Leasehold and Freehold Reform Bill

Lord Bailey of Paddington Excerpts

Report stage & 3rd reading
Friday 24th May 2024 Lords Chamber

Moved by

[Lord Bailey of Paddington]

8: After Clause 25, insert the following new Clause—
“Mandatory share of freehold on new enfranchisable blocks of flats(1) A person may not grant or enter into an agreement to grant a restricted long lease of a flat in a qualifying building on or after the day on which this section comes into force, unless the freehold estate in the building is held by a Shared Freehold Company.(2) The appropriate national authority may make regulations providing for—(a) the content, form and effect of the articles of association of Shared Freehold Companies, which may include provision which is to have effect for a Shared Freehold Company whether or not it is adopted by the company;(b) a provision of the articles of association of a Shared Freehold Company to have no effect to the extent that it is inconsistent with the regulations;(c) the exemption of Shared Freehold Companies from the strike-off provisions of section 1000 of the Companies Act 2006;(d) the automatic acquisition and termination of membership in a Shared Freehold Company by tenants and initial subscribers; and(e) restrictions on the terms or effect of any agreement, lease or rentcharge to which a qualifying building or its appurtenant property is subject.(3) The articles of association of any Shared Freehold Company must provide that—(a) all tenants under long leases of flats in the relevant qualifying building will be voting members of the Shared Freehold Company; and(b) no other person will be a voting member of a Shared Freehold Company where more than one year has elapsed since its incorporation.(4) Regulations under this section are subject to negative resolution procedure.(5) In this section—“appropriate national authority” is—(a) in relation to England, the Secretary of State;(b) in relation to Wales, the Welsh Ministers;“effective date” means the day three years after the day on which this Act is passed,“exempted building” means any building in which a freehold estate is held by—(a) a Commonhold Association, or(b) a Community Land Trust satisfying the definition in section 2(7A) of the Leasehold Reform (Ground Rent) Act 2022;“flat” has the same meaning as in section 101 of the Leasehold Reform, Housing and Urban Development Act 1993;“long lease” has the same meaning as in sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002;“qualifying building” is a building which meets the following conditions—(a) it would constitute premises to which Chapter 1 of the Leasehold Reform, Housing and Urban Development Act 1993 applied if each flat in the building had a qualifying tenant within the meaning specified in section 5 of that Act; and(b) the first long lease granted over a flat in the building was granted on or after the effective date; and (c) it is not an exempted building;“restricted long lease” is a long lease which does not fall into any of the categories in Schedule 1, where the terms of the lease do not prevent the flat from being occupied under that lease as a separate dwelling;“Shared Freehold Company” means a limited company established for purposes connected with holding the freehold of a specific qualifying building, where membership in the company is referable to holding a leasehold estate in one or more flats in the qualifying building.”Member's explanatory statement
This amendment requires new blocks containing leasehold flats to be mutually owned (commonhold, Community Land Trusts, or shared freehold), but exempting Schedule 1's “permitted leases”, and optionally permits regulating Shared Freehold Companies, analogously to existing powers over RTM companies. This facilitates commonhold adoption, while preserving the option of shared freehold arrangements which have evolved through private initiative.

[Lord Bailey of Paddington (Con)]

My Lords, this Bill is suboptimal. It is not the revolution that many leaseholders across the country have been desperate for, but it is the only game in town—a game that has taken 22 years to get to this point—and the Government should be commended for some things.

I have tabled this amendment because a share of freehold is more flexible and means that owners of flats can make any company arrangements that they wish, whereas commonhold is more top-down and restrictive. Residents would also have insolvency protection, which is always a good thing. Importantly, all leaseholders must be members of that share of freehold company to maximise alignment of interests and block any residents’ disputes. Forfeiture, as I have said before, is a gangster-like power. It needs to go, and I cannot see why that is not in this Bill.

[Baroness Fox of Buckley (Non-Afl)]

My Lords, it is very difficult for us at this stage because a huge number of amendments have suddenly emerged. When I heard that the Government were putting forward so many, I was quite pleased, because I had had a very productive meeting with the noble Baroness, Lady Scott; I thought that we had made some strides in Committee and that there would be an attempt by the Government to strengthen the Bill for leaseholders. Then I saw all the amendments. I confess that I do not understand all the technical implications, but I know that, as the noble Lord, Lord Kennedy, pointed out, the things that the Government have talked about in only the last couple of weeks—ground rent, forfeiture and so on—are not there.

