Leasehold and Freehold Reform Bill

Lord Gascoigne Excerpts

Committee stage
Wednesday 1st May 2024 Lords Chamber

[Baroness Thornhill (LD)]

My Lords, I support Amendment 92 in the name of the noble Baroness, Lady Taylor of Stevenage, and explained so well by the noble Lord, Lord Khan of Burnley. The right to manage was first introduced in the leasehold reform Act of 2002. From the start, it was, as the noble Lord said, intended as a simple and cost-effective alternative to collective enfranchisement, but, despite the happy intentions of that Act, the reality was quite different. Take-up has not been what we would all have hoped for or expected, because the right to manage has proved incredibly problematic in practice.

These problems culminated in the Law Commission’s final report in 2020—time has marched on—on exercising the right to manage. It summarises the difficulties as follows:

“The ‘simple’ RTM process envisaged in the original consultation which led to the 2002 Act has not come to pass. The requirement for strict compliance with the statutory procedures, such as the service of certain notices on particular parties, can be unforgiving to leaseholders. In many cases, small mistakes made by the RTM company have afforded landlords opportunities to frustrate or delay otherwise valid claims. The Court of Appeal has noted that while the procedures ‘should be as simple as possible to reduce the potential for challenges by an obstructive landlord’, in fact they ‘contain traps for the unwary’”.


This is not a good advert for anyone seeking to exercise the right to manage, which we believe is fundamental to the change we need. The Law Commission subsequently made 101 recommendations, of which the then Government adopted two.

Whole swathes of actions could be happening to make this process simpler and to encourage residents to take this up. We have no doubt that the process is not an easy one and that the provisions in the Bill as it stands are actually quite limited. The uplift from 25% to 50% is welcome, as are the beneficial changes in cost provision, and minor changes to courts and tribunals. They are all positive but underwhelming—a far cry from the 101 recommendations.

In debates throughout the course of the Bill we have heard numerous instances of excessive charges and unfair practices, from both Houses. The Law Commission summed it up best when it said that

“the landlord and leaseholder have opposing financial interests—generally speaking, any financial gain for the landlord will be at the expense of the leaseholder, and vice versa …Their interests are diametrically opposed, and consensus will be impossible to achieve”.

This amendment is quite realistic: it is starting only with new build, but what it does is symbolic, in that it draws a line under the past and clearly points the way forward. Noble Lords will notice that I am not wearing rose-coloured spectacles, and we are not saying that the residents’ right to manage will be any easier—but it will be fairer. Those paying the bills control the bills and can remove any poorly performing providers. We believe that a leaseholder-controlled resident management company with an elected board, accountable to all leaseholders, is a far more democratic arrangement than one middleman freeholder controlling block management, spending leaseholders’ money freely and not involving them in the decision-making processes. It is fundamentally a better way to go, and there seems to be widespread support for it.

We support this amendment because we believe that it is a step in the right direction and could reinvigorate right to manage with the right support. It seems that the Government are finding reasons not to do something instead of working to enable something better to happen.

[Lord Gascoigne (Con)]

My Lords, I thank the noble Lord, Lord Khan of Burnley, for speaking to Amendment 92 in the name of the noble Baroness, Lady Taylor of Stevenage, and I am grateful for both contributions in this brief discussion.

The amendment seeks to require the establishment of leaseholder-owned management companies for all leasehold flats. I understand the intention to ensure that, by default, all leaseholders of new flats would be responsible for the management of their buildings. The Government support the desire to give more home owners control over the management of their buildings. This Bill is intended to do just that, and will make it cheaper and easier for more leaseholders to own and manage their homes should they wish to.

In some cases, developers have voluntarily set up residents’ management companies to transfer management responsibility to leaseholders. We welcome this, and encourage the industry to adopt this model where appropriate. However, we believe that the best way in which to achieve resident-led management for new buildings is not for government to mandate change to leasehold but to reinvigorate and improve the uptake of commonhold. Commonhold does not require involvement from a third party.

We will reinvigorate commonhold so that it is a genuine alternative to leasehold for new flats. However, there are limitations in the current legal design of commonhold which can limit its use in some settings. We must get any changes right, and preparing the market for the widespread uptake of commonhold will take time. Existing leaseholders can already use the right to manage to take over management responsibility for their building. This is an established, no-fault right that allows leaseholders to take over management responsibility when a majority of leaseholders wish to do so.

There are some situations where the right to manage is not available because leaseholder-led management is not considered appropriate—for example, in largely commercial buildings or where there are social tenants. We believe that it would not be appropriate to apply a blanket provision requiring residents’ management companies for all new buildings without considering where equivalent protections should apply.

