Leasehold Reform (Ground Rent) Bill [HL]

Lord Best Excerpts

Monday 24th May 2021 Lords Chamber

[Lord Best (CB) [V]]

My Lords, I congratulate the Government on bringing forward this Bill, with its central proposition to get rid of ground rents for leaseholders. These charges represent payment of “something for nothing” and, when capitalised and sold on, have netted an undeserved windfall bonus for the housebuilders. As the Minister noted, some of the housebuilders have exhibited greed and a complete lack of transparency in charging ground rents that escalate alarmingly.

My maiden speech in your Lordships’ House, nearly 20 years ago, was in the Second Reading debate on what became the Commonhold and Leasehold Reform Act 2002. I expressed the view that this legislation would mean that commonhold would, in time, largely replace conventional leasehold, to the great benefit of occupiers. How wrong I was. Commonhold has never taken off because the oligopoly of volume housebuilders has prevented its growth by offering only leaseholds with ground rents that give them spurious additional profits.

I greatly welcome the imminent end to ground rents. This will enable a much-needed reawakening of the commonhold model, and I am delighted that the Minister has set up a task force to explore the next steps for commonhold. Of course, ground rents will remain problematic for existing leaseholders, so we must look forward to the Government introducing measures to help these occupiers too.

I have two, more specialist points. First, there are some different considerations relating to ground rents for developments exclusively for older people. I declare my special interest as co-chair, with Peter Aldous MP, of the All-Party Group for Housing and Care for Older People. There is a dearth of purpose-built accommodation designed specifically to provide the manageable, accessible, comfortable and sociable retirement accommodation for older people wanting to “right-size” and avoid loneliness and isolation. I am keen, therefore, not to undermine those companies selling well-designed new retirement homes.

Although I know of serious complaints in times past about service charges from the less reputable of these housebuilders, their ground rents can represent “something for something”. When the freeholds are sold on to investors, the sum raised can pay for the capital costs of more spacious communal areas: perhaps a meeting room with kitchen facilities, shared garden areas and so on. While these capital costs could be funded by a higher purchase price, there is a sensitivity that the total price may then deter some purchasers. Moreover, as I read it, the Bill means that these extra costs could not be covered by any form of ongoing charge, any addition to the service charge. So meeting the additional costs of extra space and amenities could be problematic.

This is compounded by the issue of timing for sales of retirement housing schemes. Because the Bill provides a breathing space right through to April 2023, most of the homes where a site has already been acquired will be sold before the ban on ground rents becomes law, so, in negotiating the land purchase, the developer can take account of the absence of any ground rent. But the sales process is often very slow for retirement properties, as I know from experience in housing associations that have sold retirement homes, because older people are much harder to please than young buyers. They will take their time before committing themselves to a purchase. Almost always, and very properly, they want to inspect their potential home when it is fully finished, rather than buying in advance after seeing a show home. They may even want to meet up with the scheme’s manager before taking a final decision.

This means that there will be some retirement housing developments that have not been fully sold out by April 2023, but for which the land had been bought in good faith, with planning consent, before the Government’s decision to end all ground rents was announced in January 2021. In these cases most of the apartments in a retirement development are sold, but a handful are yet to go. Where that happens there will be the anomaly of most occupiers continuing with a ground rent, but later purchasers living next to them not paying these charges. Could the Minister see whether it might be relatively simple to incorporate an amendment to the Bill that exempts from the ban on ground rents that small number of retirement apartments where the developer/housebuilder had started construction works by January 2021 but has still not sold all the apartments by April 2023?

My final issue concerns the property agents handling leaseholds: the estate agents who sell them and the managing agents who collect the ground rents. I had the pleasure of chairing the MHCLG working group on regulation of property agents—RoPA—which, as requested by the then Housing Minister, reported in July 2019. We raised concerns about leasehold and freehold charges, and we made recommendations to government for improvements to this unregulated sector to protect consumers and raise standards.

Improving the lives of leaseholders depends not just on the legal framework, of which the ground rent issue is an important aspect, but on the performance of the property agents who, day by day, manage the properties. Indeed, these managing agents are in the front line of the new arrangements for fire and building safety, for which other legislation is before Parliament and which will involve spending billions of pounds, much of it public money, on leasehold property. Although there are some highly professional and thoroughly commendable firms of managing agents, shocking tales abound of managing agents who behave badly, often with leaseholders ignorant of the misdemeanours because of a lack of clarity, transparency and accountability on the part of the agents.

The RoPA report spelled out exactly how this sector could be properly organised and regulated to protect consumers by licensing agents, requiring qualifications and adherence to a code of practice. Our report was unanimous and came from a group representing the key professional bodies, trade associations and consumer representatives. I believe that the Government remain committed to professionalising this sector, and it would be very helpful if the Minister could tell the House where his Ministry has got to in progressing the RoPA 2019 recommendations.

In conclusion, it is great that the Government are now on the case and taking forward significant improvements for leaseholders. This is the start of an important journey, with more yet to come.