Leasehold and Freehold Reform Bill

Debate between Lord Gascoigne and Lord Moylan

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

[Lord Gascoigne (Con)]

I am grateful for all the contributions in what has been a relatively brief group. I will go through the issues that were raised chronologically.

My noble friend Lord Young raised a specific case, and I have seen the correspondence he referred to. It is the Government’s policy to allow equity release in home finance products in houses, including home purchase plans and lifetime leases. We have a power in this Bill to add, remove or amend definitions for categories of permitted leases. On the specific product, the department is considering an appropriate definition for secondary legislation, and officials have met the main provider in question. I assure my noble friend that the measures in the Bill relating to the ban on leasehold houses will not be implemented immediately, should the Bill secure Royal Assent, as there are other important regulations that need to be provided for first before the ban becomes operational.

My noble friend Lord Moylan is right to say that this will come up later, and we can have the discussion then. In brief, on the right-to-manage companies, we have laid amendments to set regulations to suspend the requirement for certain landlords to apply to the relevant court or tribunal to recover their litigation costs until an event set out in regulation occurs. An example of when it might be appropriate to suspend the application requirement is for resident-led buildings or assetless landlords. As I say, I think we will come back to it later.

[Lord Moylan (Con)]

Among noble Lords, my noble friend at least must have confidence that the Government will be returned to power and that he will be sitting on that Bench only a matter of weeks from now. On that assumption, could he give us a date for when these regulations will be brought forward, so we can at least know the Government’s position on the timing of this? There is the risk of people being left in limbo. Even if it is a matter of six weeks that is bad enough, but it could be longer, even if the Government are returned to power. On that assumption, is he able to help the House, and directors and members of right-to-manage companies, by indicating a date when the regulations will be brought before us under the affirmative procedure?

[Lord Gascoigne (Con)]

On the first question, it is with regret that I cannot give that date now. On his second question—whether I have confidence that we will win—that is up to the electorate, but I have every hope that we will. Obviously, I would not like to curse us in saying that—touch wood. Who knows? Let us see.

I was also asked what action could be taken to make sure that this does not fall foul of legislation. The Government will work closely with stakeholders to ensure that the application requirement is suspended only where appropriate. In addition, the power is subject to the affirmative procedure.

This is the first time I have had the honour to speak directly to the noble Lord, Lord Kennedy, from the Dispatch Box. I know he has raised this issue inside the Chamber and outside many times, and he is right to do so. Obviously, there have been many constraints on the legislative timetable and, as we are now in wash-up, those pressures have increased tenfold. This is a good Bill as it stands, and the Government want to see it through. The noble Lord mentioned that we are at the beginning of a general election campaign. Who knows what will come thereafter, but this Bill is very good as it stands, and I hope noble Lords will be able to support it today.

--- Later in debate ---

[Lord Moylan (Con)]

My Lords, there has been a number of groups concerning marriage value and I have not spoken in them, because I thought I would save my remarks for now. It is quite clear that what the Government are proposing is simply expropriation—there is no other word for it—and it is one of the two most objectionable features of this Bill. The second is the one I come to now, as the subject of these amendments, which relate to the setting of a cap on ground rents for valuation purposes.

It will perhaps help some noble Lords if I say that, when I have mentioned this amendment, some people have asked me, “Why are you talking about ground rent when the Bill doesn’t introduce the expected cap on ground rents?” It is the cap on ground rents payable that is not introduced. However, in Schedule 4, there are provisions whereby the Government determine what the ground rent should be treated as for the purpose of valuations in the event of a leasehold enfranchisement or a lease extension. These two amendments would simply remove that cap.

What is happening, put very simply, is another form of expropriation. Quite simply, the ground rent that the tenant has signed up for and which the freeholder has a legitimate expectation of should be ignored in the assessment of valuations for the purposes I mentioned a moment ago and should be set at 0.1% of the property’s market value as a cap. As I say, this is simply another unwarranted interference with property rights, with almost no understanding or explanation on the part of the Government of what the practical effects will be on the interests of legitimate freeholders, which include pension funds, charities and other parties.

With that, I shall sit down since I do not expect my noble friend to give way on the matter, but I think it is very important that the point is made: this is another of the two most odious provisions in the Bill.

[Lord Gascoigne (Con)]

My Lords, I thank my noble friend—if I can still call him that—Lord Moylan for these amendments. As I made clear in Committee, the Government have made their intention to make enfranchisement cheaper and easier for leaseholders explicitly clear.

There has been much discussion of ground rents and the incidences where they cause difficulties for leaseholders. The provision in the Bill to cap ground rent in enfranchisement calculation at 0.1% of the freehold vacant possession value is an important measure to ensure that leaseholders with relatively high ground rents do not find the cost of enfranchisement prohibitively expensive. These amendments would be counter to that objective so, with respect, I ask my noble friend Lord Moylan to withdraw his amendment.

[Lord Moylan (Con)]

My Lords, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Gascoigne (Con)]

My Lords, I thank my noble friends Lord Moylan and Lord Howard of Rising for their amendments, and the right reverend Prelate for his comments.

At the moment, it is difficult for a leaseholder to understand how much they must pay to the landlord when they enfranchise. Different rates are used across the country and across the industry on a case-by-case basis. It can therefore be costly and time-consuming for both parties to agree, especially where there may be a dispute, which can lead to inefficiencies in the system.