Further practical challenges include determining at what point during development and the sale of units management responsibility would be transferred; what position the freeholder would have in the management company if they retained non-residential units or those on short leases; and what protections would be required should leaseholders not wish to take up management responsibilities. Answering these questions would require significant additional consideration—consideration that is ultimately unnecessary because a reinvigorated commonhold is the answer for new buildings, and the right to manage for existing leaseholders makes sure that home owners can already control the management of their building.

Leasehold and Freehold Reform Bill

Lord Gascoigne Excerpts

Committee stage
Monday 29th April 2024 Lords Chamber

I will make one more comment on—

[Lord Gascoigne (Con)]

Time.

[The Earl of Lytton (CB)]

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

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[Baroness Taylor of Stevenage (Lab)]

My Lords, I thank the noble Lord, Lord Bailey, for his passion on this matter, as the noble Baroness, Lady Thornhill, said. It is appropriate to bring a probing amendment on this, to seek out some clarification from the Government about their intentions. It is clear that service charge accountability sits right at the heart of much of the Bill, and we would not want to do anything against that. It does seem a little odd that part of the Bill’s intention is to remove that right of private prosecution, so I look forward to the Minister’s reply.

The other point raised by the noble Lord was that we are going to have a hiatus when the Bill is passed, because it is not going to come into force until 2025-26. Can the Minister comment on what leaseholders can resort to in that interim period, in order to get matters justified if they have a persistent rogue landlord? Otherwise, we will have a gap where the original provisions are repealed and these ones have not yet come into force.

I agree with the noble Baroness, Lady Thornhill, about council leaseholders. There are other protections in force for council leaseholders. The health and safety Act and its provisions should sit there to protect council leaseholders from any poor landlord practice from councils—I know they have not always done so, but they should.

I am interested to hear the Minister’s response to this very good probing amendment.

[Lord Gascoigne (Con)]

I thank my noble friend Lord Bailey of Paddington for Amendment 76A, which seeks to retain the existing enforcement provisions concerning a landlord’s failure to provide information to leaseholders. I am grateful to other noble Lords who took part in this very brief discussion.

I fully agree with my noble friend that it is important to have effective enforcement measures in place where a landlord fails to provide relevant information to leaseholders. The existing measures, including the statutory offence under existing Section 25 of the Landlord and Tenant Act 1985, have historically proven to be ineffective. Local housing authorities, as the enforcement body, are reluctant to bring prosecutions against landlords, and the cost and complexity of doing so are a significant barrier to leaseholders bringing a private prosecution. That is why we are omitting Section 25 and replacing it with the more effective and proportionate proposals set out in Clause 56 of the Bill. Therefore, I am afraid that we cannot accept the amendment. Not only does it require—

[Lord Bailey of Paddington (Con)]

In regard to the cost of leaseholders bringing a case, people are now using modern technology, such as crowdsourcing, to raise the funds to take on a landlord. When you have a persistently rogue landlord, this could be your last roll of the dice. It is not an entirely strong argument to talk about leaseholders not having the means; that is often the case, and what most of the discussion has been based on. For leaseholders in these very extreme cases—and they are extreme—this is a last resort, and that is why the word “backstop” was used, but people can club together to deal with these situations.

[Lord Gascoigne (Con)]

I am very grateful to my noble friend. I will address the rest of the issues, and hopefully I will pick up some the points he made. Like others, I am grateful for the passion with which the noble Lord speaks about this issue and his own experience of it.

I am afraid we cannot accept this amendment. Not only does it require us to return to the previous arrangements; I would respectfully say that it is not workable. This is because a local housing authority cannot take action against itself; they are one body. That said, I can assure my noble friend and others in the Chamber that there are very strong merits in his argument about the appropriate tribunal not being able to make an order for damages where the landlord is a non-compliant local authority. As has been said, it is not right that local authorities should be exempt from the same standards expected of other landlords. Both the department and the Minister are carefully considering this issue.

I will respond to a couple of points raised by noble Lords, including my noble friend. He raised the issue of damages; we believe that £5,000 strikes the right balance between a deterrent and an effective incentive. I believe it is higher than the existing provisions that a court can award on a summary conviction. The noble Baronesses, Lady Taylor and Lady Thornhill, asked about the hiatus, or interim, period; I assure noble Lords that it will not change until the new regime is ready. Therefore, with these reassurances, I ask my noble friend to withdraw his amendment.

[Lord Bailey of Paddington (Con)]

I beg leave to withdraw the amendment.

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I look forward to the Minister’s response and, I hope, to some positive engagement in relation to these amendments.

[Lord Gascoigne (Con)]

My Lords, I thank my noble friends Lord Bailey of Paddington and Lord Moylan, and the noble Baronesses, Lady Thornhill and Lady Taylor of Stevenage, for their amendments in this group. I will take them in turn.

