying to do that, we are opening up other routes whereby unscrupulous landlords can start to introduce unreasonable costs in relation to the very things that we are trying to clamp down on. We will press the amendment to a vote simply to put on the record our concern in respect of leaseholders needing some protection—even if it is not a flat cap—from unreasonable costs being passed on through this mechanism.

Question put, That the amendment be made.

--- Later in debate ---

Question proposed, That the clause stand part of the Bill.

[Lee Rowley]

As I outlined in relation to clause 28, the Government accept that the current arrangements do not provide adequate statutory protection. In addition to the measures set out in clauses 26 to 28 to drive up transparency, clause 29 introduces new provisions to enable leaseholders to request information from their landlord or a third party who holds relevant information. Subsection (2) introduces proposed new section 21F of the Landlord and Tenant Act 1985, which sets out provisions that enable leaseholders to receive information on request. That information may relate to

“service charges, or…services, repairs, maintenance, improvements, insurance, or management of dwellings.”

One example might be a stock condition report for the building. Landlords will be obliged to provide information that they have in their possession, and where they need to ask another person for it, that person is required to do the same.

Proposed new section 21G provides further details on information requests under section 21F. It allows a leaseholder to request that they inspect a document and make and remove a copy of the information. Section 21G also provides that landlords may not charge the leaseholder for providing facilities for access, although they can charge for the making of copies. Alternatively, the landlord can pass the reasonable costs of any inspection through the service charge. This section allows the Secretary of State and Welsh Ministers to specify the time period for providing such information, circumstances in which that period may be extended and how the information is to be provided.

Proposed new section 21H provides that where the lease is assigned, the obligation to provide the information requested under section 21F must still be complied with. However, the person obliged to provide the information is not required to provide the same information in respect of the same dwelling more than once.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.

Clause 30

Enforcement of duties relating to service charges

[Matthew Pennycook]

I beg to move amendment 19, in clause 30, page 49, line 15, leave out “damages” and insert “penalties”.

This amendment, together with Amendments 20 to 25, would make clear that the sum to be paid to the tenant in circumstances where a landlord failed to comply with duties relating to service charges is a punishment rather than a recompense for loss to the leaseholder thus ensuring it is not necessary to provide proof of financial loss. See also Amendments 17 and 18.

[Matthew Pennycook]

Clause 30 substitutes existing section 25 of the 1985 Act, which includes penal provisions dealing with any failure to comply with the relevant provisions, with proposed new section 25A, which decriminalises the sanctions and applies a new enforcement regime. The new enforcement regime will allow a tenant to apply to the appropriate tribunal in instances in which their landlord did not demand a service charge payment in accordance with section 21C under clause 27, failed to provide a report in accordance with section 21E under clause 28, or failed to provide information in accordance with sections 21F and 21G under clause 29. The tribunal will have the power to issue an order that the landlord comply with the relevant provision within 14 days and that they pay a fine of up to £5,000 to the applicant, or other consequential orders.

We welcome the new enforcement regime, but we have three main concerns about how it will operate in practice. With amendments 19 to 25, we seek to address the first of those concerns, which is our fear that the use throughout clause 30 of the term “damages” may imply that leaseholders are required to provide proof of financial loss for the tribunal to order that the landlord pay a fine for failing to comply with one or more of the modified requirements introduced in clauses 27 to 29. The risk that the tribunal takes that view, and thus stipulates that proof of financial prejudice is required, is real, as we have seen with the reforms made to section 20 of the 1985 Act. We tabled this group of amendments to encourage the Government to consider replacing “damages” throughout the clause with “penalties” to make it explicit that an order for failing to comply with requirements under sections 21C, 21E, 21F or 21G of the 1985 Act requires no proof of financial loss on the part of leaseholders. I look forward to hearing the Minister’s thoughts.

[Lee Rowley]

I thank the hon. Gentleman for amendments 19 to 25, with which, as he indicated, he seeks to adds clarity that any sums paid to the leaseholder where there is a failure to comply are a punishment rather than a recompense for loss. As the Committee is aware, clause 30 will replace the existing and ineffective enforcement measures for failure to provide information with new, more effective and more proportionate measures. That includes allowing the leaseholder to make an application to the appropriate tribunal in cases where landlords have failed to provide the necessary service charge information.

It is the Government’s view that the tribunal is the appropriate body to handle such disputes and to determine whether the landlord has failed in their duties, and whether subsequently they are required to pay damages to the leaseholder. In reaching its decision and ordering that damages be paid, the tribunal need only be satisfied on the balance of probabilities that the landlord breached the relevant section. If a financial penalty were applied, the appropriate tribunal would need to be satisfied beyond reasonable doubt that the landlord had breached the relevant section.

While I understand the hon. Gentleman’s point on the use of the term “damages”, I am advised that its use does not mean that evidence of financial loss is required. Therefore, in aggregate, we consider that financially recompensing the affected leaseholder by way of the payment of damages is both a suitable incentive for the leaseholder to bring the application and a suitable deterrent for landlords, while aligning with the tribunal’s powers.

[Richard Fuller]

The Minister speaks quickly and is knowledgeable about this matter; I just want to put it into everyday speak that the rest of us can understand. I think that the intention behind the Opposition’s amendment is to be clear that there is a difference between penalties and damages. They do not want the burden of proof to be on leaseholders, in this case, and there is tremendous merit to that. Whatever we put into law has to be accessible to people. I think the Minister said that if we change the word from “damages” to “penalties”, that would raise the hurdle. Can he assure us of his objection to the proposed amendment in everyday speak,? As the Bill is drafted, the hurdle will be lower, and there will be no burden of proof on the leaseholder for the penalties/damages to take effect.

[Lee Rowley]

As best as I understand it, the situation is exactly as my hon. Friend describes. The threshold is lower, and therefore the provisions are more proportionate, and evidence of financial loss is not required. On that basis, I hope that the hon. Member for Greenwich and Woolwich will withdraw the amendment. I will come to amendment 134 in due course.

[Barry Gardiner]

Amendment 134 would enable a tribunal to order the remedy of a breach in respect of, and damages to be paid to, a leaseholder affected by a breach revealed by an application to the tribunal, even if the leaseholder is not party to the application. Let me explain why that is appropriate. In an estate in my constituency, Chamberlayne Avenue and Edison Drive, FirstPort was the estate manager. It failed in the case that went to the leasehold tribunal, which was brought by one member of the estate. The tribunal quite correctly found in favour of the leaseholders. However, everybody else on the estate was equally affected, and they are now all having to bring a separate tribunal case against FirstPort in order to receive the same benefits and relief. It seems to me that where that is the case, it would make sense for the tribunal to be able to instruct the landlord that where there has been a failure affecting all the leaseholders, they should remedy that breach to all the leaseholders, not just the one who brought the case, if there are damages.

I was heartily gratified by the explanation that the Minister and the hon. Member for North East Bedfordshire gave about “damages” not being the legalistic sense of damages, because I was beginning to worry that the second part of my amendment might fall foul of exactly what my hon. Friend the Member for Greenwich and Woolwich said. However, if we want to free up and speed up the tribunal system, that would be one way of doing so that would afford great relief to the very many people trapped in that situation.

[Lee Rowley]

I thank the hon. Gentleman for his amendment, which he has just outlined. The Government are sympathetic to the intention of the amendment. It is not that we do not understand the point that he has made or the point that he articulated in relation to Chamberlayne Avenue; where freeholders behave badly, it should apply across the board, and that is the kernel of the point he makes. The challenge—and I am sorry to be difficult about it—is that, as I know the hon. Gentleman will appreciate, there is a potential ramification to asking a tribunal to make a read-across from one case to every other one. Even though it is highly likely that it will apply to all or almost all of those cases, there is the difficulty of creating the link that makes the assumption that it must apply. For that reason, we do not think we can accept the amendment, although I am sympathetic to the point made by the hon. Gentleman.

[Barry Gardiner]

I am grateful to the Minister, because it is really good to know that he will consider those points further. Let me therefore make a suggestion: if the tribunal were given powers through secondary legislation on estate cases where the matter is remedying something about the estate that applies equally to everybody, it should be obvious to the tribunal that anybody living on that estate is equally affected.

Let me give an example. If the managing agent, FirstPort, says that it has mended a fence, and it has charged everybody for mending that fence, but it is found that it did not mend the fence and it was not its fence to mend—this is the actual case. Everybody on the estate received those charges, and everybody on that estate was due therefore to be compensated for them. That will happen in some cases, but I accept what the Minister says. Would it make sense to consider giving the tribunal the power to instruct the managing agent to remedy the breach for any of those similarly affected, such that, if they did not, there was an additional penalty when that case was brought to the subsequent tribunal to prove that they were affected?

[Lee Rowley]

I am happy to ask the Department to look into that in further detail. I have no personal understanding of whether that would be possible or reasonable and proportionate and not have a series of other consequences, but it is reasonable to look into it further.

[Matthew Pennycook]

Briefly, I welcome what the Minister said on the issue of damages versus penalties. It could be another word than “penalty”, but I hope the point that the amendment tried to make was understood. I am not certain, because I, like him, do not have expertise in the area, whether “damages” could be misinterpreted by a tribunal, notwithstanding what he said. I encourage the Minister to go away and ensure that the reassurance he has given—it is on the record and can be referred to, which is helpful—is understood and cannot be misinterpreted. I think we share the same end: this must be punishment rather than recompense, and leaseholders cannot be expected to provide proof of financial loss. If, as the Minister has indicated, that is the shared intention, I am happy to ask leave to withdraw the amendment, but I hope he will go away and reassure himself further that the tribunal can have no confusion on that point. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Richard Fuller]

I am tempted to frame page 25 of today’s amendment paper, because it includes the shadow Minister’s amendment 17, which would increase the penalties from £5,000 to £30,000, and my amendment 142, which would increase them from £5,000 to £50,000. I thought it was usually the Conservative party that is pro-business and tries to keep costs on business low, but then I recalled that these penalties apply to people doing something wrong, and of course the Labour party is always soft on criminals.

Seriously, though, the shadow Minister and I have a clear intent, which I am sure is shared by the Minister. A lot of the measures in this part of the Bill are trying desperately to unpick complicated things and rebalance them in favour of people who own their own home but do not run a large business, or people with small financial interests, where there are 30 or 40 of them against one person with a significant financial interest that covers all those people. In trying to rebalance things here, we all want to ensure that these measures are as effective as possible and that there is enough encouragement to ensure that the good practice the Government want to see can be done effectively.

The concern that I share with the shadow Minister is that the current levels of penalties just look like a cost of doing business. [Interruption.] Indeed! The hon. Member for Brent North has just slapped himself on the wrist, which is probably how many businesses will see it.

Can I gird the Minister’s loins and encourage him to take up his shield and his sword of righteousness in defence of individual leaseholders and say, “This amount is too low. We shall change the legislation. This party and this Government stand to make the intent of what we will do to truly bite on those who are doing wrong”?

[Lee Rowley]

I am grateful to my hon. Friend the Member for North East Bedfordshire and the hon. Member for Greenwich and Woolwich for tabling their amendments. I share their basic conceptual desire, and that of other Committee members, for people or organisations that have done the wrong things to be held to account. There should be penalties that recognise that they have done the wrong thing. The challenge is always going to be where we draw the line.

I recognise that there are multiple parts of the menu on offer. Notwithstanding the very valid points that have been made, it is important not to lose sight of the fact that the Government are doubling the number from £2,500 to £5,000. Individual right hon. and hon. Members will take different views throughout this process and beyond on whether that is proportionate or whether it should be higher or lower. We think we have struck a proportionate balance.

I will add to the record, for consideration, the importance of the potential for unintended consequences. The response will quite rightly be that it will ultimately be for the tribunal to determine how much to apportion and how to use any changed option. There is a scenario in which the potential penalty on the freeholder, or the party being taken to the tribunal, becomes so great and the hazard becomes so visible that the freeholder starts to oppose it with even more objections, difficulties and the like.

I am making quite a nuanced argument, and Members may feel that I am overthinking this, but we have to be cautious not inadvertently to create a process that emboldens freeholders to fight even harder because of the potential hazard and because they feel that they may be exposed to a fine larger than would be reasonable and proportionate. However, I take the point about the challenge of setting the penalty in the right place. The Government’s view is that the increase from £2,500 to £5,000 is a step forward. That is what we are proposing to this Committee. As a result, we will resist the amendments.

[Matthew Pennycook]

To clarify whether my reading of proposed new section 25A(5) of the Landlord and Tenant Act 1985 is right, is the penalty a single amount that is shared, or an amount per challenge? This is important.

--- Later in debate ---

[Lee Rowley]

I apologise for not covering that point; I intended to do so. It is £5,000 per challenge. There is the ability to bring forward multiple challenges. Should that be the case, similar amounts of damages may be awarded.

[Richard Fuller]

Sorry, I am such a pedant, but “per challenge” could relate to person A making the challenge that report x was not done on time, and then person B making the challenge that report x was not done on time. Do those two challenges count as two separate challenges because they are brought by two different people, although they are for the same objection, or as one challenge because they are for the same objection, although they are presented by two different people?

[Lee Rowley]

They are two separate challenges. If a challenge goes to the tribunal and it is deemed that a penalty should apply, for whatever reason or whatever poor behaviour, and a penalty of up to £5,000 is apportioned, and then another person makes the same claim about exactly the same instance, one would logically expect the tribunal to allocate the same penalty. Multiple challenges get multiple fines.

[Barry Gardiner]

Could the Minister elaborate on something? Where a group of leaseholders brings the challenge—let us say that 30 leaseholders in the block all club together and bring the challenge—is it one challenge that pays one set of £5,000, or is it 30 challenges that pay £5,000 each? Otherwise, we risk leaseholders bringing one challenge and then everybody thinking, “Okay, if I’ve got to, I will now do it,” and making the same challenge over and over again, clogging up the tribunals. That is not what we want. If they all come together and make that application, surely they should all get the damages that the tribunal feels is proportionate.

[Lee Rowley]

The hon. Gentleman is making a number of important points. As it is currently structured, one challenge of n people gets up to £5,000; if it is multiple challenges of one person or n people within challenge 2, challenge 3 or challenge 4, that would be £5,000. As it is structured at the moment, one challenge equals £5,000, irrespective of the number of people within that challenge.

[Barry Gardiner]

Does the Minister appreciate that that could lead to a situation in which we are multiplying challenges unnecessarily?

[Lee Rowley]

I absolutely appreciate the point that has been made. There is a balance to be struck here. Obviously we will need to go through the justice impact test, or whatever it is called, to check the volume of challenges that would potentially come into the tribunals system as a result of the changes in the Bill. Again, it is about trying to balance those very challenging concepts, making sure that there is a penalty—it is important to recognise that the penalty is doubling—but also that people have the ability to choose to do things or not do things. I know that members of this Committee will have different views about how to structure that balance.

[The Chair]

Order. We are getting a bit conversational in the exchanges we are having. Can Members make either interventions or speeches, please? It is difficult to follow what is going on up here.

--- Later in debate ---

[Lee Rowley]

I beg to move amendment 48, in clause 30, page 50, line 14, leave out subsections (4) and (5).

This amendment is consequential on Amendment 123.

[The Chair]

With this it will be convenient to discuss clause stand part.

[Lee Rowley]

Amendment 48 is consequential on amendment 123, which we discussed in our debate on part 2. Amendment 123 ensures that the Bill is clear for the reader by grouping a set of related amendments that are consequential to section 26 of the Landlord and Tenant Act 1985, which clarifies that the provisions of amendment 29 do not apply to tenants of public authorities.

Clause 30 will introduce new, more effective and more proportionate enforcement measures to replace existing ineffective measures. Subsection (2) will repeal the existing enforcement provisions under section 25 of the 1985 Act, which allow a local housing authority or leaseholder to bring proceedings against the landlord in the magistrates court. This measure proved an ineffective deterrent and has hardly been used.

Subsection (3) will insert a new section 25A into the 1985 Act. It sets out routes to redress. Proposed new section 25A(2) sets out measures for situations in which landlords have failed to provide the information required to be included within the annual report or have failed to provide the service charge demand form in the prescribed format. When those circumstances apply, the leaseholder may make an application to the appropriate tribunal. The tribunal may order that the landlord must serve a demand for payment using the correct form under section 21C or provide a report in accordance with section 21E within 14 days of the order having been made. It can also order that the landlord pay damages to the leaseholder.

Proposed new section 25A(3) sets out measures for where the landlord has failed to provide information on request. In such circumstances, the leaseholder may make an application to the appropriate tribunal. The tribunal may order that the information is provided within 14 days, or that the landlord pays damages to the leaseholder, or both.

Proposed new section 25A(5) provides that the damages payable to leaseholders must not exceed the £5,000 figure that we have just debated. Proposed new section 25A(6) will confer powers on the Secretary of State and Welsh Ministers to amend this amount to reflect changes in the value of money, if they consider it expedient to do so. Proposed new sections 25A(7) to (10) contain measures to ensure that landlords cannot pass through service charge demands that they have been ordered to pay nor draw on service charge moneys held in trust and hence seek to reclaim their losses. I commend the clause to the Committee.

Amendment 48 agreed to.

Clause 30, as amended, ordered to stand part of the Bill.

Clause 31

Limitation on ability of landlord to charge insurance costs

Amendment made: 49, in clause 31, page 50, line 24, leave out from beginning to “insert” in line 25 and insert

“After section 20F of the LTA 1985”.—(Lee Rowley.)

This amendment is consequential on Amendment 51.

--- Later in debate ---

[Matthew Pennycook]

I will be fairly brief, because my hon. Friend covered a lot of detail. He is right to do so, because these are important clauses. We welcome the intent behind them, and we think they have the potential to address a very serious problem that has plagued leaseholders across the country for many years. Not just those in buildings with fire safety defects who have seen their insurance premiums soar in the aftermath of the Grenfell fire, but across the board, we are seeing leaseholders face unreasonable and in many cases extortionate buildings insurance commissions that the property managing agent, landlords and freeholders have charged through the service charge. We discussed this in our evidence sessions last week. The Financial Conduct Authority’s report of September last year on the subject of insurance for multi-occupancy buildings found evidence of high commission rates and poor practice, which were “not consistent” with driving fair value to the customer.

The FCA also found—I put this question to one of the witnesses in our evidence sessions, because I find it quite staggering—that the mean absolute value of commissions more than doubled between 2016 and 2021 for managing agents and freeholders of buildings with fire safety defects. Put simply, in far too many instances, managing agents, landlords and freeholders have been gouging leaseholders in this area with impunity. In practice, the effectiveness of this clause will hinge almost entirely on whether the definition of “excluded insurance costs” is sufficiently tightly drawn, and how we define “permitted insurance payments” for the purposes of specifying what payments can be charged.

I appreciate fully that the Minister will be bringing the necessary detail forward through regulations and we will scrutinise them very carefully when that happens. My right hon. Friend—sorry, just hon. Friend, but it is only a matter of time—the Member for Brent North is right to try to strengthen the clauses, because although the permitted insurance payments must be attributable to a permitted insurance, there is nothing on the face of the Bill to ensure that they or the cost of providing information in relation to them is reasonable to the leaseholders. As far as we understand the clause, there is no guarantee that leaseholders will be able to transparently scrutinise quotes or the agreed contract. We fully support my hon. Friend’s amendments 151 to 153, 157, and particularly new clause 41, which attempt to address some of these omissions and deficiencies. I hope the Minister will give them due consideration.

Specifically on my hon. Friend’s amendment 136, clause 32 introduces a new duty to provide specified insurance information to leaseholders. Again, it will be for regulations to fill out the detail about how the new duty will operate in practice, but I would like to briefly probe the Minister on it. During our evidence session with Matt Brewis of the Financial Conduct Authority, it became clear that although the FCA’s new rules mandate that a contract of insurance must be provided by an insurer or broker to the freeholder, and although the leaseholder will be able to write to the insurer to request a copy of the contract, there is nothing that we can see in either the FCA’s rules or the Bill as drafted that will permit a leaseholder to know who that insurer is in the first place. I would like to press the Minister, as my hon. Friend has, to confirm that the Government’s intentions when regulations are made under this clause is for the specified information to include a copy of the contract with the relevant insurer.

While we are considering these two clauses, I would like to take the opportunity to raise a separate concern, which I do not believe is covered by my hon. Friend’s amendments, in relation to proposed new section 20H of the Landlord and Tenant Act 1985, as provided by clause 31 of this Bill. This proposed new section would introduce a new right to claim where excluded insurance costs are charged. Again, this has the potential to provide leaseholders with effective means of redress, but its efficacy depends on how it is implemented. I would be grateful if the Minister could confirm that there is no specific requirement for any damages awarded under this proposed new section to credit the service charge accounts of leaseholders not party to the claim, or any service charge fund generally. It stands to reason that if one has been affected—and this follows from the debate we had on a previous clause—the rest of the leaseholders in the building will be too. If so, could the Minister look at how the regime operates to ensure that all leaseholders that have paid excluded costs are reimbursed in the same manner as the claimant?

[Lee Rowley]

I turn first to amendment 151, in the name of the hon. Member for Brent North. As someone who has held the building safety portfolio in my Department for the past 16 months, one of my greatest frustrations is that we have not yet made the progress that I would like to see, and that I am sure we would all like to see, with regards to insurance for buildings that have been affected by cladding, having made good progress on lending and other areas.

I think we have made some progress, and the willingness of a number of brokers to come together and voluntarily cap what they are willing to take is a step forward; I would like to see other brokers doing the same. I would also like to see an industry-led solution to be brought forward for those with the greatest exposures at the earliest possible opportunity. That is something I outline to the Association of British Insurers, and other insurers, on a very regular basis—with varying degrees of frustration and emphasis. I hope we will see movement on that in the very near future.

That is a broad discussion about a more specific issue—I will turn shortly to the amendments we are currently debating—although I hope that highlights my interest in this area and my desire to get this right not just for people with remediation and cladding issues, but for the broader community of leaseholders in general. On that basis, I hope that both the hon. Members for Brent North and for Greenwich and Woolwich will appreciate that we have similar ambitions in making sure that transparency in this area is as effective as it can possibly be, and that we ensure the appropriate outcome so as to improve things from where they are at the moment.

I turn to the amendments, specifically amendment 151. We believe that clause 31, which inserts proposed new section 20G into the Landlord and Tenant Act 1985, already achieves the intent behind the amendment by providing powers that allow the appropriate authority to specify the permitted insurance costs that can be passed through the service charge to leaseholders.

From discussions held with the insurance sector itself, and with the FCA, we know that the value chain is a complicated one. Some buildings rely heavily on the reinsurance market—we have seen that increasingly with remediation issues—using a broker for access, and some do not. Some place insurance with numerous insurers splitting the risk, whereas others only use one—the hon. Member for Brent North may know this from his previous engagement with the industry.

Clause 31 is designed to constrain unreasonable costs in all scenarios by defining a payment and allowing us to then separate these costs as either permitted or excluded. Although I understand the intent of the hon. Member for Brent North, the Government’s concern about amendment 151 is that in seeking to tighten the provisions, it may have pulled the strings a little too tightly and become too narrowly focused on certain elements. I hope the hon. Gentleman will consider withdrawing his amendment as a consequence.

Again, although I have great sympathy for the sentiment behind amendment 135, I hope the transparency provisions already in the Bill will help in this regard. Once implemented, they intend to enable leaseholders to have access to details of the policy and the total amount of remuneration being taken on their building's insurance placements. This can be used for a legal challenge if costs have not been reasonably incurred. Our concern with the amendment is the potential for delays in the placement of insurance, which could result in a lapse in cover to the material risks of the building. There also may be instances—although I hope it would be a minor number of cases—where three quotes cannot be obtained, as much as that is possibly unlikely to occur.

We seek to focus the legislation on ensuring that those buildings have insurance that works, with a balance that is appropriate and supported by regulatory changes brought in by the FCA. On the basis of that explanation, I hope the hon. Member for Brent North will withdraw his amendment.

I will address amendments 152 and 153 together. Again, we have are similar ambitions, aspirations and intent, but again, there is a question of narrowness through the amendments, and our view remains that clause 31 will allow full scrutiny of what is to be a permitted insurance payment. The intention is for that to be both through consultation and then subsequently set out in regulations through the affirmative procedure, which will allow hon. Members to debate measures and highlight if there is a better way of doing it. I hope that, with those reassurances, the hon. Member for Brent North may be willing to withdraw the amendments.

Amendment 137 seeks to introduce a reasonable test to permitted buildings insurance costs. At the heart of clause 31 is the need for any costs passed on to leaseholders relating to the placement or management of buildings insurance to be fair and transparent. That is the whole point of it. Section 19 of the Landlord and Tenant Act 1985 already requires for those costs to have been reasonably incurred and for a reasonable service to have been provided. We have obviously seen a whole heap of bad behaviour in this sector; I accept that that is the case. Within the sector, there is ubiquitous use of commissions with poor or no underlying connection to the work undertaken, and I hope that some of the progress made through the Bill will hopefully reduce that.

I do not believe that the amendment would sufficiently protect leaseholders. We seek very clear requirements in the secondary legislation for how permitted insurance fees will be calculated, and that their reasonableness be included in that. We will consult on the measures in due course, and I hope that, with those reassurances, the hon. Member for Brent North will withdraw his amendment.

I turn to clauses 31 and 32, which address insurance, before turning to some further Opposition amendments. Several actors in the procurement of buildings insurance each seek to make a profit in return for their role in supplying insurance, whether they be brokers, managing agents or landlords, who can all take commissions, and that all adds to the overall cost.

Currently, as we have discussed, leaseholders do not have to be made aware of these commissions, and that can hinder the ability of leaseholders to challenge unfair costs. Inflated premiums can be paid through the service charge because there is a lack of transparency and knowledge about what is happening. Clause 31 seeks to ban the placer of insurance on residential leasehold properties from receiving any form of commission that is passed on to leaseholders as a cost, and instead uses a transparent handling fee that must be proportionate to the value of the work done.

Proposed new section 20G provides that excluded insurance costs cannot be charged and enables the Secretary of State and Welsh Ministers to prescribe a permitted insurance payment, which will be the only payment that can be charged. The detail of calculating the fee is to be set out in affirmative secondary legislation, and we will work with stakeholders across the industry and in this place to support that.

Proposed new section 20H sets out what happens should the ban be breached. There is an ability to apply to the tribunal in England and the leasehold valuation tribunal in Wales. It also removes the presumption that leaseholders have to pay their landlord’s legal costs when challenging poor practices, as we talked about earlier. If the tribunal determines that the legislation has not been complied with, damages can be paid. That will be a minimum of the commission taken or the unlawful insurance handling fee, but it will not exceed three times the level of the commission or fee.

Proposed new section 20I outlines the right of the landlord to obtain a permitted insurance payment. The section clarifies how all costs for placing and managing insurance incurred by the landlord must then be charged to the leaseholder. Transparency reforms in the Bill will require the placer of insurance to disclose information about the decision-making processes when purchasing buildings insurance on behalf of leaseholders.

Amendments 154 and 155, tabled by the hon. Member for Brent North, seek to stipulate how the insurance contract is to be provided to leaseholders. We have been working already with the FCA on that area, and it has already produced a number of reports and changed its regulations. The changes allow leaseholders to receive their policy documents and information about the charges within their overall premium. Those changes are important to ensure that the relevant information is available, but they do not remove the necessity for the landlord to supply that information as the placer of the insurance. The amendments tabled by the hon. Member for Brent North remove the focus on the landlord’s responsibility to undertake that activity. Clause 32 is designed to complement the work of the FCA and to provide the powers necessary to ensure that landlords supply the information that will enable leaseholders to scrutinise. With those assurances, I hope that the hon. Member will not press the amendments to a vote.

--- Later in debate ---

[Barry Gardiner]

I am grateful to the Minister for the way in which he is engaging with the issue and for the points he has made. Given that it would be possible to relay the insurance contract electronically, will it be possible for secondary legislation to stipulate that any additional layers of complexity would be outwith the permitted costs? The Minister will see that I keep coming back to that theme, because unfortunately landlords add additional layers of complexity. We need to be sure that, where it is possible to do something simply, it is not permissible to recover the cost of doing it not simply, if I can put it that way.

[Lee Rowley]

The hon. Gentleman raises an important point. I will not try to solutionise in Committee, given the inherent dangers doing so from the Government Front Bench. We have committed to consulting, and there will be lots of experts and interested parties who will want to engage in that. As the hon. Gentleman suggests, transfers of data in an electronic form do not necessarily involve a substantial amount of time or effort, albeit that the provision and creation of the data in the first place may do. Those are exactly the kinds of things that we will want to talk about as part of the consultation, as and when it comes. On that basis, I hope that the hon. Member will consider not pressing amendments 156 and 157.

Amendment 138 seeks to require that charges made of parties where they request information from the landlord are reasonable, and I agree with the sentiment. Reasonableness is already required through section 19 of the Landlord and Tenant Act 1985. As I indicated in relation to amendment 137, reasonableness is not in itself a guarantee that costs will be constrained and proportionate, especially where the test is reliant on the assessment of normal behaviour across the sector. The Government would seek to deal with this area in secondary legislation, to ensure that the priorities of transparency and proportionality are in place. On that basis, I hope that the hon. Member will consider not pressing his amendment.

Before I conclude, I have two further points. Clause 32 confirms the importance of the intention of transparency, which is behind the Bill. The clause places a duty on landlords and managing agents that compels them to proactively provide information on building insurance to leaseholders. That should help leaseholders to better understand what they are paying for, and give them information they need to scrutinise that and take appropriate action, should that be necessary. The required information will be specified in the regulations, but it is anticipated that it should detail the insurance policy that is purchased, including a summary of the cover such as the risks insured, excess costs, premium costs and any remuneration received by the insurance broker. We also anticipate that it will include details of all alternative quotes obtained from the market and any possible conflicts of interest that arose during the procurement process.

Subsection (2) will insert new paragraph 1A into the schedule to the 1985 Act to allow leaseholders to request further information from landlords or managing agents. This could include full contractual documentation and policy wording, as well as the declaration of technical information that may have shaped the eventual premium price. We hope that giving leaseholders this improved information will allow them to challenge the reasonableness of their policy costs, if required. We expect that it will change landlord behaviour by making sure they are more price conscious, as it will be clearer that their movements are being watched. This will ensure that they do not try to pull a fast one on their leaseholders when it comes to insurance.

New paragraph 1B imposes a duty on third parties to provide landlords with any specified information requested within the specified period. Under paragraph 1A landlords will be obliged to provide information that is in their possession, and under paragraph 1B, where a landlord needs to ask another person for that information, that other person will also be required to provide the information within the specified timescales. Again, those timescales will be detailed in secondary legislation.

Clause 32 places requirements on landlords for how the handling fee that will replace insurance commissions will be disclosed to leaseholders. Again, this seeks to ensure greater transparency and allow more scrutiny where the charges are unreasonable.

Under paragraph 1C of the schedule to the 1985 Act, a leaseholder may make an application to the appropriate tribunal if their landlord fails to comply with the requirements under paragraphs 1A and 1B. I commend the clause to the Committee.

Finally, new clause 41 would preclude landlords from undertaking regulated insurance activity on behalf of a broker. Although I understand the sentiment behind this new clause, I hope the hon. Member for Brent North will recognise that the underlying point behind clauses 31 and 32, on which I hope we all agree, is transparency and fairness. These clauses will require the disclosure of fees charged for any work, as I have just indicated. We will prescribe what is a permitted cost that can be collected through the service charge, which should ensure that commissions that bear no connection to the work undertaken will not be permitted. It should also ensure that key documentation is provided.

[Barry Gardiner]

The Minister said that all the costs of the broker will have to be disclosed, which is absolutely right. However, where the landlord is operating under the provisions of the Financial Services and Markets Act 2000, he or she would be indistinguishable from that brokerage company and, therefore, the leaseholder will not be able to ascertain what was done by the broker and what was done by the landlord operating under the licence of the broker. What will be revealed is simply “the brokerage.” Unless we can unravel that, we will never get to the issue of kickbacks. As we saw with the Canary Riverside case before Christmas, those kickbacks can be frighteningly large—£1.6 million for one block. The disaggregation of what is the landlord qua broker and what is the broker qua broker is really important.

[Lee Rowley]

I will try to reassure the hon. Gentleman. I think we both agree on the intention behind full transparency and clarity, so that things are not being hidden in the “value chain,” to use a terrible expression from my previous life.

The secondary legislation for clause 31 will seek to define the permitted insurance costs, and we will consult specifically on issues around regulated insurance activity. I hope that secondary legislation will cover some of the hon. Gentleman’s points and allow him, and others with concerns, to make their case. We can then determine how best to approach it.

With that, I hope the hon. Gentleman will consider withdrawing his amendment.

[Barry Gardiner]

There is good news and bad news, Mr Efford. The good news is that I am content to withdraw amendments 135, 137, 154, 155, 136, 156, 157 and 138, but I wish to press amendments 151, 152, 153 and 157 to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Lee Rowley]

We know that there is currently a lack of transparency around administration charges and that leaseholders can face high administration charges. Administration charges must be reasonable, but this can be difficult to determine due to the lack of clarity surrounding them. As a result, leaseholders are often reluctant to challenge the reasonableness of administration charges at the appropriate tribunal.

Clause 33 inserts new paragraph 4A into schedule 11 to the Commonhold and Leasehold Reform Act 2002. It will require landlords to publish an administration charge schedule. A revised schedule must also be published if a landlord revises the administration charges. The Secretary of State and Welsh Ministers will be able to prescribe the form and content of the schedule, and how it is to be provided to a leaseholder, in regulations. If a landlord has not complied with the provision of publishing an administration charge schedule, a leaseholder may make an application to the appropriate tribunal. The tribunal may order that the landlord provide an administration schedule within 14 days and pay damages of up to £1,000 to the leaseholder. This measure seeks to increase transparency, and I commend the clause to the Committee.

[Matthew Pennycook]

As the Minister has just made clear, clause 33 amends the 2002 Act to create a new duty on landlords to publish administration charge schedules. We welcome it but, as with clauses 31 and 32, the effective functioning of the new requirement will depend on details such as the form and content of the schedule and how it should be published, all of which is to be set out in future regulations.

I have two specific questions for the Minister. The first largely mirrors my concern about the provisions in clause 31 relating to damages. If a tenant claims damages as a result of a breach of the requirements in new paragraph 4A of the 2002 Act, is it not likely that other tenants will have been similarly affected by the failure to publish an administration charge schedule? If it is the case that the damage provisions relate only to the claimant, will the Minister look at how the regime operates to ensure that all leaseholders who may have paid costs, other than in accordance with new paragraph 4A of the 2002 Act, are reimbursed in the same manner? It is a recurring theme, but it is worth putting on the record that it applies to clause 33 as well.

Secondly, along with other measures in the Bill that add new provisions for when a leaseholder is liable to pay a charge—in this instance, where an administration charge has been levied that has not appeared for the required period on a published administration charge schedule—how do the Government intend to make leaseholders aware of their new rights in this respect and in various other places throughout the Bill? Will he consider mandating that freeholders must furnish all leaseholders with an updated “how to lease” guide?

[Lee Rowley]

I am grateful to the hon. Gentleman for his questions. I will write to him on the answers or the process by which he can get them.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Clause 34

Limits on rights of landlords to claim litigation costs from tenants

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

Clause 35 stand part.

New clause 3—Prohibition on landlords claiming litigation costs from tenants—

(1) Any term of a long lease of a dwelling which provides a right for a landlord to demand litigation costs from a leaseholder (whether as a service charge, administration charge or otherwise) is of no effect.

(2) The Secretary of State may, by regulations, specify classes of landlord to which or prescribed circumstances in which subsection (1) does not apply.

(3) In this section—

“administration charge” has the meaning given by Schedule 11 of the Commonhold and Leasehold Reform Act 2022;

“dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;

“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002;

“service charge” has the meaning given by section 18 of the Landlord and Tenant Act 1985;

“landlord” has the meaning given by section 30 of the Landlord and Tenant Act 1985.

This new clause would prohibit landlords from claiming litigation costs from tenants other than under limited circumstances determined by the Secretary of State.

[Lee Rowley]

We know that leaseholders can be deterred from challenging costs, or the services that their landlord provides, at court or tribunal for fear that they will also be charged their landlord’s legal costs. The ability of the landlord to charge litigation costs will depend on whether the lease allows for that. That can mean that leaseholders have to pay litigation costs even if they win. Currently, the onus is on leaseholders to make an application to the relevant court or tribunal to limit their liability to pay those costs.

Clause 34 seeks to flip that presumption, and instead requires landlords to apply to the relevant court or tribunal for permission to recover their litigation costs from leaseholders, whether as an administration charge or through the service charge. It does that by inserting proposed new section 20CA into the Landlord and Tenant Act 1985 relating to litigation costs passed through the service charge, and inserting proposed new paragraph 5B into the Commonhold and Leasehold Reform Act 2002 regarding litigation costs recovered as an administration charge.

In the future, a landlord’s litigation costs will not be payable by a leaseholder unless the landlord has successfully applied to the relevant court or tribunal for an order. The relevant court or tribunal may make such order where it considers it just and equitable in the circumstances. We have also taken a power to set out matters that the relevant court or tribunal must consider when making an order on an application. We will carefully consider the detail of these matters with stakeholders, including the tribunal.

Where the landlord is applying to pass on their litigation costs through the service charge, they will be required to specify each individual leaseholder they are seeking to recover their costs from. We have sought to further protect leaseholders by ensuring that a lease, contract or other arrangement has no legal effect if it seeks to disapply this legislation. These measures will prevent leaseholders from being charged unjust litigation costs by their landlord, and will remove barriers to leaseholders holding their landlord to account. I commend the clause to the Committee.

On clause 35, at the moment landlords can charge the costs of a legal dispute to leaseholders. This is an imbalance, as landlords are in a better position to seek legal representation and are more frequently represented than leaseholders at hearings. We understand that there is no other area of law where the parties start from such an unequal position. Clause 35 gives leaseholders a new right to apply to the relevant court or tribunal to claim their litigation costs from their landlord. It does that by implying a term into all leases, ensuring greater balance between landlords and leaseholders with regard to litigation costs. On a leaseholder’s application, the relevant court or tribunal may make such an order if it considers it just and equitable in the circumstances. We have also taken a power to set out matters in regulations that the relevant court or tribunal must take into account when making an order.

