Leasehold and Freehold Reform Bill

Lord Khan of Burnley Excerpts

Committee stage
Monday 22nd April 2024 Lords Chamber

Moved by

[Lord Khan of Burnley]

5: Schedule 1, page 135, line 19, leave out paragraph 5
Member's explanatory statement
This amendment, and other similar amendments in my name, probe each of the categories of “permitted leases”.

[Lord Khan of Burnley (Lab)]

My Lords, I will speak to these probing amendments in the name of my noble friend Lady Taylor of Stevenage. This group of amendments further relates to different parts of Schedule 1, which provides details of permitted lease categories where self-certification applies in relation to the Clause 1 ban on new leases of houses, which the Government added to the Bill on Report in the Commons. The purported ban on new leasehold houses does not actually ban all new leasehold houses—a point that my noble friend eloquently made during the opening group. It is imperative that, through the probing amendments in this group, we emphasise that this ban appears to be a weak ban.

Each of the amendments in this group refers to a different type of exemption or permitted lease: Amendment 5 relates to leases agreed before commencement; Amendment 6 refers to shared ownership leases; Amendment 9 relates to home finance plan leases; Amendment 10 refers to extended leases; Amendment 11 looks into agricultural leases—paragraph 9 of Schedule 1 details the permitted lease definition for agricultural leases as

“a lease where the house is comprised in … (a) an agricultural holding within the meaning of the Agricultural Holdings Act 1986 which is held under a tenancy to which that Act applies, or … (b) a farm business tenancy within the meaning of the Agricultural Tenancies Act”.

Without wishing to lengthen the debate on this issue, since many points were picked up by my noble friend, can I ask the Minister opposite to let the Committee know how many current leases fit these categories of permitted leases? Do the Government expect it to stay the same going forward, especially for shared ownership? How many permitted leases do the Minister and the Government envisage over the next 10 years, for example, to which these categories will apply?

--- Later in debate ---

[Baroness Scott of Bybrook (Con)]

I am not aware of the timescale for that, but I will make some inquiries and come back to my noble friend.

[Lord Khan of Burnley (Lab)]

My Lords, I thank the Minister for her response to what was a very interesting debate. I always appreciate the breadth and depth of expert knowledge from the noble Lord, Lord Young of Cookham, in particular. He talked about the rights of shareholders and what they are entitled to, and it is important that he finished by talking about the response to the Select Committee report on shared ownership. I appreciate also the probing of the noble Baroness, Lady Pinnock, alongside myself, on the definition of agricultural leases but, for the time being, I beg leave to withdraw my amendment.

Amendment 5 withdrawn.

--- Later in debate ---

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

My Lords, I forgot to mention earlier how much I support the noble Lord, Lord Young of Cookham. I think the last draft Bill we had here was the Modern Slavery Act. There was a draft Bill and a Joint Committee of both Houses on it. The work of that committee ironed out all the wrinkles; we got a much better Act of Parliament, and it had a much easier passage through both Houses. The committee was able to look at the issues and deal with them, which was really important.

It would be lovely to hear the Minister say that we will have a draft Bill for commonhold. Again, that would really help us. We could have a Joint Committee of both Houses that could take evidence and work through all the problems. Then, when we got the proper Bill, we would get it much more smoothly and easily through this House and the other House.

I suspect we will not get that, but it is the way forward. Having more draft legislation enables us to sort things out. The Law Commission has worked on the two other Bills we need. We would benefit from having draft Bill committees. It would be much easier for the Government and for everybody to get stuff through and to deal with the problems we all want to solve.

[Lord Khan of Burnley (Lab)]

My Lords, I thank the noble Baroness, Lady Pinnock, for introducing this group of amendments. It has been a fantastic, constructive debate, with some excellent points made across the Committee. I do not want to repeat the arguments, but I will speak particularly to the amendment in the name of my noble friend Lady Taylor of Stevenage, which many noble Lords have spoken about. I remind the Committee that this amendment would require the Government to set out a strategy for making commonhold the preferred alternative to leasehold, as recommended by the Law Commission in its report, Reinvigorating Commonhold: the Alternative to Leasehold Ownership.