Amendment 79, moved by my noble friend Lord Bailey, aims to ensure that insurance brokers’ remuneration is linked to market rates. It also aims to prevent wrongdoing. We share the intent of this amendment and are committed to introducing a fair, transparent and enforceable approach to insurance remuneration. We also recognise that insurance brokers are an important party in the provision of insurance. Given that, this amendment pre-empts the content of secondary legislation. Following Royal Assent, we will consult on what would constitute a permitted insurance payment, then lay the necessary secondary legislation before Parliament. This will clarify what remuneration will be permitted by those involved in the arranging and managing of insurance. My noble friend Lord Bailey spoke with his customary passion. We continue to welcome his views and the Minister remains keen to meet. I hope that, with that reassurance, my noble friend will withdraw his amendment.

Amendment 80 was tabled by the noble Baroness, Lady Pinnock, and spoken to by the noble Baroness, Lady Thornhill. I assure all noble Lords that this Government are committed to banning building insurance commissions for landlords and managing agents and replacing these with transparent handling fees, to address excessive and opaque commissions being charged to leaseholders. The amendment seeks that within one year of the day on which Clause 57 comes into force, the FCA conducts a report into the impact of this clause in reducing instances of unreasonable insurance costs being passed on to leaseholders.

We agree in principle with monitoring the impact of the clause and, more widely, that insurance costs must be reasonable. The FCA has been closely monitoring the multi-occupancy buildings insurance market in recent years, has strengthened its rules on fair value, and provides regular updates. The most recent update to the Secretary of State was published on 29 February. We will continue to work closely with the FCA and other stakeholders to develop our secondary legislation and in monitoring buildings insurance. Please be assured that this is an area on which we, and the FCA, are keeping a close eye. I hope that with this reassurance, the noble Baroness will not move this amendment.

Amendments 81 and 81A were tabled by my noble friend Lord Moylan; I will take them together. Amendment 81 seeks to exempt right-to-manage companies from the requirement for landlords to apply to the relevant court or tribunal to recover their litigation costs from leaseholders through the service charge. This amendment would apply where the right-to-manage company is exercising the functions of the landlord. Amendment 81A seeks to exempt “non-profit entities” from the requirement for landlords to apply to the relevant court or tribunal in order to recover their litigation costs from leaseholders through the service charge. The amendment provides examples of types of “non-profit entities”, including resident management companies and right-to-manage companies.

Clause 60 seeks to protect leaseholders from being charged unjust litigation costs from their landlord. It does this by requiring landlords to successfully apply to the relevant court or tribunal in order to recover their litigation costs, either through the service charge or as an administration charge. The court or tribunal will make an order that it considers just and equitable in the circumstances.

We understand the intention behind my noble friend’s amendments. The Government recognise the position of resident-led buildings. That is why the reforms also include provision to set out in regulations those matters which the relevant court or tribunal must consider when making an order on an application. The Government will carefully consider the detail of these matters with stakeholders and the tribunal, including where a building is resident-led. We would be concerned that the exemption provided by Amendments 81 and 81A would leave leaseholders with little protection from paying unjust litigation costs where a resident management company or a right-to-manage company is in place. I ask my noble friend not to move his amendments. However, it goes without saying that this is a complex area of reform and we are considering the issue carefully.

[Lord Moylan (Con)]

It is unsatisfactory if this is to be left to secondary legislation. Bearing in mind that the directors of the right-to-manage company are elected by the leaseholders, and can be replaced by them, and that they are really one entity, what is to happen if the tribunal decides not to make an award of costs? How are the directors to recover that money and who would become a director in those circumstances if they did not have that assurance in advance?

[Lord Gascoigne (Con)]

I will have to pick that up at a later date. There are a number of variables in that circumstance. I hope that my noble friend will forgive me for not having an answer to hand. I will certainly take this up with the department, rather than saying something that is incorrect at the Dispatch Box. My noble friend is absolutely right to raise it as an issue. It is under certain circumstances that those individuals find themselves in that situation, but I am more than happy to take that away and then write to my noble friend.

I turn to Amendments 81B to 81E, also in the name of my noble friend Lord Moylan. As I have previously said, Clause 60 seeks to protect leaseholders from unjustified litigation costs by requiring landlords to successfully apply to the court or tribunal to recover their litigation costs from leaseholders. This replaces the right that leaseholders currently have to apply to the courts to limit their liability for landlords’ litigation costs. The relevant court or tribunal will make an order on a landlord’s application that is just and equitable in the circumstances.

Amendments 81B and 81D seek to amend the provision that allows the court or tribunal to make a decision on the landlord’s application for their litigation costs that it considers

“just and equitable in the circumstances”.

Instead, the amendment stipulates that where a landlord is successful in relevant proceedings, the court or tribunal will allow the landlord to recover their litigation costs from leaseholders—unless the landlord has acted unreasonably. We understand the intention behind my noble friend’s amendments—to minimise the amount of court or tribunal hearings. However, the Government have a few concerns with the amendment.