Clause 35 also makes it clear that any costs that a landlord is ordered to pay to a leaseholder are considered to be litigation costs incurred by the landlord. As such, if the landlord wants to recover such costs through the service charge or as an administration charge, they will need to apply to the court or tribunal under clause 34.

In addition, we have taken a power to describe which “relevant proceedings” will be subject to the leaseholder’s right to seek their costs. This is to help align the leaseholder’s rights with the right to costs that landlords currently enjoy. We have further protected the leaseholder’s right to recover litigation costs by ensuring that a lease, contract or other arrangement has no legal effect if it disapplies this legislation. I commend the clause to the Committee.

New clause 3 seeks to disapply terms in a lease that allow a landlord to recover their legal costs from leaseholders. It also allows exceptions for certain types of landlord to be set out by the Secretary of State in regulations. Currently, landlords are able to recover their litigation costs from leaseholders, and we absolutely agree that unjust litigation costs should not be incurred.

There may, however, be legitimate cases where a landlord may need to seek their litigation costs from a leaseholder—for example, where a leaseholder has breached their lease in a way that is affecting the other residents in the building, or where non-payment of a charge is limiting the upkeep or repair of the building. In these cases, where landlords have exhausted other means of addressing the dispute, we would want them to feel able to address such issues and be able to recover their litigation costs, if that is justified. That is why we have included measures in the Bill to rebalance the system, but we do not necessarily believe that we should go further at this time. We hope that the Bill takes a proportionate approach. I hope that I have reassured the hon. Member for Greenwich and Woolwich that we are committed to ensuring a fair approach, and that he will withdraw the new clause.

--- Later in debate ---

We all have doubts about the balance of power, and we recognise that landlords should be able to protect their interests, if they are decent and behave well. At this point, however, I want to hear something from the Minister to reassure me.

[Lee Rowley]

My hon. Friend has a huge amount of expertise and knowledge in this area. I am grateful to her for all her work in preparing for our discussion today. I am very happy to talk to her in more detail on this subject. She is absolutely right to articulate that progress must be made, and we must ensure that the correct balance is struck. I know that she will appreciate that there is a balance to strike, rather than there being movement in only one direction, but I appreciate the points that she made. I am happy to talk to her further outside the Committee, and I hope to provide her with the assurances that she seeks.

--- Later in debate ---

Question proposed, That the clause stand part of the Bill.

[Lee Rowley]

Clause 36 sets out general provisions that apply to regulation-making powers under the Landlord and Tenant Act 1985. Subsection (2) introduces a new section 37A, which sets out the procedure applicable to statutory instruments. It provides clarity on what is meant by regulations that are subject to the negative procedure and those that are subject to the affirmative procedure. Subsection (3) inserts a new definition of “appropriate authority” into section 38A of the 1985 Act. That defines the Secretary of State as being the appropriate authority in England, and Welsh Ministers the appropriate authority in Wales. I commend the clause to the Committee.

Question put and agreed to.

Clause 36 accordingly ordered to stand part of the Bill.

Clause 37

Part 3: consequential amendments

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 125 and 126.

Schedule 8.

Government new clause 8—Appointment of manager: power to vary or discharge orders.

[Lee Rowley]

Clause 37 introduces schedule 8, which concerns a number of consequential amendments to the 1985 Act and other Acts of Parliament arising from the provisions of part 3 of the Bill. We will address those consequential amendments when we come to schedule 1, and I commend the clause to the Committee.

Government amendment 125 is a consequential amendment on new clause 8, which ensures that the tribunal has the ability to vary or discharge orders it makes under leasehold legislation on its own as well as on request. Government amendment 126 clarifies that a repeal of a section in the Housing (Wales) Act 2014 is to be done in both the English and Welsh language texts of the Act. I commend those amendments to the Committee.

Schedule 8, as introduced by clause 37, sets out the consequential amendments arising from the provisions of part 3 of the Bill. Part 1 of the schedule sets out the specific consequential amendments to the 1985 Act to take account of the changes in clause 36. In many cases, it makes changes to the regulation-making powers to confirm that the Secretary of State has powers to make regulations in England, and that Welsh counterparts do in Wales. It also clarifies which regulation-making provisions in the Act are subject to the negative procedure or the affirmative procedure. Part 2 of the schedule sets out consequential amendments to other Acts of Parliament to reflect the new measures introduced by part 3 and the omission of existing measures. The schedule seeks to provide clarity on regulation-making powers and to ensure that other Acts of Parliament reflect the new measures provided in part 3 of the Bill. I commend the schedule to the Committee.

Turning to new clause 8, sections 21 to 24 of the Landlord and Tenant Act 1987 provide a remedy for leaseholders in circumstances where there is significant management failure. Under current arrangements, leaseholders may apply to the first-tier tribunal to ask it to make an order to appoint a manager, who will be responsible for carrying out functions specified in the order rather than by the landlord or an agent acting on their behalf. The manager will be accountable to the tribunal, but once an order has been issued, the tribunal may only vary or cancel it if an interested party asks it do so. The current arrangements are, in the Government’s view, too restrictive and limit the tribunal’s authority to act if there is already an existing order in place.

New clause 8 makes a minor amendment to section 24 of the 1987 Act and gives the tribunal the ability to take action on its own as well as on request. That means that, where there is a possible overlap between orders, the tribunal can amend an existing order, if necessary, of its own accord. The discretion to amend an order will be constrained. The tribunal must be satisfied that, in all cases, any variation or discharge is just and convenient, and would not result in the recurrence of the same problems that led to the order being made in the first place. I commend new clause 8 to the Committee.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.

Schedule 8

Part 3: Consequential Amendments

Amendments made: 121, in schedule 8, page 132, line 9, at end insert—

“13A The LTA 1985 is amended in accordance with paragraphs 14 to 14B.”

This amendment is consequential on Amendment 123.

Amendment 122, in schedule 8, page 132, line 10, leave out “of the LTA 1985”.

This amendment is consequential on Amendment 121.

Amendment 123, in schedule 8, page 132, line 18, at end insert—

“14A In section 26 (exception for tenants of certain public authorities)—

(a) in subsection (1)—

(i) for the words from ‘Sections 18 to 25’ to ‘do not apply’ substitute ‘Sections 18 to 25A do not apply’;

(ii) for ‘, in which case sections 18 to 24 apply but section 25 (offence of failure to comply) does not’ substitute ‘(but see subsection (1A));

(b) after subsection (1) insert—

‘(1A) The following sections do not apply to a service charge payable by a tenant under a long tenancy of a landlord referred to in subsection (1)—

(a) section 20H (right to claim where excluded insurance costs charged);

(b) section 20K (right to claim where costs charged in breach of section 20J);

(c) section 25A (enforcement of duties relating to service charges).’

14B In section 27 (exception for rent registered and not entered as variable), for the words from

‘Sections 18 to 25’ to ‘do not apply’ substitute ‘Sections 18 to 25A do not apply’”.

This amendment would consolidate the consequential amendments to section 26 of the Landlord and Tenant Act 1985 required by virtue of clauses 30 and 31 and NC7 into a single paragraph of Schedule 8.

Amendment 124, in schedule 8, page 132, line 21, leave out “Landlord and Tenant Act” and insert “LTA”.

This amendment is consequential on Amendments 47 and 54.

Amendment 125, in schedule 8, page 132, line 35, at end insert—

“(ca) in section 160 (third parties with management responsibilities), omit subsection (4)(d);”.

This amendment is consequential on NC8.

Amendment 126, in schedule 8, page 133, line 22, after “(anaw 7),” insert

“in the English language text and in the Welsh language text,”.—(Lee Rowley.)

This amendment would clarify that section 128 of the Housing (Wales) Act 2014 is to be repealed in both the English and Welsh language texts of that Act.

Schedule 8, as amended, agreed to.

Clause 38

Application of Part 3 to existing leases

Question proposed, That the clause stand part of the Bill.

[Lee Rowley]

Clause 38 makes clear that the new provisions introduced by this part of the Bill extend to leases entered into before the date the section comes into force. This provides clarity that the provisions in part 3 apply to existing, as well as new, leaseholders, but only from the date the relevant section comes into force. I commend the clause to the Committee.

Question put and agreed to.

Clause 38 accordingly ordered to stand part of the Bill.

Clause 39

Meaning of “estate management” etc

[Lee Rowley]

I beg to move amendment 52, clause 39, page 66, line 8, at end insert—

“(e) a charge payable by a unit-holder of a commonhold unit to meet the expenses of a commonhold association.

(9A) For the purposes of subsection (9)(e)—

(a) “unit-holder”, “commonhold unit” and “commonhold association” have the same meaning as in Part 1 of the CLRA 2002 (see section 1(3) of that Act);

(b) the expenses of a commonhold association include the building safety expenses of the association (within the meaning given in section 38A of the CLRA 2002).”

This amendment would exclude charges in respect of the expenses of a commonhold association from the definition of “estate management charge” for the purposes of Part 4.

[The Chair]

With this it will be convenient to discuss clause stand part.

[Lee Rowley]

Amendment 52 amends clause 39(9) of the Bill to clarify that any payment by a commonhold unit owner to a commonhold association is not to be regarded as an estate management charge. It is a clarificatory amendment to ensure that sums payable to a commonhold association that provides services to the common parts that it owns are not covered by part 4 of the Bill.

Turning to clause stand part, part 4 of the Bill creates a new regulatory framework to protect homeowners living on those estates where services are managed privately rather than by local authority. We know that that has been a growing trend and that homeowners on those estates have very few rights in that regard. We are determined to change that and empower homeowners to hold estate management companies to account on how they spend money and on the quality of the services they provide.

Clause 39 sets out key definitions that have effect for part 4 of the Bill. They have been drafted with the intention of providing clarity on what is and is not being regulated, and to avoid creating loopholes. For example, subsection (2) defines what is meant by estate management; subsection (3) defines an estate manager; subsection (6) defines a relevant obligation; subsections (8) and (9) define what is meant by and what is excluded from the definition of an estate management charge; and subsection (10) defines relevant costs. In aggregate, this clause helps to provide the key definitions for measures and will inform the regulatory framework in part 4, which we will discuss in due course.

Amendment 52 agreed to.

Clause 39, as amended, ordered to stand part of the Bill.

Clause 40

Estate management charges: general limitations

Question proposed, That the clause stand part of the Bill.

[Lee Rowley]

Clause 40 sets out general limitations with regard to estate management charges. Subsection (1) states:

“A charge demanded as an estate management charge is payable…only to the extent that the amount of the charge reflects relevant costs”—

in other words, purely the costs associated with estate management—and cannot be used to fund wider activities. This means that not every cost incurred by an estate manager is chargeable; an example would be if costs arose from the award of damages against the estate manager or an activity outside the estate by the estate manager that is not regulated. Those costs cannot be passed on.

Subsection (2) goes on to set out more detailed circumstances in which costs that are relevant costs may cease to become relevant costs and hence not payable or only partially payable.

[Richard Fuller]

I want to probe a bit more, because of the speed with which we shot through clause 39—with your leave, Chair, I am sure you will find this in order, because clause 40 also relates to relevant costs. Clause 39(10) says that relevant costs,

“in relation to a dwelling, means costs which are incurred by an estate manager in carrying out estate management for the benefit of the dwelling or for the benefit of the dwelling and other dwellings.”

As the Government were considering clauses 39 and 40, the general limitations on what might be a relevant cost, what consideration did the Minister or the Government give to the fact that there are some costs that might be covered within that general limitation that, for some people, are covered by payments they make through their council tax? Therefore, in certain circumstances it may be the case that people are paying twice for the same services covered by what are defined as estate management running costs.

[Lee Rowley]

I am grateful to my hon. Friend for his point. He tempts me, at this relatively late hour, to get into an extremely important conversation that we will come to in the coming days. With his leave, I will limit my response to acknowledging his broader point, which is potentially broader than simply the discussions here on this Bill. Having listened to the evidence given to the Committee last week, I recognise that this is a key area that those impacted by estate management charges would like to debate further. I know that we will come to this in due course. I am putting that down as a marker for further discussion—I am not sure if I can satisfy him with the discussion, but I will put down a marker for it none the less.

To conclude on clause 40, specifically, subsection (2) refers to the provisions in clauses 41 to 43, which cover the requirement for the reasonableness of estate management costs and broader consultation requirements. Clause 40 provides clarity that not all costs incurred by estate managers may be passed on and sets out circumstances when even chargeable costs are not payable. I commend the clause to the Committee.

Question put and agreed to.

Clause 40 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Mr Mohindra.)

Leasehold and Freehold Reform Bill (Seventh sitting)

Lee Rowley Excerpts

Committee stage
Thursday 25th January 2024 Public Bill Committees

[Matthew Pennycook]

It is a pleasure to continue our line-by-line consideration of the Bill with you in the Chair, Mr Efford. For the sake of probity, I declare once again that my wife is the joint chief executive of the Law Commission, whose reports on leasehold and commonhold reform I will continue to cite throughout my remarks.

Part 2 of the Bill makes changes to other rights of long leaseholders. Four of its five clauses are concerned with improving the right to manage, but as we touched on briefly at the end of the Committee’s previous sitting, clause 21, which brings schedule 7 to the Bill into effect, makes provision for a new enfranchisement right to buy out the ground rent and vary it permanently to replace the relevant part of the rent with a peppercorn rent, without having to extend the lease.

We welcome the intent of the schedule. The reform will ensure that leaseholders can enjoy reduced premiums and secure nominal ground rent ownership of their properties without the need to go through the challenge and expense of repeated lease extensions. In the Law Commission’s final report on enfranchisement rights, it considered in great detail whether there should be a range of lease extension rights in order to provide greater flexibility than is currently afforded to leaseholders as a result of the provisions in the Leasehold Reform, Housing and Urban Development Act 1993 that require them simultaneously to extend the terms of their lease and to extinguish their ground rent.

The rationale for providing greater flexibility in this area is that in allowing leaseholders to choose either only to extend their lease or only to extinguish their ground rent, leaseholders could avoid paying the landlord the value of the remainder of the original terms and the deferral of the reversion, with the result that premiums would be reduced accordingly.

While taking into account the clear benefits that greater flexibility would provide for in terms of reduced premiums, the Law Commission, in its reports, clearly wrestled with whether it was sensible to recommend a more nuanced approach to lease extension rights. It did so, because of the complexity that the availability of different lease extension options would inevitably create, and the corresponding opportunities that such complexity would present to unscrupulous landlords who might seek to take advantage of those leaseholders unable to access costly professional advice about the best choice to make from the available options.

Without doubt, allowing for choices other than a uniform right to a fixed additional term at a nominal ground rent will make the statutory right to a lease extension more complicated. I will return shortly to the implications of clause 21 and the schedule in that regard. However, on the principle of allowing for greater choice, the Law Commission ultimately decided that despite the increased complexity that it would engender, leaseholders who have a lease with a long remaining term should, on payment of a premium, be entitled to extinguish the ground rent payable under the lease without extending the terms of it.

The commission felt, rightly in our view, that that right is likely to be utilised mainly by those with relatively long leases who are subject to onerous ground rent provisions, or those with relatively long leases and ground rents that are not definitionally onerous but still entail, for a variety of reasons, a significant present or future financial burden. In such cases, even if the premium payable is not significantly reduced, the prescribed capitalisation rates provided for by schedule 2 to the Bill should make valuations simpler and enable the change to be made by means of a simple deed of variation, rather than a deed of surrender and regrant, as required to extend the terms of a lease now.

The schedule implements the Law Commission’s recommendation for that right to extinguish the ground rent only. As I have made clear, we support it. We have, however, moved the amendment, which would delete the Government’s proposed 150-year threshold, to press the Minister on the reason or reasons for which the Government have decided to confer that right only on leaseholders with leases with an unexpired term of more than 150 years.

To be clear, we understand fully the argument made by those who believe that the right to extinguish a ground rent without extending a lease should only be conferred on those with sufficiently long leases—namely, that the premium for the reversion increases significantly as the unexpired period of the lease reduces, and leaseholders with leases below a certain threshold should therefore be, in a sense, compelled to peppercorn their ground rent and to extend at the same time by means of the reduced premiums that clauses 7 and 8 of the Bill should enable.

However, what constitutes a sufficiently long lease for the purposes of conferring this new right is ultimately a matter of judgment. The Law Commission recommended that the threshold should be set at 250 years on the basis that the reversion is of negligible value at that lease length. The Government chose not to accept that recommendation and instead are proposing a threshold of 150 years. The Minister may provide us with a different answer in due course, but we assume the reason they did so is simply that this will make the new right to extinguish a ground rent available to many more leaseholders.

However, if that is the case, it obviously follows that setting a threshold of, say, 125 years or even 100 years would make it available to even more of them. The argument against doing so is that leaseholders with leases below a certain threshold should be, in effect, compelled to extend their lease at the same time as peppercorning their rent because not doing so would, in many cases, disadvantage them.

However, that obviously raises more fundamental questions, such as whether it should be up to leaseholders to navigate the wider range of options that will be made available to them if and when this Bill receives Royal Assent, and whether the fact that some leaseholders with relatively short leases may either advertently or inadvertently disadvantage themselves by extinguishing without extending their lease should mean that everyone below the 150-year threshold is prohibited from enjoying the new right introduced by the schedule.

Even assuming one believes it is the role of Government to set a long-lease threshold, it is not entirely clear to us why the Government have alighted on 150 years given that there could be all sorts of reasons why someone with a lease shorter than such a term might want to only buy out their rent, including simply that they are unable to afford the premium required to secure a 990-year lease. As such, we would like the Minister to justify in some detail, if he could, why the Government alighted on a 150-year threshold as opposed to either the Law Commission’s proposal of 250 years or a lower threshold that would give many more leaseholders the right to extinguish their ground rent. We would like to ask him to consider whether, as we believe on balance, there is a strong case for simply deleting the 150-year threshold entirely, given that the “remaining years” test that applies is inherently arbitrary. I hope the Minister will give amendment 6 serious consideration, and I look forward to his thoughts on it.

While we are considering this schedule, I also want to probe the Minister again on the Government’s intentions in respect of the recently closed consultation on restricting ground rent for all existing leases, and specifically how any proposals arising from that consultation will interact with this schedule given that it provides a right to peppercorn ground rents in existing leases. As I made clear when we briefly considered this matter in relation to clauses 7 and 8, I am obviously not asking the Minister to provide this Committee with an advanced indication of what the Government’s formal response to that consultation will be. However, we remain of the view that this Committee needs to know, if the Government ultimately do choose to enact any of the five options for intervention that were consulted upon, what the implications are for the provisions that are currently in the Bill that we are being asked to approve today.

On Second Reading, the Secretary of State was quite clear that at the conclusion of the consultation, the Government would

“legislate on the basis of that set of responses in order to ensure that ground rents are reduced, and can only be levied in a justifiable way.”—[Official Report, 11 December 2023; Vol. 742, c. 659.]

As members of the Committee will know, he was also open with the Levelling Up, Housing and Communities Committee prior to Second Reading about the fact that his favoured approach would be a peppercorn rent—in other words, option 1 from the consultation. I am conscious that many people across the country who bear leaseholders no ill will whatever have invested, almost uniformly on advice and in good faith, in freehold funds. I have constituents who have invested, for example, in time investments and other such funds that have invested in freehold properties. However, I personally share the Secretary of State’s preference not least because, while ground rents exist even at relatively low levels, they will be a major impediment to the widespread adoption of commonhold.

There is a more fundamental issue with ground rents that we need to grapple with. As we have discussed already, over the past two decades, the consequence of the kind of investment we have seen is a system increasingly focused on generating assets by gouging leaseholders through ground rents that are, in historical terms, high to start with and that escalate over the terms of the lease. Leaseholders who worked hard to purchase their own homes and did so in good faith are being asked to pay ever more money for no clear service in return and many are experiencing considerable financial distress and difficulties selling their property, all to sustain the income streams of third-party investors.

Unregulated ground rents of this nature in existing leases cannot be justified. Although we do not discount the risks involved in any of the five options outlined in the consultation, Labour is clear that the Government must act to protect leaseholders from ground rent exploitation and that they should be courageous in determining which of the consultation proposals should be enacted.

All that said, we obviously cannot pre-empt the consultation in question. What is important for the purposes of considering schedule 7, and clause 21, is that we get a clear answer from the Minister as to what the potential implications of any response would be for leaseholders. Specifically, will the schedule have to be revisited should the Government ultimately choose to enact one of the five options in the consultation? Are we correct in assuming that clause 21 and the schedule will have to be overhauled, if not removed from the Bill entirely, in that scenario? If not, how will the Government ensure that the various measures are aligned? It is a hypothetical question, as I am sure the Minister will indicate, but it is entirely reasonable, given that we are being asked to approve the inclusion of the schedule in the Bill. On our reading of the ground rent consultation, the schedule could entirely change the implications; indeed, it may well have to be removed entirely to ensure that the Bill is consistent. On that basis, I hope the Minister will give us a bit more detail. He gave us some on Tuesday, but we need a little more detail on that point.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

I am grateful for the comments from the hon. Member for Greenwich and Woolwich, and for his amendment. I will say a few words in general before turning to some of his specific questions.

As he indicated, the ground rent buy-out right enables leaseholders with very long leases to buy out their ground rent on payment of a premium, without having to extend their lease. A leaseholder with a very long lease who does not need an extension may want to buy out the ground rent without extending the lease, but others may wish to do it in a different way.

I appreciate the hon. Member’s points about the amendment, and I understand why he is seeking to extend the right to vary one’s lease to as many leaseholders as possible, so I will try to answer some of his questions. Inevitably, as he indicated, there is essentially an arbitrary decision to take on any number, because moving it up or down would change the provision slightly and incrementally each time, so there is an element of having to put a finger on the scale. As he said, the right is an implementation of the Law Commission’s recommendation 3(2), which suggested that it should be available for leaseholders with 250 years remaining, but the Government have indicated that they want to set the term at 150 years. The reason given by the Law Commission for making this right available only to those with very long leases, which the Government support, is to limit it to leaseholders who are unlikely to be interested in, or do not need, a lease extension.

Making the right available to all leaseholders, irrespective of their term remaining, would mean that leaseholders who will need a lease extension at some point might opt first to buy out only the ground rent, but would need to extend their lease in due course. That would potentially disadvantage leaseholders in two ways. First, as the term on the lease runs down, the price on the lease extension accelerates. Secondly, a leaseholder who buys out their ground rent first and later extends the lease will pay two sets of transaction costs. It is entirely legitimate to say, “That is the choice of individuals,” and I have some sympathy with that argument. On balance, however, the Government recognise that there is a series of things within leasehold law that are permissible but not necessarily advantageous for some groups and sectors. By moving further in this regard, we might inadvertently create another one, which future iterations of Ministers and shadow Ministers might debate removing.

I should make it clear—the hon. Member knows this—that it is not the case that leaseholders with fewer than 150 years remaining do not have the right to buy out their ground rent: they buy out their ground rent when they extend their lease or buy the freehold, and that buy-out will also be subject to the cap. However, the right to buy out the ground rent without extending the lease is for leaseholders with 150 years or more remaining, for the reasons I have given.

Turning to some of the hon. Member’s specific points, the ultimate number is a matter of judgment, and we determined that setting the term at 150 years would offer the right to an incrementally larger group of people. We think that is a reasonable place to be. I accept that others may choose a different number, but that is the number we are proposing in the substantive part of the Bill. I also appreciate his point about the outcome of the consultation being the missing piece of the jigsaw puzzle at the moment.

I will not go through my multiple previous caveats around that, because he acknowledged at least one of them. Recognising that I will not be able to answer all of this, it may be that—subject to the outcome of the consultation—changes are needed. I cannot, however, pre-empt that, and we will have to cross that bridge when we came to it. I realise that is not the ideal place to be, but given that we all share the aim of trying to move this as quickly as possible, I hope it is an acceptable position to move forward from. We can return to it in due course should we need to.

--- Later in debate ---

[Rachel Maclean]

I apologise, Mr Efford. I was not quick enough on my feet. Thank you for calling me, and it is a pleasure to serve under your chairmanship.

I thank the Minister for his comprehensive answer to the shadow Minister’s questions. My point is somewhat in the same vein, and I am very much thinking of the witnesses we had from the National Leasehold Campaign, who talked about this point in quite a bit of detail. Their concern was about having to pay to buy out the ground rent. Of course, there are a number of elements, factors and variables dependent and contingent on the outcome of the consultation. There are people who might be watching this thinking, “Well, when will I actually know how much it is going to cost me?” A year can go by and they may tip over that threshold. Can the Minister give a bit of clarification to those leaseholders who have been trapped for so long and want to see some light at the end of the tunnel? What signpost can he give on when this right will apply to them and how much they will have to pay if they want to exercise their individual right to have their ground rent reduced to a peppercorn?

[Lee Rowley]

I am grateful to my hon. Friend for raising that point. She is absolutely right that this matter is important to a number of people, and that it is important that we provide the greatest transparency at the earliest opportunity. I hope she will forgive me for not being able to answer her very valid question directly. We are dependent on an appropriate and detailed review of the consultation, which is necessary—for some of the reasons we talked about on Tuesday—given its importance to a number of parts of the sector and others. We need to allow that to conclude, hopefully as swiftly as possible, and then we need to get it through this place and our colleagues in the other place, who can often slow us down. Hopefully, that will happen as soon as possible.

--- Later in debate ---

[Lee Rowley]

I beg to move amendment 79, in schedule 7, page 120, line 3, leave out from “to” to end of line 4 and insert

“—

(a) the landlord under the qualifying lease, and

(b) any other party to the qualifying lease.”

This amendment expands the range of persons to whom a rent variation notice must be given to include persons who are party to the lease (but are not a landlord).

[The Chair]

With this it will be convenient to discuss Government amendments 80 to 88, 99 and 100, 102 to 104, 106, 118 and 120.

[Lee Rowley]

These amendments mostly simplify and clarify the provisions in schedule 7.

Amendment 79 will expand the range of persons to whom a rent variation notice must be given, which should now include persons who are part of the lease but not landlords. Amendment 80 applies where a tenant is bringing a lease extension or a freehold acquisition claim. It sets out that the tenant cannot bring a ground buy-out claim while the preceding claim is still in play, because they do not need one and their ground rent will be bought out by the other enfranchisement claim.

Amendment 81 provides that a variation notice must specify the proposed premium and any variations to the lease consequential on the rent. Amendment 82 provides, first, that where a leaseholder has a ground rent buy-out claim and sells their lease, they may pass on the claim to the buyer, and secondly that where a ground rent buy-out claim has been brought and a landlord sells the reversion, the claim is binding on the purchasing landlord.

Amendment 83 applies where a rent variation notice and collective enfranchisement notice, where the leaseholder is not participating, are coincident on the same premises, irrespective of which was served first. It provides that the rent variation notice is suspended while the collective enfranchisement notice is current. It also provides that the landlord must inform the leaseholder of its suspension and must likewise inform the leaseholder if that suspension is later lifted because the enfranchisement claim has ceased to have effect. Amendment 84 provides that the landlord must specify an address at which notices can be given.

Amendment 85 makes technical amendments to remove unnecessary wording. Amendment 86 provides that the landlord must respond to the proposed premium and any variation to the lease consequential on the reduction of the rent in a variation notice in the counter-notice.

Amendment 87 makes technical amendments to remove unnecessary wording. Amendment 88 makes provision for the landlord or leaseholder to apply to the tribunal to determine the case where the landlord does not admit the leaseholder’s right to a peppercorn rent or disputes the rent to which it applies, consequential variations or the proposed premium.

Amendments 99, 100, 102 and 103 all make minor clarifications concerning circumstances when a variation notice ceases to have effect. Amendment 104 removes a provision for reviving suspended claims.

Amendment 106 provides for commutation following a ground rent buy-out, and the obligations and rights of superior landlords. It also provides for the sharing of copies of rent variation notices among landlords, and the application of superior landlords to the tribunal. A landlord in receipt of a rent variation notice must share a copy with anyone they believe to be a superior landlord and is liable for damages for any loss suffered by others should they fail to do so. Likewise, a superior landlord in receipt of a copy must share it with anyone else they believe to be a superior landlord, with the same consequences where there may be non-compliance. Amendments 118 and 120 are consequential on amendment 104. I commend the amendments to the Committee.

Amendment 79 agreed to.

Amendments made: 80, in schedule 7, page 120, line 5, leave out from “notice” to end of line 7 and insert

“is of no effect if it is given at a time when—

(a) a lease extension notice,

(b) a lease enfranchisement notice, or

(c) another rent variation notice,

which relates to the qualifying lease has effect.

(2A) Paragraph 3A makes provision about the suspension of a rent variation notice.”

This provides that a rent variation notice may not be given if another such notice is already in effect; and changes the provision dealing with cases where there is a current claim for collective enfranchisement under the LRHUDA 1993.

Amendment 81, in schedule 7, page 120, line 15, at end insert—

“(4A) A rent variation notice must also specify—

(a) the premium which the tenant is proposing to pay for the rent reduction, and

(b) any other variations which need to be made to the lease in consequence of the reduction of the rent in accordance with this Schedule.”

This requires a rent variation notice to specify the tenant’s proposals for the premium payable for the reduction in rent and for consequential changes to the lease (eg. relating to rent reviews in the lease).

Amendment 82, in schedule 7, page 120, line 20, leave out sub-paragraphs (6) to (8) and insert—

“(6) Where a rent variation notice is given, the rights and obligations of the tenant are assignable with, but are not capable of subsisting apart from, the qualifying lease or that lease so far as it demises qualifying property (see paragraph 2(5) and (6)); and, if the qualifying lease or that lease so far as it demises qualifying property is assigned—

(a) with the benefit of the notice, any reference in this Schedule to the tenant is to be construed as a reference to the assignee;

(b) without the benefit of the notice, the notice is to be deemed to have been withdrawn by the tenant as at the date of the assignment.

(7) If a rent variation notice is the subject of a registration or notice of the kind mentioned in sub-paragraph (5), the notice is binding on—

(a) any successor in title to the whole or part of the landlord’s interest under the qualifying lease, and

(b) any person holding any interest granted out of the landlord’s interest;

and any reference in this Schedule to the landlord is to be construed accordingly.”

This deals with the effect on a rent variation notice of an assignment of the lease or the reversion.

Amendment 83, in schedule 7, page 120, line 41, at end insert—

“Suspension of rent variation notices

3A (1) This paragraph applies if conditions A and B are met.

(2) Condition A is met if—

(a) a rent variation notice is current at the time when a collective enfranchisement notice is given, or

(b) a collective enfranchisement notice is current at the time when a rent variation notice is given.

(3) Condition B is met if—

(a) the rent variation notice relates to premises to which the claim for collective enfranchisement relates, and

(b) the tenant under the lease to which the rent variation notice relates is not a participating tenant in relation to the claim for collective enfranchisement.

(4) The operation of the rent variation notice is suspended during the currency of the claim for collective enfranchisement; and so long as it is so suspended no further notice may be given, and no application may be made, under this Schedule with a view to resisting or giving effect to the tenant's claim for a peppercorn rent.

(5) Where the operation of the rent variation notice is suspended by virtue of this paragraph, the landlord must, not later than the end of the relevant response period, give the tenant a notice informing the tenant of—

(a) the suspension, and

(b) the date on which the collective enfranchisement notice was given, and

(c) the name and address of the nominee purchaser for the time being appointed in relation to the claim for collective enfranchisement.

(6) The landlord must give that notice—

(a) as soon as is reasonably practicable, if a rent variation notice is current when a collective enfranchisement notice is given; or

(b) before the end of the period for responding specified in the rent variation notice in accordance with paragraph 4(7), if a collective enfranchisement notice is current when a rent variation notice is given.

(7) Where, as a result of the claim for collective enfranchisement ceasing to be current, the operation of the rent variation notice ceases to be suspended by virtue of this paragraph—

(a) the landlord must, as soon as possible after becoming aware of the circumstances by virtue of which the claim for collective enfranchisement has ceased to be current, give the tenant a notice informing the tenant that the operation of the rent variation notice is no longer suspended as from the date when the claim for collective enfranchisement ceased to be current;

(b) any time period for performing any action under this Schedule (including the response period) which was running when the rent variation was suspended begins to run again, for its full duration, from and including the date when the claim for collective enfranchisement ceased to be current.

(8) In this paragraph—

“claim for collective enfranchisement” means the claim to which the collective enfranchisement notice relates;

“collective enfranchisement notice” means a notice under section 13 of the LRHUDA 1993 (notice of claim to exercise right to collective enfranchisement).”

This provides for a rent variation notice to be suspended at any time when a claim for collective enfranchisement is current, and the tenant is not participating in the collective enfranchisement.

Amendment 84, in schedule 7, page 121, line 9, at end insert

“and which also specifies an address in England and Wales at which notices may be given to the landlord under this Schedule.”

This requires a counter-notice to specify an address for service for the landlord.

Amendment 85, in schedule 7, page 121, line 13, leave out “qualifying”.

This is a technical amendment which removes unnecessary wording.

Amendment 86, in schedule 7, page 121, line 19, at end insert

“and must also give the landlord’s response to the proposed premium, and any other consequential variations to the lease, specified in the rent variation notice in accordance with paragraph 3(4A).”

This requires the landlord to respond to the tenant’s proposals for the premium and consequential changes to the lease (see Amendment 81).

Amendment 87, in schedule 7, page 121, line 29, leave out “qualifying”.

This is a technical amendment which removes unnecessary wording.

Amendment 88, in schedule 7, page 121, line 36, leave out paragraphs 5 and 6 and insert—

“Application to appropriate tribunal where claim or terms not agreed

5 (1) This paragraph applies if the landlord is given a rent variation notice by the tenant.

(2) If the landlord gives the tenant a counter-notice before the end of the response period which disputes—

(a) that the tenant had the right to a peppercorn rent,

(b) that the right applies to the rent in respect of which it is claimed,

(c) the amount of the premium which the tenant is proposing to pay, or

(d) the consequential variations of the lease proposed by the tenant,

the landlord or tenant may apply to the appropriate tribunal to determine the matters in dispute.

(3) Any application under sub-paragraph (2) must be made before the end of the period of 6 months beginning with the day after the day on which the counter-notice is given.

(4) If the landlord does not give the tenant a counter-notice before the end of the response period, the tenant may apply to the appropriate tribunal to determine—

(a) whether the tenant has the right to a peppercorn rent,

(b) what rent that right applies in respect of,

(c) the amount of the premium which the tenant is to pay, or

(d) the variations of the lease that are to be made.

(5) Any application under sub-paragraph (4) must be made before the end of the period of 6 months beginning with the day after the last day of the response period.”—(Lee Rowley.)

This provides for the Tribunal to have jurisdiction where the tenant’s claim for a peppercorn rent or the terms of lease variation are not agreed by the landlord.

[Lee Rowley]

I beg to move amendment 89, in schedule 7, page 123, line 12, after “tenant” insert

“, and any other party to the qualifying lease,”.

This requires any third parties to a lease to join in variation of the lease to reduce the rent payable.

[The Chair]

With this it will be convenient to discuss Government amendments 90 to 94.

[Lee Rowley]

Again, these amendments mostly simplify and clarify the provisions in schedule 7.

Amendment 89 will require the new third parties referred to in amendment 79 to join in any variation of a lease. Amendment 90 removes reference to, and therefore the existence of, a payment period within which the leaseholder must pay the ground rent buy-out premium to the landlord after a rent variation notice has become enforceable.

Amendment 91 provides that a rent variation notice becomes enforceable once all aspects have been agreed or determined by the tribunal. Amendment 92 is consequential on amendment 91 and provides for a better description of the required rent variation.

--- Later in debate ---

[Lee Rowley]

I beg to move amendment 95, in schedule 7, page 123, line 43, at end insert—

“Reduction of rent under intermediate leases

7A (1) This paragraph applies if, at the time when a rent variation notice is given, there are one or more qualifying intermediate leases.

(2) For the purposes of this paragraph a lease is a ‘qualifying intermediate lease’ if—

(a) the lease demises the whole or a part of the property to which the rent variation notice relates,

(b) the lease is immediately superior to—

(i) the lease to which the rent variation notice relates, or

(ii) one or more other leases that are themselves qualifying intermediate leases,

(c) relevant rent is payable under the lease, and

(d) that relevant rent is more than a peppercorn rent.

(3) The landlord or the tenant under a qualifying intermediate lease may, by giving notice to the relevant landlord or landlords before the variation of lease to which the rent variation notice relates, require the rent payable under the qualifying intermediate lease to be reduced in accordance with sub-paragraphs (6) to (8).

(4) If—

(a) under sub-paragraph (3) the rent under a lease is required to be reduced in accordance with this paragraph, and

(b) that lease is superior to one or more other qualifying intermediate leases,

the rent payable under the other qualifying intermediate lease or leases is also to be reduced in accordance with sub-paragraphs (6) to (8).

(5) The landlord and tenant under a qualifying intermediate lease must vary the lease—

(a) to give effect to a reduction of the rent in accordance with sub-paragraphs (6) to (8), and

(b) to remove any terms of the lease which provide for an increase in the rent, or part of the rent, so reduced.

(6) If the whole of the rent under a qualifying intermediate lease is relevant rent, the rent under that lease is to be reduced to a peppercorn rent.

(7) If only part of the rent under a qualifying intermediate lease is relevant rent—

(a) that part of the rent is to be reduced to zero, and

(b) the total rent is to be reduced accordingly.

(8) But the amount of the reduction in a person’s rental liabilities as tenant is limited to the amount of the reduction in the person’s rental income as landlord; and here—

(a) ‘reduction in a person’s rental liabilities as tenant’ means the reduction in accordance with sub-paragraph (6) or (7) of the rent payable by the person as tenant under the qualifying intermediate lease;

(b) ‘reduction in that person’s rental income as landlord’ means the amount (or total amount) of the relevant reduction (or reductions) in rent payable to that person as landlord of one or more other reduced rent leases.

(9) In this paragraph—

‘reduced rent lease’ means—

(a) the lease to which the rent variation notice relates, or

(b) a qualifying intermediate lease;

‘relevant landlord’ means—

(a) the landlord under the qualifying lease, and

(b) any superior landlord who must be given a copy of the rent variation notice in accordance with paragraph 9D or 9E;

‘relevant reduction’ means—

(a) in relation to the lease to which the rent variation notice relates, a reduction resulting from that tenancy being varied in accordance with the other provisions of this Schedule;

(b) in relation to a qualifying intermediate lease, a reduction resulting from this paragraph.