I am delighted that this is in wash-up. I will not be able to speak on every group because, at this point, I just want to get the Bill through and do not want to do anything to delay it. I had hoped that the Government would be amenable to some of the constructive amendments, such as this one from the noble Lord, Lord Bailey, to give a bit of extra heft to a Bill which says the right things at the top but has left so many leaseholders frustrated. The Bill has left things dangling in front of them—“suboptimal” is entirely the right description.

When the Minister comes back, perhaps he could indicate whether there are any grounds for hope rather than that we end up spending too long on this discussion and somehow it does not even pass in the suboptimal state that it is in. How should we even view this discussion today? Is anyone listening?

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[Lord Gascoigne (Con)]

My Lords, I thank my noble friend Lord Bailey of Paddington for his amendment, and indeed all noble Lords who spoke in this relatively brief group. We appreciate the benefits that a share of freehold arrangements has over ordinary leasehold arrangements with third-party landlords. That is why we are making it simpler and cheaper for leaseholders of flats to collectively enfranchise and therefore achieve a share of freehold arrangements. Making a share of freehold arrangements compulsory would require us to construct a legal framework on the same scale and complexity as commonhold. That would include not only making the regulations that my noble friend is taking the power for, but much else as well. It is not a quick or easy fix.

The commonhold framework has already been designed as the optimal legal vehicle for the collective ownership of flats. By comparison to moving to commonhold, making share of freehold arrangements compulsory would be, I am afraid to say, an inferior but not an easier outcome. As such, the Government want to see the widespread take-up of commonhold and for it to be the future preferred tenure for the owners of flats, rather than a share of freehold.

We are sympathetic to the sentiments expressed mainly by my noble friend Lord Bailey and the noble Baroness, Lady Fox. I, too, would like to have gone much further in many areas—but I am afraid that wash-up means that we are where we are. With that, I hope that my noble friend Lord Bailey is able to withdraw his amendment.

[Lord Bailey of Paddington (Con)]

My Lords, the House knows two things about me—that I am new and procedure is not my thing and that I am prone to a belligerent outburst. My noble friend Lord Young kindly pointed out to me that forfeiture comes later on in this process so I would like to hear what the noble Lord has to say about that in response and I reverse my earlier comment.

A share of the freehold is the quickest, most elegant way to get to the halfway house before we go to commonhold, which is why I am so passionate about it. It goes to my theme on all of this Bill—where the small man or woman in the street is concerned, it is about control, and this would hand back control very quickly. I beg leave to withdraw my amendment.

Amendment 8 withdrawn.

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[Baroness Pinnock (LD)]

My Lords, the noble Lord, Lord Kennedy, also drew attention to the lack of a clause in the Bill to reduce ground rents to a peppercorn, as promised several times by the Secretary of State in the other place. There is one, as there is one on forfeiture, that I have tabled, because I feel it is an important issue to include in the Bill. I tabled Amendment 45, which would enable a transition, over five years, of ground rent to a peppercorn. There is no justification for ground rents. It is a cost to leaseholders for no service provided as a consequence. I hope, because it is clearly government policy and it is clearly supported by those on the Opposition Benches and certainly by ours, that the Minister can stand up and have at least one amendment today that he does not have the word “resist” against.

[Lord Bailey of Paddington (Con)]

My Lords, I will speak to Amendments 51 and 52. I will not rehearse the arguments that I made in Committee, but I still have a major concern around the removal of any criminal sanction against bad landlords for service charge abuse. I want to be quite clear that this is not a crusade against landlords; landlords are often small family businesses, which are very good and want to help their tenants. However, a significant number of landlords have their leaseholders by the short and curlies, to coin a term that was sent to me by a suffering leaseholder. He was trying to get across just how powerless leaseholders are in this situation.

At a time when we have the likes of Alan Bates and sub-postmasters actively considering bringing private criminal charges against the Post Office, why would we remove that tactic from another set of people in our society who are roundly abused all the time? It is very simple: all this, for me, is about control. We need to give people who have paid this money control over their own future and their own money.

On Amendment 52, if a landlord does not pay back their overcharging within two months, they should face interest charges. This is to incentivise a landlord who has lost in an open, professional tribunal, who then drags their feet and forces leaseholders to launch other legal proceedings to reclaim money that they are rightfully owed. Again, this comes down to letting the little man or woman in the street have some control over their future. Perhaps my noble friend the Minister will comment on why the Government would not support these two reasonable, necessary measures, and send a signal to the country that the law is on the side of the small person who has ploughed all their savings into their home and who has no recourse.

[Lord Truscott (Non-Afl)]

I will speak in support of my Amendment 66. In doing so, I remind the House of my interest as a long-standing leaseholder. At the outset, I thank the Minister, the noble Baroness, Lady Scott of Bybrook, who is not in her place, for her diligence and engagement on the Bill. I also thank noble Lords who have worked so hard to improve the Bill as it has progressed through your Lordships’ House.