The amendment would mean that the court or tribunal would always need to make an order that the landlord can recover their litigation costs from leaseholders where the landlord had been successful in proceedings in whole or in part. The only exception is where the landlord has acted unreasonably. Of course, where a landlord is successful in bringing or defending a claim, we would expect that the court or tribunal would allow them to recover their litigation costs from leaseholders. However, there may be a range of variables and nuances that occur in disputes which need consideration on a case-by-case basis.

The Government think the relevant court or tribunal is best placed to assess applications for costs, taking into account the circumstances of each case. In addition, the measures currently provide for regulations to set matters which the court or tribunal will consider when making a decision on costs applications, which we will consider carefully with stakeholders and the tribunal.

Amendments 81C and 81E seek to allow landlords to recover their litigation costs, where allowed under the lease, without needing to make an application to the relevant court or tribunal in certain circumstances. These circumstances include where proceedings before the county court are subject to a judgment in default, where litigation costs have been incurred in relation to forfeiture proceedings or where proceedings against a landlord have been struck out or are settled before the first hearing. Again, the Government have concerns about these amendments. For example, if a landlord is unsuccessful in proceedings of forfeiture against a leaseholder, this amendment would allow them to recover their litigation costs from a leaseholder regardless. These amendments would also make the provisions more complex, with different rules applying to different scenarios. We completely understand the intention behind my noble friend’s amendments. However, for these reasons, I ask that he does not press them.

Amendment 82, tabled by the noble Baronesses, Lady Taylor and Lady Pinnock, and spoken to by the noble Lord, Lord Khan of Burnley, seeks to prohibit landlords from recovering their litigation costs from leaseholders apart from in excepted circumstances to be set out in regulations. Clauses 60 and 61 already seek to rebalance the litigation costs regime for leaseholders in an effective and proportionate way. As I have previously noted, Clause 60 will require a landlord to successfully apply to the relevant court or tribunal in order to recover their litigation costs from a leaseholder. This applies whether the landlord is seeking to recover their litigation costs as a service charge or an administration charge. I also note that Clause 61 gives leaseholders a new right to apply to the relevant court or tribunal to claim their litigation costs from their landlord. For both landlord and leaseholder applications, the relevant court or tribunal will make a decision on costs in the circumstances of each case. Taken together, these measures will rebalance the litigation costs regime and remove barriers to leaseholders challenging their landlord. We believe the Government’s approach strikes the balance of being robust but proportionate. Therefore, I respectfully ask that they do not press this amendment.

Finally, I turn to Amendments 82A and 82B from my noble friend Lord Moylan. Currently, in the tribunal and for particular court tracks, leaseholders can claim their litigation costs from their landlord only in very limited circumstances even when they win. This may deter leaseholders from being legally represented or from challenging their landlord in the first place. As I have previously said, Clause 61 gives leaseholders a new right to apply to the court or tribunal to claim their litigation costs from their landlord where appropriate. As with the landlord application for costs, the court or tribunal will make an order that it considers just and equitable in the circumstances.

Amendments 82A and 82B seek to amend the new leaseholder right so that it applies only to home owners rather than investor leaseholders. Amendment 82B provides the definition of a “homeowner lease” so that the leaseholder right applies only to a leaseholder of a dwelling which is their only or principal home. Exempting certain leaseholders from this right would restrict access to redress where we are seeking to remove barriers. For example, there may be instances where a leaseholder who privately lets their flat needs to take their landlord to court because they are failing to maintain the building, which is impacting their property. In these circumstances, we would want the leaseholder to feel able to hold their landlord to account. Providing leaseholders with rights, regardless of whether they are home owners or investors, is in line with the approach we have taken throughout the Bill. Such an exemption would be out of step and will add complexity to the measures. Therefore, I ask my noble friend not to press his amendments.

[Lord Moylan (Con)]

May I ask the indulgence of the Committee? I should have declared when I spoke—as I did earlier in debate—that I live in a building which is run by a right-to-manage company of which I am a director, as is shown in the register of interests. I should have said that in my opening remarks, but I hope I will be forgiven for adding it now.

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[Lord Khan of Burnley (Lab)]

My Lords, I rise briefly to thank the noble Baroness, Lady Fox of Buckley, for introducing Amendment 84. The arguments that the noble Baroness made were the very reason why we should end leasehold and move towards commonhold. I hope the Minister can clarify some of the important concerns that she has raised.

[Lord Gascoigne (Con)]

My Lords, I thank the noble Baroness, Lady Fox of Buckley, for her Amendment 84, which seeks to ensure that potential property purchasers understand the ongoing obligations of a leasehold property they are thinking of purchasing. I share the noble Baroness’s concern that purchasers should know about service charges and ground rent before they move into their home. Speaking personally, I completely understand the stress and frustration when you receive a bill that you knew nothing about.