‘relevant rent’ means rent that has been, or would properly be, apportioned to the whole or a part of the property to which the rent variation notice relates.”

This provides for rent to be reduced (commuted) under leases that are superior to the lease in respect of which a rent variation notice is given under Schedule 7 .

Like amendment 106, amendment 95 provides for commutation following a ground rent buy-out, and the obligations and rights of superior landlords. Amendment 95 provides for commutation for ground rent buy-out and the provision is identical to the commutation provision for lease extensions.

As we have discussed, commutation is the process by which a reduction in the rent of the inferior occupational lease—in this case, by a ground rent buy-out—triggers a reduction in the rent of intermediate leases sitting between the most inferior lease and the freehold. The amendment provides that, if commuted, the relevant rent payable by a tenant of an intermediate lease will be reduced to a peppercorn, but the reduction in rent payable by a tenant of such an intermediate lease must not exceed the reduction in the rent they receive as a landlord of an intermediate lease. I commend the amendment to the Committee.

Amendment 95 agreed to.

[Lee Rowley]

I beg to move amendment 96, in schedule 7, page 124, line 9, at end insert—

“(2A) An order under this paragraph may appoint a person to execute the variation of the lease on behalf of a party to the variation; and a variation executed in consequence of such an order has the same force and effect (for all purposes) as if it had been executed by that party.”

This authorises the Tribunal to appoint a person a execute the variation of a lease on behalf a party (eg. if they are absent or unco-operative).

[The Chair]

With this it will be convenient to discuss Government amendments 97 and 98.

[Lee Rowley]

Again, these amendments mostly simplify and clarify the provisions in schedule 7.

Amendment 97 provides that in the event that there is a failure to vary the lease in response to an enforceable variation notice, an application made to the tribunal for enforcement must be made within four months of the date that that notice became enforceable. Amendment 96 provides that the tribunal may appoint a person to vary the lease on the landlord’s behalf.

Amendment 98 provides that where the tribunal is satisfied that the landlord is missing and that the leaseholder has the right to a peppercorn rent, it may make an order to vary the lease and appoint someone to vary the lease on the landlord’s behalf. I commend the amendments to the Committee.

Amendment 96 agreed to.

Amendments made: 97, in schedule 7, page 124, line 11, leave out from first “of” to end of line 12 and insert

“four months beginning with the day on which the rent variation notice becomes enforceable (within the meaning of paragraph 7).”

This changes the period within which an application under paragraph 8 may be made.

Amendment 98, in schedule 7, page 124, line 12, at end insert—

“Missing landlord or third party

8A (1) On an application made by the tenant under a qualifying lease, the appropriate tribunal may make a determination that the landlord under, or another party to, a qualifying lease cannot be found or their identity cannot be ascertained.

(2) The following provisions of this paragraph apply if the appropriate tribunal makes such determination.

(3) The appropriate tribunal may make such order as it thinks fit including—

(a) an order dispensing with the requirement to give notice under paragraph 3 to that landlord or other party, or

(b) an order that such a notice has effect and has been properly served even though it has not been served on that landlord or other party.

(4) If the appropriate tribunal is satisfied that the tenant has the right to a peppercorn rent, the tribunal make such order as it thinks fit with respect to the variation of the qualifying lease to give effect to that right.

(5) An order under sub-paragraph (4) may appoint a person to execute the variation of the lease on behalf of a party to the variation; and a variation executed in consequence of such an order has the same force and effect (for all purposes) as if it had been executed by that party.

(6) Before making a determination or order under this paragraph, the appropriate tribunal may require the tenant to take such further steps by way of advertisement or otherwise as the court thinks proper for the purpose of tracing the person in question.

(7) If, after an application is made under this paragraph and before the lease is varied to give effect to the right to a peppercorn rent, the landlord or other party is traced—

(a) no further proceedings shall be taken with a view to a lease being varied in accordance with this paragraph,

(b) the rights and obligations of all parties shall be determined as if the tenant had, at the date of the application, duly given the rent variation notice, and

(c) the appropriate tribunal may give such directions as it thinks fit as to the steps to be taken for giving effect to the right to a peppercorn rent, including directions modifying or dispensing with any of the requirements of this Schedule or any regulations.”

This enables the Tribunal to deal with the situation where the landlord or third party to a lease cannot be found or identified.

Amendment 99, in schedule 7, page 124, line 15, after “landlord” insert

“, before the lease is varied in pursuance of the rent variation notice,”.

This clarifies that a notice of withdrawal can only be given before the lease is varied.

Amendment 100, in schedule 7, page 124, line 17, leave out from “is” to end of line 17 and insert

“varied in accordance with the notice”.—(Lee Rowley .)

This provides that rent variation notice ceases to have effect when the lease is varied in accordance with the notice.

[Lee Rowley]

I beg to move amendment 101, in schedule 7, page 124, line 19, leave out paragraph (c) and insert—

“(c) a lease enfranchisement notice or lease extension notice which relates to the qualifying lease is given;”.

This is consequential on Amendment 119.

[The Chair]

With this it will be convenient to discuss Government amendments 117 and 119.

[Lee Rowley]

Again, these amendments mostly simplify and clarify the provisions in schedule 7.

Amendment 101 provides that where a leaseholder has made a ground rent buy-out claim but, before the claim is settled, later makes an extension or acquisition claim, the ground rent buy-out claim ceases to have effect. Amendment 117 provides that the regulatory powers given to the Secretary of State by paragraph 12 are subject to the negative procedure.

Amendment 119 will insert a definition of “lease enfranchisement notice” as a notice for a freehold acquisition for a house or collective enfranchisement for a flat, and a definition of “lease extension notice” as a notice for a lease extension for a house or flat. Those definitions support amendments 80, 101 and 83. I commend the amendments to the Committee.

Amendment 101 agreed to .

Amendments made: 102, in schedule 7, page 124, line 21, leave out paragraph (d) and insert—

“(d) any order setting aside the notice is made by the appropriate tribunal or a court;”.

This is a technical amendment to correct the reference to kind of order that would be made.

Amendment 103, in schedule 7, page 124, line 22, at end insert—

“(da) the appropriate tribunal determines on an application under paragraph 5 that the tenant does not have the right to a peppercorn rent;

(db) the period of six months mentioned in paragraph 5(3) or (5) ends, where the application mentioned there could be made, but is not made before the end of that period;

(dc) the period of four months mentioned in paragraph 8(3) ends, where the application mentioned there could be made, but is not made before the end of that period;”.

This sets out additional circumstances in which a rent variation notice ceases to have effect.

Amendment 104, in schedule 7, page 124, line 28, leave out from “effect,” to end of line 16 on page 125 and insert

“except for any obligation arising under any provision of the LRA 1967 or the LRHUDA 1993 that applies by virtue of paragraph 11.”—(Lee Rowley.)

This clarifies which obligations continue after a rent variation notice ceases to have effect.

[Lee Rowley]

I beg to move amendment 105, in schedule 7, page 125, line 16, at end insert—

“Tenant’s liability for costs

9A (1) A tenant is not liable for any costs incurred by any other person as a result of the tenant’s exercise of the right to a peppercorn rent, except as referred to in—

(a) sub-paragraph (4),

(b) paragraph 9B (liability where claim ceases to have effect), and

(c) paragraph 9C (liability where tenant obtains the variation of the lease).

(2) A former tenant is not liable for any costs incurred by any other person as a result of the former tenant’s claim to the right to a peppercorn rent, except as referred to in sub-paragraphs (4) and (5).

(3) A lease, transfer, contract or other arrangement is accordingly of no effect to the extent it would provide to the contrary.

(4) A tenant or former tenant is liable for costs incurred by another person in connection with proceedings before a court or tribunal if—

(a) the court or tribunal has power under this Schedule or another enactment to order that the tenant or former tenant pay those costs, and

(b) the court or tribunal makes such an order.

(5) A former tenant is liable for costs incurred by a successor in title to the extent agreed between the former tenant and that successor in title.

(6) In this paragraph and paragraphs 9B and 9C—

“claim” includes an invalid claim;

“former tenant” means a person who was a tenant making a claim to the right to a peppercorn rent, but is no longer a tenant.

Liability for costs: failed claims

9B (1) A tenant is liable to the landlord for a prescribed amount in respect of non-litigation costs if the tenant’s claim ceases to have effect by virtue of paragraph 9(1), unless it ceases to have effect by virtue of—

(a) paragraph 9(1)(b), or

(b) paragraph 9(1)(e) because of the application of section 55 of the LRHUDA 1993.

(2) For the purposes of this paragraph—

(a) “prescribed” means prescribed by, or determined in accordance with, regulations made—

(i) in relation to England, by the Secretary of State;

(ii) in relation to Wales, by the Welsh Ministers;

(b) “non-litigation costs” are costs that are or could be incurred by a landlord as a result of a claim under this Schedule other than in connection with proceedings before a court or tribunal;

(c) where a claim ceases to have effect by virtue of a person who was a tenant assigning their lease without assigning the claim under paragraph 3(6), “tenant” includes that person.

(3) A statutory instrument containing regulations under this paragraph is subject to the negative procedure.

Liability for costs: successful claims

9C (1) A tenant is liable to the landlord for the amount referred to in subsection (2) if—

(a) the tenant makes a claim to the right to a peppercorn rent,

(b) the rent is reduced in consequence of the claim,

(c) the premium payable by the tenant for the variation of the lease is less than a prescribed amount,

(d) the landlord incurs costs as a result of the claim,

(e) the costs are incurred other than in connection with proceedings before a court or tribunal,

(f) the costs incurred by the landlord are reasonable, and

(g) the costs are more than the premium payable.

(2) The amount is the difference between—

(a) the premium payable by the tenant, and

(b) the costs incurred by the landlord, or, if those costs exceed a prescribed amount, that prescribed amount.

(3) In this paragraph “prescribed” means prescribed by, or determined in accordance with, regulations made—

(a) in relation to England, by the Secretary of State;

(b) in relation to Wales, by the Welsh Ministers.

(4) A statutory instrument containing regulations under this paragraph is subject to the negative procedure.”

This provides for a tenant’s liability for costs incurred by other persons in connection with a claim for a peppercorn rent .

This amendment applies the reformed cost regime to ground rent buy-out claims. The amendment makes cost provisions for the ground rent buy-out right. These match the cost provisions for lease extensions for houses and flats. There is a general no-costs rule, but a tenant may be liable for fixed costs if their claim fails, and may be liable for a fixed amount of costs, which would be charged by reducing the value of the premium, if the ground rent buy-out claim is a prescribed low-value claim. A tenant cannot be required to give security for costs. I commend the amendment to the Committee.

Amendment 105 agreed to.

Amendment made: 106, in schedule 7, page 125, line 16, at end insert—

“Duty of landlord to give copies of the rent variation notice to superior landlords

9D (1) This paragraph applies if the landlord is given a rent variation notice by the tenant.

(2) The landlord must give a copy of the rent variation notice to any person whom the landlord believes is a superior landlord.

(3) But that duty does not apply if the landlord has been notified under paragraph 9E(5)(b) that a copy of the rent variation notice has been given to that person.

(4) The landlord must comply with that duty as soon as reasonably practicable after—

(a) being given the rent variation notice, or

(b) forming the belief that a person is a superior landlord (if that is after the rent variation notice was given).

(5) If the landlord gives a copy of the rent variation notice to a person under sub-paragraph (2), the landlord must, together with the copy, give that person the names of—

(a) all of the persons to whom the landlord has given a copy of the notice under this paragraph, and

(b) any other persons that the landlord is aware have been given a copy of the notice.

(6) If the landlord fails to comply with a duty in this paragraph, the landlord is liable in damages for any loss suffered by any other person as a result of the failure.

Duty of superior landlord to give copies of the rent variation notice to other superior landlords

9E (1) This paragraph applies if a superior landlord is given a copy of a rent variation notice under paragraph 9D or this paragraph.

(2) The superior landlord (the “forwarding landlord”) must give a copy of the rent variation notice to any person whom the forwarding landlord believes is a superior landlord.

(3) But that duty does not apply if the forwarding landlord has been notified under paragraph 9D or this paragraph that a copy of the rent variation notice has been given to that person.

(4) The forwarding landlord must comply with that duty as soon as reasonably practicable after—

(a) being given the copy of the rent variation notice, or

(b) forming the belief that a person is a superior landlord (if that is after the copy of the rent variation notice was given).

(5) If the forwarding landlord gives a copy of the rent variation notice to a person under sub-paragraph (2), the forwarding landlord—

(a) must, together with the copy, give that person the names of—

(i) all of the persons to whom the forwarding landlord has given a copy of the notice under this paragraph, and

(ii) any other persons that the forwarding landlord is aware have been given a copy of the notice;

(b) must notify the landlord that the forwarding landlord has given the copy to that person.

(6) If the forwarding landlord fails to comply with a duty in this paragraph, the forwarding landlord is liable in damages for any loss suffered by any other person as a result of the failure.”—(Lee Rowley.)

This requires notice of a claim for a peppercorn rent to be given to superior landlords.

[Lee Rowley]

I beg to move amendment 107, in schedule 7, page 125, line 18, leave out paragraph 10.

This is consequential on Amendment 109.

[The Chair]

With this it will be convenient to discuss Government amendments 108 to 116.

[Lee Rowley]

These amendments concern the provisions of the Leasehold Reform, Housing and Urban Development Act 1993 as they apply to the right. Previously, provisions applying to ground rent buy-out claims on houses and flats were in separate paragraphs of the schedule: paragraphs 10 and 11, respectively. Amendment 109 amends paragraph 11 so that the provisions therein apply to claims on both houses and flats. Consequently, amendment 108 will change the title of paragraph 11 accordingly, and amendment 107 will remove paragraph 10.

Amendments 114 and 116 will amend the provisions of the 1993 Act that apply to the ground rent buy-out right, so that the provisions are properly carried across. Amendments 113 and 112 make a provision in relation to mortgages that applies to lease extensions under the 1993 Act, so that it applies appropriately to ground rent buy-out claims.

Amendment 115 will add a provision for dealing with inaccurate rent variation notices, to the effect that small inaccuracies do not invalidate the claim. Amendment 110 will require the leaseholder to pay off arrears of rent or service charges prior to a ground rent buy-out. Amendment 111 will ensure that the provisions in amendment 110 refer correctly to the ground rent buy-out premium. I commend the amendments to the Committee.

Amendment 107 agreed to .

Amendments made: 108, in schedule 7, page 127, leave out line 1 and insert

“Provisions of the LRHUDA 1993 that apply for the purposes of this Schedule”.

This is consequential on Amendment 109.

Amendment 109, in schedule 7, page 127, line 4, leave out from first “Schedule” to end of line 5 and insert

“(whether in its application to a house or flat)”.

This provides for paragraph 11 to apply to all claims under Schedule 7, not just to claims where the qualifying lease is of a flat (and so it means that paragraph 10 is longer needed).

Amendment 110, in schedule 7, page 127, line 19, first column, leave out “and (4)” and insert “(a) and (c)”.

This alters the provision in section 56 of the LRHUDA 1993 which is applied to Schedule 7.

Amendment 111, in schedule 7, page 127, second column, leave out line 19 and insert

“The reference to any premium and other amounts payable by virtue of Schedule 13 has effect as a reference to the required premium payable under paragraph 7 of this Schedule”.

This modifies the wording of section 56 of the LRHUDA 1993 in its application to Schedule 7.

Amendment 112, in schedule 7, page 127, line 24, first column, leave out

“(1), (2), (5), (6) and (7)”

and insert “, except for subsection (4)”.

This alters the provision in section 58 of the LRHUDA 1993 which is applied to Schedule 7.

Amendment 113, in schedule 7, page 127, line 24, second column, insert

“A reference to the new lease has effect as a reference to the deed of variation of the lease”.

This modifies the wording of section 58 of the LRHUDA 1993 in its application to Schedule 7.

Amendment 114, in schedule 7, page 127, leave out lines 28 to 31.

This removes provision of the LRHUDA 1993 which no longer needs to apply to Schedule 7.

Amendment 115, in schedule 7, page 128, line 10, at end insert—

[Lee Rowley]

Schedule 7 will confer on leaseholders a right to buy out their ground rent without extending their lease. As the premium payable will be subject to the 0.1% cap on ground rent, this measure will be especially helpful for leaseholders with high or escalating rents. Paragraph 2 sets out that leaseholders who qualify for a lease extension will have this right as long as their remaining term is at least 150 years. Community housing leases and home finance plan leases are excluded, as they were from the Leasehold Reform (Ground Rent) Act 2022. Leaseholders may not qualify for lease extensions because they have a lease of Crown land, or because they do not satisfy the low rent test in the Leasehold Reform Act 1967. Such leaseholders will qualify for the new buy-out right.

Paragraphs 3 to 7 set out procedural arrangements for leaseholders and their landlords. They provide that the right is exercised by serving a rent variation notice on the landlord, including time limits for responses and arrangements for either party to apply to the tribunal if they so wish. The premium payable is the same as the term portion of the lease extension premium set out in schedule 2, and is subject to the ground rent cap. It is the capitalised value of the rent payable for the remainder of the lease.

Paragraph 8 provides that where the lease is not varied to provide that the future rent is a peppercorn rent, the leaseholder or landlord can apply to the tribunal. The tribunal shall decide whether it should be varied and, if it should, can appoint a person to execute the variation in place of the landlord. Paragraph 9 sets out the circumstances in which a rent variation notice ceases to have effect. A claim can be revived if it ceased to have effect due to a later extension or acquisition claim, where the later claim ceases to have effect.

Paragraph 10 sets out details of how the schedule applies in relation to the lease of a house; paragraph 11 does the same in relation to the lease of a flat. Finally, paragraph 12 gives various enabling powers to the Secretary of State, including giving effect to the rights, making provisions about notices and amending the details of how the schedule applies to the lease of a house or a flat.

Question put and agreed to.

Schedule 7, as amended, accordingly agreed to.

Clause 22

Change of non-residential limit on right to manage claims

[Barry Gardiner]

I beg to move amendment 129, in clause 22, page 38, line 21, leave out “50%” and insert “75%”.

This amendment would allow leaseholders with a higher proportion of commercial or non-residential space in their building to claim the Right to Manage.

--- Later in debate ---

[Lee Rowley]

I am grateful to the hon. Member for tabling the amendment. He is correct that, as with many of these instances, there are balances to be struck. While I will argue for a different balance from the one he outlined, I accept, understand and acknowledge that a number of different cases can be made in this discussion.

As the hon. Member indicated, the Bill already includes a provision to increase the limit from 25% to 50%, following the Law Commission’s extensive investigation. We believe that the increase to 50% seeks to strike a proportionate balance. He made a valid point about issues in a minority of cases, and we will not use extreme cases as a reason. However, there is the potential—this is why we have landed on 50%—to unfairly prejudice the interests of landlords and commercial tenants, for example, where a minority of leaseholders take over the management of a building that is predominantly commercial.

As I said, I recognise that there is a balance to be struck, but on the basis of the progress that is being made, which I am grateful to the hon. Member for acknowledging, 50% is where the Government would prefer to land, and that is what we are proposing.

[Barry Gardiner]

If the Minister casts his mind forward to the next two amendments, which seek to give the Secretary of State the authority to determine the limit, and should the Minister indicate that, in the future, the Secretary of State would almost certainly not determine it to be less than 50%—as the Government have already proposed—then I just might be persuaded to withdraw my amendment.

[Lee Rowley]

I am grateful to the hon. Gentleman for his comments. We are sticking with what we have suggested, but I hope he will consider withdrawing his amendment none the less. I will just say a few words on our reasons for sticking with what propose in clause 22. We have been clear that we want to improve access to right to manage—I think that view is shared across the House—and we accept that the current limit of 25% of floor space is not proportionate. Therefore, through this clause, we are seeking to increase the non-residential limit from 25% to 50%, as has been discussed. That replicates clause 3 on collective enfranchisement, recognising that this is not a debate about collective enfranchisement on a specific clause.

For the reasons that we have outlined, 50% is the place where the Government have landed, and where we feel is most proportionate. We hope that it will mean that more leaseholders in mixed-used buildings can take over the management responsibilities of their properties. I commend the clause to the Committee, and I hope that the hon. Gentleman will consider withdrawing his amendment.

[Barry Gardiner]

I am grateful to the Minister for his response; he is courteous, as ever. I just point out that the all-party group on leasehold and commonhold reform, co-chaired by the Father of the House, the hon. Member for Worthing West (Sir Peter Bottomley), also made the recommendation that the Government look again at this issue. I am prepared to throw my weight behind amendments 26 and 27, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn .

--- Later in debate ---

[Matthew Pennycook]

I rise to speak to the amendments in my name and that of my hon. Friend the Member for Weaver Vale. I do so making almost entirely the same argument as that made by my hon. Friend the Member for Brent North. [Interruption.] No, I am hoping for a very different response from the Minister to it.

As was made clear in a previous debate, this clause operates in precisely the way that clause 3 does in relation to collective enfranchisement claims: by making changes to the non-residential limit to the right to manage—and we welcome it. The clause will enact recommendation 7 of the Law Commission’s final report on exercising that right.

Although I take the point made by my hon. Friend the Member for Brent North about the use of extreme outlier cases to undermine an argument, we accept the Law Commission’s broad argument that abolishing the non-residential limit entirely could cause problems in a number of cases for certain landlords and commercial tenants. But as the Law Commission very clearly concluded, the current limit is

“an unwarranted impediment to the RTM, given that it can prevent premises which are mostly residential from qualifying.”

We think it is right that the Bill seeks to increase that limit, and we hope that doing so will bring a greater number and variety—that is important—of premises into the right to manage and therefore help to boost the number of leaseholders who decide to take over the management function of their buildings.

As with the non-residential limit for collective enfran-chisement claims, the threshold is inherently arbitrary, but we feel—here my hon. Friend is absolutely right—that we need to address the fact that 50% will leave large numbers of leaseholders shut out from the right to manage. He made the case for a 75% threshold, and I think that has a lot of merit. We sought to be slightly less prescriptive; instead, much in the way that we argued for powers to be put in the Bill for Ministers to further amend the non-residential limit for collective enfranchisement, we propose to give a degree of flexibility to the non-residential limit on right to manage claims, so that any future changes to increase it—and only to increase it—do not require primary legislation.

We want to be slightly more flexible, or less prescriptive, than my hon. Friend for the following reasons. First, we can imagine a range of scenarios in which we would need to look at the 50% threshold in terms of internal floor space. We also think, as with collective enfran-chisement claims, that a future Government may wish to look at the entire criteria afresh—I am thinking of cases of the right to manage, for example, where we might consider whether there are better metrics for determining the residential nature of a building. It is notable that, although the Law Commission ultimately recommended retaining the use of floor space as the metric, it explored in great detail a comparison between the values of the residential and non-residential parts as a way into this. A future Government may therefore wish to look at the criteria afresh, so we sought to give the Secretary of State that power.

We think that that is entirely sensible, as we did when we argued for earlier amendments. It would be by regulation subject to the affirmative procedure, to give this House the chance to give any change due scrutiny, but we think it is a sensible principle to build some flexibility into the Bill.

I expect the Minister will resist the amendment, for the reasons that he previously resisted a similar amendment on collective enfranchisement. I will therefore probably not press the amendment to a vote. However, I think we will have to come back to the issue later, because on both collective enfranchisement and right to manage, the Government are being somewhat stubborn in saying that the 50% sticks and that future primary legislation, which could be many years away, is the only way to look at it afresh. I hope that the Minister will give the amendment serious thought.

[Lee Rowley]

I am grateful for the comments and questions from the hon. Members for Greenwich and Woolwich and for Brent North. As they anticipated —I may be becoming too conventional—I will resist the amendment. Again, this is about where primary legislation stops and secondary legislation begins, and the Opposition are right to test us on that. It is perfectly legitimate for people to take different views on where that starts and stops, and we know that our colleagues in the other place caution us, where we can be cautioned, not to take too many Henry VIII powers. We are undertaking a self-denying ordinance to not take an additional Henry VIII power today, on the basis that this is of sufficient magnitude, albeit recognising the challenges that have been outlined, that it should be in the Bill and be clear, and that any appropriate changes should come through similar processes. For that reason, although I understand the rationale for it, and I am always happy to listen to the underlying points, the Government will not support the amendment.

[Matthew Pennycook]

I will not labour the point, but I put on record that I look forward to the Minister standing up at some future point in what remains of his tenure and arguing for the absolute necessity of a Henry VIII power in one or other respect. It will come, but obviously not on this occasion. As I said, we will have to come back to this matter, but we will reflect on how best to do so. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 22 ordered to stand part of the Bill.

Clause 23

Costs of right to manage claims

Amendment made: 45, in clause 23, page 39, line 30, at end insert—

“(8) See also sections 20CA and 20J of the Landlord and Tenant Act 1985, which prevent costs in connection with a claim under this Chapter being recovered by way of a variable service charge (within the meaning of section 18 of that Act).”.—(Lee Rowley.)

This amendment is consequential on NC7 .

--- Later in debate ---

[Lee Rowley]

I thank the shadow Minister for the amendment. Again, while I understand and acknowledge the underlying intent behind it, and share his inclination to reduce the cost for leaseholders to exercise the rights to form a company and bring a claim, we will not accept the amendment today for reasons that I will explain. It is perfectly clear that, and I think we will all accept this across the Committee, up until now the situation has been balanced in favour of landlords, who have been able to recover their process costs from leaseholders at times. The Bill will change that, as has been acknowledged, and will significantly broaden the cases in which each party will be required to bear their own costs. However, it is important that we take steps to protect landlords from unfair costs.

On amendment 7, the Government judge that it would be unfair if a landlord were required to meet their own process costs where a right to manage claim is withdrawn or ceases to have effect as a direct result of unreasonable conduct from the RTM company. The power for the tribunal to order payment of costs for such ceased claims also includes protections for leaseholders. The landlord will not be entitled to costs automatically and it will be necessary to make an application to the tribunal for an order to that effect. If the tribunal does not consider that costs should be payable, it can decline to make an order. I note that the shadow Minister acknowledged that in his initial remarks.

In aggregate, and with that in mind, my and the Government’s view is that, while the cost regime must change, if the amendment were passed, it would expose freeholders to the risk of facing burdensome and unfair costs. I ask the shadow Minister, if he is willing, to withdraw the amendment.

Turning to clause 23 itself, as has been indicated, leaseholders bringing forward a right to manage claim currently face unknown and potentially significant costs. That is because, under current rules, they must meet reasonable costs of a landlord as well as their own costs, and the costs of others often run into thousands of pounds. Those costs—also known as non-litigation costs—include professional services, surveyors, accountants and insurers from which a landlord may incur costs as a result of the claim. Clause 23 seeks to help by removing the requirement for right to manage companies and their leaseholder members to contribute towards those non-litigation costs, meaning that both parties to a claim will bear their own. It does so by replacing the existing cost regime in the 2002 Act.

A requirement that landlords should bear their costs means that they have an incentive to keep costs down, which hopefully reduces some of the issues that the shadow Minister highlighted, and to process claims quickly because they will not be able to pass those costs on to leaseholders bringing forward the claim, potentially reducing the overall cost for both landlords and leaseholders. To protect landlords from frivolous right to manage claims, the clause includes an exception, so landlords can claim costs where the claim has been withdrawn, abandoned, struck out or otherwise ceases, or where a RTM company has acted unreasonably. Under those circumstances, as has been outlined, the landlords can apply to a tribunal.

To reduce existing obstructions to the process, the clause amends the 2002 Act to ensure that a person complying with the duty to provide information cannot withhold supplying a copy of a document to a right to manage company on the basis that they are waiting to receive a reasonable fee. However, the right to manage company will still be liable for reasonable cost of a person complying with that duty.

The clause also removes the current one-way cost shifting rule for litigant costs, which means that only landlords can currently claim the litigation costs from the RTM company, if they are successful. It is only fair that parties to litigation should bear their own costs, and that is the change that has been made.

Finally, the clause prevents landlords from passing costs on to leaseholders via the service charge. We believe that, in aggregate, these measures will reduce uncertainty in making a right to management claim by making sure that each side to a claim bears their own costs. I commend the clause to the Committee.

[Alistair Strathern (Mid Bedfordshire) (Lab)]

I rise briefly to support the comments from my hon. Friend the Member for Greenwich and Woolwich. Although I welcome much of the Minister’s message about removing some of the deterrents to taking on the right to manage on estates, having spoken to a number of residents and campaigners in my constituency, I know that if the clause is not removed it will continue to be a real deterrent and to expose them to a risk of significant financial liability that they would be poorly placed to take on. I know the Minister has already set out that he is unwilling to support the amendment today, but I hope that the Government will reflect on whether they might be willing to come back to the point to ensure there is no unnecessary deterrent to leaseholders in obtaining the right to manage effectively.

--- Later in debate ---

[Lee Rowley]

The tribunal needs the power to order compliance with obligations under the Commonhold and Leasehold Reform Act 2002. Clause 24 amends section 107(1) of that Act to enable the tribunal to make an order requiring a person who has failed to comply with the requirement on them to address that failure and comply with the requirement within the time set out in the order. The clause also provides that where an order other than an order to pay money has been made by the appropriate tribunal, a person may apply to the county court for the enforcement of the order, or the tribunal may transfer proceedings to the county court for the enforcement of the order. If the tribunal makes an order for compliance, it will be enforceable by the county court in the same way as if it were an order of the county court itself. The clause also inserts a signpost to a general provision in the 2002 Act about the enforcement of tribunal decisions and to provisions in the Tribunals, Courts and Enforcement Act 2007 about the enforcement of an order to pay a sum of money. The measures will allow the appropriate tribunal and courts to exercise their proper enforcement function. I commend the clause to the Committee.

Question put and agreed to.

Clause 24 accordingly ordered to stand part of the Bill.

Clause 25

No first-instance applications to the High Court in tribunal matters

Question proposed, That the clause stand part of the Bill.

[Lee Rowley]

Clause 25 complements clause 24 by removing the risk that the change of jurisdiction for right to manage disputes to the tribunal will be circumvented through applications being brought in the High Court instead in the first instance. The clause prevents such applications being brought in the High Court. The tribunal already has exclusive jurisdiction over proceedings, and it is well placed to take over proceedings concerning the compliance with the right to manage provisions in the 2002 Act in the same way that they do for the acquisition of the right to manage. The clause does not prevent an appeal of the decision of the tribunal to the High Court or the jurisdiction of the High Court to consider judicial review claims. The measure will make the determination of disputes clearer, help to reduce costs and ensure that disputes are handled by judges with specialist knowledge. I commend the clause to the Committee.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Clause 26

Extension of regulation to fixed service charges

[Matthew Pennycook]

I beg to move amendment 10, in clause 26, page 42, leave out lines 12 and 13.

This amendment would ensure that the statutory test of reasonableness would apply to fixed service charges.

In considering part 3 of the Bill, we move away from provisions that draw on recommendations made by the Law Commission across its leasehold enfranchisement and right to manage reports from 2020 and instead turn to other Government proposals on the regulation of leasehold. The first five clauses in this part concern service charges in residential leases. The Government’s stated objective in including the clauses in the Bill is to improve the consumer rights of leaseholders by requiring freeholders or managing agents acting on their behalf to issue service charge demands and annual reports in a standardised format and a more transparent manner so that leaseholders can more easily assess—and, in theory, challenge—any unreasonable or erroneous charges.

We very much welcome the intent of the clauses. While much of the detail will await the statutory instruments required to bring them into force, the clauses have the potential to improve tangibly what is without doubt one of the most contentious and, for leaseholders, injurious aspects of the feudal leasehold tenure. My office receives scores of complaints, literally on a weekly basis, from leaseholders in my constituency who believe that when it comes to the setting of their service charges, they have been subjected to unreasonable costs; costs artificially inflated as a result of outright error, such as the duplication of charges for the same service; large periodic increases that are rarely justified; or abusive practices, such as the deliberate misuse of funds. Even when leaseholders do not believe that there is a specific problem with their service charge amounts, my experience talking to many thousands of them over the years in Greenwich and Woolwich is that most nevertheless feel that they are not particularly aware of or informed about what their charges are spent on or what their future liabilities might be.

That may well be a trend that is particularly prevalent in constituencies such as my own that contain a significant number of new-build leasehold flats, but my team and I increasingly find—as I am sure other hon. Members find in their own caseloads—that a sizeable proportion of the work we do involves simply demanding from freeholders and managing agents, on behalf of leaseholders pushed to the financial brink, a detailed breakdown of service charge costs. We are then frequently required to assist individual leaseholders or informal groupings of them in probing the relevant freeholder or managing agent on the justification for individual charges, and more often than not we expose discrepancies or charges levied for services that are not provided as a result.

Given that a Member of Parliament is involved in those cases, most freeholders, head lessees or managing agents will, in such circumstances, ensure that the aggrieved leaseholders are reimbursed, thus avoiding the need for them—[Interruption.] My hon. Friend the Member for Brent North laughs, but we have had success on occasion, once the relevant error is exposed. In those circumstances, it avoids the need for the leaseholders in question to take the matter to tribunal, with the detrimental implications that the current cost regime entails. However, many —perhaps most—do not, instead relying on the barriers that leaseholders face in going to tribunal to ensure that the unjustified costs are still paid and not challenged. I would wager that, in the scenario that I just set out, I am not alone among Members of the House in dealing with service charge disputes of that kind on a regular basis. To my mind, that is a clear indication that the current service charge regime is woefully failing to adequately serve leaseholders or protect their interests. The Opposition take the view that there is a cast-iron case for making changes to the regime, with a view to ensuring that service charges are levied in a more appropriate, transparent and fair way.

--- Later in debate ---

[Lee Rowley]

I thank the hon. Member for his amendment. Even though I will not be accepting it today, it raises an important question and he is right to allow us to debate it. We absolutely recognise that leaseholders who pay fixed service charges do not have the same rights of challenge as leaseholders who pay variable service charges—that is accepted and understood—but it is also the case that there are good reasons for that.

As the hon. Member indicated, the main sectors where fixed charges exist are the retirement and social housing sectors, where households are often on limited and fixed incomes, as I do not need to explain to the Committee. Leaseholders, especially those on low incomes, who pay a fixed service charge have certainty about that charge, whereas those who pay variable service charges do not. Landlords benefit from not having to consider tribunal applications but, in return, they should have a clear imperative to provide value for money.

If we were to grant the right to challenge fixed service charges in a similar way to how variable service charges can be challenged, there would be some operational and practical challenges, which is one of the reasons why we will not agree to the amendment today. For example, if landlords underestimate costs in one year, but overestimate them in another, is it feasible and reasonable to be able to challenge the reasonableness only in the year in which the costs are overestimated? Should a reciprocal ability to challenge or to recover the balance of an underestimated cost in a year, on the basis that it would be reasonable to do so, not be proposed? Landlords might move away from employing fixed service charges and switch to variable service charges, which could have unintended consequences.

Fundamentally, I share the hon. Gentleman’s view that there are challenges in all parts of service charges, and so there will be challenges within fixed service charges. The whole point of other elements of the Bill is to provide transparency and visibility of the reasoning for charges being made. For the reasons I have outlined, we are not of the view that this extension should be made for fixed charges.

[Eddie Hughes (Walsall North) (Con)]

I want to pick up on the shadow Minister’s point about ambiguity. There is no definition of what exactly would constitute a fixed charge, so there is the opportunity for flexibility or the law of unintended consequences. Given the lack of opportunity for subsequent challenge, a landlord might choose to move a charge from one column to the other. When the Minister said he would not accept the amendment today, did he mean he would give this point some further consideration in the future, or was he just being polite?

[Lee Rowley]

I am grateful to my hon. Friend for his question. Notwithstanding the tone of my responses, given the Committee’s interest I will happily write to it to make sure there is clarity on that point. I hope that, as a general and broad macro point, my comment still stands.

[Barry Gardiner]

The Minister has yet again confirmed his reputation for being reasonable. Can I probe him on the point about reasonableness? Many leaseholders complain that there is an amount in their service charges, which they may think is either reasonable or unreasonable, for a particular service, but when they enquire about the service provider, they find that it is in fact their landlord under another name. They then pay not only the cost of that arm’s length contractor providing the service, but a 15% service charge on top of it. Many people would feel that this is another rentier practice that landlords are using. I appreciate that the issue does not relate specifically to amendment 10, but I would very much like to get the Minister’s thoughts about the reasonableness of that practice on record.

[Lee Rowley]

I am grateful to the hon. Gentleman for raising that point. He articulates another example of good law being used in a way that is, in my view—without talking about individual incidents—both unintended and inappropriate. I am not a lawyer, and do not seek or have any desire to be one, but as I understand it, there is a concept of reasonableness within the legal domain based on an Act from a number of years ago. Hopefully that helps to answer part of his question, at least from a structural perspective. On the variable service charge side, without talking about individual instances, that kind of instance is a clear example of where those impacted would be able to go through the process of challenging it, which I think would be very sensible. If I were a leaseholder, I might be very tempted to do that, unless the charge could be justified in a different way. On the fixed service charge side, although I accept that there is the potential for these kinds of challenges, conceptually that needs to be balanced with the fact that when the contract was entered, an agreement was made to consent to that amount, for whatever reason—good or otherwise. That is why we are pursuing this. However, I take the hon. Gentleman’s broader point.

[Rachel Maclean]

This discussion goes to the heart of some practices and problems that leaseholders have experienced across the sector. On behalf of the many retirement leaseholders, mentioned by the shadow Minister, the hon. Member for Greenwich and Woolwich, I will make a point and ask for reassurance from the Minister.

What we are talking about with this amendment is different from the ground rent issue. Ground rent is a payment for nothing—nothing is being provided—whereas something is being provided for service charges. There is a service, so there is a need for a charge; that is perfectly legitimate. As Conservatives, we do not dispute the fact that there should be financial recompense for services. However, we find ourselves with a problem, the law of unintended consequences and the drivers of business models.

I would welcome if the Minister could touch on this in his response, but my fear is that if ground rents are removed and business models need to adjust to make recompense for that, the natural behaviour of unethical operators in the retirement sector and possibly elsewhere—some are unethical and do not think about the people who bought properties in good faith—will surely be to seek to load their charges, their profit and loss, back on to the service charge in some way. I am not close enough to existing contracts to know whether they will be able to do that with a fixed charge, so the discussion might be better suited to when we talk about the variable charge. The Minister can help me on that.