I welcome the Bill, even in its current form, as it at last heralds the beginning of the end of the outdated feudal leasehold system. Despite a determined rearguard action, we leaseholders have seen exploitation for hundreds of years. Enough is enough. In that sense, I agree with the noble Baroness, Lady Fox.

I must admit that, like many noble Lords and Members of the other place, I was rather taken aback by this cut-and-run election, which leaves so many pieces of legislation up in the air. My wife’s reaction was that Mrs Sunak has simply had enough and wants to have a good, long, normal family holiday. There seems to be no other, political logic for it.

Like many noble Lords, I would have liked to have seen further improvements to the Bill, especially clarity—ensuring that leases were truly faster, cheaper and easier to extend. The situation in which it is left to the discretion of the Secretary of State to set the deferment rate, replacing marriage value, remains unsatisfactory. In that sense, I agree with the noble Lord, Lord Moylan.

Incidentally, I see no type of exploitation taking place in this Bill. Pension representatives have already said that the proposals in the Bill will not significantly impact them or their members.

Similarly, I would have liked to have seen ground rents reduced to a peppercorn which, as was mentioned by the noble Lord, Lord Kennedy of Southwark, we were initially promised. For that reason, I support Amendment 45 in the name of the noble Baroness, Lady Pinnock.

On my own amendment on forfeiture, I believe it is unacceptable that people should lose their homes for sometimes minor rent or service charge arrears. The figure of £300 was mentioned and there are recorded cases of it being a pittance. However, rents and service charges are necessary for building maintenance, fire safety, cleaning and other services, so they should be paid.

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[Lord Truscott (Non-Afl)]

I think the noble Lord misunderstood to a certain extent what I was saying. Forfeiture actually happens; that is the point. It is merely the threat of forfeiture that ensures that people abide by their leases, and at the moment, as he mentioned, there is no system in place to ensure that people abide by those leases unless you go to the High Court, which is a very lengthy and expensive process. Without some such system, you will increasingly have anti-social behaviour and bodies such as Airbnb installed in residential blocks, and at the moment, there is very little recourse.

[Lord Bailey of Paddington (Con)]

Forfeiture is regularly used as a threatening tool so, although it does not land in court all the time so people have their property seized, it is often spoken about to pull people into line or to force people to pay bills that are, at best, iniquitous. It is used very regularly. I accept the noble Lord’s point that there needs to be another system, but forfeiture needs to go, even if that system does not exist, because its effect on leaseholders is broad, deep and very unpleasant.

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

My Lords, these are very welcome amendments that try to address two of the problems I referred to in my remarks on group 1. I still hope that the noble Lord, Lord Gascoigne, will jump up in a moment and say that the Government accept Amendments 44 and 45—that it was an error that the Government did not put their name to them—because they are exactly the things that the Member for Surrey Heath has been promising for months. I cannot remember the number of times I have heard in TV studios and the newspapers that he wants to do both these things. Here we are now with the mechanism to do it. All the Government need to do is accept the amendments and we can move forward.

As the noble Lord, Lord Moylan, said, anyone who is owed a debt should be able to recover it, but the threat of taking all the property away is completely wrong. Even on that one, I do not understand why the Government have not come forward with an amendment on it. It is absolutely bizarre. I think nobody in this House would oppose it, and it would be accepted. We want people to be able to recover their money, but this threat is totally over the top. We all agree on that.

What is even more frustrating is that, when I leave the Chamber and walk around the building, many Members actually agree with us, and say: “You’re absolutely right, Roy. This should happen”. I have even had Members of the Government Front Bench—not in the House at the moment—say to me: “The problem is, Roy, we agree with you, but Michael just goes off and makes these claims and pledges and promises without them being signed off”. It is no way to do business. We need to get these things done properly. This needs to be done. I do not understand why it cannot be done if everyone supports it. It is beyond me, really, that we operate like this. That is the whole frustration about this Bill. Promises and pledges and articles to say that we are going to do this and we are going to do that—I am sick of hearing it. And then when they get the chance, they do absolutely nothing.

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In Committee, my noble friend Lady Scott of Bybrook said that the Housing Act 1985, which created tenant management organisations for council estates, was available to the sort of person I am talking about—that is, private leaseholders in blocks of flats acquired by a local authority as an investment. However, at the meeting, one of her officials said that in fact that was not the case, because at least 20% of the tenants had to have secure tenancies—the type of tenancy granted by local authorities only to council tenants. Could I have a very simple response from my noble friend on the Front Bench, with absolute clarity and complete reliability? Is the Housing Act 1985 available to the class of persons I am talking about as a means of exercising the right to manage, or is it not? A very simple answer to that would dispose of this group very rapidly—or at least my part of this group, as of course there is the amendment in the name of my noble friend as well. I beg to move.