The National Trading Standards Estate and Letting Agency Team has developed guidance for property agents on what constitutes material information when marketing a property. This information should be included within property listings to meet their obligations under the Consumer Protection from Unfair Trading Regulations 2008. The guidance specifies that tenure and the length of the lease are material and therefore should be included in the property listing. Ongoing charges, such as service charges and ground rent, are also considered material, as they will impact on the decision to purchase. This means that purchasers get information on the lease and expected level of ongoing financial obligations when they see the property particulars, so before they have even viewed the property, let alone made an offer. In addition, the measures that we are including in this Bill to require leasehold sales information to be provided to potential sellers mean that conveyancers acting on behalf of sellers will be able to quickly get the detailed information they need to provide to potential purchasers. This would include information about service charges and ground rent, as well as other information to help a purchaser make a decision, such as previous accounts.

The Government support significant provision of advice for leaseholders through the Leasehold Advisory Service, an arm’s-length body providing free, high-quality advice to leaseholders and other tenures by legally trained advisers. The Government have also published a How to Lease guide aimed at those thinking of purchasing a leasehold property, to help them to understand their rights and responsibilities, providing suggested questions to ask and suggesting how to get help if things go wrong. This guide will be updated to reflect the provisions in this Bill.

[Lord Bailey of Paddington (Con)]

Is my noble friend the Minister comfortable that that information is freely distributed? It would take only a very cursory conversation with leaseholders to find out that they know nothing of most of leasehold law—anything from ground rent to the fact that your service charge can be changed from underneath you. That means that the information that is there has clearly not been absorbed. What attempt will be made to make that information universal? People are talking about changing what leasehold is called, but this is the first time that I have heard that. I think it is a good idea—but all that information is good for nought if people are not compulsorily seeing it before they sign to buy the property.

[Lord Gascoigne (Con)]

My noble friend asks for clarity. I can completely understand some of the circumstances that people face; that is something on which we share the concerns of the noble Baroness in what she is trying to do, and it is something that we will continue to look at—ways of ensuring that people are aware of the information when they are purchasing a property. We will continue to look forward to engaging with all noble Lords in this House. With that reassurance in mind, I hope that the noble Baroness, Lady Fox, will agree with me that this proposed new clause is not necessary, and I respectfully ask that it is withdrawn.

[Baroness Fox of Buckley (Non-Afl)]

My Lords, the proposed new clause is totally necessary—I disagree with the Minister on that—but I understand the need to withdraw. The only thing that I would just clarify is that all the organisations that are run for leaseholders are no good to people who do not know what a leaseholder is when they buy their flat and then find out that they are leaseholders. You do not think of yourself as a leaseholder; you think that you are a home owner. The only people who call themselves leaseholders any more are activists who have discovered how awful it is to be a leaseholder, who then get a different identity. That is what I am getting at.

The Government’s information is very good, and they should make more of it. That is what the noble Lord, Lord Bailey, was saying—why do they not plaster it around a bit? It is not fair on first-time buyers, who are the people who are being sold out by this. I know that the Government do not want to do that, but they should do something about it. I beg leave to withdraw.

Leasehold and Freehold Reform Bill

Lord Gascoigne Excerpts

Committee stage
Wednesday 24th April 2024 Lords Chamber

[Lord Gascoigne (Con)]

My Lords, I thank the right reverend Prelate the Bishop of Manchester, and my noble—and actual—friend Lord Moylan for their valuable contributions at Second Reading, and for the amendments that they have put forward which seek to alter the Government’s current position on marriage value and hope value. I say on behalf of my noble friend the Minister that we are grateful for all the time and engagement with the right reverend Prelate on this issue, along with the Church Commissioners and the charities which she has spoken to today.

In addition, we are grateful to all noble Lords who have spoken on this group and on the somewhat excited group previously. As has been noted, a lot of the points that I will speak to were covered in the previous discussion. I also say to the right reverend Prelate that we are always happy to meet. In answer to the noble Baronesses, Lady Taylor and Lady Pinnock, the Minister is more than happy to engage with any noble Lord who is impacted by this, as well as charities, to discuss it further.

Amendments 28 and 46 would exempt freeholders who are charities at the time of the Bill receiving Royal Assent from the removal of the requirement for leaseholders to pay marriage value, and for hope value to be payable. Before I go into detail, I reiterate the Government’s wholehearted recognition of the vital role and work that charities provide in our communities up and down the land, as has been noted by my noble friend Lord Bailey.