The broad point stands, however, in the case of someone dealing with the estate of a loved one, perhaps someone who has passed on, is in care, is suffering from dementia or otherwise does not have the capacity to deal with all this—the Minister will be familiar with such cases. They might be stuck with a property that they cannot sell, and that often applies in such cases when service charges are racking up in a way that is difficult for people to get a handle on—

[Rachel Maclean]

I thank the hon. Gentleman for bringing those figures to the attention of the Committee. I am familiar with them, as are others. [Interruption.] I do not wish to detain the Committee any longer—I can see the Whip making that plain to me. I will leave my remarks there, perhaps to continue at a later point, but the Minister may wish to respond in detail.

[Lee Rowley]

I, too, do not wish to challenge the patience of my colleague the Whip. There will be people who have existing fixed charges; that should not change. There will also be people who have choices about whether to enter into new fixed charges, whether absolute or indexed to some extent. For an inappropriate attempt to do something with variable service charges, there will be the ability to apply to tribunals. I hope that we are closing off all the options that would allow the kind of instances mentioned.

[Matthew Pennycook]

I will be brief, so as to dispose of the amendment.

I appreciate what the Minister said. He provided some useful clarity. In particular, he highlighted the practical challenges in addressing this matter, and the potential for landlords possibly moving away from fixed charges and into variable. I think that there is a corresponding risk the other way. I appreciate and take on board what he said about the certainty of the charge.

I think the Minister alluded to the point that I am trying to make, which is that residents should have value for money, and they do not always get it on each occasion. We have deliberately not sought to apply all the protections that apply to variable service charges, but focused on the test of reasonableness. With the help of two former Housing Ministers, I think I had an indication from the Minister that he will do this, but I would appreciate it if the Government went away to satisfy themselves that the protections are in place for that category of leaseholder. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Ordered, That further consideration be now adjourned. —(Mr Mohindra.)

Leasehold and Freehold Reform Bill (Fifth sitting)

Lee Rowley Excerpts

Committee stage
Tuesday 23rd January 2024 Public Bill Committees

[The Chair]

Before we begin, I have a few preliminary reminders for the Committee. Please switch electronic devices to silent. No food or drink is permitted during sittings of the Committee, except for the water provided. Hansard colleagues would be grateful if Members could email their speaking notes to [email protected] or, alternatively, pass their written speaking notes to the Hansard colleague in the room.

We will now begin line-by-line consideration of the Bill. The selection list for today’s sitting is available in the room and shows how the selected amendments have been grouped for debate. Amendments grouped together are generally on the same or similar issue. Please note that decisions on amendments take place not in the order in which they are debated, but in the order in which they appear on the amendment paper. The selection and grouping list shows the order of debates. Decisions on each amendment are taken when we come to the clause to which the amendment relates. Decisions on new clauses will be taken once we have completed consideration of the Bill’s existing clauses. Members wishing to press a grouped amendment or new clause to a Division should indicate when speaking to it that they wish to do so.

Clause 1

Removal of qualifying period before enfranchisement and extension claims

Question proposed, That the clause stand part of the Bill.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

It is a pleasure to serve under your chairmanship, Mr Efford. Today, we begin our line-by-line consideration. I first want to note and put on record my thanks to all the witnesses who gave evidence to the Committee last week. It was hugely useful to hear their insights, which will improve the Bill over the coming days and weeks ahead.

I am delighted to bring the Bill to Committee, and I look forward to the debate that will follow. Before we proceed, I quickly draw the Committee’s attention to a minor issue regarding the Bill’s explanatory notes. Paragraph 18 refers incorrectly to the right

“for an intermediate landlord to reduce (‘commute’) the rents that they pay”

following statutory lease extensions and ground rent buy-out claims. That is a drafting error as the clauses were not in the Bill when introduced. I have since tabled an amendment to introduce those clauses on intermediate leases, which we will debate shortly. I apologise for that minor drafting error and reassure the Committee that the explanatory notes will be updated to reflect the latest clauses before the Bill enters the other place.

I also want to make a small point in relation to legal language that I will use throughout the session. In existing legislation, leaseholders are referred to as “tenants”, which legally, they are. In everyday language, however, we often use the term “leaseholders” to differentiate long leaseholders from tenants holding shorter tenancies or those with less security of tenure. For simplicity, I will use the term “leaseholders”. Likewise, I will use the term “landlord” to mean both landlords and freeholders. In many cases, the landlord will be the freeholder, although that is not always the case. Where the provisions concern freeholders, I will use that term rather than “landlord”.

I now turn to part 1, which deals with leasehold enfranchisement and lease extension. When people buy a leasehold property, they will want to ensure that they have the long-term security and control they need to make it a home. They may have a short lease and wish to extend it, or they may have concerns about their landlord and wish to buy them out to have full ownership and control of that home.

The current requirement, where a homebuyer has to wait for two years before they can extend their lease or buy their freehold, is an obstacle for leaseholders and results in higher costs, as the price for enfranchising increases year on year. Furthermore, many investors take advantage of a loophole to avoid that requirement, while ordinary homeowners, who may be less familiar with the process, can find themselves in difficulties. There are also inconsistencies in the current law where, in certain circumstances, people can rely on a previous owner’s period of ownership to satisfy the requirement whereas others are unable to do so.

Clause 1 seeks to remove that barrier to leaseholders who wish to exercise their enfranchisement rights. It removes the requirement to have owned the lease of a house for at least two years before qualifying to buy their freehold or extend their lease. It also removes the requirement to own the lease of a flat for two years before extending the lease. This gives leaseholders the flexibility to make a claim immediately upon buying a leasehold property, and it will reduce their costs. It also resolves inconsistencies in the current law. The measures will remove an unnecessary restriction for leaseholders. I commend the clause to the Committee.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

I thank the Minister for his explanation of clause 1. I add the Opposition’s thanks to the witnesses who gave evidence to us last week. It was extremely useful. Before I begin, I would like to declare an interest. My wife is joint chief executive of the Law Commission, whose work we will be debating extensively in the days to come.

It is a pleasure to start line-by-line consideration with you in the Chair, Mr Efford. It is a genuine privilege to serve on a Public Bill Committee comprised of hon. Members who have not only a real interest in the subject matter, but real expertise. It is my sincere wish that we draw on all of it in the days ahead to improve this legislation and, as much as the Government Whip may discourage it, that hon. Members on the Government Benches, including the hon. Members for Walsall North and for Redditch, as former Housing Ministers, take the opportunity to participate actively in our deliberations.

Having not had a suitable chance to put it on the record, I would like to take this opportunity to formally welcome the hon. Member for North East Derbyshire back to his place. He and I disagree politically, often viscerally, when it comes to many, many issues, but he is a hard-working, diligent and thoughtful Minister. I look forward to the robust and, on the whole, constructive debates we will have over the coming sessions.

Before I turn to the detail of clause 1, I want to put some brief general remarks on the record to frame what is to follow. As we made clear on Second Reading, we are fully in support of the principle of the Bill and the intent behind its provisions. The range of measures that the Committee will consider will, without question, provide a degree of relief to leasehold and freehold homeowners in England and Wales, by giving them greater rights, powers and protections over their homes. That is obviously to be welcomed. However, during Second Reading we also expressed our deep regret about the Bill’s lack of ambition and bemoaned the implications for leaseholders, who are being routinely gouged by freeholders under the present flawed system.

I want to be as clear as I possibly can with leaseholders who may be following our proceedings as to the Opposition’s approach to the Committee stage. While we welcome in principle the provisions contained in the Bill, we do have concerns about the efficacy of several of them, including clause 1. As such, we will seek to probe and rectify their various defects and deficiencies so as to ensure that they truly deliver for leaseholders. We will also engage constructively with the Government in relation to any significant new measures introduced into the Bill, not least the glaring omission of provisions designed to ban the sale of new build leasehold houses. We will introduce a number of specific targeted measures designed to give leaseholders a little more control over their future and strengthen the foundations on which future, bolder reform will be enacted.

What we do not intend to do is attempt to persuade the Government of the benefits of using this Bill to enact all, or even significantly more, of the hundreds of Law Commission recommendations on enfranchisement, right to manage and commonhold, which the Government have chosen not to include in this Bill. The Government had the opportunity to bring forward ambitious legislation and enact all the Law Commission’s recommendations from its three reports in 2020, thereby delivering on the promises that successive Ministers have made to leaseholders over the past years. They have made the political choice not to do so. Attempting to radically overhaul this piece of legislation by means of hundreds of amendments required to implement all those recommendations would not only be an onerous, perhaps impossible, undertaking, given its limited nature, but would delay the Bill’s passage and, with a general election in the months ahead still a distinct possibility, put it at risk entirely.

We want leaseholders to benefit from the measures in the Bill as soon as possible. We therefore wish to see it, albeit suitably strengthened, out of Committee as quickly as possible to maximise its chances of receiving Royal Assent. Make no mistake, Labour is committed to bringing the current iniquitous leasehold system to an end, overhauling it to the lasting benefit of leaseholders and reinvigorating commonhold to such an extent that it will ultimately become the default and render leasehold obsolete. Leaseholders across the country therefore have our firm commitment to finish the job in due course.

Turning to clause 1 and the rest of part 1, one of the reasons that the Bill can reasonably expect a speedy passage out of Committee is that parts 1 and 2, together with related schedules, implement a subset of Law Commission recommendations that are almost entirely uncontentious. Part 1 of the Bill, as the Minister has said, concerns leasehold enfranchisement and extension.

As I have said, the clauses in this part implement some but not all of the Law Commission’s recommendations designed to make it cheaper and easier for leaseholders in houses and flats to extend their lease or acquire their freehold. They include procedural changes as well as substantive ones that extend tenant rights and empower leaseholders by giving them greater control and value. There is in that respect, and as we touched on during the evidence sessions last week, an explicit and very welcome redistributive intent that underpins the legislation.

As the Law Commission exhaustively detailed in its final 2020 report on leasehold enfranchisement, the case for reforming the present enfranchisement regime is incontrovertible. It is not only incredibly complex but inconsistent. As a result, leaseholders face unnecessary litigation, uncertainty and costs when attempting to exercise their rights under it. The law in this area needs to be overhauled and we therefore welcome the objective that underpins each of the provisions in this part.

We wish to probe the Government further on various issues relating to the precise drafting of those provisions, as well as seeking to address the flaws of a limited number. As the Minister made clear, clause 1 removes the two-year qualifying period before enfranchisement and extension claims can proceed in respect of both houses and flats by amending the relevant sections of the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993, which I will hereafter refer to simply as the 1967 and 1993 Acts.

Clause 1 implements recommendation 29 from the Law Commission’s final 2020 report on leasehold enfranchisement. We welcome the clause. A core objective of the Bill is to increase access to enfranchisement by rendering more leaseholders eligible for such rights. By liberalising this and other qualifying criteria, we are confident it will achieve that objective.

As the Committee is no doubt aware, the current two-year ownership requirement was designed primarily to prevent investors benefiting from enfranchisement rights intended for residential leaseholders. Yet it is patently not achieving that objective given the relatively simple workarounds that sophisticated commercial investors can and do take advantage of. Indeed, the requirement can fairly be said to have created a market designed explicitly to facilitate their doing so—a development entirely at odds with the rationale for the two-year ownership requirement. At the same time, that requirement presents a significant barrier to ordinary leaseholders exercising enfranchisement rights and, importantly, leads to rising premiums for many of them as a result of waiting for two years in which capital values may have increased or lease lengths reduced.

Abolishing the requirement for leaseholders to have owned premises for two years prior to exercising enfranchisement rights, so that they have the right to carry out an enfranchisement claim as soon as they acquire their lease, is an entirely sensible reform. It would also resolve the current inconsistency between the position of trustees in bankruptcy and of personal representatives, and avoid the technical, costly and error-prone workarounds that have been created involving the assignment of a benefit of notice.

Although the clause is entirely uncontentious from our perspective, I do have one question for the Minister: why have the Government chosen to include subsection (2)(c) and, consequential on that reform, subsection (3) in this clause? Subsection (3A) of section 39 of the 1993 Act concerning what happens in the event of the death of a qualifying tenant clearly needs to be overhauled to account for the removal of the two-year qualifying period, but surely the Government wish to ensure that the right of a tenant’s personal representative to exercise enfranchisement rights on their behalf in the event of their death is sustained? Will the Minister confirm whether I am right in believing that that is the Government’s wish?

If so, given that the right would not appear to be sustained as a result of the drafting of clause 1, is it maintained by means of other provisions in the Bill? If not, surely the Government must accept that the decision to simply omit the relevant subsection (3A) needs to be reconsidered to ensure that the right is maintained in future? The omission may affect only a small number of leaseholders going forward, but it is important that we ensure their personal representatives are conferred the rights that they would have enjoyed had they lived. I look forward to the Minister’s response.

[Lee Rowley]

First, let me echo the remarks of the hon. Member for Greenwich and Woolwich. He said some kind words about me and I would like to say the same about him. He has always been extremely constructive and helpful. We share the aim of trying to improve the legislation and I am grateful to be working with him. I hope we can work in many areas and agree more than we disagree. He was right when he said that this is incredibly complicated. Having tried for the past two months to get into all the details, there may still be areas where I am unable to answer all the questions from hon. and right hon. Members today. I will do my best, but I will write to them if I am unable to answer anything.

I am grateful to the hon. Gentleman for confirming that Labour will support this clause. On his specific point around where leaseholders have sadly passed away and there is a requirement for a personal representative or equivalent, it is not our intention to make that process any more difficult or to change the fundamental ability of people to make decisions about how to dispose or deal with properties that are left in the event of a death. Having spoken to officials and those involved in the drafting of this, my understanding is that the exemptions referred to in subsections (2)(c) and (3) become effectively moot. The removal of the two-year rule preventing a representative from taking action means that at the point they inherit the property—or whatever legal approach is taken to transfer it the estate to a new owner or representative—the problem goes away.

If, for some reason, we have missed something, I would be very happy to take anything from the hon. Member for Greenwich and Woolwich or others, either now or in writing, which I can go away and look at. Our understanding is that this does not need to continue, hence why we have chosen to remove it within the clause.

[Matthew Pennycook]

I welcome that clarification from the Minister and his indication that it is the Government’s firm intent to ensure that personal representatives can exercise enfranchisement rights on behalf of a leaseholder who has died, because of the removal of the two-year rule. I urge the Minister or his officials to look at the precise wording of this clause, because we are worried that—his comments notwithstanding—it may not do this in practice, and there may be some ambiguity. I do, however, welcome the assurance he has given. On that basis, we will not oppose this clause standing part of the Bill.

[Lee Rowley]

To confirm, I am happy to double-check this, but I hope what I have just indicated stands.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Removal of restrictions on repeated enfranchisement and extension claims

Question proposed, That the clause stand part of the Bill.

[Lee Rowley]

Currently, the restrictions placed on leaseholders to make a claim to buy their freehold or extend their lease can be seen as excessively punitive. Leaseholders are prevented from making a claim to buy their freehold or extend their lease for 12 months, when a previous claim has failed even on a minor point. In addition, a claim for a lease extension on a house can be obtained only once, and we seek to remove those unnecessary barriers for leaseholders, which frustrate their ability to buy their freehold or extend their lease.

Clause 2 seeks to address this problem by removing the requirement to wait 12 months to submit a new claim if the previous one has failed. It will also remove the restriction on bringing a further claim where a lease extension has already been obtained for a house. This means that leaseholders will be able to put in a further claim to enfranchise or extend their lease as soon as they have resolved the issues with their failed claim. Leaseholders of houses will not be prevented from making a claim for a lease extension if one has already been obtained, preventing the landlord from being able to regain possession of the property from a leaseholder when the lease eventually comes to an end.

Clause 2 will also remove provisions that give courts powers to prevent new enfranchisement or lease extension claims for five years where a claim has failed, and the leaseholder did not act in good faith or attempted to misrepresent or conceal material facts. These powers are old and surplus to requirements, coming from the 1967 Act, which has been overtaken by developments in the law around civil restraint orders since then. These restraint orders are more flexible, better developed, subject to more rigorous checks, and may be fairer than the existing power. Therefore, the existing law and the Bill can still deal with meritless of abusive enfranchisement claims. The tribunal already has powers to award costs for such unreasonable behaviour. The removal of these should not change that; it is simply a tidying-up exercise, and a recognition that other parts of the law do this better. These measures will remove barriers to leaseholders being able to take up their right to enfranchise or extend their lease without unnecessary delays.

[Matthew Pennycook]

I welcome that explanation of the clause, which, as the Minister says, removes various restrictions on repeated enfranchisement and extension claims. It is our understanding that they include the provisions in the 1967 Act and the 1993 Act that prevent tenants from starting new enfranchisement or lease-extension claims within 12 months of an earlier claim failing to complete; the provisions of the 1967 Act that give courts the power to order compensation and prevent new enfranchisement or lease extension claims for five years after a claim has failed; and the provisions of the 1967 Act that prevent tenants from bringing a further lease extension claim where a lease extension has already been obtained under the Act.

--- Later in debate ---

Secondly, the Minister will know that the Law Commission proposed that freeholders should have the right to apply to the tribunal for an enfranchisement restraint order, with the purpose of preventing leaseholders from making repeat claims that are entirely without merit or that are, either of themselves or when considered together, frivolous, vexatious or otherwise an abuse of process. The Minister gave an indication in his opening remarks that the Government’s view is that the necessary order powers are already there, but I would like him to explain why they did not believe it was appropriate to incorporate into the clause the Law Commission’s recommendation to give freeholders the right to seek such an order from the tribunal. Do the Government believe that the likelihood of leaseholders making bad-faith claims of the kind that an ERO would allow the tribunal to prohibit is negligible? If so, what evidence is that belief based on? If the Government accept that some leaseholders may make repeat bad-faith claims, why do they believe there is no need to provide a mechanism by which such behaviour could be prevented? I look forward to the Minister’s response.

[Lee Rowley]

I am grateful to the hon. Gentleman for his comments and, again, for indicating his support for the intent of clause 2. On his question with regard to subsections (1)(c) and (d), I will write to him, given that it is a technical question about the specific description in the legislation. Hopefully, I will be able to provide the comfort he seeks.

As he indicated later in his remarks, we believe there is the ability for vexatious claimants, in whatever sense, to be accommodated by the existing legislation elsewhere, so there is no need to replicate that or to retain something that is very rarely used. That is the reason for removing it.

Finally, on his point about orders from a tribunal and the Law Commission’s recommendation, it goes back to the fact that we believe the process that is in place is already mature and very capable of responding to the legitimate points he highlights. Therefore, there is no need to create an additional process in the Bill, but I will write to him to absolutely clarify that point and make sure that we have everything we need.

[Matthew Pennycook]

I welcome that clarification from the Minister and look forward to any further detail that he might provide to the Committee via written correspondence.

[Rachel Maclean (Redditch) (Con)]

May I ask the Minister to confirm that clause 2(2) refers to schedule 7 to the Bill? In our evidence sessions last week, we heard from certain leaseholders who were concerned that they would not benefit from the provisions if their lease was less than a certain number of years. Paragraph 2(2)(a) of schedule 7 states that a lease will not qualify if

“the unexpired term of the lease is less than 150 years”.

There was some debate about that length. Will the Minister address those leaseholders’ concern that the period is too long and that there should not be that restriction? Or will he write to me later to address what considerations went into that provision? If we are excluding people from these welcome provisions, perhaps we should seek to otherwise widen the group of people who can benefit from having their leases converted to a peppercorn lease.

[Lee Rowley]

We will probably talk in detail about the 150-year decision—the Law Commission proposed 250 years—in relation to quite a number of areas later this morning, so I do not want to pre-empt that now. As I will explain later, the Government’s intention was that, if a lease is coming up in a reasonably short period of time, it is advantageous to align everything together, as opposed to doing just one thing, because there will be the potential for double costs and the like. I am happy to talk about that more when we get further into line-by-line consideration.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3

Change of non-residential limit on collective enfranchisement claims

[Matthew Pennycook]

I beg to move amendment 1, in clause 3, page 2, line 19, at end insert—

“(2) After section 4(5) of the LRHUDA 1993, insert—

‘(6) The Secretary of State or the Welsh Ministers may by regulations amend this section to provide for a different description of premises falling within section 3(1) to which this Chapter does not apply.

(7) Regulations may not be made under subsection (6) unless a draft of the regulations has been laid before, and approved by resolution of—

(a) in the case of regulations made by the Secretary of State, both Houses of Parliament;

(b) in the case of regulations made by the Welsh Ministers, Senedd Cymru.’

(3) In section 100 of the LRHUDA 1993—

(a) in subsection (2), after ‘making’, insert ‘provision under section 4(6) or’;

(b) in subsection (3), after ‘making’, insert ‘provision under section 4(6) or’.”

This amendment would enable the Secretary of State or (in the case of Wales) the Welsh Ministers to change the description of premises which are excluded from collective enfranchisement rights. Such a change would be subject to the affirmative resolution procedure.

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[Rachel Maclean]

The hon. Gentleman is a very persuasive orator in this Committee, as he is in many other fora, and I will definitely listen to those arguments when they are made. We all work in the spirit of improving this Bill. I very much hope that the Government will provide the explanations I have asked for, and specifically on this issue at this point.

[Lee Rowley]

I thank hon. Members and Friends for their contributions. I will take them in turn. On the amendment, I find myself in the slightly unusual place of arguing against a Henry VIII power, as they are occasionally called and as he referred to them. As indicated, there are a number of Henry VIII powers in the Bill, and I am sure that people will have views on them when we get to them. Our colleagues in the other place often have very strong views on such powers. It is an unusual place to be, but I happily take it up.

I absolutely understand the point that hon. Members have made and the reality of what they are trying to articulate. The fact that we are making a change indicates that there are times when it is proportionate and reasonable to make changes. The reason for the Government’s not taking powers in secondary legislation—which I know, joking aside, that hon. Members would accept—is that there is a continuum for drawing or not drawing lines, and we think that this does not necessarily need to be on the line of taking powers in order to do things in secondary legislation, simply because this is a substantial change. It is being actively debated; Members are debating whether it is sufficient and, as my hon. Friend the Member for Redditch asked, precisely how it will work to improve the situation in practice. I think the Government’s preference is to keep that discussion in primary legislation. We recognise that primary legislation is always more challenging in terms of timelines and space in this place, but it is a sufficiently important change that it should be able to be debated in the way we are doing today.

[Eddie Hughes (Walsall North) (Con)]

I understand that it is appropriate to future-proof legislation and allow for flexibility, but I agree with the Minister that a substantial change has already been made. Proportionately, we are talking about the number of buildings that have already been constructed, and therefore the people that we are helping. I fully appreciate that the shadow Minister is concerned about future developers gaming the system, but in terms of proportion, it is important that we focus our efforts on the buildings that have been built.

[Lee Rowley]

I am grateful to my hon. Friend for highlighting that. The shadow Minister expressed hope that the Government would agree with some of his amendments at some point. I am afraid that I will have to dash his hope on this one. We understand its purpose, but on the basis that I have articulated, we would prefer to keep this in primary legislation. I hope that the shadow Minister might consider withdrawing the amendment.

On clause 3, as it stands, we have been clear that we want to improve access to collective enfranchisement so that more leaseholders of flats can enjoy the benefit of freehold ownership. Many leaseholders in mixed-use but predominantly residential buildings are currently prevented from buying their freehold, as hon. Members have indicated. Clause 3 amends the 1993 Act to increase that limit from 25% to 50%. This has been consulted on widely and was recommended by the Law Commission. Where residential leaseholders take up the majority of the floor space in a building, it is our view that they should be able to access the long-term security and control that comes with freehold ownership, if they choose to do so.

We recognise that this change impacts freeholders. If the leaseholders choose to buy their freehold, the freeholder stands to lose ownership of individual buildings, and that may fragment ownership of some areas over a longer timeframe. We believe that impact to be justified not only because of the significant benefit to leaseholders but because freeholders will be compensated for that loss. We do not believe, as a principle, that the single contiguous ownership of space is absolutely necessary for buildings to be managed well.

We have also heard arguments from leaseholders that they will be unable to professionally manage mixed-use buildings. Although I understand their point, through, for example, the delegation of a building’s management to an agent, that should be overcome. I accept the points made and understand the shadow Minister’s point on the difficulty of ensuring that leaseholders can be engaged to the point where they pass the threshold, whatever the number—and all numbers are ultimately arbitrary. As he has indicated, I think the Committee will return to this, but we think the clause, as it stands, is the right approach. Therefore, we resist the amendment and hope that the shadow Minister will withdraw it.

--- Later in debate ---

Question proposed, That the clause stand part of the Bill.

[Lee Rowley]

Clause 4 introduces schedule 1, which repeals rights that enable landlords to block a lease extension or freehold acquisition claim for a house or flat where the landlord intends to redevelop or reoccupy the property. Where the blockers are used, compensation is only paid to leaseholders in houses, not those in flats. The blockers apply to a minority of leases that have not been extended and are very near to ending.

Although that means that, in practice, rights are rarely used, enfranchising leaseholders should have the opportunity to make their decisions about the need and scope of redevelopment once they own the freehold. Leaseholders with few years remaining on their lease should have the option of extending and securing their tenure. Where a lease is extended, landlords will continue to have statutory break rights that can terminate leases for redevelopment. We will consider break rights in schedule 6 and cover further details about the blockers when we come to consider schedule 1. I commend the clause to the Committee.

[Matthew Pennycook]

As the Minister has made clear, clause 4 concerns eligibility for enfranchisement and extension in specific cases. It gives effect to schedule 1, which repeals specific limitations on those rights under the 1967 and 1993 Acts. As the Minister has detailed, they include: the right of a landlord to defend a lease extension or collective enfranchisement claim on grounds of redevelopment; the right to defeat a freehold acquisition or lease extension claim for the purposes of retaking possession of the property for personal use; and the limitations that prevent a sublessee from claiming a lease extension if their sub-lease was granted by an intermediate leaseholder out of a lease that had been extended under the relevant Act.

We welcome the clause, which implements, although is not confined to, recommendation 98 of the Law Commission’s final report on leasehold enfranchisement. When considering the case for reform in this area, the Law Commission made clear that its proposal could reduce the value of the leaseholder’s lease as a result of the transfer of some enfranchisement rights from a leaseholder who has previously extended his or her lease pursuant to the legislation to the leaseholder to whom they had subsequently granted a sub-lease. However, the Law Commission ultimately determined that any such loss of value was overstated. Its reasoning was—assuming that I have understood the relevant technical arguments correctly—that there would be no difference in value between the sum that the intermediate leaseholders could expect to obtain if their lease was acquired in a collective freehold acquisition under the present law and the value of the intermediate leaseholder’s interest in the light of its proposal.

This may not be an issue that the Government have deliberated on further in any way—it is extremely technical—but, if the Minister is able and if they did, will he tell us whether they are confident that clause 4 would not reduce the value of the leaseholder’s lease as a result of the transfer of some of their enfranchisement rights in accordance with its provisions? In short, do the Government believe that the Law Commission was correct to assert that the potential for any such loss of value is overstated and that, therefore, we can approve clause 4 without any concern?

[Lee Rowley]

I am grateful to the hon. Gentleman for his contribution. As he indicates, this is—I think by common consent—a rare issue in the first place, not that that diminishes the importance of ensuring that we get it right. It is very complicated, as he has indicated; different leases will have different elements within them and it is impossible to comment on every single case or every single instance, as has been indicated, because of the complexity. I am not aware that there is an indication that there is a general reduction in the value of leases for the very small number that this will cover. I will write to the Committee if what I have just said is incorrect or needs clarification in any way. I hope that, on that basis, we can make progress.

[Matthew Pennycook]

I welcome that clarification from the Minister and the offer to provide us with further details should they be needed.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Schedule 1

ELIGIBILITY FOR ENFRANCHISEMENT AND EXTENSION: SPECIFIC CASES

[Lee Rowley]

I beg to move amendment 57, in schedule 1, page 82, line 16, at end insert—

“Exception to enfranchisement for certified community housing providers

3A (1) The LRA 1967 is amended as follows.

(2) In section 1 (tenants eligible for enfranchisement and extension), after subsection (1B) insert—

‘(1C) This Part of this Act does not confer on a tenant a right to acquire the freehold of a house and premises if the landlord under the existing tenancy is a certified community housing provider (see section 4B).’

(3) After section 4A insert—

‘4B Meaning of “certified community housing provider’

(1) For the purposes of this Part of this Act, a person is a “certified community housing provider” if the appropriate tribunal has issued a community housing certificate in respect of the person.

(2) A community housing certificate is a certificate that the tribunal has determined that the person—

(a) is a community land trust within the meaning of section 2(7A) of the Leasehold Reform (Ground Rent) Act 2022, or

(b) is of a description, or satisfies conditions, specified for this purpose in regulations made by the Secretary of State.

(3) The tribunal may issue a community housing certificate only in respect of a person that has made an application to the tribunal for the certificate.

(4) The tribunal may cancel a community housing certificate—

(a) on the application of the person in respect of which the certificate is issued, or

(b) on the application of a tenant affected by the certificate, if the tribunal considers that—

(i) the person in respect of which the certificate is issued does not fall within subsection (2)(a) or (b), or

(ii) the certificate was obtained by deception or fraud.

For this purpose a tenant is “affected by” a certificate if, by virtue of section 1(1C), the tenant does not have the right to acquire the freehold because the certificate is issued in respect of their landlord.

(5) The effect of the tribunal cancelling the certificate is that the person is not a certified community housing provider unless the tribunal issues a new community housing certificate.

(6) The Secretary of State may by regulations provide for—

(a) the procedure to be followed in connection with an application for a community housing certificate;

(b) the procedure to be followed for the cancellation of a community housing certificate (including in connection with an application for the cancellation);

(c) any matters to which the tribunal must have regard in deciding whether to issue or cancel a community housing certificate.

(7) The Secretary of State may by regulations make provision about the application of this Part in circumstances where—

(a) a landlord’s application for a community housing certificate has not been concluded when a tenant gives notice of their desire to have the freehold of a house and premises under this Part, or

(b) a tenant’s claim to have the freehold of a house and premises under this Part has not been concluded when a landlord’s application for a community housing certificate is made.

(8) Regulations under subsection (7) may in particular provide for—

(a) the claim for the freehold to be paused or to have no effect;

(b) a time period for the purposes of this Part to be extended in connection with the application;

(c) the landlord to compensate a tenant or reversioner in respect of reasonable costs incurred in connection with a claim to acquire the freehold—

(i) if the tenant ceases to have the right to acquire the freehold because of the issue of a certificate under this section, or

(ii) if the costs are incurred as a result of the claim being suspended because of an application for a certificate under this section;

(d) enforcement by the appropriate tribunal of any of the requirements of the regulations;

(e) the appropriate tribunal to make orders that are supplementary to the issue of a community housing certificate.

(9) Regulations under this section—

(a) may make different provision for different purposes;

(b) are to be made by statutory instrument.

(10) A statutory instrument containing regulations under this section (whether alone or with other provision) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.’

3B (1) The LRHUDA 1993 is amended as follows.

(2) In section 5 (qualifying tenants for enfranchisement), after subsection (2)(a) insert—

‘(aa) the immediate landlord under the lease is a certified community housing provider (see section 8B); or’

(3) Before section 9 insert—

‘8B Meaning of “certified community housing provider’

(1) For the purposes of this Chapter, a person is a “certified community housing provider” if the appropriate tribunal has issued a community housing certificate in respect of the person.

(2) A community housing certificate is a certificate that the tribunal has determined that the person—

(a) is a community land trust within the meaning of section 2(7A) of the Leasehold Reform (Ground Rent) Act 2022, or

(b) is of a description, or satisfies conditions, specified for this purpose in regulations made by the Secretary of State.

(3) The tribunal may issue a community housing certificate only in respect of a person that has made an application to the tribunal for the certificate.

(4) The tribunal may cancel a community housing certificate—

(a) on the application of the person in respect of which the certificate is issued, or

(b) on the application of a leaseholder affected by the certificate, if the tribunal considers that—

(i) the person in respect of which the certificate is issued does not fall within subsection (2)(a) or (b), or

(ii) the certificate was obtained by deception or fraud.

For this purpose a leaseholder is “affected by” a certificate if, by virtue of section 5(2)(aa), the leaseholder is not a qualifying tenant because the certificate is issued in respect of their immediate landlord.

(5) The effect of the tribunal cancelling the certificate is that the person is not a certified community housing provider unless the tribunal issues a new community housing certificate.

(6) The Secretary of State may by regulations provide for—

(a) the procedure to be followed in connection with an application for a community housing certificate;

(b) the procedure to be followed for the cancellation of a community housing certificate (including in connection with an application for the cancellation);

(c) any matters to which the tribunal must have regard in deciding whether to issue or cancel a community housing certificate.

(7) The Secretary of State may by regulations make provision about the application of this Chapter in circumstances where—

(a) a landlord’s application for a community housing certificate has not been concluded when a nominee purchaser gives notice under section 13 of a claim to exercise the right to collective enfranchisement, or

(b) a claim to exercise the right to collective enfranchisement has not been concluded when a landlord’s application for a community housing certificate is made.

(8) Regulations under subsection (7) may in particular provide for—

(a) the claim for the freehold to be paused or to have no effect;

(b) a time period for the purposes of this Chapter to be extended in connection with the application;

(c) the landlord to compensate the nominee purchaser, a tenant or a reversioner in respect of reasonable costs incurred in connection with a claim to exercise the right to collective enfranchisement—

(i) if a person ceases to be a participating tenant because of the issue of a certificate under this section (and in this case the compensation may relate to reasonable costs for which the person is liable that are incurred after the person ceases to be a participating tenant),

(ii) if the participating tenants cease to have the right to collective enfranchisement because of the issue of a certificate under this section, or

(iii) if the costs are incurred as a result of the claim being suspended because of an application for a certificate under this section;

(d) enforcement by the appropriate tribunal of any of the requirements of the regulations;

(e) the appropriate tribunal to make orders that are supplementary to the issue of a community housing certificate.’

(4) In section 39(3)(a) (qualifying tenants for extension), before ‘(5)’ insert ‘(2)(aa), ’.

(5) In section 100 (orders and regulations), after subsection (2) insert—

‘(2A) But a statutory instrument containing regulations under section 8B (whether alone or with other provision) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.’”

This amendment would provide for an exception to enfranchisement (but not extension) for tenants of certified community housing providers (persons certified as managing land for the benefit of local communities).

[The Chair]

With this it will be convenient to discuss Government amendments 30 and 32.

[Lee Rowley]

As we considered regarding clause 4, schedule 1 repeals blockers to enfranchisement claims. The schedule repeals blockers that enable landlords to block claims for lease extensions and freehold acquisitions where the landlord intends to redevelop a property. The rights apply to cases where leases are very near to ending and, again, are rarely used. Compensation is paid to leaseholders only where the blockers are used in houses, not flats.

The schedule also repeals blockers that apply to niche cases, including: a blocker allowing a landlord or their family to reoccupy a house, which now applies to very few leases, due to its criteria; a public authority development blocker that has fallen from use; and a blocker to sub-lease extensions, where they are granted out of a superior extended lease.

The schedule makes consequential amendments that are necessary because of the repeals that I have just described. Where a lease is extended, landlords continue to have statutory break rights, which we will consider in later deliberations, and they may continue to seek voluntary agreements to end a lease. Public landlords may also have access to compulsory purchase orders. I commend that measure to the Committee.

I will now speak to amendment 57 and the consequential amendments 30 and 32. While we want to encourage many more leaseholders to buy their freeholds, there are good reasons for certain properties to be exempt from freehold ownership. For instance, certain community-led developments, providing affordable housing for local people, wish to be exempt from freehold acquisition—that is not their original purpose and it should not become so—so that the homes can remain affordable for the benefit of the community in perpetuity.

These amendments exempt community land trusts, a form of community-led housing, from freehold acquisition, as that model of housing relies on land being held in single ownership to remain as community-led housing. The amendments also provide a power for the Secretary of State to define in regulations further types of community-led housing, should that be necessary in future.

The exemption will only apply to an organisation once it has obtained a certificate from the tribunal that it satisfies the definition of community-led housing. That ensures that the exemption is properly targeted and not misused. An organisation will cease to benefit from the exemption if the certificate is cancelled by the tribunal. That includes where the organisation no longer satisfies the definition of a community-led housing organisation, or where the organisation asks the tribunal to cancel the certificate.

These amendments will protect the benefits of genuine community-led housing schemes from being lost to future generations. I therefore commend them to the Committee.

Finally, I beg to move amendment 58 in my name.

[The Chair]

Order. Amendment 58 is in the next group. We are debating Government amendments 57, 30 and 32 to schedule 1.

[Lee Rowley]

My apologies, Mr Efford. I thought that we were debating these as a group. I will come to amendment 58 when we get to that group.

[Matthew Pennycook]

I rise briefly to speak to these four Government amendments and to make a wider comment on them and the other 116 amendments that have been tabled in the Minister’s name over recent days.

Having scrutinised these amendments as carefully as we could in the time available, we are as confident as we can be that none is problematic. Indeed, we very much welcomed the exemption provided for community-led housing.

As confirmed to the Committee by Professor Nick Hopkins, 18 of the 120 Government amendments tabled in Committee implement Law Commission policy that was not in the Bill as introduced and on which Law Commission staff have been involved in instructing parliamentary counsel. The vast majority of the other 102 amendments are merely technical in nature. Providing that the Minister sets out clearly their effect and rationale, as he just has in relation to this group of amendments, we do not intend to detain the Committee over the coming sessions by exploring the finer points of each.

However, I feel I must put on record our intense frustration at the fact that so many detailed Government amendments were tabled just days before commencement of line-by-line scrutiny began. The practice of significantly amending Bills as they progress through the House has become common practice for this Government and in our view it is not acceptable. Other Governments have done it, but it has become the norm under this Government. It impedes hon. Members in effectively scrutinising legislation and increases the likelihood that Acts of Parliament contain errors that subsequently need to be remedied, as happened with the Building Safety Act 2022; as the Minister will know, we have had to pass a number of regulations making technical corrections to that Act.

When it comes to this Bill, the Government have had the Law Commission’s recommendations for almost four years and access to Law Commission staff to aid parliamentary counsel with drafting. There really is no excuse for eleventh-hour amendments introducing Law Commission policy or technical amendments designed to clarify, correct mistakes, or ensure consistency across provisions.