The amendments in the name of the noble Lord, Lord Bailey of Paddington, and the noble Baroness, Lady Fox of Buckley, are both important. They all point towards a particular focus: that commonhold should be the future. We should help the move towards commonhold; it is overdue. The Government have had 14 years to deliver and have broken their promises to leaseholders, as mentioned by my noble friend Lord Kennedy of Southwark. Let me remind the Committee that an incoming Labour Government would be left to pick up the pieces should we have the opportunity to serve.

On these Benches, our commitment, as reiterated by my noble friend Lady Taylor of Stevenage, is to have comprehensive leasehold reform, and this has not changed. We will bring forward ambitious legislation to enact all the Law Commission’s remaining recommendations at the earliest opportunity if we are privileged enough to serve.

The important point made by my noble friend Lord Kennedy about not having a strategy is why, on these Benches, we have brought forward an amendment asking for a strategy as part of this Bill. It has been so long; commonhold was introduced in 2002 as a way of enabling the freehold ownership of flats and avoiding the shortcomings of leasehold ownership. However, fewer than 20 commonhold developments have been established since the commonhold legislation came into force. Flats in England and Wales continue to be owned, almost inevitably, on a leasehold basis.

Unlike practice in most other countries across the world, flat owners in England and Wales continue to hold leasehold interests that will expire at some point in the future, and landlords make the key decisions about the management and costs of their buildings. Commonhold enables flats to be owned on a freehold basis, so that owners’ interests can last for ever and gives decision-making powers to home owners.

The Law Commission published its final report in July 2020, in which it makes numerous recommendations that seek to make commonhold not only a workable but a preferred form of home ownership to residential leasehold. Its recommendations include measures designed to make it easier for leaseholders to convert to common- hold and gain greater control over their properties; to enable commonhold to be used for larger, mixed-use developments that accommodate not only residential properties but shops, restaurants and leisure facilities; and to allow shared ownership leases to be included within commonhold. The recommendations would give owners a greater say in how the costs of running their commonhold are met, and ensure they have sufficient funds for future repairs and emergency work. They would provide owners with flexibility to change the commonhold’s rules, while improving the protections available to those affected by the change.

I ask the Government whether they disagree with the benefits I have just outlined? If they do not, why are they not doing this? That is the fundamental question from this debate that numerous noble Lords have alluded to. There was clearly some appetite for it a few years ago, so why are they not doing this? Have the Government changed their mind or are they just not brave enough to do it?

In May 2021, the Government had even established a Commonhold Council as a partnership of industry, leaseholders and government that would prepare home owners and the market for the widespread take-up of commonhold. I ask the Minister what has happened to that council. When did it last meet and how often does it meet?

It is widely accepted that, in terms of this Bill, we will not have commonhold brought in now. However, there is still much miscommunication around commonhold in the industry. There needs to be more education and an awareness campaign. As contributions have highlighted today, commonhold is so much easier. You do not have complex laws; you talk to one another and work problems and disputes out. You have meetings and laws are prescribed so that it is easy for people to know what to do at each step of the way. There are things that could be done with commonhold in this Bill to strengthen it and pave the way to commonhold happening en masse. The amendment in the name of my noble friend Lady Taylor would help the Government ensure that there is a strategy in this Bill and fulfil their manifesto promise, as mentioned previously. I commend the amendment in the name of my noble friend, and I look forward to hearing from the Minister.

--- Later in debate ---

[Baroness Scott of Bybrook (Con)]

I thank my noble friend for that. As I have said, we are working on it, we are working on further changes and we will come back in due course.

[Lord Khan of Burnley (Lab)]

If I can just probe the Minister on the answer she gave me, that the Commonhold Council met in September, can I just confirm that she is chairing that Commonhold Council? The government website still has the noble Lord, Lord Greenhalgh. As the Commonhold Council advises the Government, what advice did it give in relation to the plan for commonhold? Surely it was not, “Take your time”, was it?

[Baroness Scott of Bybrook (Con)]

I do not have that detail with me, but I will make sure the noble Lord gets it.

--- Later in debate ---

[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.