However, as the noble Baroness, Lady Scott, explained previously, we do not believe that leaseholders should pay marriage value. The leaseholder needs to enfranchise to prevent financial loss from the running down of their lease, and to prevent their losing possession when it ends. As has been said, we do not believe that their position, which concerns their security in their home, should be used as a basis for requiring them to pay more than a third party to enfranchise, nor that the freeholder should profit by way of windfall by selling to the leaseholder as compared to a third party. Under our valuation scheme, the freeholder is compensated as if the lease ran its course.

The good work of a charity is separable from its funding. Requiring leaseholders of charities, for no other reason than the coincidence of the nature of their freeholder, to pay marriage value when other leaseholders do not have to would be, I am afraid to say, unfair. Granting exemptions would also create an unbalanced two-tier system. By removing marriage value across the board, we will level the playing field and ensure that we are widening access to enfranchisement for all leaseholders, both now and in the future.

There have been a couple of references to the National Trust. Briefly—as I know it has been covered previously in this debate—it is a different scenario given that its land is inalienable and cannot be sold, yet it is not exempt from the removal of marriage value. I am not aware of the case that the noble Earl, Lord Lytton, mentioned, but I am certainly more than happy to look into it for him. I assume—and it is only my assumption—that it is because it is for the National Trust as an entity to decide, but I assure the noble Earl that I will look into it.

The noble Baroness, Lady Pinnock, asked about other charities that may be impacted by this beyond those that we have discussed. Again, I am not aware of any, but I am sure that that work has been done by the department. I will certainly take it back and investigate. Further to the point made by the noble Baroness, Lady Taylor, it is something on which we will continue to engage with any noble Lord or any charity that is impacted, as we have done with the right reverend Prelate.

For these reasons, I respectfully hope that the right reverend Prelate the Bishop of Manchester and my noble friend Lord Moylan will understand and therefore not press their amendments.

[Lord Moylan (Con)]

Before my noble friend sits down, perhaps I may address a point he made earlier which was made also by my noble friend Lady Scott of Bybrook. The idea that the Government are peddling, that if a landowner sells a leasehold or freehold interest to a third party, they do not receive marriage value, is to assume gross inefficiency of markets and complete ignorance of market participants. It is of course true that the purchaser would not pay marriage value as a separate sum, but the purchaser is perfectly aware of the potential for marriage value and will pay a price that incorporates that. To assume anything else is to assume that all those clever and evil hedge fund managers are too dim to notice what is going on. It simply is not the case. The line the Government are peddling is simply unfounded in fact and reality.

[Lord Gascoigne (Con)]

Obviously, I completely respect my noble friend, but I think I have answered that point.

[The Lord Bishop of Manchester]

My Lords, I thank all noble Lords who have taken part in this debate, which has been somewhat less emotive than the previous one. I am grateful to the noble Lord, Lord Moylan, for his support, and for his description of the good work that is done by the Campden Charities for young people in Kensington. I am particularly grateful to the noble Lord, Lord Bailey of Paddington, who spoke movingly of how that same charity has been part of what has enabled him to become the great asset he is to your Lordships’ House today, and to the noble Earl, Lord Lytton, for his helpful and insightful questions.

I am grateful to the noble Baroness, Lady Pinnock, for asking whether other charities, including those outside London, are affected. While I cannot guarantee that my list is exhaustive, I am pretty sure that if there are any that we have missed, they would quickly come forward, but I do not think that there are many.

I thank the noble Baroness, Lady Taylor of Stevenage, both for her meeting yesterday and for her support for the matter being further considered. Can we find a workaround that does not disapply the whole principles of the Bill, but which deals with the problem that these particularly good causes are going to suffer as things stand? I am very happy to look at some tighter drafting, as she suggested. I am grateful to the noble Lord, Lord Gascoigne, for his response, and for his willingness, and that of the noble Baroness, Lady Scott, to continue to engage with us on this matter.

In the previous debate, we were told that compensation for loss of marriage value would be too much of a strain on the taxpayer. We are talking about a very much smaller amount here, and I wonder whether that would be a course that we could continue to pursue in further conversations before Report. For now, I beg leave to withdraw my amendment.

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[Baroness Thornhill (LD)]

My Lords, when we started the debate today, I felt like I was wading in mud. I feel I am still in the mud—it has got thicker, and the fog has come down. This is a complex and complicated Bill. I have really enjoyed listening to the arguments and the debate; I have already learned a lot. Report will be a lot better—certainly for me.

I will try to keep my remarks short and my questions simple in order to seek clarification. The noble Baroness, Lady Taylor, has, in her own style, ably illustrated the issue and set out the case for her amendments in great detail. I will not repeat those—some paragraphs have already been knocked out of my speech.