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[Rachel Maclean]

I will not detain the Committee for long. In response to those comments from the Opposition, I observe only that when they were last in government— in 2002, if I am correct—they had the opportunity to address the system and rectify the failures that we are now dealing with. It is now left to this Government to do it. On that note, I want to say to my hon. Friend the Minister how important it is that the community-led housing sector is excluded. I would not normally say that about any form of housing, but we have recently strengthened the national planning policy framework to encourage more of that type of housing. We know it is popular and often commands local support, while other types of housing sadly do not, and we need to see more of it built. The sector has had extensive discussions. This is a sensible amendment, which I support.

[Lee Rowley]

I thank my hon. Friend for confirmation of the importance of community-led housing, which we have spoken about previously. I absolutely agree about its importance.

I will not get into a broader conversation about the processes of government, other than to say that I note the concerns of the hon. Members for Brent North and for Greenwich and Woolwich. The intention is to give the Committee and the House as a whole as much scrutiny as possible. I am sure that the hon. Members will understand that, outside the bounds of the points that they are making, getting proposed legislation ready is often a complicated process—in particular ensuring that it is as correct as it can be. None the less, I have noted their points, but I hope to be grateful for their support for the underlying provision we are debating.

Amendment 57 agreed to.

[Lee Rowley]

I beg to move amendment 58, in schedule 1, page 82, line 28, at end insert—

“Eligibility of leases of National Trust property for extension

4A For section 32 of the LRA 1967 (saving for National Trust) substitute—

‘32 National Trust property

(1) Property is “inalienable National Trust property” for the purposes of this section if an interest in the property is vested inalienably in the National Trust for Places of Historic Interest or Natural Beauty under section 21 of the National Trust Act 1907.

(2) This Part does not prejudice the operation of section 21 of the National Trust Act 1907, and accordingly a tenant does not have the right under this Part to acquire the freehold of inalienable National Trust property.

(3) The right to an extended lease has effect subject to the following provisions of this section only if and to the extent that the existing tenancy demises inalienable National Trust property.

(4) In a case where the existing tenancy is a post-commencement protected National Trust tenancy, the tenant does not have the right to an extended lease.

(5) In a case where the existing tenancy is a pre-commencement protected National Trust tenancy, this Act is to have effect in relation to the right to an extended lease without the amendments made by the Leasehold and Freehold Reform Act 2024 (but without altering the effect of this subsection).

(6) In any other case, the right to an extended lease has effect subject to subsections (7) and (8).

(7) In determining whether the tenant has the right to an extended lease, the following requirements in section 1 do not apply—

(a) any requirement for the tenancy to be at a low rent;

(b) any requirement in section 1(1)(a)(i) or (ii) for the house and premises or the tenancy to be above a certain value.

(8) If the tenant exercises the right to an extended lease, the new tenancy must contain the buy-back term which is prescribed for this purpose in regulations made by the Secretary of State (the “prescribed buy-back term”).

(9) A “buy-back term” is a term which gives the National Trust the right to buy the whole or part of the extended lease if—

(a) it is proposed to make a disposal of the extended lease that is of a description specified in that term (which may be a disposal of the whole or a part of the property demised), or

(b) the National Trust exercises a prescribed buy-back term that is contained in a lease which is inferior to the extended lease.

(10) The prescribed buy-back term may, in particular, make provision about—

(a) the procedure where it is proposed to make a disposal that is of a description specified in the term;

(b) the procedure for exercising the right to buy;

(c) the price payable;

(d) the payment of costs incurred in connection with the operation of the term (including requirements for one person to pay costs incurred by another person);

(e) the operation of the term if the National Trust is not a party to the extended lease.

(11) If the National Trust is not the landlord under the extended lease, the National Trust may at any time apply to the appropriate tribunal for an order to secure that the extended lease is varied to contain (if or to the extent that it does not already do so) the prescribed buy-back term; and an order made on such an application may appoint a person who is not party to the extended lease to execute a variation of the lease.

32ZA Section 32: supplementary provision

(1) For the purposes of section 32, the existing tenancy is a “protected National Trust tenancy” if the tenancy is prescribed, or is of a description of tenancies prescribed, in regulations made by the Secretary of State.

(2) Regulations may not provide for a tenancy to be a protected National Trust tenancy unless the tenancy is within case A or case B.

(3) Case A: some or all of the property let under the tenancy is—

(a) property to which the general public has access, or

(b) part of property to which the general public has access (whether or not the general public has access to any property let under the tenancy),

whether the arrangements for public access are managed by the National Trust, the tenant or another person.

(4) Case B: the existing tenancy was granted to—

(a) a former owner,

(b) a relative of a former owner, or

(c) the trustees of a trust whose beneficiaries are or include—

(i) a former owner, or

(ii) a relative of a former owner.

(5) Regulations under section 32 or this section—

(a) may make different provision for different purposes;

(b) are to be made by statutory instrument.

(6) A statutory instrument containing regulations under section 32 or this section is subject to annulment in pursuance of a resolution of either House of Parliament.

(7) In section 32 and this section—

“commencement” means the day on which paragraph 4A of Schedule 1 to the Leasehold and Freehold Reform Act 2024 comes into force;

“disposal” , in relation to an extended lease, includes—

(a) the grant of a sub-lease of property demised by the extended lease;

(b) a change in control of a body (whether or not incorporated) which owns the extended lease;

(c) the surrender of the extended lease;

(d) a disposal (of any kind) for no consideration;

“former owner” , in relation to inalienable National Trust property let under a tenancy, means—

(a) a person who transferred the freehold of the property to the National Trust,

(b) a person who owned the freehold of the property immediately before its transfer to the National Trust by, or at the direction of—

(i) the Commissioners for His Majesty’s Revenue and Customs,

(ii) the Commissioners of Inland Revenue, or

(iii) the Treasury,

(c) a person whose executors transferred, or directed the transfer of, the freehold of the property to the National Trust, or

(d) a person who was a beneficiary under a trust whose trustees transferred, or directed the transfer of, the freehold of the property to the National Trust;

“post-commencement protected National Trust tenancy” means a tenancy which—

(a) was granted on or after commencement, unless it was granted under an agreement made before commencement, and

(b) is a protected National Trust tenancy;

“pre-commencement protected National Trust tenancy” means a tenancy which—

(a) was granted—

(i) before commencement, or

(ii) on or after commencement under an agreement made before commencement, and

(b) is a protected National Trust tenancy;

“relative” includes a person who is related by marriage or civil partnership;

“right to an extended lease” means the right under this Part to acquire an extended lease.’

4B For section 95 of the LRHUDA 1993 (saving for National Trust) substitute—

‘95 National Trust property

(1) Property is “inalienable National Trust property” for the purposes of this section if an interest in the property is vested inalienably in the National Trust for Places of Historic Interest or Natural Beauty under section 21 of the National Trust Act 1907.

(2) Chapter 1 does not prejudice the operation of section 21 of the National Trust Act 1907, and accordingly there is no right under Chapter 1 to acquire an interest in inalienable National Trust property.

(3) The right to a new lease has effect subject to the following provisions of this section only if and to the extent that the existing lease demises inalienable National Trust property.

(4) In a case where the existing lease is a protected National Trust tenancy, the tenant does not have the right to a new lease.

(5) If—

(a) the existing lease is not a protected National Trust Tenancy, and

(b) the tenant exercises the right to a new lease,

the new lease must contain the buy-back term which is prescribed in regulations made by the Secretary of State (the “prescribed buy-back term”).

(6) A “buy-back term” is a term which gives the National Trust the right to buy the whole or part of the new lease if—

(a) it is proposed to make a disposal of the new lease that is of a description specified in that term (which may be a disposal of the whole or a part of the property demised), or

(b) the National Trust exercises a prescribed buy-back term that is contained in a lease which is inferior to the extended lease.

(7) The prescribed buy-back term may, in particular, make provision about—

(a) the procedure where it is proposed to make a disposal that is of a description specified in the term;

(b) the procedure for exercising the right to buy;

(c) the price payable;

(d) the payment of costs incurred in connection with the operation of the term (including requirements for one person to pay costs incurred by another person);

(e) the operation of the term if the National Trust is not a party to the new lease.

(8) If the National Trust is not the landlord under the new lease, the National Trust may at any time apply to the appropriate tribunal for an order to secure that the new lease is varied to contain (if or to the extent that it does not already do so) the prescribed buy-back term; and an order made on such an application may appoint a person who is not party to the new lease to execute a variation of the lease.

95A Section 95: supplementary provision

(1) For the purposes of section 95, the existing lease is a “protected National Trust tenancy” if the lease is prescribed, or is of a description of leases prescribed, in regulations made by the Secretary of State.

(2) Regulations may not provide for a lease to be a protected National Trust tenancy unless the lease is within case A or case B.

(3) Case A: some or all of the property let under the lease is—

(a) property to which the general public has access, or

(b) part of property to which the general public has access (whether or not the general public has access to any property let under the lease),

whether the arrangements for public access are managed by the National Trust, the tenant or another person.

(4) Case B: the existing lease was granted to—

(a) a former owner,

(b) a relative of a former owner, or

(c) the trustees of a trust whose beneficiaries are or include—

(i) a former owner, or

(ii) a relative of a former owner.

(5) Regulations under section 95 or this section—

(a) may make different provision for different purposes;

(b) are to be made by statutory instrument.

(6) A statutory instrument containing regulations under section 95 or this section is subject to annulment in pursuance of a resolution of either House of Parliament.

(7) In section 95 and this section—

“disposal” , in relation to a new lease, includes—

(a) the grant of a sub-lease of property demised by the new lease;

(b) a change in control of a body (whether or not incorporated) which owns the new lease;

(c) the surrender of the new lease;

(d) a disposal (of any kind) for no consideration;

“former owner” , in relation to inalienable National Trust property let under a tenancy, means—

(a) a person who transferred the freehold of the property to the National Trust,

(b) a person who owned the freehold of the property immediately before its transfer to the National Trust by, or at the direction of—

(i) the Commissioners for His Majesty’s Revenue and Customs,

(ii) the Commissioners of Inland Revenue, or

(iii) the Treasury,

(c) a person whose executors transferred, or directed the transfer of, the freehold of the property to the National Trust, or

(d) a person who was a beneficiary under a trust whose trustees transferred, or directed the transfer of, the freehold of the property to the National Trust;

“relative” includes a person who is related by marriage or civil partnership;

“right to a new lease” means the right under Chapter 2 to a new lease.’”

This amendment would provide for tenants of National Trust properties to have the right to extension, subject to exceptions, and subject to a requirement to grant the National Trust the right to buy back the property in certain circumstances.

[Lee Rowley]

My enthusiasm for the amendment was such that I started to speak to it earlier, but I am now moving it in the correct place.

The National Trust play a big role in looking after the heritage of the nation. Inalienable National Trust land is held for the benefit of the nation, forever. In order to ensure that that land remains in national ownership for future generations, freehold acquisition is restricted on National Trust land. None the less, the Government want to see National Trust leaseholders’ rights improved.

The amendment means that National Trust leaseholders will benefit from the new lease extension rights in line with other leaseholders, so that the 990 years will apply in this instance. The new rights will be subject to a narrow exception for a small number of leases of specified visitor attraction properties and donor leases. That will allow the trust to make bespoke lease agreements when a noteworthy property comes into its ownership—for example, where a property could be opened to the public in whole or in part, or where arrangements have been made with family members when a property has been gifted to the state and the trust itself. Those limited exceptions will be set out in regulations made by the Secretary of State in due course. Those leaseholders will retain their existing lease extension rights where they already have them.

The amendment also makes provision for the National Trust to buy back an extended lease at market value, if the existing leaseholder chooses to dispose of their lease. That will allow the National Trust to manage the long-term use of its inalienable land on behalf of the nation. I commend the amendment to the Committee.

Amendment 58 agreed to.

Schedule 1, as amended, agreed.

Clause 5

Acquisition of intermediate interests in collective enfranchisement

Question proposed, That the clause stand part of the Bill.

[Lee Rowley]

The clause sets out how intermediate leases and leases of common parts are treated in collective enfranchisement claims for flats. In home ownership, intermediate leases are the middle rungs on a ladder between the freeholder at the top, and the leaseholder with rights at the end. Leases of common parts might cover parts of premises such as stairways.

The clause will introduce proposed new schedule A1 to the 1993 Act. The schedule sets out a series of gateways that require leaseholders to acquire certain interests, but also grants them further choices to reduce premiums. Qualifying leaseholders who participate in a claim must acquire all intermediate leases superior to their leases. They can, however, choose to leave in place the part of an intermediate lease superior to those qualifying leaseholders who are not participating. The intention is that this will help to reduce the premium where not all leaseholders wish to participate.

For example, leaseholders could leave the head lease in place above two out of eight flats, where the two are not participating. Where leaseholders acquire only part of a lease, they still need to acquire the relevant parts of leases above it in the chain to prevent a disrupted management structure.

The schedule sets out that leaseholders do not need to acquire a whole lease of common parts where certain legal tests are met, which will help to reduce premiums. The schedule prevents the acquisition of special cases of intermediate leases in collective enfranchisement. That includes qualifying leaseholders who own the immediately superior intermediate lease and landlords with enfranchisement rights over a flat. Those parts of leases can be retained by the owners to preserve their homes or tenure at the property. The schedule sets out various mechanisms for allowing leases to be left in place. That is done via an existing process called severing, and clause 16(6) gives the tribunal new powers to determine the terms of that.

The schedule preserves the necessary elements of the existing law that prevent ill effects arising from collective enfranchisement. Landlords can continue to require leaseholders to acquire interest, for instance where it would be impossible to maintain the premises. An exception that prevents the acquisition of interest held by public sector landlords continues. I commend the clause to the Committee.

[Matthew Pennycook]

Clause 5 is extremely technical. It concerns the treatment of intermediate leases during a collective enfranchisement. I beg the Committee’s forgiveness for the level of complexity I am about to throw at the Minister; nevertheless, it is important to the leaseholders who stand to be affected. As the Minister said, the clause replaces section 2 of the 1993 Act on to the acquisition of leasehold interest, with a new schedule, A1, that will henceforth govern the acquisition of intermediate interests during a collective enfranchisement process.

New schedule A1 enacts part or all of five recommendations made by the Law Commission in chapter 13 of its 2020 report, and is uncontentious. However, when considering the treatment of intermediate leases and other leasehold interests in that chapter, the Law Commission recommended that a duty be imposed on the landlord dealing with the enfranchisement claim

“to act in good faith and with reasonable skill and care”

toward other landlords involved. Any such landlord should be able to apply for directions from the tribunal about the conduct of the response to the claim. It also recommended corresponding requirements for landlords who are not dealing with the claim to provide all necessary information and assistance to the landlord who is, and to contribute to the non-litigation costs of that landlord.

My reading of schedule A1 is that its effect will be that any settlement reached between a leaseholder and the landlord who is dealing with a claim, and any determination of that claim by the tribunal, will be binding on all other landlords. Assuming that I have interpreted the schedule correctly, can the Minister make clear why it does not appear to implement the duties and requirements that the Law Commission recommended should apply to landlords who are dealing with the claim and landlords who are not, respectively?

Finally, while I appreciate that we will consider the issue of valuation in more detail when we come to consider clauses 9, 10 and 11, I would be grateful if the Minister could also provide some clarification on how the Bill proposes to calculate enfranchisement premiums in instances where there are intermediate leases. Am I right in believing that schedule 2 treats intermediate leases as merged for the purposes of valuation?

On a related matter, the Minister will also be aware that the Law Commission set out the option of generally disregarding the existence of an intermediate lease when determining the premium payable on enfranchisement on the grounds that it would simplify the calculation and create greater fairness between leaseholders and between landlords, as premiums would not differ solely because of the existence or otherwise of one or more intermediate leases. It also recommended that on any individual lease extension claim, the rent payable by an intermediate landlord should be commuted on a pro rata basis.

If I have understood the relevant provisions correctly, neither proposal was incorporated into the Bill as first published. The second of those recommendations appears to be addressed by Government amendments 73 and 95. I would be grateful if the Minister could confirm whether my reading of those amendments is correct in that regard—via correspondence, if he needs to, as I appreciate that these are extremely technical questions. Broadly, we would like the Minister to expand on his remarks and provide some clarity about the treatment of intermediate leases during collective enfranchisement and the extent to which this part of the Bill as a whole reflects the Law Commission’s proposals. I look forward to hearing the Minister’s response.

[Lee Rowley]

My response is short. I will happily write to the hon. Gentleman and to the Committee in due course on the technicalities to ensure that is correct.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clause 6

Right to require leaseback by freeholder after collective enfranchisement

[Barry Gardiner]

I beg to move amendment 127, in clause 6, page 9, line 42, at end insert—

“(3A) Any lease granted to the freeholder under paragraph 7A must contain a provision that any sub-lease created by the freeholder under their leaseback must contain a provision requiring the sub-lessee to contribute to the service charges reasonably incurred by the managing agent directly or indirectly appointed by the nominee purchaser.

(3B) The provision mentioned in subsection (3A) is implied into all pre-existing subordinate leases to a leaseback granted to a freeholder under paragraph 7A.”

--- Later in debate ---

[Matthew Pennycook]

My hon. Friend raises an interesting point, which has value. However, if he will forgive me, I would like some more time to consider any unintended consequences before I determine whether we could support it. Perhaps we could come back to it at a later stage, but if he is determined to push it I will come up with a position from the Front-Bench team.

Clause 6 inserts into the 1993 Act a new leaseback right for tenants participating in a collective enfranchisement claim, enabling them to require their landlord to take a leaseback of particular flats or units in the building, other than flats let to a participating tenant. We welcome the clause, as my hon. Friend made clear, which implements recommendation 21 of the Law Commission’s final report on leasehold enfranchisement.

At present, leasebacks are mandatory in certain circumstances. A landlord can also require leaseholders to grant them a leaseback of any unit not let to a qualifying tenant, or any flat or unit occupied by them and of which they are the qualifying tenant. However, leaseholders do not enjoy the right to require their landlord to take a leaseback with the effect that, in instances where the landlord refuses a request for a leaseback, perhaps because they are deliberately seeking to frustrate the process entirely, the premium payable in an enfranchisement claim includes the value of that interest.

The new leaseback right introduced by the clause will ensure that premiums that leaseholders would otherwise have to pay will be reduced. Collective freehold acquisition will become a possibility for larger numbers of them because a key funding constraint—namely having to pay for the reversionary value of those flats and units as part of their claim—will have been removed, and in many cases, collective freehold acquisition claims will be made considerably more affordable as a result. It will also increase certainty by ensuring that leaseholders have a far more accurate estimate of the costs of a claim at the outset. Finally, it is essential to ensuring that the increase in the non-residential limit from 25% to 50%, which we debated earlier, is of practical benefit to leaseholders. Without a new leaseback right, many leaseholders who would otherwise be interested in collectively enfranchising would be deterred because the cost of purchasing the whole of a building containing up to 50% commercial space would be prohibitive.

I have two questions for the Minister. The first concerns intermediate leases, which we have just considered under the previous clause. As I believe may have been highlighted by some respondents to the Law Commission consultation, there will be circumstances in which a leaseback of some units to the landlord would not reduce the premium by any significant amount, because the majority of the value in the units in question will be held not by the landlord but by an intermediate interest. This obviously raises again the issue of how the Bill treats the calculation of enfranchisement premiums in instances in which there is an intermediate lease. I would be grateful if the Minister could clarify whether the Bill seeks in any way to address the impact that intermediate leases might have on the benefits that leaseholders could otherwise expect to secure as a result of the new leaseback right.

My second question concerns the terms of the leaseback required under the new right. My understanding is that these will be for a term of 999 years at a peppercorn ground rent, as under the current law, but I would be grateful if the Minister could confirm that that is the case and perhaps provide the Committee with any other important detail about leaseback terms that will apply to them.

[Lee Rowley]

I will turn first to the amendment from the hon. Member for Brent North. I appreciate the point that he has made, and he articulated it very well. He is rightly concerned that all those who have an interest in a building should need to pay for it. The amendment’s intent is to require any leases granted to include a requirement to make contributions to service charges, as he articulated. Our understanding—I have checked, following the introduction of his amendment—is that the existing law should sufficiently cover this and it should be unlikely that intermediate landlords will not ensure that their sub-lessees contribute to the service charges of a property. But I recognise that the hon. Gentleman has a lot of experience, knowledge and background in this area over many years, so if he wants to write to me separately, with examples of where we potentially have not understood the detail of the point that he is making, I will be happy to look at that in more detail.

[Matthew Pennycook]

I intervene just briefly so that I can put this on the record. One of my slight concerns about the amendment from my hon. Friend the Member for Brent North is that it could complicate pro rata charges for leaseholders. I just wonder whether the Government have given that any thought. In many ways, the amendment is entirely unproblematic, and we support the intention, but there are a couple of concerns, that being one. Is that part of the Government’s thinking on my hon. Friend’s amendment?

[Lee Rowley]

I am grateful to the hon. Gentleman for pointing that out. As indicated, this all needs to be considered in the round. Very few things come without trade-offs and without consideration of other implications. One reason why we are not able to support this amendment today is that we do not think that it is necessary. As a result, I hope that the hon. Member for Brent North will not push it to a vote but will withdraw it. If we have missed something, I will be happy to look at that separately. As the hon. Member for Greenwich and Woolwich suggested, this is something that we do not think is necessary in the wider scheme of things, but if there is a thing that we have missed, I will happily take further information on it.

I will now turn to clause 6, which has been discussed already to some extent. The Government want to broaden access to collective enfranchisement, so that more leaseholders can buy their freehold. However, we recognise that increased access will remain theoretical if many leaseholders are unable to afford to buy their freehold. Therefore, this enfranchisement must be cheaper if leaseholders are to gain the benefits of the ownership that is being sought.

Clause 6 introduces a leaseback right for leaseholders that, if they elect to use it as part of a claim, will in some cases significantly reduce the up-front price that they must pay. “Leaseback”, as has been indicated, is the term commonly used to refer to an intermediate lease over part of a building that is granted to the outgoing freeholder as part of an enfranchisement claim. This leaseback covers the value of the unit, which is therefore retained by the outgoing freeholder and reduces the cost for leaseholders of buying the freehold. Currently, the outgoing freeholder can require the leaseholders taking forward a collective enfranchisement to grant the freeholder a leaseback of any non-qualifying units in a building. Clause 6 gives leaseholders an equivalent right to require the outgoing freeholder to take a 999-year leaseback, at a peppercorn rate, of any non-participating units in the building as part of the claim.

In mixed-use buildings, the question of affordability is even more acute, as leaseholders must pay for the freehold interest in non-residential parts of the building, which they have no existing financial interest in, as well as their flats, which they already partly own.

--- Later in debate ---

[Barry Gardiner]

I am grateful to the Minister for his remarks. It is clear that the Government do not feel that the amendment is necessary and that there will not be a problem with the newly enfranchised freeholder being able to obtain the service charge from all the leaseholders. If that is the case, I will be happy to withdraw the amendment.

I would, however, like the Minister to set out in writing to me and the Committee precisely why he believes that there is not a problem. If we still disagree, we can then bring the amendment back on Report and discuss it further. It would be really helpful to be clear about why the Government are confident that problems will not arise. We have made legislation on the basis of optimism before, and unfortunately our experience is that freeholders can often be quite vindictive.

[Lee Rowley]

I am happy to give the hon. Gentleman that assurance, and I will be happy to write to him.

[Barry Gardiner]

On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 ordered to stand part of the Bill.

Clause 7

Longer lease extensions

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss clause 8 stand part.

[Lee Rowley]

Currently, leaseholders of houses can claim a lease extension of 50 years, and leaseholders of flats can claim an extension of 90 years. Leaseholders of houses can only ever make one lease extension claim; leaseholders of flats will need to claim repeated extensions both within and between generations, with associated costs. Leaseholders often have to worry about the value of their lease falling as the term runs down.

Clause 7 will amend the lease extension term for houses in the 1967 Act, from 50 to 990 years, and for flats in the 1993 Act, from 90 to 990 years. There is no restriction on the number of claims that can be made, although with a 990-year extended term it is envisaged that only one extension will be necessary; 990 years is as long an extension as can be reasonably given while facilitating multiple periods of 90 years to allow for consistency with existing leases and redevelopment breaks.

Increasing to 990 years the term of the statutory lease extension right maximises the benefit to leaseholders and gives leaseholders much greater security in their homes. This is particularly important where leaseholders do not qualify or are not in a position to buy their freehold.

The increase in the extension term will mean that leaseholders do not have to claim repeated extensions, pay associated repeated transaction costs or worry about the value of their property falling as the lease runs down. Leaseholders of flats and houses will be able to obtain a lease extension of 990 years at a peppercorn ground rent, in exchange for a premium determined by the amended valuation scheme set out in clauses 9 to 11.

I turn to clause 8. Currently, a lease extension for a house under the 1967 Act is made without payment of a premium, but in return for a modern ground rent during the period of the extension, where that rent is similar to a market rent. Because we are increasing the extension term to 990 years at a peppercorn rent, landlords will need to be compensated by payment of a premium, as is the case for flats. The clause makes amendments to the 1967 Act to ensure that landlords will be sufficiently compensated when a 990-year lease extension at a peppercorn is granted for a house. A qualifying leaseholder can obtain an extension of 990 years at a peppercorn ground rent in exchange for a premium determined by the amended valuation scheme set out in clauses 9 to 11.

[Matthew Pennycook]

I will spend some time on the clauses, because they are important.

As the Minister set out, clause 7 changes the lease extension rights given to tenants of houses and tenants of flats by the 1967 and 1993 Acts, respectively, to provide for a 990-year lease extension rather than, as is currently the case, a 50-year extension under the 1967 Act and a 90-year extension under the 1993 Act. Clause 8 works in conjunction with clause 7 to that end, by making consequential amendments to the 1967 Act that are required to set ground rents under such extensions at a peppercorn and ensure that the premium payable is based on the amended valuation scheme set out in clauses 9 to 11, as the Minister made clear.

Taken together, the clauses not only provide for the standard lease extension term to increase to 990 years at a peppercorn rent, but ensure that the rights available to tenants under each of the Acts are made equivalent. This reform, which draws on recommendations 1 and 2 of the Law Commission’s final report on leasehold enfranchisement, is long overdue. The right to extend one’s lease is important for leaseholders who do not qualify for a right of freehold acquisition or who do enjoy such a right but, for whatever reason, either cannot or do not wish to purchase the freehold. It is particularly important for leaseholders who live in blocks of flats, as the vast majority do in constituencies such as mine, because it is the only enfranchisement right they can exercise when acting alone. However, both the 50-year lease extension available to leaseholders of houses under the 1967 Act and the 90-year extension available to leaseholders of flats under the 1993 Act are too short to provide adequate security of tenure.

The principle of a right to an extension of a considerably longer time is therefore the right one. As the Minister argued, it will particularly help to protect those leaseholders with short remaining lease terms at the point at which the extension is secured, and will avoid the need for a second extension to be sought and secured in short order. We also feel that the choice of a standard 990-year lease is the right one. Once the principle of a very long lease extension has been accepted, the case for taking the additional period as close to 999 years is watertight. A more modest extension, which the Law Commission did consider, would provide only temporary relief and would require many leaseholders to make a second claim in relatively quick succession. The proposed 990-year lease extension right will avoid the need for further lease extension claims in the future, will provide leaseholders with a substantially enhanced interest in their homes and will bring leaseholders extremely close to outright freehold ownership.

It is also right that we legislate to introduce a uniform right applicable and available to both leaseholders of houses and leaseholders of flats, so we support the alignment of the lease extension rights for which the clause provides. There is no justification for maintaining the discrepancy in the law as it stands, where the right to a lease extension for a house is considerably less favourable than the equivalent right to a lease extension for a flat. In sum, we fully support leaseholders who qualify for a lease extension under the 1967 or 1993 Act being given the right, on payment of an appropriate premium, to extend their lease and in so doing to secure a peppercorn rent.

I have five questions for the Minister about these important clauses. The first relates to redevelopment. In recommending that an additional period of 990 years should be added to the remaining term of the existing lease in the cases of both houses and flats, the Law Commission also proposed that redevelopment break rights should be maintained. These are rights accorded to a landlord to terminate a lease that has been extended and to regain possession of the property in order to carry out redevelopment work. The Law Commission recommended that they should be maintained during the last 12 months of the term of the original lease or the last five years of each period of 90 years after the commencement of the extended term.

We fully appreciate that many leaseholders will find the very notion of such break rights problematic, and the Law Commission recognises that maintaining rolling break rights, as under the 1967 Act, would create unnecessary uncertainty. However, difficulties relating to the lifespan of buildings are an issue we have to grapple with, not least because they will become more pressing over time when lease extensions become significantly longer by default. As the Law Commission’s recommendation on development break rights has not made it into the Bill, I would be grateful if the Minister explained the Government’s determination to omit it. Some would argue that there is a strong case, in a world in which 990-year lease extensions are the default, for the sensible provision of development break rights.

My second question concerns when the rights provided by clauses 7 and 8 will come into effect. The clauses present leaseholders who have recently obtained a lease extension, or who will be compelled to obtain one—for the purposes of moving home or mortgaging, say—before the commencement date, with a real dilemma, because the only way they will benefit from a 990-year extension and a peppercorn ground rent in instances where that is not already the case is by making a further extension claim in short order. The fact that any such leaseholders will have recently extended their lease with, in all likelihood, a peppercorn ground rent will mean that the premium payable will be low, but there will still be a cost.

I would be grateful if the Minister made it clear whether the Government have given any consideration to how to ensure that the premium in such cases is as low as possible, to avoid some leaseholders facing costs that others will not face, simply as a result of the sharp transition from one set of arrangements to another. Better still, could he outline precisely how commencement will operate in respect of the clauses? Will he tell us whether the Government might consider amending the Bill to ensure that the new rights come into force on, or very soon after, Royal Assent, so that they can be enjoyed by leaseholders confronting the need for an extension as quickly as possible?

My third question relates to ground rents. We will explore the issue in considerable detail when we consider clause 21, but I would be grateful if the Minister told us, in relation specifically to lease extensions, how clauses 7 and 8 will operate if the Government’s response to the consultation “Modern leasehold: restricting ground rent for existing leases”, which closed last week, is, as per the Secretary of State’s declared preference, to table amendments to enact option 1, namely capping ground rent at a peppercorn for all existing leases from a given date.

All we want to know is whether the ground rent provisions in clause 8 would be rendered irrelevant. In other words, are they unnecessary? If so, will the Government have to make further amendments to the clause to ensure that, in conjunction with clause 7, it provides only for a 990-year lease extension and does not make changes to ground rent provisions in any way? Presumably they will need to be abolished by further Government amendments that will potentially abolish ground rents for all existing leases.

 My fourth question concerns the technical matter of who the competent landlord is for the purpose of lease extensions under the 1993 Act. The provisions within clauses 7 and 8 will mean that even in circumstances where there is a head lease of 999 years at a peppercorn rent, which is a fairly common occurrence, the owner will be entitled to all of the premium. Nevertheless, it is the freeholder, not the head lessee, who will have to handle the claim. That raises the obvious question of why a freeholder should engage with the process at all, given that it will leave them out of pocket.

Schedule 1 to the 1967 Act includes provisions designed to overcome the problem by providing that a long head lessee is the reversioner. Will the Minister tell us why a similar set of provisions is not being introduced to the 1993 Act to provide that a very long head lessee in a block of flats is to be regarded as the competent landlord, not the freeholder? If there is no justification for that omission, might the Government go away and consider whether it is necessary to overcome that problem?

My fifth and final question concerns the Government’s commitment to use the Bill to legislate for a ban on new leasehold houses. The Government amendments providing for such a ban have still not been tabled, so we cannot engage with the detail. However, given that it is the Government’s stated intention effectively to do away with leasehold houses, I would like to probe the Minister on the reasoning behind providing, by means of clauses 7 and 8, leaseholders in houses with a right to a 990-year lease extension at a peppercorn rent, for which the premium will be the same as if it were a freehold enfranchisement. Is this—I am being generous to the Minister—an example of muddled thinking on the Government’s part that might require review? I look forward to hearing the Minister’s response.

--- Later in debate ---

[Barry Gardiner]

I am glad that co-operation is breaking out across the aisle. It seems that this change is one of the really big issues of the Bill. Looking through the Bill, yes, there was disappointment that it does not go far enough and there is no commonhold, but this is a real change. It is something that Members on both sides of the Committee have welcomed, and we heard evidence from our witnesses about just how important it is. It is strange, therefore, that we do not now see the meat of it in the Bill. I will not go so far as to say that it is more than strange, as my hon. Friend the Member for Greenwich and Woolwich suggested, but we do need it.

This provision will liberate a whole group of people who fear what we call the ground rent grazers. They are the ones—the freeholders—who have created a rentier structure over the past 15 years. It did not even exist 25 years ago. What people used to do 25 years ago, when the ground rent was payable, was write a cheque to the freeholder, and the freeholder would bin it. Then, three weeks later, the freeholder would send a lawyer’s letter to the tenant, saying that because they had not paid their ground rent on time, they were now being charged £625 for their legal fees in having to chase it, including the £25 ground rent. That is a bad practice that has evolved and the Government need to clamp down on it and get it sorted.

[Lee Rowley]

I thank hon. Members for their questions and comments, which I will try to address. There is obviously a desire to understand the interaction of the two clauses with the outcome of the consultation that closed last week. We saw to some extent in our deliberations last week, on the first two days in Committee, when we took evidence, that this is a contested area. As a result and notwithstanding the fact that by convention in this place we have the ability to speak freely, I hope the Committee will understand that I will limit my remarks.

I understand the eagerness, enthusiasm and legitimate desire of the Committee to understand the position that we will seek to provide. We will provide that to the Committee, and publicly, as soon as possible. It will not be possible for me to answer all the questions that were asked today. I accept the point made by my hon. Friend the Member for North East Bedfordshire that there is a difference between process and decision, but some elements of the process could be impacted by the decision and it will therefore be difficult to engage in hypotheticals at this stage. However, we will respond to the legitimate points that the Committee has made as soon as we are able to do so.

I agree with the points made by the hon. Member for Greenwich and Woolwich and by my hon. Friend the Member for Redditch about the importance of clarifying how quickly the provisions will come into force. Again, that is a difficult one to answer because we need to get through this process. We have no idea what the other place might or might not do or how quickly the process will go. Although we are all grateful for the confirmation from my Labour colleagues that we are seeking to move this as quickly as possible, it is difficult to be able to answer the question at this stage, but I hope to say more in due course.

On the fourth question posed by the hon. Member for Greenwich and Woolwich, about the competent landlord, my understanding is that we are not changing the law in that regard.

[Richard Fuller]

I am listening carefully to the Minister and sort of accept what he says, but may I make a couple of points? First, he has talked about how the Bill has to go through the House of Lords, but we are the democratically elected Chamber. The interaction of the two provisions represents substantial transfers in value between different parts of our community—rightly or wrongly. Decisions should correctly be made with the full information by this House. We should not go through a procedure when information is presented in the unelected House, which then comes back to the Commons. With our remit as Back-Bench Members of Parliament, we are very restricted in what we can do to amend that.

Secondly, the Minister talked about how the points about value are hypothetical. That is the case only because the Government have not made a decision. Once they make a decision, those points of value can be forecast. They are no longer hypothetical but judgmental, so it really is within the Minister’s remit to be able to move from hypothetical to his own forecast. Having said that, I fully accept what the Minister has said so far.

[Lee Rowley]

I am grateful to my hon. Friend for his legitimate points. He is absolutely right that it is important that right hon. and hon. Members have an opportunity to debate at the earliest possible opportunity the complex interaction of what we may or may not choose to do with the consultation. I take his point about hypotheticals. My point was simply that there are a number of different options in the Bill. Some of them are substantially different, as my hon. Friend indicated in some of his questions last week. To go through all the elements of the potential outcomes in all of those different options would be a substantial amount of work and potentially not necessary on the basis that we are likely to choose some rather than all of them. None the less, where I have missed anything out, I will—

[Eddie Hughes]

The point being made is one of proportion. We are talking about a couple of a billion pounds versus up to £25 billion, £27 billion, which is a significant amount of money for the Government to be considering transferring, as my hon. Friend says, from one party to another. The size of the costs that might be incurred from one party to another makes it important for us to know as soon as possible.

[Lee Rowley]

I absolutely accept the potential significance of the quantum involved, which is why we all seek to be as clear as we can at the earliest opportunity.

[Barry Gardiner]

I am conscious that we are talking about the transfer of value as if it were neutral, but leaseholders have been telling us for a long time that this value has been unjustly acquired from them in the first place. The Government seek simply to remediate the position that the law has got itself into. When we consider this, we must understand the injustice that has been perpetrated on people who live in leasehold houses, and have been paying ground rents that have been racked up in an unconscionable way for far too long.

[Lee Rowley]

The hon. Gentleman is articulating his argument with passion, as he did last week on a similar point in some of the witness sessions. I reconfirm to the Committee that we seek to process the outcome of that consultation as quickly as we are able, and to provide hon. Members and the public with clarity at the earliest opportunity. None the less, while recognising the important interaction of clauses 7 and 8 with the consultation, I hope that underneath there is general consent for clauses 7 and 8. I hope I have covered most of the questions asked. I will write to the Committee in response to the question from the hon. Member for Greenwich and Woolwich about redevelopment, because I need to obtain clarity on that.

[Matthew Pennycook]

I welcome the Minister’s response. He did not address—perhaps he will find time on another occasion—the Government’s potential inconsistency in, on the one hand, extending lease extension terms at peppercorn for houses, under the 1967 Act, and, on the other, seeking to ban leasehold houses in their entirety. The Government might want to explore that, to ensure the package as whole is consistent and working as intended. He is welcome to write to me on that point, as well as on redevelopment rights.

I take the Minister’s point on the competent landlord. My point was not whether the Bill is fine as drafted; it is the fact that we need to change the 1993Act to account for the set of circumstances I outlined. There is provision in the 1967 Act to cover that problem. As far as we can tell, this Bill does not amend the 1993 Act to account for it. I encourage him to look at that.

On the two substantive issues, there is inherent uncertainty about commencement. Of course, we want the Bill to progress and apply to as many leaseholders as possible. I was trying to stress to the Minister the need to look at the point at which the Bill kicks in. In some Bills, certain provisions come into force at First Reading. We are worried, as the Bill goes through Parliament, about a set of leaseholders being left out of these rights unfairly, given the time we have spent progressing the Law Commission’s recommendations. I encourage him to give some thought to that.