[Lord Bailey of Paddington (Con)]

My Amendment 50 seeks to bring down the onerous 50% participation threshold to 35%, so that many more leaseholders can take back control of their homes, their money and their lives. As my noble friend Lord Moylan said, it would remove much of the suspicion around whether your freeholder is fleecing you, for want of a better word. I believe the Government support a revolution in the right to manage, so I will be interested in the comments from my noble friend the Minister as to why this cannot be supported. This would be a great step for people in many communities where buying property is a lifelong dream that they could then achieve. It leaves that footprint firmly in their community, and gives them more control of the investment they have actually made.

[Lord Gascoigne (Con)]

I thank my noble friend Lord Moylan for Amendment 49 on the right to manage and local authorities. In taking forward this Bill, we have prioritised the most impactful of the Law Commission’s recommendations on enfranchisement and the right to manage. That includes allowing more leaseholders in mixed-use buildings to collectively acquire the freehold of their building, or to exercise their right to manage their building, by increasing the non-residential limit from 25% to 50% non-residential floorspace. The Law Commission did not make any recommendations on local authority householders, but we recognise that the right to manage is not available to leaseholders with local authority landlords where there are no secure tenants in the block. We will continue to review changes to improve the right to manage. I hope that, following these reassurances, my noble friend will withdraw his amendment.

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[Lord Young of Cookham (Con)]

My Lords, I hear the bell ringing as we enter the last lap. This amendment is also in the names of the noble Lord, Lord Best, and the noble Baroness, Lady Hayter, neither of whom can be in their places at the moment. It deals with the regulation of property managing agents.

In 2017, the Government committed themselves to regulating property managing agents to,

“protect leaseholders and freeholders alike”.

They then set up a working group, chaired by the noble Lord, Lord Best, which reported in 2019. In Committee, the noble Lord, Lord Best, introduced Amendment 94, which would have empowered the Secretary of State to establish an independent, statutory regulator of property agents who sell and manage leasehold property. It received widespread support from all sides of the House, but was a step too far for the Government.

The amendment before us this afternoon is in fact slightly weaker. It does not require the Government to set up that organisation; it simply requires mandatory qualifications of property managing agents. This is something that the Government have already done for the social housing sector, and it could quite easily be expanded to protect leaseholders and private tenants. I beg to move.

[Lord Bailey of Paddington (Con)]

My Lords, I speak to my Amendment 67. When Parliament passed the Building Safety Act 2022, there was a major error within it. Anyone could be an accountable person except a manager appointed under Section 24 of the Landlord and Tenant Act 1987. Section 24 is a lifeline right for flat leaseholders with bad landlords, sky-high service charges and rundown buildings. Again, I return to my theme of control and the ability to remove a bad freeholder and a bad landlord—not a good one. Sadly, by barring Section 24 managers from being an accountable person, or at least from assuming that function, Section 24 is blown up.

Again, I just say that these are practical things that leaseholders will need. I believe that Labour colleagues also support this amendment. I would really like to hear from my noble friend the Minister why this cannot be done. It is a practical step, it does not seem to have any cost, and it would make a great deal of difference to the leaseholders involved.

[Baroness Fox of Buckley (Non-Afl)]

My Lords, we are really close to the end. This is a very similar amendment to one that I proposed in Committee. In following on from what the noble Lord, Lord Moylan, said about the meeting with the Minister, I also had a meeting with the Minister half an hour before the election was announced, in which it was indicated that there was some interest by the Government in supporting this amendment. It is, of course, frustrating to be in this position in wash-up with regard to some of these details. For example, it was said only last week that, even if we were not going to get peppercorn ground rent, we might have had a very low £250 ground rent. We were all anticipating that Report would be a very positive and creative time to improve this Bill.

That was not to be the case; but for whoever takes on this brief in the future, the implication earlier today in some of the crosser exchanges was that nobody had thought about the implications of what this Bill was about. Many of us are bored of thinking of the implications and this issue has gone on for decades and decades and decades. Political parties of both sides have promised that they would resolve some of the anomalies associated with leasehold and move us on to commonhold. We are now in a situation where, through bad luck, we cannot have a full discussion on this particular Bill—it was inadequate anyway. At least we got it into wash-up, and I say simply that I found the department, the noble Baroness, Lady Scott, and the noble Lord, Lord Gascoigne, to be incredibly helpful.