The newly inserted Sections 19A and 89A set out the general rule that neither a current nor a former tenant is liable for any costs incurred by another person because of enfranchisement or a lease extension claim. However, new Sections 19C and 89C set out the exceptions to this rule. The debate is around whether these exceptions are justified. We are seeking the Government’s justification for this variance. Amendments 47 and 48 from the noble Baroness, Lady Taylor, would delete these exceptions, so that leaseholders would not be liable to pay their landlord’s non-litigation costs under any circumstances. We agree. Each side should pay its own costs; we are unsure as to why this is not the case.

When this was debated in the Commons, the Government argued that, while the main aim of the changes to the costs regime was to address the imbalance of power that has existed between the landlord and tenant, they had a desire to ensure fairness on both sides. Sections 19C and 89C prevent the landlord incurring a net financial loss when leaseholders exercise their rights to enfranchisement and lease extension, thus acknowledging that this really is a balancing act. We look forward to the Minister’s comments as to how the Government have managed to keep the scales level.

I agree with the comments made in the debates on the last two groups. Some of the problems are because much too much is being left for later regulations, in either guidance or SIs. I believe that we should have had a clear government position on issues as important as landlord costs, deferment and capitalisation rates. This is still too vague. Such uncertainty is bad, not only for the leaseholders but for us parliamentarians who would hope to scrutinise and improve the legislation. However, I note the explanation from the Minister in the last group.

The Law Commission’s report highlights that the current law means that the landlord is overcompensated for these non-litigation costs. We support the Government in saying that costs should be balanced. It has to be said that these amendments raise important questions as to whether new Sections 19C and 89C undermine this aim. The noble Baroness, Lady Taylor, has made a good case to that effect.

[Lord Gascoigne (Con)]

My Lords, I thank the noble Baroness, Lady Taylor, for her Amendments 47 and 48, which seek to remove the exception on costs arising from low-value lease extension or freehold acquisition claims. While the Bill includes a new general rule that each side will bear its own costs, we believe that there need to be exceptions in certain circumstances so that the regime is fair for both sides. The low-value cost exception entitles landlords to receive a portion of their process costs from leaseholders in low-value enfranchisement and lease extension claims for flats and houses respectively. We believe that these are necessary provisions that protect landlords from unfair costs.

Leasehold and Freehold Reform Bill

Lord Gascoigne Excerpts

Committee stage
Monday 22nd April 2024 Lords Chamber

Moved by

[Lord Gascoigne]

19: Schedule 3, page 151, line 13, at end insert—
“(ea) any combined county authority established under section 9(1) of the Levelling-up and Regeneration Act 2023;”Member’s explanatory statement
This amendment would reflect provision that has come into force since the Bill was introduced.

[Lord Gascoigne (Con)]

My Lords, before I start, I declare that my wife is an employee at the Crown Estate, as set out in the register of ministerial interests.

Government Amendments 19 to 22, in the name of my noble friend Lady Scott, are consequential on the repeal of the right for public authorities to block freehold acquisition and lease extension claims of houses for the purposes of redevelopment. This relates to Section 28 of the Leasehold Reform Act 1967. Removing this blocker will allow more leaseholders to enfranchise.

The power to block enfranchisement was given to authorities named on a list in the same section of the Act. The list of authorities is, however, used for wider purposes. For example, the list may be used by separate legislation when a lease has reached its end and expired. When this happens, the listed public authorities could apply to the courts to seek possession, for the purposes of redevelopment. These amendments preserve the list and its use for wider current law, as it is moved into Clauses 29 and 38 of the Bill.

Government Amendments 25, 30 to 40, and 49 are also in the name of my noble friend Lady Scott. Government Amendment 32 addresses the enfranchisement valuation procedure regarding “chained” leases—that is where successive long leases of a house are treated as one single long lease. The amendment makes it clear that the exception for market rack-rent leases will apply only where the leaseholder’s current lease is a market rack-rent lease. It will not matter whether a previous lease was a market rent lease. This will protect leaseholders and mean that in the case of chained leases, where a previous lease might have been granted for no, or low, premium, freeholders will be prevented from unfairly gaining through the new valuation scheme.

Government Amendment 39 clarifies the rules on which lease to consider when valuing a lease comprising a chain of leases—treated as one single lease—where one of them was granted for a high rent and low, or no, premium. The amendment states that it is the most recent lease that should be looked at. This will determine whether the ground rent cap should apply in the enfranchisement valuation. This will protect leaseholders and mean that in the case of chained leases, where a previous lease might have been granted for a high ground rent, but for little or no premium, freeholders will be prevented from unfairly gaining through the new valuation scheme.

Government Amendments 25, 31, 33, 34, 35, 36, 37, 38 and 40 are minor amendments that will tidy up the Bill by aligning two different sets of terminology, used to mean the same thing, across the Bill. This will help to avoid any potential for confusion and has no material impact on the valuation provisions in the Bill.