On ground rents, I understand entirely that the matter is commercially sensitive. I am not asking for an opinion from the Minister on the consultation, although we do need an indication of the Government’s thinking as soon as possible. We also need to understand, as I will come to when we debate clause 21, whether the Government intend to enact any recommendations from that consultation, via this Bill.

What I am looking for is clarity, which he should be able to give us at this stage, on this hypothetical point. If any proposals from that consultation are enacted, clauses 7, 8 and 21 are potentially redundant. We simply need to know whether the Government will further overhaul those clauses, if they take forward any of those recommendations. That is hypothetical, but the Minister should be able to answer. The Government have presumably thought, “Yes: if that scenario occurs and we take forward one of the five options, we will or will not have to revise the Bill.” That is the answer that I am simply looking for from the Minister. If he wants to take this opportunity to clarify that, I would welcome it.

[Lee Rowley]

The hon. Gentleman tempts me to go into hypotheticals. Let me at least dip my toe into that for a moment. Let us take some of the potential outcomes of the consultation discussed today, for example, and the question of whether they potentially will make redundant some of the clauses. In one of the instances, where there is a fear, concern or question, it would still be the case that potentially amendments to clause 8 would need to be introduced, for example, on ground rents, so depending on the scenario it would not make that entirely redundant. I will not go into hypotheticals to their logical and total extent, but I hope that that gives some assurance that consultation has been held and we will bring forward what is appropriate in due course.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Clause 8 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Mr Mohindra.)

Revised National Planning Framework

Lee Rowley Excerpts

Tuesday 23rd January 2024 Commons Chamber

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

I thank my right hon. Friend the Member for Basingstoke (Dame Maria Miller) for securing the debate and for the excellent speech she just delivered on behalf of her constituents. She clearly stands up for her constituents, and I know they will have been listening tonight.

I know housing and planning is an important issue for the people of Basingstoke and, indeed, many people across the country. That is exactly why we took to update the national planning policy framework just before Christmas. This Government want to build more homes, but we want to build them in the right places. We want to build them more quickly, beautifully and sustainably. The right way to deliver that is through a reformed planning system that works. We are clear that it is only through up-to-date local plans that local authorities can deliver for communities, protect the land and assets that matter, and create the conditions for more homes to be delivered all across the country.

As the House knows, we consulted last year on a series of proposals and received more than 26,000 responses, demonstrating the interest in planning to so many communities up and down the land. The resulting update of the framework builds on the Levelling-up and Regeneration Act 2023 and delivers on the intent set out by the Secretary of State for Levelling Up, Housing and Communities last year. It does so in a way that seeks to promote building the right homes in the right places with the right infrastructure, which will ensure that the environment is protected and will give local people a greater say on where, and where not, to place development.

[Layla Moran (Oxford West and Abingdon) (LD)]

I thank the Minister for giving way and congratulate the right hon. Member for Basingstoke (Dame Maria Miller) on securing the debate.

On the issue of a local say, will the Minister expand slightly on the placement of things like solar farms? It is the wild west. In places such as Oxfordshire, we have a number of solar farms coming forward, including possibly the largest one in Europe at Botley West. For those that are over 50 MW, it does not feel like local say has anything to do with it. Did he consider that when the Government were creating this policy?

[Lee Rowley]

I am grateful to the hon. Lady for her comments. Many colleagues in the House will have experienced solar farms, both on a constituency basis and from a national policy consideration. There is obviously a trade-off to be made here. The Liberal Democrats are extremely keen on renewable energy, as we all are, and there are implications to that. She is right to highlight that this has to be considered within the appropriate boundaries of the individual areas. That is exactly why the Government amended the national planning policy framework and exactly why the Conservatives are seeking to establish that balance. We will continue to try to ensure that that balance works for communities, while also getting us the energy we need, so that when we switch on the lights in the morning, they work.

As I said, we consulted on a series of proposals last year and received more than 26,000 responses. That demonstrates the importance of planning for local communities. I understand the concerns of my right hon. Friend the Member for Basingstoke that Basingstoke and Deane district council has seen a high level of housing delivery, including in recent years, in excess of that set out in the adopted local plan in 2016. Indeed, the housing delivery test results for 2022, published in December, show that the district has delivered more homes than is required through the test. As my right hon. Friend outlined in her excellent speech, a number of measures were announced in the national planning policy framework update, and I hope to highlight a number of those that may assist the district council and other local councils bringing forward their local plans.

First, as my right hon. Friend indicated, we have been consistently clear that the standard method is a starting point for local authorities in assessing what to plan for and that it does not set a mandatory target. The framework now sets that out in national policy. Local authorities should be in no doubt that the outcome of the standard method is an advisory starting point for establishing housing requirements through plan-making. Again, for the avoidance of doubt, that means that local authorities can put forward their own approach to assessing needs where certain exceptional circumstances exist.

[Dame Maria Miller]

Can my hon. Friend confirm that there will be more types of exceptional circumstances put forward in the future than there have been in the past?

[Lee Rowley]

I am absolutely certain that there will be more cases for exceptional circumstances put forward in the future, and I encourage councils to consider them if they believe that they apply. Logically, I would then expect more cases for exceptional circumstances to be accepted by the Planning Inspectorate, although that will also be for the inspectorate to determine on a case-by-case basis. It is the Government’s intention to indicate that cases for exceptional circumstances can be made, that local authorities should weigh up making them and that, if they feel that they have a strong case through the Planning Inspectorate process, they do so for the good of the communities they seek to serve.

Secondly, the revised NPPF now sets out that there may be situations where higher urban densities would be wholly out of character with the existing area, and that that could be a strong reason why significantly uplifting densities would be inappropriate. Thirdly, our changes to the five-year housing land supply policy mean that up-to-date local plans should no longer have to demonstrate a five-year housing land supply. My right hon. Friend has articulated some of that already, and the considerations going on within her Hampshire constituency, but there is additional flexibility where local authorities are doing the right thing in getting their plans in place and making sure they are retained.

As someone representing a constituency that has suffered from planning issues over many decades, I recognise there is always difficulty around planning in individual local areas. I understand that, and it is one of the reasons why I am so keen to send a message that, while we are clear that we need more houses in this country—we absolutely do—they have to go in the right places. It would be incorrect, wrong and irresponsible of us to say “no more housing” when we need people to get on the housing ladder. We value the benefits to our society that a property-owning democracy brings and we celebrate every first-time buyer who gets on the ladder, because that opens up to them the opportunities that gaining and accreting capital provide.

At the same time, however, we have to accept that not every area, every place or every landscape is appropriate for building on. It is the responsibility of local councils to make sure that they are weighing that up properly, getting ahead of what will always be challenging decisions and having the conversations they need to have with local communities at the earliest possible stage.

Once again, I thank my right hon. Friend for securing this debate. She ended with three questions, and I want to touch on those before I conclude.

[John Spellar]

This is not just a question of housing; it is also about public and private facilities and a community. As I indicated in my intervention on the right hon. Member for Basingstoke (Dame Maria Miller), part of that is about entertainment and social areas, particularly music venues, which are still under pressure. I do not expect an answer tonight, but will the Minister take away the issue of enshrining in legislation some strength for local authorities to protect not only local amenities, but the pipeline of talent for our enormously important cultural industries?

[Lee Rowley]

I will certainly take that point away, but I hope the right hon. Gentleman will accept that there always a balance about what to put in primary legislation. The law cannot mandate virtue, and we have to find ways to ensure that our statute book does not get too big and unwieldy—there is an argument that we are already heading in that direction after 30, 40 or 50 years of incessant legislating. However, I recognise the important point he makes and I will certainly give it further consideration, although I hope he hears my reticence to state automatically that legislation is always required in all cases.

My right hon. Friend the Member for Basingstoke asked three questions at the end of her speech. I hope that I have covered the question of exceptional circumstances to some extent. It is absolutely the case that local authorities should put such cases forward where reasonable and proportionate, and where they have a clear case. I would expect more exceptional circumstance cases to be made, and it is for the Planning Inspectorate to determine their outcome based on the merits or otherwise of their individual circumstances.

[Dame Maria Miller]

On that point about exceptional circumstances, many local authorities appear to be concerned that pleading exceptional circumstances will land them with a big legal bill and that they will be challenged in the courts. Can the Minister give some comfort to those authorities that such cases will be looked upon by planning inspectors as something that they expect?

[Lee Rowley]

My right hon. Friend highlights a continuing challenge with the local plan-making process where other actors have issues and considerations. The planning system will never be perfect and give everybody the outcome that they want, but it is important that local planning authorities representing their local areas have the ability to fully consider the importance of planning for their local area and to put forward their arguments in good faith, whether about exceptional circumstances or just through the conventional process, and have them discussed in interactions with the Planning Inspectorate on behalf of the Secretary of State. I encourage them to do so. Although the issue my right hon. Friend raises is not a new one, that should not retard the ability of people, organisations, councils and planning authorities to have the debates and discussions that they need to with local communities and the planning inspector.

On the second question, we absolutely expect local authorities to take into account the NPPF. It has been clear that the NPPF is extant from the moment that it was put in place. There are transitional arrangements for some elements of it at the end, but it is for local authorities to take that into account. I would be surprised if local authorities were not doing that, because the whole purpose of how they approach plans is to recognise transitional arrangements and the fact that different local authorities will be in different places and will have to work out precisely how to consider them. It is vital that local authorities take note of the national planning policy framework and the update that has been made.

I know that planning is hugely important for local communities. My right hon. Friend has articulated in great detail the particular issues in Basingstoke. Indeed, as constituency MPs, we all have such individual circumstances. She is absolutely right to raise those points and highlight the changes that have come and the opportunities that they provide. She is right to stand up for her constituents. It is important that we get planning right. Things will never be perfect, but by having these conversations and making changes, I hope that we can make progress as a Government and a country to build more homes, but in the right places.

Question put and agreed to.

Leasehold and Freehold Reform Bill (Sixth sitting)

Lee Rowley Excerpts

Committee stage
Tuesday 23rd January 2024 Public Bill Committees

[The Chair]

With this it will be convenient to discuss the following:

Clauses 10 and 11 stand part.

Government amendments 59, 62 to 65, 67 and 68.

Schedules 2 to 4.

Government amendment 72.

Schedule 5.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

This Bill reforms the valuation process for leaseholders when they buy their freehold or extend their lease. It does this by repealing parts of existing legislation and setting out a new valuation scheme that leaseholders and landlords must follow. We are debating a large group of measures, so I am afraid—and I apologise to the Committee in advance—that my comments may be slightly longer than normal, in order to cover all of those.

Clause 9 amends the Leasehold Reform Act 1967, which deals with lease extensions and freehold acquisitions of houses. Subsections (1) to (3) make necessary changes to sections 8 and 9 of the 1967 Act in relation to freehold acquisitions. It mandates the use of clause 11, which sets out the new valuation scheme for calculating the price payable. Subsection (4) applies that to lease extensions for houses. I will shortly come on to that new valuation scheme covered in clause 11, the detail of which is contained in schedule 2. However, these changes introduce the valuation reforms contained in the Bill. I commend clause 9 to the Committee.

Clause 10 makes the necessary changes to the Leasehold Reform, Housing and Urban Development Act 1993, which deals with flats. The clause amends sections 32 and 56, and repeals schedules 6 and 13 of the 1993 Act, which deal with the freehold acquisition of a block of flats and lease extensions of a flat. In a similar way to clause 9, clause 10 mandates the use of clause 11 in determining the price payable for enfranchisement transactions—in relation to flats, rather than houses—and sets out the new valuation scheme for calculating the price payable. I commend clause 10 to the Committee.

Clause 11 provides the basis of the new valuation scheme that must be used to determine the price payable when exercising any of the four enfranchisement rights, which are acquiring the freehold of a house, extending the lease of a house, acquiring the freehold of a block of flats and extending the lease of a flat. The clause sets out that the premium is comprised of two elements: first, the market value, which is to be calculated in accordance with schedule 2; and, secondly, any other compensation, which is to be calculated in accordance with schedule 3.

Schedule 2 details the steps for calculating the price payable for lease extensions and freehold acquisitions. It also contains key reforms to the valuation process, including the removal of marriage value and hope value, capping ground rent at 0.1% of the freehold value in the valuation calculation, and providing the Secretary of State with a power to prescribe two rates used to calculate the premium.

[Richard Fuller (North East Bedfordshire) (Con)]

The Minister just mentioned that schedule 2 eliminates marriage value. He will be aware, from the impact assessment, that there is a financial value associated with marriage value. Can the Minister tell me whether the Government think that marriage value is a real value—that it has intrinsic value—or is it just a number that has no material value at all? Is there something behind what marriage value is, and what is the rationale for eliminating it?

[Lee Rowley]

That is an interesting philosophical question to debate straight after lunch. The Government recognise that marriage value is utilised in a number of transactions. Therefore, some people in the market—some individuals, some economic actors—must deem that there is some form of additional value by marrying the lease and the freehold up within a shorter period of time. How that works, what exactly that is, and how expansive it is, is for others and for the market to determine, in a traditional and—something that I think we both would support—a wholly capitalist way. However, there does seem to be something to it, hence why we are making some of the reforms that we are making, given the feedback that we have been given.

[Richard Fuller]

I am grateful to the Minister for his summary, which I think is very accurate. Given that the Government have assessed that there is something real there, and decided that they want to eliminate the marriage value—obviously, a lot of work has gone into the preparation for that—what representations has he received about the legal underpinnings of this particular aspect of the legislation for those from whom that value is being taken?

[Lee Rowley]

The Government remain confident that the proposals being put forward are compliant with their responsibilities. I have only been in post for a short period of time, and my hon. Friend the Member for Redditch may wish to comment on this. The conversations I have had with the people who—I say this without breaking their confidence, given that some of them might be in camera—have come to me to represent their position have not focused on that as the main issue.

Schedule 2 also sets out how to divide the premium into shares, where multiple landlords are entitled to receive a share—for example, where there are intermediate landlords. We will go through that in further detail when we consider schedules 2 and 3. I commend clause 11 to the Committee.

I now turn to amendment 59, which is in my name. This amendment exempts business tenancies which qualify for enfranchisement rights under the Leasehold Reform Act 1967 from the standard valuation method. It is not our intention for the standard valuation method—especially the rent cap—to apply to any business rent, and this amendment closes off that possibility for a relatively rare type of lease where it might otherwise have existed. I commend this amendment to the Committee.

Turning to amendments 62, 63 and 64, which are in my name. Amendment 62 makes minor technical changes to assumption 1 in schedule 2 so that the clause operates as intended. The change to sub-paragraph 15(2)(a) makes the phrasing clear that the clause is about freehold acquisitions. The change to sub-paragraph 15(2)(b) is a minor and technical correction so that where a lease extension is granted by someone other than the freeholder, such as a head lessee, the assumption of merger with the interest of the person granting the extended lease still takes place for the purposes of the valuation methodology for intermediate leases. Amendments 63 and 64 fix typographical errors, by changing the word “property” to “premises”, as the latter is defined.

Turning to amendments 65, 67 and 68 in my name, these make small changes in schedule 2 so that the provision works as it was intended. Amendment 65 clarifies the valuation of the market value of a flat as it is to be used for the purposes of identifying the ground rent cap in the calculation of the term value. Amendment 67 makes a change to ensure that the definition of what is being valued is clear. Amendment 68 clarifies the valuation of the market value of a flat as it is to be used for calculating the reversion.

These amendments are intended to avoid any mis-interpretation of the standard valuation method. Some may mistakenly interpret the schedule as requiring a valuation of a flat as if it were a flying freehold which could cause it to be undervalued. Amendment 68 clarifies the meaning so that what is being valued is the share of the value of the freehold of the whole building and appurtenant property that is attributable to the flat. The amended text will make sure that the standard valuation method is interpreted as we intend it to be. I commend these amendments to the Committee.

Schedule 2 sets out how to apply the new standard methodology when calculating the premium that leaseholders of houses and flats need to pay to extend their lease or acquire their freehold. This includes fundamental reforms to the valuation process, including the removal of marriage value—which we have just discussed—and the capping of ground rent at 0.1% in the valuation calculation. These changes help to fulfil the Government’s aim to make it cheaper and easier for leaseholders to extend their lease or buy their freehold. The schedule is extensive and broken into seven parts.

Part 1 introduces schedule 2 and requires that this schedule must be followed when calculating the market value of the premium for lease extensions and freehold acquisitions for houses and flats. It also sets out how to divide the premium into shares where loss is suffered by multiple landlords. Part 1 also makes clear three definitions for the purposes of this schedule: that of “collective enfranchisement”, “freehold enfranchisement” and “lease extension”.

Part 2 of 7 sets out the basis of the market value for freehold acquisitions and lease extensions. Paragraph 2 does this for freehold acquisitions. It sets out that the market value of the freehold used in calculating the premium is the value of the freehold as if sold on the open market by a willing seller. Paragraph 3 does this for lease extensions. It sets out that the market value of the lease extension used in calculating the premium is the value of the 990-year extended lease, at peppercorn ground rent, as if sold on the open market by a willing seller. Paragraph 4 states that the premium for both acquisitions and extensions is to be determined in accordance with part 3 and on the basis of the assumptions set out in part 4.

Part 3 of schedule 2 sets out that while in general the standard valuation method must be used to determine the value of acquiring a freehold or extending a lease, there are some exceptions. The specific exceptions are set out in paragraphs 6 to 8 and include where the lease has five years or less remaining, where the property is subject to a home finance plan lease and where the lease is a market rack rent lease. For these purposes, a market rack rent lease is where the leaseholder has either paid no premium or a very low price for the lease in return for paying a high rent.

Paragraphs 9 to 11 set out some further detailed exceptions, including where there has been a pre-commencement lease extension of a house for 50 years at a modern ground rent. These paragraphs also explain that the standard valuation method only applies to a relevant flat in collective enfranchisements, where relevant flat excludes, for example, flats with shared ownership leases. Paragraph 12 provides that the standard valuation method can still be used to determine the value of the relevant freehold acquisition or lease extension, even when it is not compulsory to do so. Paragraph 13 makes it clear that the standard valuation method is to be used if either part 3 requires it to be used or where it is used on a voluntary basis in relation to the property being valued.

Part 4 of schedule 2 sets out the assumptions on which the valuation of freehold acquisitions or lease extensions are to be based, whether or not the standard valuation method is being used. Assumption 1 is that intermediate leases and freehold interests are treated as merged for the purposes of valuation where they are acquired in a freehold acquisition or where they are affected by the lease extension claim. The effect of assumption 1 is to simplify the process and lead to savings in process costs and premiums in some cases. This does not apply to intermediate leases that are not acquired. Assumption 2 is that the leaseholder is not, and never will be, in the enfranchisement market, nor will the leasehold and freehold interests by other means be married. The effect of assumption 2 is that no marriage or hope value is payable for either a lease extension or freehold acquisition. This will reduce premiums where leases have 80 years or fewer remaining and remove the cliff edge that leaseholders currently face.

Assumption 3 is that the relevant property is assumed to be in good repair and has not been improved under the current lease. The effect of assumption 3 is to prevent the premium being either decreased in favour of the leaseholder, due to the property being held in disrepair, or increased in favour of the landlord, due to the leaseholder having made improvements. The latter case would result in the leaseholders having paid for the improvements twice. In the case of a freehold house acquisition, assumption 3 will only apply to the current lease, removing the ability to chain together multiple long leases.

Assumption 4 is that where leasebacks are taken, their value is deducted from the freehold value, reducing the premium. Other assumptions can still be made when determining the market value, as long as they are consistent with assumptions 3 and 4 as well as the other provisions of schedule 2. The remaining paragraphs cover circumstances where the premium may have to vary, including to account for burdens or benefits on the title, differing terms in extended leases, leases with five years or fewer remaining, and where leaseholders own their immediately superior intermediate lease.

Part 5 sets out the standard valuation method, which is made up of three steps for lease extensions and freehold acquisitions. Combined with the assumptions set out in part 4, the resulting premium for many leaseholders will be lower than it otherwise would have been where they have leases with 80 years or fewer remaining, or high or escalating ground rents. The first step is to determine the term value, which is the capitalised value of the ground rent payable over the term of the lease. In other words, the landlord is compensated with a lump sum, instead of continuing to receive future ground rent for the remainder of the lease term. Part 7 must be used to determine the capitalised value.

In calculating the term value, a ground rent cap will now apply so that the valuation calculation will cap the ground rent at 0.1% of the freehold value. There are two exceptions. The first is where the leaseholder has paid no premium for the lease. The second is where the lease was purchased for a low premium in exchange for a high rent. In step two, the reversion value is determined. The reversion value compensates the landlord for the loss of the reversion at the expiry of the lease in the case of freehold acquisition and for the delayed reversion in the case of a lease extension.

For freehold acquisitions, the reversion value is the market value of the freehold at the expiry of the lease, discounted at the deferment rate. In a collective enfranchisement, this is calculated for each qualifying leaseholder’s lease. For lease extensions, the reversion value is the market value of a 990-year lease at peppercorn ground rent on the same terms as the new, extended lease and beginning at the end of the term of the current lease, discounted by the deferment rate.

Step 3 requires that the market value of the property determined by the standard evaluation method is found by adding the term and the reversion values in steps 1 and 2, and in collective acquisitions all the relevant term reversion values subject to any adjustments, as provided for in other parts. Part 5 gives powers to the Secretary of State to specify the deferment rate used to calculate the reversion value and includes a requirement to review the rate every 10 years.

--- Later in debate ---

[Lee Rowley]

It is ultimately a balance, as we discussed this morning when talking about the fundamentals in clause 3, I think. We believe that it is proportionate to allow the Secretary of State to make a decision here, but I will be clear now and as we go through the Bill that that should be done only on an occasional basis, hence the reference to the 10-year review period.

[Richard Fuller]

Does the Minister accept that the absence of knowing what will be in the Secretary of State’s mind about what rate he or she may set affects the analysis of what is being done economically with the Bill quite significantly? What thought has he given to the legal challenge risks of holding back what is in the Secretary of State’s mind about what the rates would be?

[Lee Rowley]

I am grateful to my hon. Friend for his comments. I accept the point that we need to get as much of that information to members of the Committee, the House and the public as quickly as we are able to do so. I know that he and other Members recognise that we have a process that we need to go through in that period, and I hope that we give enough information about the process and changes, although I accept the interaction that he indicates. My hon. Friend is an experienced Member; it is not my intention in any way, but forgive me if I say anything that he knows.

Obviously we must get through the process of working through the legal risk. It is a very contested area—we can see that already. There have already been indications that people will look at it extremely closely, so it would not surprise me if it was looked at extremely closely in most ways. There are potential legal issues on both sides, in that whatever we come out with, any public policy change often or always creates a group of people who do not like it, and they have an ability through due process and the law to see if there is anything in there that they dislike. I guess this is no different, but equally the Government are cognisant that it creates a challenge in this domain. We must go through the process of having the consultation, which only closed quite recently, and giving enough time for that to be considered and transacted on before we come to a conclusion; otherwise, there is potential legal risk there as well.

Part 6 sets out how a premium determined under parts 1 to 5 should be divided among multiple parties, such as intermediate landlords and freeholders. That creates a saving in process costs for leaseholders, as the work of dividing the premium is picked up by the affected parties. The part specifies that the division is made according to how each person’s interest has been devalued or lost by the claim, termed as “loss”. It sets a formula that takes the market value, provided for in parts 1 to 5, multiplies it by that person’s loss and divides it by the total losses of all the parties. Loss cannot include marriage value or hope value, which we are preventing from forming part of the premium.

Finally, part 7 of seven sets out how to calculate the term value—that is, the capitalised value of the ground rent payable for the remainder of the term of the lease. That is a component of the premium, as explained in part 5, under different rent review clauses. Depending on the lease, the ground rent payable may not be subject to review; or it may be subject to review such that the rent payable after the review is known; or it may be subject to a review that makes reference to price inflation, for example, or the capital or rental value of the property. Part 7 is entirely technical and sets out the formulae that apply in each case. The inputs into the formulae are the rent payable, the term for which it is payable and the capitalisation rate. In all cases, where the rent payable exceeds 0.1% of the freehold value of the property, the ground rent cap applies, so that the rent payable is treated as if it is only 0.1% of the freehold value. Part 7 gives a power for the Secretary of State to specify the capitalisation rate used to calculate the term value, and includes a requirement to review that rate every 10 years. I commend the schedule to the Committee.

I turn to schedule 3. As stated in debate on clause 11, schedule 3 sets out when, and to whom, “other compensation” must be paid by enfranchising leaseholders. “Other compensation” is a concept in law; it acts as a top-up payment that landlords and other parties can claim if an enfranchisement claim impacts on their interest. The schedule permits other “reasonable” compensation to be paid in two types of cases. Although it continues an existing practice, it works to ensure that the top-up cannot be used to claim for values already covered by the standard valuation method in part 5.

First, other compensation is available where the enfranchisement claim causes a devaluing of property outside the premises subject to the claim. Secondly, other compensation is available where loss is caused to other property not subject to the claim, but only to the extent that it is referable to a person’s ownership of any interest in other property. If, for example, a landlord owns an unbroken parade of terraced houses and there is a freehold acquisition of one house, the landlord might claim for other compensation if they can demonstrate that the value of the whole parade has been diminished due to one of the houses enfranchising. The schedule sets out that it does not matter whether the landlord had other options, such as leasebacks, but did not take them. It also sets out definitions, such as the meaning of development value. I commend the schedule to the Committee.

I turn to schedule 4, which defines many of the terms used in schedules 2 and 3 that determine the make-up of an enfranchisement premium. It points to different parts of the schedules to demonstrate the meaning of those terms. For instance, the meanings of “term value” and “reversion value” are as described in schedule 2. I commend the schedule to the Committee.

I turn to amendment 72 in my name, which corrects a typographical error in schedule 5 so that the provision works as intended. As a result of the amendment, Paragraph 7(3)(b) of that schedule will require the tenant, not the competent landlord, to pay into the tribunal the whole price payable. That is a new protection that could be used, for instance, where there are valid concerns about the conduct of a landlord handling the claim on behalf of others. I comment the amendment to the Committee.

Schedule 5 makes necessary consequential amendments that help to plug into existing law the new valuation methodology set out in clause 11 and schedule 2. It makes amendments to support the new valuation process in enfranchisement claims that involve multiple landlords, such as intermediate landlords and freeholders. That includes a fallback power, which enables leaseholders to require the transfer of property or grant of a lease, even if the landlords have not yet settled on how to divide the premium. That would be useful, for instance, if multiple landlords were in dispute with each other and it was threatening to hold up the claim.

The provisions also require the premium to be paid to the landlord handling the claim on behalf of the other landlords. They prevent landlords from requiring leaseholders to pay their share directly, as that would undermine the new valuation process where it involves intermediate leases. However, a new protection has been added that permits an individual landlord to require the whole price to be paid into the tribunal. That could be used, for example, where there are valid concerns about the conduct of a landlord handling the claim on behalf of others. With huge gratitude for allowing me to go through all of that, I commend schedule 5 to the Committee.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

The Minister made a commendable effort to explain the various Government amendments and schedules in this part of the Bill. Briefly, for purposes of clarity, let me say that we have a lot to say about valuation, but we will do so when we debate schedule 2.

--- Later in debate ---

[Eddie Hughes]

It is a pleasure to serve under your chairmanship, Dame Caroline. I was triggered to speak by some of the references to limiting ground rents to 0.1% of the property value, and am feeling nostalgic about my ten-minute rule Bill from June 2019, the Ground Rents (Leasehold Properties) Bill. That is an issue that I have been interested in and concerned about since I got to Parliament.

In my ten-minute rule Bill, I suggested that we limit ground rents to 0.1% of the property value, or £250, depending on which was the higher. In the evidence session, we heard that in some parts of the country, ground rents can very quickly become onerous for existing or prospective mortgage lenders. I want to ensure, however, that we do not let certain elements of our discussion of the clauses of the Bill pass by without celebrating the great things that are going on in it.

To some people, this might be a dry exchange, with some technical data about calculations—as a civil engineer, I love a bit of differential calculus, but it might not be to everyone’s liking—but some great stuff is going on in the Bill. We should be enthusiastic about that and celebrating it, because it will genuinely make a difference to the lives of people who are listening. It has also made a great difference to my life, because I feel as if I am seeing my ten-minute rule Bill slowly come back to life in this Committee.

[Lee Rowley]

It is as if we have all the emotions in an all-encompassing and unexpectedly interesting post-lunch debate. Let me try to summarise as quickly as I can. I am grateful for everyone’s contributions.

Turning to the substantive points made by my hon. Friend the Member for North East Bedfordshire, I, like him, start from the principle that if there is consensus, we should look at things in more detail without casting any aspersions on our colleagues on the other side of the aisle. I think there is consensus not because I have suddenly converted to social democracy or socialism—that is absolutely not the case—but because even from different angles we can see that there is a challenge. I will try to argue this a little from Conservative principles for a moment.

I recognise the absolutely reasonable points made by my hon. Friend about the additional information that is needed, which we have talked about on multiple occasions, and I recognise that there are always inherent dangers and unintended consequences in any change, which is why things need to be thought through in the manner in which he indicated. In the limited time I have had experience of this matter, however, I have been convinced that the proposal is proportionate, and that is why I am in Committee today on behalf of the Government.

My hon. Friend rightly made the point about how property rights and contract law are the absolute bedrock of our functioning as a society. In particular as Conservatives—to speak just for those on this side of the aisle for a moment—we seek not to move them around, change them, or amend them on a regular basis, because certainty and clarity are at the heart of a functioning and robust democracy. As Conservatives and from the centre-right, however, we also have a deep aversion to rent-seeking and middlemen, and we have a deep and avowed, if imperfect, commitment to free and more perfect markets.

There is a challenge with all manner of things, whether that is marriage value or the percentage used in ground rent. If we were dealing with a market in widgets, with very low barriers to entry, a plethora of supply, and the ability for people to come in and out on a regular basis, I would potentially draw a different conclusion, but the reality is that the housing market is severely constrained by a number of factors, and it has been for many decades. It is not a perfect market. Therefore, it is proportionate to regulate in the ways we are talking about.

On the point about rent-seeking and middlemen, we must be cautious about legislating via anecdote, which we should not do. We must absolutely do the kind of deep analysis that hon. Members suggested a moment ago that we should. I am led to believe that a lot of what we are seeing with ground rent and other aspects included in the Bill would not have been visible 20, 30 or 40 years ago, because it would not have happened. Effectively, a market has been created—at least in part if not wholly—because, for want of a better phrase and without being pejorative, loopholes have been exploited. That has enabled middlemen to take profit out and distort the market, making it less perfect and meaning we have ended up in the place where we are today.

I absolutely share the caution expressed by my hon. Friend the Member for North East Bedfordshire about making sure the elements are right. We may differ in the end about whether or not the changes are proportionate, but I know we share the ultimate objective that the market should be made perfect. The clauses take us in that direction. It is an absolute requirement from a Conservative perspective to smash middlemen and rent-seekers and make sure that they do not take money from people for no reason. For those reasons, I commend the clauses to the Committee.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

Clauses 10 and 11 ordered to stand part of the Bill.

Schedule 2

Determining and sharing the market value

Amendment made: 59, in schedule 2, page 90, line 28, at end insert—

“Business tenancies

10A (1) This paragraph applies only to—

(a) the transfer of a freehold house under the LRA 1967, or

(b) the grant of an extended lease of a house under the LRA 1967.

(2) The standard valuation method is not compulsory for the property comprised in the current lease if that lease is a tenancy to which Part 2 of the Landlord and Tenant Act 1954 applies (see section 1(1ZC) of the LRA 1967).”—(Lee Rowley.)

This amendment would prevent the standard valuation method in Schedule 2 from being compulsory if the current lease is a business tenancy (which benefit from the rights of enfranchisement and extension under the LRA 1967 in the circumstances set out in section 1(1ZC) of the LRA 1967).

[Lee Rowley]

I beg to move amendment 60, in schedule 2, page 90, line 28, at end insert—

“Acquisition of a freehold house under the LRA 1967: shared ownership leases

10A (1) This paragraph applies only to the transfer of a freehold house under the LRA 1967.

(2) The standard valuation method is not compulsory for any property comprised in the newly owned premises if it, or any part of it, is demised by a shared ownership lease.”

This provides that the standard valuation method is not compulsory for the freehold enfranchisement of a shared ownership lease of a house (which is only possible if the shared ownership lease does not meet the criteria in section 33B of the LRA 1967).

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 61, 66, 69, and 74.

[Lee Rowley]

Amendment 60 disapplies the standard valuation method in cases where the freehold of a shared ownership house is being acquired. In general, shared ownership properties are excluded from freehold acquisition rights to prevent the shared ownership stock from being bought out, therefore undermining the policy intention, and because the freehold can be acquired once the shared ownership leaseholder has staircased to 100%. However, some shared ownership properties do qualify for acquisition rights. Generally speaking, where there are restrictions placed on whether and how the shared ownership leaseholder can staircase to 100%, they qualify. The amendment clarifies that the standard valuation method does not have to be used where the freehold of a shared ownership property can be acquired, because the standard method is not built to accommodate acquisitions of shared ownership property.

Amendment 61 is a minor and consequential amendment to paragraph 11(7) of schedule 2, as Government amendment 74 has moved the definition of “shared-ownership lease” from section 38(1) to section 101(1) of the Leasehold Reform, Housing and Urban Development Act 1993. This will allow the provisions of the Bill to operate as intended.

Amendments 66 and 69 concern the valuation of premiums for shared ownership lease extensions. Valuation involves calculating both the value of the term and the reversion in order to calculate the premium to be paid by the leaseholder. Amendment 66 provides that the rent used to calculate the term value in the premium is the rent payable for the leaseholder’s share of the property demised by the lease—that is, the ground rent— and not the rent they pay on the landlord’s share of the property. Where the rent is not clearly divided as such, it is treated as though it is all paid as rent for the landlord’s share.

Amendment 69 provides that when the reversion value is calculated as part of the premium, the full reversion value that would be calculated in the standard method is adjusted to reflect the proportion of the property which is already owned by the shared ownership leaseholder. I commend the amendments to the Committee.

--- Later in debate ---

[Matthew Pennycook]

With apologies for interrupting the Minister when he is providing a commendable explanation of this group of Government amendments, does he agree that although the Bill touches on shared ownership leases in a number of areas, it does not directly address many of the unique challenges that face shared owners? Is there a case for legislating separately to address the various challenges that shared owners face in the round? On this and a number of other issues that arose in the context of the Renters (Reform) Bill, it feels as if there is a good argument for doing so, to ensure that we are directly addressing the challenges that shared owners face.

[Lee Rowley]

I am grateful to the hon. Gentleman for his question. There is always a case for reform in all areas of public policy. I recognise the importance of getting it right on shared ownership. On both sides of the Committee, we share an objective to make sure that this works as best it can, given that it is giving people the opportunity of capital and a new opportunity to be able to acquire that in a way that is not available to them through other means that the market offers. In half-answering the question, which is that there are always things that can be done—obviously I cannot anticipate the great fifth Conservative election victory that is coming or what the manifesto and the outcome may be—but I will certainly take on board the hon. Gentleman’s comments, so that when that election victory comes we can accommodate his suggestion.

Part 1B amends the Leasehold Reform, Housing and Urban Development Act 1993 to make similar changes for flats. New paragraph 5I repeals the current exclusion, and 5K provides that shared ownership leaseholders are qualifying leaseholders for lease extension rights. New paragraph 5J excludes shared ownership leases from collective acquisition rights and gives a power to the Secretary of State to exclude other shared ownership leases from the same where they are not excluded by this section. New paragraph 5M requires leasebacks to the former freeholder of any shared ownership flats subject to a collective freehold acquisition if the former freeholder is the provider. New paragraph 5N deals with the sharing of staircasing premiums between relevant landlords, exactly as new paragraph 5E does for houses. Finally, new paragraph 5P inserts the necessary definitions, as new paragraph 5F did for houses. I commend the amendment to the Committee.

[Richard Fuller]

On a point of clarification, Dame Caroline, are we discussing the other amendments in this group?

--- Later in debate ---

[Richard Fuller]

I rise in support of my amendments 146 to 149, which, similarly to the shadow Minister’s amendment 2, seek to provide some framework and guidance around, and a better understanding of, how the Secretary of State will determine these very important discount rates. I go back to the point about the importance of trying to give as much clarity as possible about what we are passing into legislation and to avoid unintended consequences. The Minister will be aware that some of the businesses affected may be subject to statutory disclosures. It is very hard to make a formal statutory disclosure if one is not clear what the impact will be. My amendment seeks to provide that.

I want to explain some of the reasons why I have chosen to focus on the issues of market rates and interest, and regional trends. The shadow Minister made some very good points that I am sure the Minister will respond to. It is important to understand that it is always possible for Government to fix market rates and interest, either directly or by the courts, but interest rates do change; the world does change. We can find ourselves adrift on interest rates relatively quickly. The Sportelli judgment, I think, was made at a time when the Bank rate was 4.5%. In that context, the setting of the discount rate did not seem particularly inappropriate. Three years later, the Bank rate went to 0.5% as a consequence of quantitative easing, and stayed like that for seven years. Obviously, it is in the interests of party A for the rate to be set high and in the interests of party B for the rate to be set low, but there is a concern about the rate being fixed without certain guidance.

The shadow Minister has argued that the rate should have regard to the desirability of encouraging leaseholders to acquire their freehold at the lowest possible cost; that fits the imperative that informed the Bill. My view is that we ought to first encourage the Secretary of State to anchor his or her judgment on the market rate of interest—not a specific market rate of interest, but a set of market rates of interest. The reason is that there will be leases of certain terms: five, 10, 15, 30, 50 or 100 years. When someone buys an investment and ties up their money for a longer period of time, they pay a different rate of interest than when they do so for a shorter period of time. It is appropriate for the Government to have regard to that when setting the discount rates. That is why I have tabled this amendment. I am interested to know what the Minister has to say about it.

Amendment 149 is about regional variations in market conditions. The Minister will know that a large part of the Bill relates to London, but not all of it. The way property prices move in Bedfordshire—I see that another Bedfordshire MP, the hon. Member for Mid Bedfordshire, is here—and in other parts of the country is different from London. Market conditions vary. In order to be fair to participants, it is important that the Secretary of State has regard to regional variations. I hope the Minister can provide some encouraging words on market conditions and tying the discount rate to some form of understanding of market interest rates.