We are reforming the enfranchisement valuation landscape and rebalancing the inequity of arms between leaseholders and freeholders. For the first time, we can put an end to uncertainty, inefficiency and the wasted costs and time that leaseholders and freeholders endure through the current enfranchisement valuation process. We will do this through these reforms, by allowing the Secretary of State to prescribe the capitalisation and deferment rates for enfranchisement valuation calculations.

I know that there has been concern that the Bill includes a requirement to review the rate at least every 10 years, as has been mentioned. However, this is simply a backstop. It does not preclude the Secretary of State reviewing them more frequently, as suggested by these amendments. Nor will the power preclude the Secretary of State from setting different rates for different situations, which is also suggested by these amendments. I am fully aware of the importance of prescribing the rates for both leaseholders and freeholders, and recognise the concerns, including those of the right reverend Prelate. The rates will be prescribed at market value, as we have committed to and as suggested by the amendments. I ask my noble friend to withdraw his amendment.

[Lord Moylan (Con)]

My Lords, I omitted to say what I should have said: of course, my noble friend, who has been a friend for a very long time indeed, may continue to regard me as his noble friend and I will regard him as my noble friend, whatever strange and paradoxical circumstances we may find ourselves in in the course of debate in this Chamber. With that remark, and with a great sense of dissatisfaction at his response, I beg leave to withdraw my amendment.

--- Later in debate ---

[Lord Moylan (Con)]

If I may interrupt, I simply asked my noble friend for clarity. Is he now saying that the class of persons I referred to does not have access to the right to manage—he seems to have said those words—even by way of the Housing Act 1985, contrary to what was said in Committee, or would he maintain that that route is still available to them? Is it or is it not the Government’s position that the Housing Act 1985 is available?

[Lord Gascoigne (Con)]

As ever, I am grateful for the points my noble friend has made. I think it is as I have described previously: namely, that the Law Commission did not make any recommendations on local authority leaseholders. We recognise that the right to manage is not available for leaseholders with local authority landlords, where there are no secure tenants in the block. It is not available where there are only leaseholders.

I now turn to Amendment 50, tabled by my noble friend Lord Bailey of Paddington. We recognise that the participation requirement can cause difficulties if leaseholders cannot reach the threshold. But a participation requirement of one-half of the residential units is proportionate, ensuring that a minority of leaseholders are prevented from exercising the right to manage, which may be against the wishes of the majority of leaseholders in a building.

Reducing the participation requirement to 35% is disproportionate and could lead to undesirable outcomes, such as an increase in disputes. It would risk a situation where competing groups of minority leaseholders could make repeated claims against each other. The Government accept the Law Commission’s recommendation to keep the participation threshold as it is. For these reasons, I ask that my noble friend does not press his amendment.

[Lord Moylan (Con)]

My Lords, there is no better illustration of the sheer folly of trying to deal with this complex issue in wash-up. We have discussed a point that was raised and discussed in Committee, during which one answer was given by a Minister. It was discussed in a meeting at which officials were present. I have not tabled my amendments late; some of my amendments have been down for some time. It is a point that Minsters knew was likely to come up on Report, but they have not been able to give clarity.

There are two possible routes. Is one of them available? Is what the Minister said in Committee correct or not? I am still really no clearer about the whole subject unless I construe the Minister’s words, as opposed to having them stated plainly for me. It is simply an illustration of why we should not be progressing this Bill in this fashion and in this way. With that comment, I beg leave to withdraw my amendment.

--- Later in debate ---

[Lord Moylan (Con)]

My Lords, this amendment relates to the question of the ability of right-to-manage companies and similar bodies to recover their legal costs. I made remarks in the debate on the first group which largely addressed this. This issue has also been raised by the right reverend Prelate the Bishop of Southwell.

I see no reason, given the pressure of time, to add further to my arguments or comments on this amendment. I will simply have to accept, with a degree of gratitude—I suppose I have to be fair—that Amendments 54 to 58 proposed by the Government go some modest way towards addressing my concern. We will leave ourselves in the hands of the Secretary of State and hope that, whoever that is, they will be kind to us—but who knows? I beg to move.

[Lord Gascoigne (Con)]

My Lords, I thank my noble friend Lord Moylan for his amendment to Clause 61. The Government have laid Amendments 54 to 58, which will in part introduce a power to set regulations to suspend the requirement for certain landlords to apply to the relevant court or tribunal to recover their litigation costs until an event set out in regulations occurs.

This will mean that the Secretary of State or Welsh Ministers will have the power to allow certain landlords to demand money from leaseholders to fund litigation ahead of proceedings without the need to apply to the court or tribunal for permission to do so. Importantly, it would still require the same landlords to apply to the court or tribunal for their costs after “a specified event” in regulations occurs, ensuring that leaseholders are still protected.

The Government will work closely with stakeholders to ensure the application requirement is suspended only where appropriate. An example might be for resident-led buildings or assetless landlords. In addition, the power is subject to the affirmative procedure, meaning it will be scrutinised in both Houses. I hope this reassures my noble friend and that, on that basis, he will withdraw his amendment.

[Lord Moylan (Con)]

My Lords, I beg leave to withdraw my amendment.

Leasehold and Freehold Reform Bill

Debate between Lord Gascoigne and Lord Moylan

Committee stage
Monday 29th April 2024 Lords Chamber

[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.

Leasehold and Freehold Reform Bill

Debate between Lord Gascoigne and Lord Moylan

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.