Government Amendment 30 is a minor amendment to Schedule 4. As currently drafted, the Bill would incorrectly require a valuation of a freehold for a lease extension. We are fixing this to align with the new valuation scheme, so that a lease extension will require a valuation of a notional lease. This will ensure that the provision works for lease extensions as intended. This amendment does not change the scope or effect of Assumption 3 in Schedule 4; it simply makes sure that it is phrased correctly.

Government Amendment 49 is a minor correction of a grammatical error in Clause 41 so that it refers to the appropriate tribunal. In this case, the appropriate tribunal can make orders regarding the new right for intermediate landlords to commute—that is, reduce—the rent they pay following lease extensions and ground rent buyout claims by their tenants.

Turning to government Amendments 50, 51, 52, 53 and 56 in the name of my noble friend Lady Scott, as noble Lords are aware, whenever making new legislation, it is of the utmost importance that we review any consequential amendments required to be made, including to other Acts of Parliament. We have therefore conducted a thorough review of how the reforms brought forward in this Bill will require necessary changes. The following amendments focus specifically on consequential changes resulting from Part 2 of the Bill.

Government Amendment 52 is a minor and technical amendment which reflects the movement of material from Section 175 of the Housing Act 1985 into the new Section 7A of the 1967 Act. The amendment preserves a part of the current law which deals with a number of exemptions for the valuation of a freehold acquisition under Section 9(1) of the 1967 Act which will still be available under a “preserved law claim”. This will make sure that the Bill retains the current restrictions and will remove any potential for unintentionally expanding the number of tenants who qualify for a Section 9(1) valuation and consequently for a preserved law claim. Right-to-buy tenants who qualify for enfranchisement rights will be no worse off and benefit in the same way from the new valuation scheme as other leaseholders.

Government Amendment 53 inserts a new clause, which acts as a paving amendment to introduce a new schedule. This new schedule brings together the consequential amendments to other legislation. As a result of this new schedule, government Amendments 50 and 51 remove consequential amendments to the Housing and Planning Act 1986, which are currently contained in Schedule 8; these are now addressed in the new schedule.

Amendment 56 inserts the new schedule, entitled “Part 2: consequential amendments to other legislation”. This new schedule is extensive and brings together the consequential amendments across 19 other Acts into a single place. None of the amendments makes separate, substantive changes, but, rather, the new schedule allows this Bill to mesh with and integrate seamlessly with other legislation. These consequential amendments will: remove provisions which will become obsolete as a result of the changes made by the Bill; enable freehold acquisition claims of houses under Section 9(1) of the Leasehold Reform Act 1967 to continue to operate as they do currently, while making sure that provisions in other legislation do not override our new valuation scheme; make clear how to treat the valuation of freehold acquisitions for right-to-buy tenants; preserve the current law so that non-litigation costs payable on enfranchisement do not attract stamp duty land tax, allowing the operations of stamp duty land tax to continue as intended; and make sure that provisions of other Acts governing shared ownership leases will still function properly following the repeal of some shared ownership provisions in the 1967 Act.

Government Amendments 88 and 89 are tidying-up amendments to align the terminology in Clause 77 with terminology used elsewhere in Part 5.

Finally, with sincere thanks to noble Lords for bearing with me and for their patience, I turn to government Amendment 90. This is a clarificatory amendment which seeks to deal with any potential confusion over the extent to which the Bill applies to event fees. As noble Lords may know, some leases require the leaseholder to pay a fee on certain events, such as the sale of the premises or a change of occupancy. These so-called event fees are common in specialist housing for older people. How event fee terms are drafted varies from one lease to the next, as does what the money is used for. This amendment is not concerned with the regulation of event fees; the Government have committed to making event fees fairer and more transparent and will implement agreed Law Commission recommendations when parliamentary time allows. There is a risk in the current drafting of the Bill that the specific nature and purpose of event fees may be regarded as an administration charge under Clause 81. That would, in turn, mean that they are subject to the test of reasonableness, which we do not consider appropriate for a fee of this nature. The amendment therefore sets out a definition of an event fee and makes it clear, for the avoidance of doubt, that any event fee is not to be regarded as an administration charge. I beg to move.

[Lord Khan of Burnley (Lab)]

I thank my fellow east Lancastrian, the Minister, for introducing these technical, tidying-up and clarificatory amendments.

[Lord Gascoigne (Con)]

I have spoken ad nauseam about many of these amendments. I too thank my long-lost brother from east Lancashire, the noble Lord, Lord Khan, and say what a pleasure it is to follow him.

Amendment 19 agreed.

Moved by

[Lord Gascoigne]

20: Schedule 3, page 152, line 17, leave out paragraph (f)
Member's explanatory statement
This amendment would reflect that the Development Board for Rural Wales has been abolished.