[Lee Rowley]

I am grateful to the hon. Member for Greenwich and Woolwich and my hon. Friend the Member for North East Bedfordshire for their contributions. We effectively have two sets of amendments from different sides of the discussion, which demonstrates both the importance and the challenge of getting this right. Before I turn to their points, the question before the Committee is whether we want to put further constraints or further elements into primary legislation, or are content in principle to allow most of them to be covered by the Secretary of State of the day at the time. The Government’s view is that the latter is more proportionate and reasonable. That is why we have come forward with the current proposal. As a result, we will not be accepting the amendments, but I will add a few more comments to try to convince the hon. Gentlemen to withdraw their amendments.

The hon. Member for Greenwich and Woolwich made a number of points on consultation. Although I cannot anticipate or confirm at this stage, I think it is absolutely the case that we would need further discussion and careful consideration of the approach, as I hope we have made clear throughout the debate. On his point about the review every 10 years, the existing judgment has now stood for going on 16 years—I know he knows that, because he has referenced it—and has done so relatively successfully. However, I take his point about tribunals being able to change things. Effectively, this is coming in through a tribunal in the first instance. There is a balance to be struck.

We have put a reference to 10 years in the Bill so that there is a recognition that there would need to be a review—as opposed to an open-ended ability with no indication of when it is used—while being clear that, although it would be for the Government of the day to determine, regular reviews will have potential impacts and potential challenges to the market, and there has to be some form of consistency or clarity in order to give people the confidence to invest and make decisions on an economic basis. The reason we have approached the provision from this angle is both to provide flexibility through the ability to change not being in primary legislation, but also giving guidance that there will be reviews at least every 10 years—albeit not indicating that they should be on a more frequent basis in order not to get into a discussion about whether there is too much movement for consistency and clarity.

My hon. Friend the Member for North East Bedfordshire made a number of important points, particularly with regard to his general point about market conditions and the importance of getting that right, and also that there are regional variations. This is another detailed part of the conversation, which the Government seek to move into another discussion rather than being on the face of the Bill. I recognise that sometimes that is not ideal, but one reason we want to preserve flexibility is to give the Secretary of State of the day the ability to respond to market conditions where necessary.

On the first point that my hon. Friend raised, we have been clear from the outset—when the Government announced the reforms—that rates should be set at market value to ensure that the amount landlords are compensated reflects their legitimate property interest. It is important that landlords receive sufficient compensation. To his earlier questions about legality, this is an important safeguard to ensure compatibility with various rights-based legislation, which we talk about extensively in this place.

The Secretary of State will set the deferment rate in secondary legislation. We have been engaging, and continue to engage, with the sector to understand its position to ensure that rates are set in a way that is fair to all those whose property rights are changed and interfered with, and fair to leaseholders. Although I cannot give an indication or a guarantee around regionality, I am happy to say that we want to set the levels at market rates, but also with the recognition that many different elements need to be considered, one of which may be regionality. That is why we need to continue this conversation beyond this discussion. The proposition that the Government are now putting to the Committee is to set these elements in primary legislation and to continue the discussions that my hon. Friend and others have asked for through other means that will come forward in due course.

[Matthew Pennycook]

I welcome that response from the Minister, in particular about the review period. If I have understood him correctly, he is saying that there must be a review every 10 years at a minimum, but there may be ongoing reviews within that time period if necessary—he can correct me if I have misunderstood. That would be welcome. There is a need to keep the rate, whatever it may be ultimately, under more regular review than just once every 10 years. I welcome also the indication he gave that the rate or rates may include some regional variation.

Where I take issue with the Minister’s response is the debate about how much we need to prescribe on the face of the Bill. It may be the case that, when the methodology comes forward in regulations, it is an explicit objective of the rate-setting process that premiums for leaseholders are reduced to their lowest possible level, but we have no guarantee, and all hon. Members know the constraints under which we operate when it comes to secondary legislation and our ability to influence and scrutinise instruments. We think it important that this particular objective be put on the face of the Bill, and I will be frank with the Committee about why.

We are worried about a situation where either this Government or a future one are lobbied by vested interests to set a deferment rate that will be punitive for leaseholders—that is, lower than the Sportelli judgment rates. As things stand, that is a distinct possibility. We are not attempting to prescribe the rates; I think that there should be consultation to ensure that Parliament’s view can be sustained, have legitimacy and have public backing. As the Minister will know, post-consultation is part of a regular process, as well as what this House attempts.

We are very much minded to say that, when setting the rate, there should be a guiding principle that, yes, it has to balance a number of considerations, but chief among them must be reducing premiums for leaseholders to their lowest possible level. It is explicit in the explanatory notes—and other parts of the Bill make reference to it—that the provision is to drive down costs for leaseholders; it is not set out in this schedule. For that reason, I am minded to press amendment 2 to the vote and also amendment 3, if we were to be successful in securing amendment 2—though it does not look so, from the balance of numbers.

[Lee Rowley]

I will take 10 seconds to try to convince the hon. Gentleman not to do that, although I might be unsuccessful.

On the ability to set these rates at a greater frequency, it is absolutely the case that “every ten years” is an indication as opposed to a limitation. Although I understand the hon. Gentleman’s point about putting things on the face of the Bill—and I fear that my exhortation will not be successful—we cannot save ourselves from each other; there will always be the ability to change things. It would be a strange Government who were elected on the certain propositions that he has indicated. There will always be a way to untangle these things. I understand the point about making things more difficult, but giving the Secretary of State the flexibility to make these decisions is paramount. We will oppose the amendment if he pushes it to a vote.

--- Later in debate ---

[Lee Rowley]

I beg to move amendment 70, in schedule 2, page 101, line 5, at end insert

“, or

(c) the person is the landlord under a lease which is varied under paragraph 12A of Schedule 1 to the LRA 1967 or paragraph 12 of Schedule 11 to the LRHUDA 1993 as a result of the lease extension.”

This amendment is consequential on Amendment 73.

[The Chair]

With this it will be convenient to discuss Government amendments 71, 33, 34, 39, 40 and 73.

[Lee Rowley]

These amendments will address the division between landlords of a lease extension premium following the use of a new right to commute—that is, reduce—their intermediate rents. We intend to introduce the right to commutation as part of amendment 73, when we come to schedule 6.

Amendments 70 and 71 will enable the losses incurred by a landlord affected by the right to commutation to be considered when dividing up the lease extension premium. In simple terms, it will enable the shares of a premium to be adjusted so the commutation is “paid for”. I commend the amendments to the Committee.

Amendments 33 and 34 will support the introduction of a commutation. Commutation is a new right that will enable intermediate leaseholders to reduce the rent they pay to superior landlords, such as the freeholder. This will be available when a leaseholder extends their lease at a peppercorn ground rent, which reduces or extinguishes the income received by the landlords, where the landlords are intermediate leaseholders.

In homeownership, intermediate leases are the middle rungs on the ladder. Amendments to clause 14 would permit the tribunal to make determinations and orders in houses regarding the new right of commutation. Amendments 39 and 40 to clause 16 will permit the tribunal to make terminations and orders in flats regarding this new right. The provisions for the function of the new right are introduced by amendment 73 to schedule 6. The amendments implement the Law Commission’s enfranchise- ment report recommendation 100. Amendments 33 and 34 will facilitate the new right by allowing the tribunal to make decisions on any issue related to commutation. That includes the question of how much of the rent an intermediate lease receives is attributable to a specific house or flat where a lease extension is claimed.

The tribunal has powers to address situations where landlords are absent so that commutation can proceed. It can make orders about appointing persons to vary the intermediate leases in accordance with the new commutation provisions, and can order that commutation should proceed where an intermediate leaseholder’s notice is determined to have no effect but another landlord was eligible to claim commutation.

As previously discussed, amendments 39 and 40 support the introduction of the new right of commutation. Amendments to clause 16 will permit the tribunal to make determinations and orders in flats regarding commutation. They replicate the same changes for houses made by amendments 33 and 34 to clause 14. The new right of commutation will be introduced by amendment 73 to schedule 6.

Finally, Government amendment 73 will introduce a new right for landlords to commute—that is, reduce—the rent they pay following certain enfranchisement claims. It implements Law Commission recommendation 100. The new right would mean that, when a lease extension happens, landlords can elect to reduce their rent. That would prevent intermediate leases from entering a financial imbalance, which can occur when ground rent income is extinguished but the intermediate leaseholder must still pay a rent to a superior landlord. Such an imbalance may cause companies to wind up and the provision of building management to suffer. That situation would not work and would be to the detriment of leaseholders, landlords and freeholders alike.

When the new right is used, it would reduce the rent in proportion to the reduction in the ground rent related to the house or flat. In return, the superior landlord will be entitled to a share of the premium that the leaseholder has paid for their lease extension. The new right will be available to all landlords up to and including the freeholder in houses, and all landlords up to and including the competent landlord in flats. The right will not be available if a lease extension or a ground rent buy-out claim is not being undertaken. It is also not available if an intermediate lease is not required to pay rent of more than a peppercorn.

Amendment 70 agreed to.

Amendment made: 71, in schedule 2, page 101, line 6, leave out from “is” to end of line 7 and insert “—

(a) where sub-paragraph (1)(a) or (b) applies, the grant of the statutory lease, or

(b) where sub-paragraph (1)(c) applies, the variation of the lease.”—(Lee Rowley.)

This amendment is consequential on Amendment 73.

Schedule 2, as amended, agreed to.

Schedules 3 and 4 agreed to.

Schedule 5

Amendments consequential on section 11 and schedules 2 to 4

Amendment made: 72, in schedule 5, page 115, line 27, leave out second “competent landlord” and insert “tenant”.—(Lee Rowley.)

This amendment would mean that a tenant may be required to pay the price payable into the tribunal.

Schedule 5, as amended, agreed to.

Clause 12

Costs of enfranchisement and extension under the LRA 1967

[Lee Rowley]

I beg to move amendment 29, in clause 12, page 15, line 6, at end insert—

“(8) See also sections 20CA and 20J of the Landlord and Tenant Act 1985, which prevent costs in connection with a claim under this Part being recovered by way of a variable service charge (within the meaning of section 18 of that Act).”

This amendment is consequential on NC7.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 4, in clause 12, page 16, leave out from line 19 to line 12 on page 17.

This amendment would leave out the proposed new section 19C of the Leasehold Reform Act 1967, and so ensure that leaseholders are not liable to pay their landlord’s non-litigation costs in cases where a low value enfranchisement or extension claim is successful.

Clause stand part.

Government amendment 31.

Amendment 5, in clause 13, page 21, leave out from line 26 to line 12 on page 22.

This amendment would leave out the proposed new section 89C of the Leasehold Reform, Housing and Urban Development Act 1993, and so ensure that leaseholders are not liable to pay their landlord’s non-litigation costs in cases where a low value enfranchisement or extension claim is successful.

Amendment 128, in clause 13, page 22, leave out lines 13 to 39.

This amendment would leave out the proposed new section 89D of the Leasehold Reform, Housing and Urban Development Act 1993, and so ensure that leaseholders are not liable to pay their landlord’s non-litigation costs in cases where a leaseback has been granted under Chapter 1.

Clause 13 stand part.

Government amendments 45, 49 to 51 and 121 to 123.

Government new clause 7—Restriction on recovery of non-litigation costs of enfranchisement, extension and right to manage.

This new clause, to be inserted after clause 35, would prevent variable service charges being paid by a tenant for non-litigation costs in connection with enfranchisement, extension and right to manage claims made by other tenants.

[Lee Rowley]

New clause 7 is a key amendment to close a loophole that landlords could potentially use to recoup process costs from tenants via variable service charges. These are costs to which they are not entitled under the new cost regime. The new clause is supported by a number of consequential amendments.

The new clause will support the new cost regime introduced in the Bill, which, as the Committee will be aware, seeks to prevent landlords from recovering process costs from leaseholders making enfranchisement or right-to-manage claims in the appropriate tribunal. In its current form, the Bill takes active steps to prevent a potential loophole by ensuring that variable service charges cannot be used by landlords as a mechanism to charge leaseholders for their litigation or process costs in connection with any of the aforementioned claims made by leaseholders.

[Eddie Hughes]

Can the Minister clarify whether the prescribed format would include the application of charges for insurance?

[Lee Rowley]

I hope to clarify that issue for my hon. Friend in the next few minutes. If I am unable to do so, I will write to him.

New clause 7 seeks to go a step further in blocking the loophole by ensuring that landlords are unable to recoup costs through variable service charges issued to other tenants who are not actively participating in the claim. To be certain that the new clause is effective, we are clarifying that these costs are not defined as relevant costs that a landlord is allowed to include in service charges. We are also giving the appropriate tribunal a new power to order landlords to repay leaseholders in cases in which they have wrongly been charged for such costs.

Although we recognise that it is unlikely that landlords will seek to circumvent the intent of the Bill, it is important that our efforts to remove barriers to leaseholders bringing applications to enfranchise or to exercise the right to manage are not undermined, and that we ensure that the cost regime is watertight and fairer for leaseholders. I reiterate that new clause 7 will have the effect of preventing landlords from using service charges to obtain from leaseholders costs to which they are not entitled. This will be supported by a power for the tribunal to order landlords to repay leaseholders to whom they have incorrectly passed on such costs. I commend the new clause to the Committee.

I turn to the Government’s position on the amendments tabled to clauses 12 and 13. Amendments 4 and 5 would remove proposed new section 19C of the Leasehold Reform Act 1967 and proposed new section 89C of the Leasehold Reform, Housing and Urban Development Act 1993, which together would establish an exception to the new general rule that each side will bear its own costs in tribunal proceedings for enfranchisement and lease extension claims for flats and houses respectively. The exception exists to entitle landlords to receive a portion of their process costs from leaseholders in low-value claims—those for which the premium to be paid to the landlord by the leaseholder is less than the process costs.

I should note that I share the worthwhile desire of the hon. Member for Greenwich and Woolwich to make it cheaper for leaseholders to enfranchise or extend their leases. For too long, the balance of power has been weighted too much in favour of landlords. We have introduced changes to the cost regime because we believe that they will make it fairer, and because we wish to remove the risk and uncertainty facing leaseholders bringing such claims. While restoring balance, however, it is important that the new regime is fair for both sides when there are claims of this nature. Rightly, leaseholders have a statutory ability to enfranchise or extend when they like. In low-value claims, it is not fair for landlords to be required to incur a net financial loss at any time that leaseholders wish to exercise their rights. In claims that are not low-value, the landlord will receive sufficient compensation and will be able to use this to cover the costs incurred; in low-value claims, that is not possible, as the premium is less than the process costs.

Part of the reason why leaseholders have been liable to pay their landlord’s reasonable process costs is to ensure that landlords are protected from unfairly burdensome costs. They could face these costs at any time. In many cases, landlords have no choice but to pay out, given their duty to honour the statutory rights of leaseholders to enfranchise or extend their lease. The low-value claim cost provisions create protection. They mean that leaseholders will be liable for some of their freeholders’ costs, but their exposure to cost will not be excessive. Although it is right that the cost regime changes, we must continue to ensure that there are protections in place both for leaseholders and for landlords. I ask the hon. Member for Greenwich and Woolwich kindly not to press his amendments.

We have been clear that we want to make it cheaper and easier for leaseholders to extend their lease or buy their freehold; that is the whole point of this Bill. Clause 12 will make it cheaper for owners of leasehold houses to exercise their enfranchisement rights. It introduces a new cost regime with a general rule that, in future, both landlords and leaseholders will bear their own process costs during an enfranchisement claim. Process costs could include costs for services such as valuation, conveyancing and other legal costs. This could save a leaseholder thousands of pounds. Leaseholders will no longer be deterred from bringing a claim because of the process costs demanded by their landlord, and a leaseholder will no longer face unknown costs from their landlord, making it much simpler to buy their freehold or extend their lease.

--- Later in debate ---

[Barry Gardiner]

Here was me thinking I was going to be helpful to the Minister with my amendment 128, that I was going with the grain of the Bill—its whole point. He was so eloquent, and said that it is absolutely right that each party should bear its own costs, and I was thinking, “Great, we’ve got one here. They’re going to support us”, and then he said that he could not accept the amendment. I urge the Minister to consider it again.

I am trying to take out that whole proposed new section 89D, because it is a new class of cost—this whole idea of a leaseback. These are new ways in which landlords will be able to increase the costs of enfranchisement, because they will engage a series of lawyers to review separately every single one of the contracts of the non-enfranchising leaseholders and, indeed, all the individual elements of the commercial premises that they are being forced to take the leaseback off. Those costs will be absolutely enormous, because they will do it on an individual basis. The hon. Member for Redditch spoke eloquently about her cynicism, and I am afraid that it is not cynicism: it is reality. It is an understanding of what is happening in the commercial world out there.

The Minister really needs to look at this again. I understand that he has a commitment not to accept the amendments put forward by my hon. Friend the Member for Greenwich and Woolwich, or, indeed, by me, but I urge him to think again and actually see what that might cost in practice—he can get his officials to look at that—for a large development where, we must remember, only 50% of the residential element may have enfranchised, meaning that 50% may not have; they will be leasebacks. The whole of the commercial element, which could be up to 50% of the development, will also be leasebacks, which will be individuated. The cost of an individual review by a landlord of every single one of those lease contracts will make it impossible for the 50% residential interest to enfranchise. It goes against the grain of the Bill. I urge the Minister to look at that again and come back at a later stage with his own amendments.

[Lee Rowley]

I will briefly address those points. I understand the broad point made by the hon. Member for Greenwich and Woolwich. If we need to look at specific areas in more detail, I would be happy to receive those from him outside the Committee. We think that the structure will work and is effective. On the point that my hon. Friend the Member for Redditch made a moment ago, officials have spent a significant amount of time trying to make the provisions as watertight as possible. Can I guarantee on absolutely everything that there is no possibility that we have missed something? No. That is why I am happy to take further information from any colleagues on the Committee, but we think that this is a valid prospectus on which to proceed.

My hon. Friend made a point about my potential naivety, although that is not how she described it. I assure her that having dealt with freeholders from a building safety perspective now for 16 months, even though I have dealt with this sector for only a couple of months, I am under no illusions about the cynicism of part of that sector. Even when we go through legal processes—I know that colleagues in this room have had a great deal of this, particularly those who represent urban areas—and it is absolutely clear and staring us in the face that there are responsibilities and requirements to do things with regard to building safety, it is absolutely extraordinary that some freeholders continue to seek to get around their obligations and must be dragged kicking and screaming to them.

I listened to a rather erroneous and misleading discussion on the “Today” programme this morning where the BBC presenter said, “It is all terrible on building safety. An insufficient amount of progress has been made in terms of building safety a number of years on from the very sad events of Grenfell.” It is also the case that a substantial amount of work is going into dragging some of the freeholders to do the things that they are supposed to do in the first place and have the basic humanity to recognise that they need to provide buildings that are safe for people to live in.

I hope that I have assured the Committee that, if nothing else, I am absolutely cognisant of some of the challenges that were indicated by my hon. Friend the Member for Redditch. We hope that the elements that I articulated in my initial comments address some of the egregious situations. One of the reasons why we are tightening covenants is to ensure that there is not a workaround or way around some of the things that we have talked about.

I say to all three hon. Members, including the hon. Member for Brent North, that there is always a balance to be struck, but we are trying to make this as watertight as it can be. Although we cannot accept the amendment, if there is something that we genuinely think we have forgotten or missed, I will happily take further information, separately, and look at it again. We think this provision is okay, but I am always happy to take further information, if it would be helpful.

[Matthew Pennycook]

I thank the Minister for that response. Before turning to amendments 4 and 5, I have a brief note about the amendment tabled by my hon. Friend the Member for Brent North. It is a very strong idea, and there is a genuine deficiency in the law. If he is minded to press it to a vote, I would certainly support him. He may want to return to it at another date.

On amendments 4 and 5, perhaps I have misunderstood the Minister. We are not trying to make the argument that the Government have forgotten to include something in the Bill or that there is something missing; the point is that the exemption that they are providing for low-value claims will cause problems. I have taken on board what the Minister said about the Government’s position being that the exemption is essential to ensure that the new process is fair, but we are very concerned that the prescribed sum that the Secretary of State will bring forward will become the de facto minimum amount payable for those low-value claims. Because of the problems challenging that, I think that leaseholders will be deterred from taking this process forward. That is the best-case scenario.

The worst-case scenario—I fear that this is the more likely scenario, for the reasons outlined by my hon. Friend the Member for Brent North and the hon. Member for Redditch in relation to the behaviour of some freeholders —is that it will become a recipe for litigation and gaming of the low-value exemption in ways that will be detrimental to leaseholders. With that in mind, I am minded to press amendment 4 to a vote and, if that is successful, amendment 5 as well.

[Barry Gardiner]

There is a word in the clause that the Minister should pay very specific attention to. Line 29 of proposed new section 89D states that

“‘non-litigation costs’ means costs that are or could be incurred by a freeholder”—

I stress “could”. If the Minister is minded to look at this again, he should ask his officials to do some calculations about what the costs could be. I recognise the figures and have no wish to detain the Committee by pressing this to a vote. I am happy to support my hon. Friend in pressing amendment 4 to a vote, but if the Minister can give me an assurance that he will ask his officials to do that homework, I will not press the amendment.

[Lee Rowley]

We are certainly happy to write to the hon. Member to articulate the position in more detail and to seek to reassure him on some of the points that he has made.

Amendment 29 agreed to.

Amendment made: 30, in clause 12, page 15, line 14, at end insert—

“(za) the claim ceasing to have effect under regulations under section 4B (landlord certified as community housing provider);”—(Lee Rowley.)

This amendment is consequential on Amendment 57.

Amendment proposed: 4, Clause 12, page 16, leave out from line 19 to line 12 on page 17.—(Matthew Pennycook.)

This amendment would leave out the proposed new section 19C of the Leasehold Reform Act 1967, and so ensure that leaseholders are not liable to pay their landlord’s non-litigation costs in cases where a low value enfranchisement or extension claim is successful.

Question put, That the amendment be made.

--- Later in debate ---

This would give the tribunal jurisdiction to deal with cases where landlords cannot be found or identified, to appoint a person to execute a variation of a lease (eg. if a party to the lease is absent or unco-operative), and to enable the Schedule to continue to apply if the notice given was of no effect.

[Lee Rowley]

I beg to move amendment 35, in clause 14, page 27, line 15, at end insert—

“21ZA Jurisdiction for other proceedings

(1) This section applies to proceedings—

(a) relating to the performance or discharge of obligations arising out of a tenant’s notice of their desire to have the freehold or an extended lease under this Part, and

(b) for which jurisdiction has not otherwise been conferred under or by virtue of this Part.

(2) Jurisdiction is conferred on the appropriate tribunal for proceedings to which this section applies.

(3) But jurisdiction is instead conferred on the court where a purpose of the proceedings is to obtain a remedy that could not be granted by the appropriate tribunal but could be granted by the court.

(4) If, in proceedings before the court to which this section applies, it appears to the court that—

(a) the remedy (or remedies) sought could be granted by the appropriate tribunal, it must by order transfer the proceedings to the appropriate tribunal;

(b) a remedy sought could be granted by the appropriate tribunal and another remedy sought could only be granted by the court, it may by order transfer the proceedings to the appropriate tribunal insofar as the proceedings relate to the remedy that could be granted by the appropriate tribunal.

(5) Following a transfer of proceedings under subsection (4)(b)—

(a) the court may dispose of all or any remaining proceedings pending the determination of the transferred proceedings by the appropriate tribunal,

(b) the appropriate tribunal may determine the transferred proceedings, and

(c) when the appropriate tribunal has done so, the court may give effect to the determination in an order of the court.

(6) Rules of court may prescribe the procedure to be followed in a court in connection with or in consequence of a transfer under this section.

(7) A reference in this Part to the jurisdiction conferred on the appropriate tribunal or the court includes that conferred by this section.

(8) This section does not prevent the bringing of proceedings in a court other than the county court where the claim is for damages or pecuniary compensation only.”

This amendment moves the provision that would have been inserted into the 1967 Act as section 21C. It also includes a new subsection (8) to clarify the effect of the new section.

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 36 to 38.

Clause stand part.

Clause 15 stand part.

Government amendments 41 and 42.

Clauses 16 and 17 stand part.

Government amendment 43.

Clause 18 stand part.

[Lee Rowley]

These are minor technical amendments to support the changes that we are introducing—to the jurisdiction of the county court and the property chamber of the first-tier tribunal respectively—to simplify dispute resolution so that leasehold enfranchisement and right to manage cases sit all in one place and in the hands of experts. Amendments 35 and 38 work together to amend and replace a new section to be added to the 1967 Act, which lays out the jurisdiction of the court and the tribunal in relation to particular matters. This section will move to earlier in the Act, as following sections will rely on this provision, and so it is clearer for it to be featured earlier.

Amendment 36 changes the 1967 Act to clarify the jurisdictional boundaries of the county court and the tribunal. Specifically, it clarifies that a party cannot go to the court for an order for compliance with enfranchisement obligations unless their application is linked to other proceedings in that court, and for which the court has jurisdiction. It increases conciseness and clarity.

Amendment 37 is consequential on the amendments that I have set out and serves to ensure that both the Bill and the 1967 Act continue to make sense. These are minor and technical amendments, as opposed to material policy changes. I hope that they will not be contentious and commend them to the Committee.

Turning to clause 14, we have been clear repeatedly today that we want to make it cheaper and easier for people to extend their lease or buy their freehold. However, it is equally important that people can effectively seek redress or launch challenges where needed. Clause 14 will move all enfranchisement disputes to the tribunal so that these matters are dealt with in one place. That will not only make the system simpler to understand but save leaseholders money. They are less likely to need legal advice just to understand the process, and it reduces cases where money is wasted because challenges are launched incorrectly.

On top of that, the new system will ensure that these complex matters are dealt with by those with the right experience, knowledge and expertise at the tribunal that is best equipped to handle these matters. The clause also gives the tribunal important new powers so that it can effectively deal with disputes in its new, expanded jurisdiction. These include requiring parties to comply with duties under the Act, such as payment of compensation to a leaseholder, appointing someone to complete a conveyance, or ordering leaseholders to pay the price due to extend their lease or acquire the freehold. Taken together, these measures simplify and strengthen the system for dispute resolution, and I commend clause 14 to the Committee.

Turning to clause 15, currently some disputes that arise during the enfranchisement process for leasehold houses can be resolved in the first-tier tribunal in England and the leasehold valuation tribunal in Wales, but others must be resolved in the court, which creates a complex situation and causes confusion and additional costs for all parties involved.

The clause addresses that problem by transferring the jurisdiction for dealing with specific matters from the courts to the tribunal. This will result in the majority of enfranchisement disputes for leasehold houses being dealt with and resolved solely by the experienced tribunal. The clause will also allow for payments that would normally be paid into court, such as the premium payable when there is a missing landlord, to be paid into the tribunal. That will mean that the process for resolving enfranchisement disputes for leasehold houses will be easier to navigate and reduce the number of claims that need to go to the courts and the tribunal, which will save time and legal costs. The measures will ensure that the process for resolving disputes is simpler, quicker and cheaper.

Amendments 41 and 42 are also minor technical amendments that support the changes we are introducing. Amendment 41 to clause 16 changes the 1993 Act to clarify the jurisdictional boundaries of the county court and tribunal. Specifically, the amendment clarifies that a party cannot go to the court for an order for compliance with enfranchisement obligations unless their application is linked to other proceedings in the court where the court has jurisdiction. Amendment 42 is consequential on amendment 41. It ensures that both the Bill and the 1993 Act continue to make sense.

Clause 16 makes changes very similar to those made by clause 14, but in relation to the Leasehold Reform, Housing and Urban Development Act 1993, which applies to flats rather than houses. The clause will move a number of matters from the county court to the tribunal so that they are all dealt with in one place. The costs rules in the tribunal, where each side bears their own costs, are also favourable to leaseholders in many cases, while in the county court the loser pays the other party’s litigation costs. The tribunal has the knowledge and experience to deal with those matters best. The clause gives the tribunal the powers it needs to deal with disputes in its new jurisdiction, such as apportioning rent in some cases and requiring parties to comply with the requirements of the amended Leasehold Reform, Housing and Urban Development Act.

Clause 17 addresses jurisdiction for disputes during the enfranchisement process for leasehold flats. It does this in a similar way to clause 15, which relates to leasehold houses. As is the case for houses, some disputes that arise during the enfranchisement process for leasehold flats can be resolved in the tribunal, but others must go to court. The clause will address that problem by transferring the jurisdiction to the tribunal. It will also allow for payments that would normally be paid into court to be paid into the tribunal.

Amendment 43 is another minor technical amendment to support the changes that we are introducing to the jurisdiction of the county court and first-tier tribunal. It simplifies dispute resolution and places things in one place, in the hands of experts. The amendment works together with amendments 35 and 38 to amend and replace a proposed new section to be added to the 1967 Act, which lays out the jurisdiction of the court and tribunal in relation to particular matters. The proposed new section will be moved to earlier in the Act, because following sections rely on it. Again, it is a minor and technical change.

Finally, I turn to clause 18. The current division of power to deal with enfranchisement disputes between different courts and the tribunal creates complexity. Furthermore, High Court cases are much more expensive than the tribunals. Leaseholders often have more limited resources than landlords, and landlords may use the threat of going to the High Court in future as a tactic to place pressure on leaseholders. The clause complements clauses 14 to 17, which shift jurisdiction for most enfranchisement matters to the first-tier tribunal and the leasehold valuation tribunal in Wales.

Clause 18 prevents parties from using the High Court as an alternative forum to the tribunals for determining enfranchisement matters in the first instance, but it does not prevent a party from appealing a decision of the tribunals or affect the jurisdiction of the High Court to consider judicial review claims in respect of the tribunals. The tribunals have the skills and expertise to deal with all aspects of an enfranchisement dispute, including complex questions of valuation, and they are well placed to take over enfranchisement claims. The measure should help to reduce costs and inconvenience, and ensure that disputes are handled by judges with specialist knowledge.

[Matthew Pennycook]

We take no issue with any of the Government amendments in the group. I rise to speak briefly in relation to clauses 14 to 17, which, as the Minister has said, concern the jurisdiction of the county court and tribunals.

The current law divides the responsibility for resolving enfranchisement disputes between the county court and the tribunal, but there is considerable evidence that this creates complexity, can cause confusion and additional expense for the parties, and creates discrepancies due to the differing powers of the county court and of the tribunal to order one party to pay the other’s litigation costs. The workaround that has been attempted—namely, the increased deployment of tribunal judges as county court judges and vice versa—has not overcome the inherent tensions regarding the division of power in this area.

As the Minister has said, clauses 14 to 17 variously amend both the 1967 and 1993 Acts to transfer jurisdiction from the county court to the first-tier tribunal for a number of matters and provide the FTT with the necessary additional powers to exercise its expanded jurisdiction. We welcome these sensible clauses, which enact recommendation 82 of the Law Commission’s final report on leasehold enfranchisement. Although it is our hope that a number of measures in the Bill will have the effect of reducing the frequency with which disputes arise during enfranchisement claims, a great many still will. It is sensible to give a single body responsibility for them, and for that body to be the FTT, given its skills and expertise.

We welcome these clauses, but I want to probe the Minister on the issue of the first-tier tribunal’s ability to deal with all enfranchisement disputes. The tribunal’s present caseload is not unduly onerous, but, following the end of the pandemic, it has reported a gradual increase in its leasehold management work—in particular, challenges relating to service charge costs—as well as more applications for rent repayment orders. In addition, it now has responsibility for resolving the vast majority of disputes arising from the Building Safety Act 2022, including those concerning remediation orders and remediation contribution orders under part 5 of that Act.

The Government are proposing to increase the tribunal’s workload through the changes that they are making through the Renters (Reform) Bill, which is still making its way through the House. In particular, the new statutory procedure for increases of rent that that Bill provides for, with an expanded right for tenants to challenge, is likely to see the level of market rent referrals that the tribunal deals with rise. Now the Government are proposing, through this Bill, that the tribunal also be given responsibility for resolving all enfranchisement disputes. As I said, although we welcome the proposal to do so, the obvious risk of enacting this combination of further and expanded jurisdictions for the tribunal, in the absence of additional funding, judges and court staff, is that it will result in backlogs.

We therefore seek reassurances from the Minister that the Government are thinking seriously about how they will ensure that the first-tier tribunal will be adequately resourced to effectively and efficiently discharge all its new and proposed responsibilities, including in relation to this Bill. Could he tell us what additional resources the Government are proposing to allocate to the property tribunal, and what initiatives are being considered to ensure that it has the relevant skills and capacity to guarantee that it can do that?

[Lee Rowley]

I welcome the support from the Opposition. As the hon. Gentleman also indicates, these are sensible approaches to take. He is right to highlight his very valid point about capacity within the first-tier tribunal; I am glad that we agree on the principle. He is absolutely right that there is a practicality element, should it survive the continuation of the processes in both this House and the other House. It would be subject to a justice impact test, which, as I understand it, includes a review of capacity, and it would be considered at that point, should it progress through to legislation.

[Matthew Pennycook]

I welcome those reassurances from the Minister.

Amendment 35 agreed to.

Amendments made: 36, in clause 14, page 27, line 27, leave out subsections (3) and (4) and insert—

“(3) An application may not be made under subsection (1) to the court unless the application relates to proceedings in respect of which the court has jurisdiction under or by virtue of any provision of this Part (including section 21ZA).”

This amendment provides that applications under section 21A of the 1967 Act may be made to the county court only if the court is dealing with related proceedings under the 1967 Act.

Amendment 37, in clause 14, page 28, line 5, leave out subsection (7).

This amendment is consequential on Amendment 36.

Amendment 38, in clause 14, page 29, line 8, leave out from beginning to end of line 41.—(Lee Rowley.)

This amendment removes provision that is reproduced by Amendment 35.

Clause 14, as amended, ordered to stand part of the Bill.

Clause 15 ordered to stand part of the Bill.

Clause 16

Amendment of Part 1 of the LRHUDA 1993

Amendments made: 39, in clause 16, page 32, line 43, at end insert—

“(ha) any matter arising under paragraph 12 of Schedule 11 (reduction of rent under intermediate leases on grant of a new lease), including what rent under an intermediate lease is apportioned to the flat;”.

This amendment is consequential on Amendment 73.

Amendment 40, in clause 16, page 33, line 26, at end insert—

“(5A) In relation to paragraph 12 of Schedule 11—

(a) if the landlord under a qualifying intermediate lease cannot be found or their identity cannot be ascertained, the appropriate tribunal may make such order as it thinks fit, including—

(i) an order dispensing with the requirement to give notice under paragraph 12(3) of Schedule 11 to that landlord, or

(ii) an order that such a notice has effect and has been property served even though it has not been served on that landlord;

(b) make an order appointing a person to vary a lease in accordance with paragraph 12 of Schedule 11 on behalf of the landlord or tenant;

(c) if the appropriate tribunal makes a determination that a notice under paragraph 12(3) of Schedule 11 was of no effect, it may—

(i) determine whether another landlord or tenant could have given such a notice, and

(ii) if it determines that they could have done so, order that paragraph 12 of Schedule 11 is to apply as if they had done so.

(5B) The variation of a lease on behalf of a party in consequence of an order under subsection (5A)(b) has the same force and effect (for all purposes) as if it had been executed by that party.”

This would give the tribunal jurisdiction to deal with cases where landlords cannot be found or identified, to appoint a person to execute a variation of a lease (eg. if a party to the lease is absent or unco-operative), and to enable the Schedule to continue to apply if the notice given was of no effect.

Amendment 41, in clause 16, page 34, line 36, leave out from beginning to end of line 2 on page 35 and insert—

“(3) An application may not be made under subsection (1) to the court unless the application relates to proceedings in respect of which the court has jurisdiction under or by virtue of any provision of Chapter 1, 2 or 7 (including section 91A).”

This amendment provides that applications under section 92 of the 1993 Act may be made to the county court only if the court is dealing with related proceedings under the 1993 Act.

Amendment 42, in clause 16, page 35, line 17, leave out subsection (7).—(Lee Rowley.)

This amendment is consequential on Amendment 41.

Clause 16, as amended, ordered to stand part of the Bill.

Clause 17 ordered to stand part of the Bill.

Clause 18

No first-instance applications to the High Court in tribunal matters

--- Later in debate ---

[The Chair]

With this it will be convenient to discuss schedule 6.

[Lee Rowley]

Clause 19 brings schedule 6 into effect, including a series of amendments that follow on from the introduction of 990-year lease extensions and statutory break rights where 990-year lease extensions occur. Those rights allow a landlord to end an extended lease at limited windows of opportunity so that they may redevelop, such as to enable the continued good use of land where a building is beyond its useable lifespan. The schedule removes defunct rules regarding staying on in properties after a lease extended by 990 years expires, and includes a definition of a shared ownership lease.

Schedule 6 assists with the introduction of 990-year lease extensions. The schedule removes provisions that prevent sub-leaseholders from having various statutory rights to security of tenure when their lease ends. The provisions are no longer relevant as we are expanding lease extension rights for sub-leaseholders. It is also unlikely buildings would still be standing in 990 years’ time—much as we would like many of them to be—and that reduces the relevance of what happens when such a lease ends.

The schedule accommodates 990-year lease extensions by adjusting the limited windows in which statutory break rights can be used by landlords to redevelop a property. In houses and flats, the rights will be available in the last 12 months of the original lease term and the last five years of each subsequent 90-year period of a 990-year lease extension.

We understand and recognise the strong concerns leaseholders have about the use of break rights by landlords. It is likely, however, that a building will not outlast the term of a 990-year extended lease. Break rights will therefore be necessary, by logic, to enable the continued good use of land over long periods of time. They can only be used where a landlord obtains a court order, and compensation must be paid to leaseholders. We hope we have made a necessary balance between enabling longer lease extensions and addressing the practicality of the lifespan of buildings.

The schedule also repeals redundant provisions on estate management schemes, which the law no longer permits to be approved. An estate management scheme allowed a landlord to retain some management control over properties, amenities and common areas where the freehold has been sold to leaseholders. The schedule inserts a new definition of “shared ownership lease” for enfranchisement law. The definition is required for the exclusion of shared ownership leaseholds from freehold acquisition rights. It will also be required for upcoming amendments, by which we will give lease extension rights to shared owners and shared ownership providers in respect of their intermediate leases.

Existing provisions on right to enfranchise companies are also repealed. The provisions were never commenced but would have set new requirements for who can be the nominee purchaser in a collective enfranchisement. The provisions have been identified as problematic and burdensome for leaseholders, and it is therefore appropriate to repeal them.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Schedule 6

Leasehold enfranchisement and extension: miscellaneous amendments

Amendments made: 73, in schedule 6, page 117, line 39, at end insert—

“Reduction of rent under intermediate leases

5A In Schedule 1 to the LRA 1967 (enfranchisement and extension by sub-tenants), after paragraph 12 insert—

‘12A(1) This paragraph applies if at the relevant time (see section 37(1)(d))—

(a) relevant rent is payable under the tenancy in possession,

(b) that relevant rent is more than a peppercorn rent, and

(c) there are one or more qualifying intermediate leases.

(2) For the purposes of this paragraph a lease is a “qualifying intermediate lease” if—

(a) the lease demises the whole or a part of the house and premises,

(b) the lease is immediately superior to—

(i) the tenancy in possession, or

(ii) one or more other leases that are themselves qualifying intermediate leases,

(c) relevant rent is payable under the lease, and

(d) that relevant rent is more than a peppercorn rent.

(3) The landlord or the tenant under a qualifying intermediate lease may, by giving notice to the reversioner and other landlords before the grant of the lease under section 14, require the rent payable under the qualifying intermediate lease to be reduced in accordance with sub-paragraphs (6) to (8).

(4) If—

(a) under sub-paragraph (3) the rent under a lease is required to be reduced in accordance with this paragraph, and

(b) that lease is superior to one or more other qualifying intermediate leases,

the rent payable under the other qualifying intermediate lease or leases is also to be reduced in accordance with sub-paragraphs (6) to (8).

(5) The landlord and tenant under a qualifying intermediate lease must vary the lease—

(a) to give effect to a reduction of the rent in accordance with sub-paragraphs (6) to (8); and

(b) to remove any terms of the lease which provide for an increase in the rent, or part of the rent, so reduced.

(6) If the whole of the rent under a qualifying intermediate lease is relevant rent, the rent under that lease is to be reduced to a peppercorn rent.

(7) If only part of the rent under a qualifying intermediate lease is relevant rent—

(a) that part of the rent is to be reduced to zero, and

(b) the total rent is to be reduced accordingly.

(8) But the amount of the reduction in a person’s rental liabilities as tenant is limited to the amount of the reduction in the person’s rental income as landlord; and here—

(a) “reduction in a person’s rental liabilities as tenant” means the reduction in accordance with sub-paragraph (6) or (7) of the rent payable by the person as tenant under the qualifying intermediate lease;

(b) “reduction in that person’s rental income as landlord” means the amount (or total amount) of the relevant reduction (or reductions) in rent payable to that person as landlord of one or more other reduced rent leases.

(9) In this paragraph—

“reduced rent lease” means—

(a) the tenancy in possession, or

(b) a qualifying intermediate lease;

“relevant reduction” means—

(a) in relation to the tenancy in possession, a reduction resulting from that tenancy being substituted by the tenancy at a peppercorn rent granted under section 14;

(b) in relation to a qualifying intermediate lease, a reduction resulting from this paragraph.

“relevant rent” means rent that has been, or would properly be, apportioned to the whole or a part of the house and premises’.

5B In Schedule 11 to the LRHUDA 1993 (procedure where competent landlord is not tenant’s immediate landlord), after paragraph 11 insert—

‘Part 3

Reduction of rent under intermediate leases

12 (1) This paragraph applies if at the relevant date—

(a) relevant rent is payable under the existing lease,

(b) that relevant rent is more than a peppercorn rent, and

(c) there are one or more qualifying intermediate leases.

(2) For the purposes of this paragraph a lease is a “qualifying intermediate lease” if—

(a) the lease demises the whole or a part of the relevant flat,

(b) the lease is immediately superior to—

(i) the existing lease, or

(ii) one or more other leases that are themselves qualifying intermediate leases,

(c) relevant rent is payable under the lease, and

(d) that relevant rent is more than a peppercorn rent;

but a lease is not a qualifying intermediate lease if it is superior to the lease whose landlord is the competent landlord.

(3) The landlord or the tenant under a qualifying intermediate lease may, by giving notice to the competent landlord and other landlords before the grant of the lease under section 56, require the rent payable under the qualifying intermediate lease to be reduced in accordance with sub-paragraphs (6) to (8).

(4) If—

(a) under sub-paragraph (3) the rent under a lease is required to be reduced in accordance with this paragraph, and

(b) that lease is superior to one or more other qualifying intermediate leases,

the rent payable under the other qualifying intermediate lease or leases is also to be reduced in accordance with sub-paragraphs (6) to (8).

(5) The landlord and tenant under a qualifying intermediate lease must vary the lease—

(a) to give effect to a reduction of the rent in accordance with sub-paragraphs (6) to (8); and

(b) to remove any terms of the lease which provide for an increase in the rent, or part of the rent, so reduced.

(6) If the whole of the rent under a qualifying intermediate lease is relevant rent, the rent under that lease is to be reduced to a peppercorn rent.

(7) If only part of the rent under a qualifying intermediate lease is relevant rent—

(a) that part of the rent is to be reduced to zero, and

(b) the total rent is to be reduced accordingly.

(8) But the amount of the reduction in a person’s rental liabilities as tenant is limited to the amount of the reduction in the person’s rental income as landlord; and here—

(a) “reduction in a person’s rental liabilities as tenant” means the reduction in accordance with sub-paragraph (6) or (7) of the rent payable by the person as tenant under the qualifying intermediate lease;

(b) ‘reduction in that person’s rental income as landlord’ means the amount (or total amount) of the relevant reduction (or reductions) in rent payable to that person as landlord of one or more other reduced rent leases.

(9) In this paragraph—

“reduced rent lease” means—

(a) the existing lease, or

(b) a qualifying intermediate lease;

“relevant flat” means the flat and any garage, outhouse, garden, yard and appurtenances that are to be demised by the lease granted under section 56;

“relevant reduction” means—

(a) in relation to the existing lease, a reduction resulting from that lease being substituted by the lease at a peppercorn rent granted under section 56;

(b) in relation to a qualifying intermediate lease, a reduction resulting from this paragraph.

“relevant rent” means rent that has been, or would properly be, apportioned to the whole or a part of the relevant flat.’”

This would provide for rent under superior leases to be reduced where a lease is extended under the LRA 1967 or LRHUDA 1993 (at a peppercorn rent).

Amendment 74, in schedule 6, page 118, leave out lines 1 to 22 and insert—

“Part 1A

Shared ownership leases and the LRA 1967 etc

Amendment of the LRA 1967

5A The LRA 1967 is amended in accordance with paragraphs 5B to 5F.

Repeal of exclusions of shared ownership leases from Part 1 of the LRA 1967

5B (1) In section 1 (tenants entitled to enfranchisement or extension), omit subsection (1A).

(2) In section 3(2) (tenancies deemed to be long tenancies), omit the words from ‘(other than’ to ‘this Act)’.

(3) Omit section 33A and Schedule 4A (exclusion of certain shared ownership leases).

Rateable value limits and low rent tests not to apply to shared ownership leases

5C In section 1 (tenants entitled to enfranchisement or extension), after subsection (6) insert—

‘(6A) In determining whether a tenant under a tenancy which is a shared ownership lease has the right to acquire a freehold or extended lease under this Part, the following requirements of this section do not apply—

(a) any requirement for the tenancy to be at a low rent;

(b) any requirement in subsection (1)(a)(i) or (ii) for the house and premises or the tenancy to be above a certain value.’

No right of enfranchisement for certain shared ownership leases

5D Before section 36 insert—

‘33B Shared ownership leases which provide for 100% acquisition etc

(1) A notice of a person’s desire to have the freehold of a house and premises under this Part is of no effect if, at the relevant time, the tenancy—

(a) is a shared ownership lease, and

(b) meets conditions A to D.

(2) But conditions C and D do not need to be met if the shared ownership lease is of a description prescribed for this purpose in regulations made by the Secretary of State.

(3) Condition A: the tenancy allows for the tenant to increase the tenant’s share in the demised premises by increments of 25% or less (whether or not the tenancy also provides for increments of more than 25%).

(4) Condition B: the tenancy provides—

(a) for the price payable for an increase in the tenant’s share in the demised premises to be proportionate to the market value of the premises at the time the share is to be increased, and

(b) if the tenant’s share is increased, for the rent payable by the tenant in respect of the landlord’s share in the demised premises to be reduced by an amount reflecting the increase in the tenant’s share.

(5) Condition C: the tenancy allows for the tenant’s share in the demised premises to reach 100%.

(6) Condition D: if and when the tenant’s share of the demised premises is 100%, the tenancy—

(a) allows for the tenant to acquire the freehold of the premises (if the landlord has the freehold), or

(b) provides that the terms of the lease which make the lease a shared ownership lease cease to have effect (if the landlord does not have the freehold),

without the payment of any further consideration.

(7) Regulations under this section are to be made by statutory instrument.

(8) A statutory instrument containing regulations under this section is subject to annulment in pursuance of a resolution of either House of Parliament.

(9) In this section ‘demised premises’ means the premises demised under the shared ownership lease.’

Inclusion of terms for sharing staircasing payments

5E In Schedule 1 (enfranchisement and extension by sub-tenants), after paragraph 12A insert—

‘12B(1) This paragraph applies if—

(a) at the relevant time—

(i) the tenancy in possession is a shared ownership lease (the “original shared ownership lease”), and

(ii) the tenant’s share of the dwelling is less than 100%, and

(b) the landlord who grants the new tenancy (the “new shared ownership lease”) is not the immediate landlord under the original shared ownership lease.

(2) At any time after the grant of the new shared ownership lease—

(a) the immediate landlord under the new shared ownership lease, or

(b) the landlord under any relevant intermediate lease,

may apply to the appropriate tribunal for an order making provision to secure that each relevant intermediate lease is varied to include (if or to the extent that it does not already do so) a payment sharing term.

(3) A “payment sharing term” is a term under which staircasing payments are to be shared between—

(a) the immediate landlord under the new shared ownership lease, and

(b) each landlord under a relevant intermediate lease,

in a way which fairly and reasonably reflects staircasing losses that are incurred after the variation of the lease to include this term.

(4) An order under this paragraph may include—

(a) an order relating to a relevant intermediate lease not specified in the application;

(b) an order appointing a person who is not party to a relevant intermediate lease to execute a variation of the lease.

(5) A lease is a “relevant intermediate lease” if—

(a) the lease demises some or all of the shared ownership premises, and

(b) the lease is intermediate between—

(i) the new shared ownership lease, and

(ii) the interest of the landlord who granted the new shared ownership lease.

(6) In this paragraph—

“shared ownership premises” means the premises demised by the new shared ownership lease;

“staircasing loss”, in relation to a staircasing payment, means the loss that a landlord incurs because of the increase in the tenant’s share in the shared ownership premises to which the staircasing payment relates;

“staircasing payment” means a payment made by the tenant under the new shared ownership lease to their immediate landlord in consideration of an increase in the tenant’s share in the shared ownership premises.’

Meaning of “shared ownership lease”

5F (1) In section 37(1) (interpretation of Part 1)—

(a) after paragraph (b) insert—

‘(bza) “landlord’s share”, in relation to a shared ownership lease, means the share in the premises demised by the lease which is not comprised in the tenant’s share;’;

(b) after paragraph (d) insert—

‘(da) “shared ownership lease” means a lease of premises—

(i) granted on payment of a premium calculated by reference to a percentage of the value of the premises or of the cost of providing them, or

(ii) under which the tenant (or the tenant’s personal representatives) will or may be entitled to a sum calculated by reference, directly or indirectly, to the value of the premises;

(db) “tenant’s share”, in relation to a shared ownership lease, means the tenant’s initial share in the premises demised by the lease, plus any additional share or shares in those demised premises which the tenant has acquired;’.

Amendment of the Housing and Planning Act 1986

5G (1) Schedule 4 to the Housing and Planning Act 1986 is amended as follows.

(2) Omit paragraphs 3 to 6 (amendments of the LRA 1967 relating to shared ownership leases).

(3) In paragraph 11—

(a) in sub-paragraph (1), after ‘this Schedule’ insert ‘(other than the amendment made by paragraph 7)’;

(b) omit sub-paragraph (2) (saving of section 140 of the Housing Act 1980, which excludes certain shared ownership leases from Part 1 of the LRA 1967).

Part 1B

Shared ownership leases and the LRHUDA 1993

Amendment of the LRHUDA 1993

5H The LRHUDA 1993 is amended in accordance with this Part of this Schedule.

Repeal of special provision for shared ownership leases in definition of “long lease”

5I In section 7 (definition of ‘long lease’)—

(a) at the end of subsection (1)(c) insert ‘or’;

(b) omit subsection (1)(d);

(c) in subsection (7), omit the definitions of ‘shared ownership lease’ and ‘total share’.

No right to collective enfranchisement for certain shared ownership leases

5J (1) In section 5 (qualifying tenants), after subsection (2)(c) insert ‘or

(d) the lease is an excluded shared ownership lease (see section 5A);’.

(2) After section 5 insert—

‘5A Excluded shared ownership leases

(1) For the purposes of this Chapter a lease is an ‘excluded shared ownership lease’ if it—

(a) is a shared ownership lease, and

(b) meets conditions A to D.

(2) But conditions C and D do not need to be met if the shared ownership lease is of a description prescribed for this purpose in regulations made by the Secretary of State.

(3) Condition A: the lease allows for the tenant to increase the tenant’s share in the demised premises by increments of 25% or less (whether or not the lease also provides for increments of more than 25%).

(4) Condition B: the lease provides—

(a) for the price payable for an increase in the tenant’s share in the demised premises to be proportionate to the market value of the premises at the time the share is to be increased, and

(b) if the tenant’s share is increased, for the rent payable by the tenant in respect of the landlord’s share in the demised premises to be reduced by an amount reflecting the increase in the tenant’s share.

(5) Condition C: the lease allows for the tenant’s share in the demised premises to reach 100%.

(6) Condition D: if and when the tenant’s share in the demised premises is 100%, the tenancy provides that the terms of the lease which make the lease a shared ownership lease cease to have effect, without the payment of any further consideration.

(7) In this section ‘demised premises’ means the premises demised under the shared ownership lease.”

(3) In section 38(1) (interpretation of Chapter 1 of Part 1), after the definition of “conveyance” insert—

‘“excluded shared ownership lease” has the meaning given in section 5A;’.

Tenant under shared ownership lease to have right to new lease

5K In section 39(3)(a) (definition of qualifying tenant: application of section 5), after ‘subsections’ insert ‘(2)(d),’.

Consequential amendment

5L In section 77(2)(b) (qualifying tenants for audit rights), for ‘that section’ substitute ‘section 101’.

Collective enfranchisement: mandatory leaseback

5M In Schedule 9 to the LRHUDA 1993 (grant of leases back to the former freeholder),

after paragraph 3 insert—

‘Flats etc let under shared ownership leases

3A (1) This paragraph applies where immediately before the appropriate time—

(a) any flat falling within sub-paragraph (2) is let under an excluded shared ownership lease (and accordingly the tenant is not a qualifying tenant of the flat), and

(b) the landlord under the lease is the freeholder.

(2) A flat falls within this sub-paragraph if—

(a) the freehold of the whole of it is owned by the same person, and

(b) it is contained in the specified premises.

(3) Where this paragraph applies, the nominee purchaser shall grant to the freeholder (that is to say, the landlord under the shared ownership lease) a lease of the flat in accordance with section 36 and paragraph 4 below.

(4) In this paragraph any reference to a flat includes a reference to a unit (other than a flat) which is used as a dwelling.’

Inclusion of terms for sharing staircasing payments

5N In Schedule 11 (procedure where competent landlord is not tenant's immediate landlord), after paragraph 10 insert—

‘10A(1) This paragraph applies if—

(a) at the relevant date—

(i) the existing lease is a shared ownership lease (the “original shared ownership lease”), and

(ii) the tenant’s share of the dwelling is less than 100%, and

(b) the landlord who grants the new tenancy (the “new shared ownership lease”) is not the immediate landlord under the original shared ownership lease.

(2) At any time after the grant of the new shared ownership lease—

(a) the immediate landlord under the new shared ownership lease, or

(b) the landlord under any relevant intermediate lease,

may apply to the appropriate tribunal for an order making provision to secure that each relevant intermediate lease is varied to include (if or to the extent that it does not already do so) a payment sharing term.

(3) A “payment sharing term” is a term under which staircasing payments are to be shared between—

(a) the immediate landlord under the new shared ownership lease, and

(b) each landlord under a relevant intermediate lease,

in a way which fairly and reasonably reflects staircasing losses that are incurred after the variation of the lease to include this term.

(4) An order under this paragraph may include—

(a) an order relating to a relevant intermediate lease not specified in the application;

(b) an order appointing a person who is not party to a relevant intermediate lease to execute a variation of the lease.

(5) A lease is a “relevant intermediate lease” if—

(a) the lease demises some or all of the shared ownership premises, and

(b) the lease is intermediate between—

(i) the new shared ownership lease, and

(ii) the interest of the landlord who granted the new shared ownership lease.

(6) In this paragraph—

“shared ownership premises” means the premises demised by the new shared ownership lease;

“staircasing loss”, in relation to a staircasing payment, means the loss that a landlord incurs because of the increase in the tenant’s share in the shared ownership premises to which the staircasing payment relates;

“staircasing payment” means a payment made by the tenant under the new shared ownership lease to their immediate landlord in consideration of an increase in the tenant’s share in the shared ownership premises.’

Meaning of “shared ownership lease”

5P (1) In section 101(1) (general interpretation of Part 1)—

(a) after the definition of ‘interest’ insert—

‘“landlord’s interest” in relation to a shared ownership lease, means the share in the premises demised by the lease which is not comprised in the tenant’s share;’

(b) after the entry relating to ‘lease’ and ‘tenancy’ insert—

‘“shared ownership lease” means a lease of premises—

(a) granted on payment of a premium calculated by reference to a percentage of the value of the premises or of the cost of providing them, or

(b) under which the tenant (or the tenant’s personal representatives) will or may be entitled to a sum calculated by reference, directly or indirectly, to the value of the premises;

“tenant’s share”, in relation to a shared ownership lease, means the tenant’s initial share in the premises demised by the lease, plus any additional share or shares in those demised premises which the tenant has acquired;’.—(Lee Rowley.)

This adds provision about the treatment of shared ownership leases under the LRA 1967 and LRHUDA 1993.

Schedule 6 agreed to.

Clause 20

LRA 1967: preservation of existing law for certain enfranchisements

Question proposed, That the clause stand part of the Bill.

[Lee Rowley]

Clause 20 preserves the right of leaseholders to acquire the freehold of a house using the Leasehold Reform Act 1967 as it existed prior to amendment by the Bill. This will be applicable only where the property would be valued using the valuation basis for calculating premiums under section 9(1) of the unamended 1967 Act. Claims made under the section 9(1) valuation basis will remain as a separate freehold acquisition right, independent of the new reforms. Leaseholders who do not qualify for a section 9(1) claim will still benefit from our wider reforms, which will make it cheaper and easier for existing leaseholders in houses and flats to extend their lease or buy their freehold. I commend the clause to the Committee.

Question put and agreed to.

Clause 20 accordingly ordered to stand part of the Bill.

Clause 21

Right to vary long lease to replace rent with peppercorn rent

[Lee Rowley]

I beg to move amendment 44, in clause 21, page 38, line 16, leave out

“a peppercorn rent is payable”

and substitute

“the whole or part of the rent payable becomes and will remain a peppercorn rent”.

This amendment corresponds to the change to paragraph 1(1) of Schedule 7 which would be made by Amendment 75.

[The Chair]

With this it will be convenient to discuss the following:

Government amendment 75.

Clause stand part.

[Lee Rowley]

The ground rent buy-out right was recommended by the Law Commission and enables leaseholders to buy out their ground rent without extending their lease. As the buy-out is subject to the 0.1% freehold value cap, with some exceptions, the right will be especially useful for leaseholders with high or escalating rents. The right is introduced by clause 21, which introduces schedule 7, where the right is detailed. Ground rent buy-out claims can be brought by the leaseholder serving a rent variation notice on the landlord for the lease to be varied on payment of a premium, so that the rent payable is a peppercorn. The ground rent buy-out amendments, which stand in my name, mostly simplify and clarify the provisions in schedule 7.

Amendments 44 and 75 concern the nature of, and right to, a ground rent buy-out. Amendment 44 would amend clause 21, and amendment 75 would make a similar amendment to the first paragraph of schedule 7. Both have the intention of better describing the nature of the right, and I commend the amendments to the Committee.

I turn now to clause 21 itself. As I have explained, leaseholders with very long remaining leases may want to buy out their ground rent without having to extend their lease. For some leaseholders, adding further years to an already long lease might be considered unnecessary or involve additional costs. The buy-out will be useful to those leaseholders with high or escalating ground rents who find themselves in difficulty when trying to sell or remortgage their property. There is currently no statutory right for buying out ground rent without extending a lease, and a voluntary buy-out, if it could be negotiated, would not benefit from the cap. A new right for leaseholders to buy out their ground rent is therefore necessary.

Clause 21 brings schedule 7 into effect. Schedule 7 makes provision for a new right to buy out the ground rent under a lease with a remaining term of 150 years or more. As we discussed this morning, 150 years was chosen as the threshold for this right so that the term remaining is long enough for the leaseholder to be unlikely to want to extend the lease. A lower minimum term would create a risk that poorly advised leaseholders might buy out the ground rent when an extension is in their interest, only to find that they need to extend later and have to pay for two sets of transaction costs.

On the payment of a premium to the landlord, the lease is varied so that the future ground rent payable is a peppercorn. The buy-out premium is subject to a 0.1% freehold value cap, so any future ground rent payable that exceeds 0.1% of the freehold value of the property is treated in the calculation of the premium as if it is only 0.1% of the freehold value. This ensures that high or escalating ground rents, such as those that were articulated in the Committee’s discussions last week, do not make the premium unaffordable for leaseholders. As such, the ground rent buy-out right will be especially useful for leaseholders with long terms remaining who have high or escalating ground rents. I commend the clause to the Committee.

[Matthew Pennycook]

For the purposes of anyone following our proceedings, there are several issues that we wish to raise in relation to clause 21 and schedule 7, but we will do so when we come specifically to debate schedule 7, which, as the Minister said, is where the right is detailed.

[Rachel Maclean]

If it is the case that I can speak to schedule 7 at a later time, I will defer my comments till then.

[Lee Rowley]

I look forward to hearing colleagues’ comments in due course.

Amendment 44 agreed to.

Clause 21, as amended, ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Mr Mohindra.)

Oral Answers to Questions

Lee Rowley Excerpts

Monday 22nd January 2024 Commons Chamber

[Maggie Throup (Erewash) (Con)]

7. What steps he is taking to protect public green spaces.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

Through the levelling up parks fund, taxpayers are providing more than £9 million to create new green spaces or significantly refurbish existing ones. The Department-owned green flag award scheme, which is currently operated under licence by Keep Britain Tidy, sets the national standard for public green spaces and encourages local authorities to ensure that parks and green spaces are welcoming, safe and well maintained.

[Maggie Throup]

Behind the closed doors of the town hall, Labour-controlled Erewash Borough Council is plotting to sell off large swathes of green open space, including the former Pewit golf course in Ilkeston, which had previously been designated as a nature reserve. Will my hon. Friend take steps to prevent local authorities from selling public land without first carrying out full public consultations, and will he join me on a visit to the Pewit site to discuss how we might save it from the hands of developers?

[Lee Rowley]

By law, local authorities are required to publish a notice and advertise it before disposing of any open space. This is exactly why it is so important that my hon. Friend is and continues to be the MP for Erewash. She can call out all the disasters of the Labour Erewash Borough Council which, as a fellow Derbyshire MP, I see Derbyshire Labour doing regularly all across my county. It has the wrong priorities and outcomes, and it makes the wrong decisions.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

The Minister might know that we have wonderful public green spaces in our country—many of them are around London and in West Yorkshire—but is he aware that the decline of education departments in many local authorities owing to the policies of successive Conservative Governments means that today the ability to organise school trips to green spaces is minimal? Could we have a policy that allows all our children, of whatever background, to go to and enjoy those beautiful green spaces?

--- Later in debate ---

[Mr Speaker]

Order. Mr Sheerman, please do not take advantage of the Chair. I am trying to bring the Minister in, and I have to get many others in. You are important, but so are other people.

[Lee Rowley]

The hon. Gentleman should look at the Conservative party’s record on education in over 40 years in government. There have been substantial improvements in education and teaching, and our children are better readied for the challenges ahead as a result.

[Peter Dowd (Bootle) (Lab)]

8. What assessment he has made of the potential merits of a four-day working week for local authority employees.

--- Later in debate ---

[Sir David Evennett (Bexleyheath and Crayford) (Con)]

9. What steps he is taking to help first-time buyers.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

Getting on the property ladder is everything that is important about being a Conservative. The Government have a range of schemes available to first-time buyers, including the first homes scheme, shared ownership and right to buy. So far, nearly 900,000 people have been helped on to the property ladder by this Government.

[Sir David Evennett]

Does the Minister agree that while Labour Members actively block the building of new homes for first-time buyers, the Conservative Government have increased the numbers to a 20-year high and helped almost 1 million households through Government-backed schemes?

[Lee Rowley]

I absolutely agree with my right hon. Friend. I hope he heard some of the chunters of “Come on!” from the Opposition Benches when he raised the absolutely correct point that, when the opportunity was there for Labour Members, they flubbed it. They have blocked 100,000 houses that could be used for first-time buyers, people who need help, and the most vulnerable. It is all down to the right hon. Member for Ashton-under-Lyne (Angela Rayner).

[Jim Shannon (Strangford) (DUP)]

I thank the Minister for that answer. What discussions has he had with large UK banks, such as Danske Bank in Northern Ireland, to ensure mortgages are made as accessible as possible for first-time buyers, encouraging them to buy, not rent, when they have a steady income? Further, are there any plans to reintroduce the help to buy ISA?

[Lee Rowley]

I am grateful to the hon. Gentleman for his important question. Getting people on the housing ladder is absolutely vital: that is why we introduced the mortgage guarantee scheme, which extends the number of mortgages that are on the market for those people who need it, including first-time buyers. I am happy to talk separately to the hon. Gentleman about other ideas that he may have.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

11. What steps he is taking to reform the leasehold system.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

Right now, the Government are taking action with the progression of the Leasehold and Freehold Reform Bill through this place, which delivers on the Government’s manifesto commitments on leasehold reform.

[Chi Onwurah]

Leaseholders in Leazes Park in Newcastle are having their lives ruined because their supposedly charitable freeholder, the St Mary Magdalene and Holy Jesus Trust, refuses to allow them to extend or buy their leaseholds. Across the constituency, in a cost of living crisis, my constituents face exorbitant management fees, high costs for fire safety and ever-increasing ground rents. Can the Minister tell my constituents why, when the Labour party is committed to comprehensive and fundamental reform of the leasehold system as set out by the Law Commission, he has brought forward a leasehold reform Bill that does not actually reform their leaseholds?

[Lee Rowley]

The Leasehold and Freehold Reform Bill, which is going through Parliament at the moment—going through in a very constructive way so far, with contributions from Members of all parties, presumably because they recognise the value of the clauses it contains—will make substantive changes for those who have leaseholds at the current time. We look forward to its continued progress through the House.

[Mr Speaker]

I call the Father of the House.

[Sir Peter Bottomley (Worthing West) (Con)]

There will be agreement on both sides of the House that reform is needed. For my part, I welcome the introduction of the Leasehold and Freehold Reform Bill to get people on to modern leasehold and commonhold, and through the Minister, I invite those who are suffering—the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) explained that her constituents are suffering—to put their points through MPs to the Department, so that when amendments to the Bill are tabled, as many as possible can be discussed and accepted.

[Lee Rowley]

I am grateful to my hon. Friend. As I and the Secretary of State have said, we are keen to improve the Bill where we can, but it is a substantial Bill that will make substantial changes for people who have needed reform of leasehold for a long time.

[Simon Jupp (East Devon) (Con)]

14. What steps he is taking to promote transparency in local government.

--- Later in debate ---

[Andrew Selous (South West Bedfordshire) (Con)]

16. What assessment he has made of the reliability of information on associated infrastructure provided to buyers by housing developers.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

It is absolutely vital that buyers have correct, up-to-date and accurate material information on their purchase before they make a decision to buy a home.

[Andrew Selous]

I am very grateful to my hon. Friend the Minister. He will know that promotional documents put out by major house builders such as Barratt Homes, Taylor Wimpey, David Wilson Homes and so on to prospective purchasers on large-scale housing estates commit absolutely to the building of health infrastructure, which very often does not turn up. Just allocating a piece of land simply is not good enough. Can he please make sure that we do not mislead purchasers and that, frankly, the doctors’ surgery is the first building to be built on many of these new estates?

[Lee Rowley]

My hon. Friend makes a hugely important point, and I am grateful for the time he has spent with me in my first couple of months in the job to highlight this issue, to articulate the problems and to show the real-life examples of where there is an issue. He is such a good champion of this issue for his constituency. A substantial amount of infrastructure has been built all across the country, but where there are gaps it is hugely frustrating, and we will continue to work with assiduous Members such as my hon. Friend to try to close them.

[Kerry McCarthy (Bristol East) (Lab)]

A recent freedom of information request revealed that only a third of the housing infrastructure fund has actually been spent, which leaves £2.9 billion unspent. The National Audit Office says that successful delivery of the housing infrastructure fund “appears to be unachievable”, so what is going to happen to that £2.9 billion?

[Lee Rowley]

The housing infrastructure fund continues to transform very difficult, challenging and unviable areas of the country. It is being spent at pace, and it will continue to be so. We expect it to be able to transform more parts of the country over the years ahead.

[Dr Luke Evans (Bosworth) (Con)]

19. What assessment he has made of the role of neighbourhood planning in the national planning policy framework.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

The Government recognise the time and commitment that communities put into neighbourhood plans. Our recent updates to the national planning policy framework mean that neighbourhood plans meeting their identified housing requirement are now better protected from speculative development, including through the additional reforms coming in the Levelling-up and Regeneration Act 2023.

[Dr Evans]

My Lib Dem-run borough council still does not have an up-to-date local plan. Every day that passes means that we are open to speculative housing developments without the right infrastructure such as GP practices and roads and those kind of things. My communities are fantastic at producing neighbourhood plans, but they are ridden over roughshod in places such as Desford, where housing has been put in where the community does not want it. Will the Minister look at increasing the priority given to neighbourhood plans when communities and local planning authorities do not have an up-to-date local plan?

[Lee Rowley]

It is hugely frustrating when local plans are not in place. As my hon. Friend indicated, in his area the Lib Dem council has failed to do that, which is letting residents down. There have been changes as a result of the national planning policy framework giving additional protection through neighbourhood plans, but district councils and those with planning responsibilities need to get their plans in place.

[John Penrose (Weston-super-Mare) (Con)]

21. If he will make an assessment of the potential merits of a permitted development right for urban homeowners to increase their property to four storeys where that complies with the local authority’s design code.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

We have introduced national permitted development rights to allow a wide range of existing residential and commercial buildings to extend upwards by up to two additional storeys. We have also recently consulted on proposals to apply local design codes to those rights and further announcements will be made in due course.

[John Penrose]

May I urge the Minister to go further and faster on this? The permitted development rights would create beautiful urban townscapes and unleash the biggest wave of housebuilding in half a century, which would in turn cut housing costs to rent or buy, be greener by allowing people to live within bicycling or walking distance from work and protecting rural landscapes from urban sprawl and, by increasing the development potential of almost any urban building, be the biggest single act of wealth creation in decades. What’s to dislike?

[Lee Rowley]

There is absolutely nothing to dislike, as my hon. Friend indicates, about speeding up the planning system to ensure we get the houses we so badly need. As I know my hon. Friend will appreciate, however, there is always a balance to be struck: we must ensure that we take local people with us, but we are committed to building more houses, and doing so in the right places.

--- Later in debate ---

[Alexander Stafford (Rother Valley) (Con)]

T5. The Minister will be aware that Labour-run Rotherham Metropolitan Borough Council has recently given the go-ahead for developers to build hundreds of new homes at Highfield Park in Maltby on land that has always been greenfield. What he might not be aware of is that the developer has given thousands of pounds to the local Labour party, which none of the councillors voting on the issue declared. What can he do to ensure that such greenfield sites are not wantonly given over to developers?

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

I am sorry to hear about the challenges that my hon. Friend has seen in Rother Valley. It is one reason that more Conservative councillors need to be elected on to Rotherham Metropolitan Borough Council for the future. We are absolutely aware that there are challenges. We need to build more houses and in the right place, and the best way to do that is by getting a local plan in place, and by the councils that are responsible for that engaging properly with their communities about it.

[Clive Efford (Eltham) (Lab)]

T2. My local authority is bending over backwards to try to build social housing and is committed to building 2,000 new homes, yet the Government are still standing in the way by placing restrictions on reinvesting right-to-buy money in building social housing. Why will the Government not assist local authorities to build those houses? We have had 14,000 fewer homes a year since 2010. Does the Minister accept that that is a disgraceful record for the Government?

[Andrew Jones (Harrogate and Knaresborough) (Con)]

T8. There is a powerful community campaign to stop an asphalt plant being built in countryside in my constituency. The application has dragged on for years. Will the Minister look at how applicants and councils can be compelled to provide and process information in a more timely manner, so that such applications do not blight the lives of local people for so long?

[Lee Rowley]

My hon. Friend is absolutely right that we need decisions at the earliest possible opportunity. Sometimes that is not possible, but it is important that things are done as quickly as possible. That is one reason that we announced a few weeks ago that we were monitoring local authorities’ planning application performance, so that can see where they are, and are not, doing the right thing.

[Kerry McCarthy (Bristol East) (Lab)]

T3. Lease-holders at Orchard House in my constituency are in an unsafe building with known defects. They have been issued with a remediation order, but the freeholder is simply not co-operating. Does this not suggest that the feudal freehold system should be abolished for flats, as well as for houses? What assurances can the Minister give my constituents that they will get help from somewhere?

[Lee Rowley]

It suggests to me that the freeholder is doing the wrong thing, and where the freeholder is doing the wrong thing, they need to be held to account through the court system, as they are, and they will eventually be forced to do the right thing. On the specifics, I am happy to talk to the hon. Lady, if that would be helpful.

[Dehenna Davison (Bishop Auckland) (Con)]

We have £72 million for Bishop Auckland through the levelling-up fund, the future high streets fund and the towns fund, £20 million for Spennymoor through the long-term plan for towns and a £1.4 billion investment fund through the north-east devolution deal. It really is the Conservatives who deliver for the north-east, is it not?

Leasehold and Freehold Reform Bill (Fourth sitting)

Lee Rowley Excerpts

Committee stage
Thursday 18th January 2024 Public Bill Committees

[Mike Amesbury]

Q Your organisation has said it is disappointed that the Bill does not deal with the regulation of managing and property agents. Can you elaborate on that? What needs to be included in the Bill?

Philip Freedman: The Law Society has been participating in various working groups following Lord Best’s report, trying to help with the preparation of codes of practice that were intended to sit underneath the regulatory framework for property agents of different types, whether selling agents, managing agents or whatever. We feel that, because tenants often do not know what their rights are, and if they did know what their rights were, they may not want to spend the time or money getting someone to help them enforce their rights, you come back to the people actually doing the management. They need to be proactively willing to be transparent, and to realise that they have duties to the tenants as well as to the landlord. It needs a mindset change in the people who are doing the management. You do not want to rely on tenants having to try and find out what their rights are and then enforcing them. We feel, therefore, that a lot of the changes in the Bill, and other changes that have been talked about, will be better achieved if property managers are regulated, and that the right people with the right tuition being told what their duties are would be improved by regulation.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

Q Mr Freedman, in terms of your previous but one comment, to Eddie, on how you were told about the potential impacts on pension funds and the like, can you tell us, either now or separately if you prefer, who told you that? What is the source?

Philip Freedman: It was one of the two partners in the firm I had been speaking to. Also, I have heard that various other bodies, like the British Property Federation, have been looking into these issues, and there has been a certain amount of it in the property press. It is only general awareness; I do not know any specifics.

[The Chair]

Thank you very much. That brings us to the end of this panel. May I thank the witnesses very much for their evidence? We will now move on to the next panel.

Examination of Witness

Jack Spearman gave evidence.

Leasehold and Freehold Reform Bill (Third sitting)

Lee Rowley Excerpts

Committee stage
Thursday 18th January 2024 Public Bill Committees

[The Chair]

We have five minutes left. I will turn to Lee Rowley but please bear in mind that I want to bring in Barry as well.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

Q I do not want to divert the Committee away from the core discussion, but I will just pick up on something that yourself and Mike discussed a moment ago. On sub-11 metre buildings and potential challenges with fire safety, would you accept that our standards are life-critical safety standards, and that the likelihood of an issue in a sub-11 metre building is substantially lower than one in a building above 11 metres? Fundamentally, it is unlikely that those buildings would need remediation to the extent that would be needed in higher buildings. That is an accepted position of your members, I presume.

Paul Broadhead: That is absolutely an accepted position. The point I think you are getting to is that sometimes there is still an EWS1 form requested on sub-11 metre buildings. As I mentioned earlier, the lender is the expert in mortgage lending, not in building safety, and the surveyor on the ground will have their own gangs from the Royal Institution of Chartered Surveyors that they follow. If they come back and report that it needs further investigation, the lender has to take that at face value, because that is their expert.

[Lee Rowley]

I am not sure that I would accept that, but I will take that up with you and your members separately.

[Barry Gardiner]

Q I will pick up briefly on what you said to Mr Carter about the way in which sometimes your members were advising people, “Actually, this is leasehold, and there are these additional costs, and service charges are so expensive that we are not prepared to lend to you.” Are there any particular freeholders who have a reputation in the industry for doing that? I am thinking of people such as the Freshwater or Persimmon Homes, or any who seem to be known for their excessive service charges. Is there an automatic flag for them in the industry? Sitting where you are, you would have parliamentary privilege to name them.

Paul Broadhead: Parliamentary privilege notwithstanding, no, we do not have individual organisations I could point to. I certainly do not get reports from my members.