Teesworks Joint Venture
Lord Lennie Excerpts(9 months, 3 weeks ago)
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Lord Lennie (Lab)
The Minister said it was not the National Audit Office’s role to investigate individual authorities—or something like that—but the report has revealed at least massive financial mismanagement of this project. It seems that, since the report was published, further calls to the National Audit Office to investigate this have been made. Why will the Government not accept them?
Baroness Penn (Con)
My answer is the same as before: the Secretary of State, at the time of the review, considered the suggestion that the NAO undertake the review. But it is not its role to audit or examine individual local authorities, and its powers would not normally be used for that purpose. The process that has been followed for this review has been followed for other reviews of local authorities when looking at such issues. We followed the normal process in this instance.
Baroness Penn (Con)
The reality is that a project of this size will require significant public sector investment, which has taken place, but the review is also clear that remediation of this size and scale would not be able to take place without private partners also participating. We are making sure that we look at the lessons that we can learn from this review, but it is also important to consider both the option of doing nothing, which would have come at a multibillion-pound cost to the public purse, and the benefits that people in the local area are already reaping from the investment that has come in to date.
Lord Lennie (Lab)
My Lords, the noble Baroness, Lady Ford, asked about the lack of the audit function in local authorities. The Minister said that the Government had put “processes in place” to replace the Audit Commission. Can she explain what those processes are, and whether they will now be involved in investigating financial management in this Tees Valley development corporation?
Baroness Penn (Con)
My Lords, the Audit Commission regulated, micro-managed and inspected local councils, forcing them to spend time ticking boxes and filling in forms rather than getting on with the business of local government. It hindered transparency and scrutiny. Local government can put in its own systems of local authority financial reporting and audit to ensure that it is accountable for spending public money effectively.
With regard to transparency functions, there is Oflog—the new data-driven organisation that will provide transparent and authoritative sources of information for the performance of local government. This will, however, be vastly different to how the Audit Commission operated, which imposed compliance requirements on local authorities and conducted routine inspections.
Leasehold Reform (Ground Rent) Bill [HL]
Lord Lennie ExcerptsTuesday 20th July 2021
(3 years, 4 months ago)
Lords ChamberRead Full debate Leasehold Reform (Ground Rent) Act 2022 View all Leasehold Reform (Ground Rent) Act 2022 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-R-I Marshalled list for Report - (15 Jul 2021)
Lord Stunell (LD)
My Lords, my noble friend Lady Grender is very sorry that she is not able to be present, having led for this side of the House in the previous stages of the Bill. She has put into my somewhat inadequate hands the job of taking us to the next stage. I thank the Minister for his very helpful approach to all sides of the debate so far—in the preceding stages and, indeed, right up to this morning, as the noble Earl, Lord Lytton, has commented.
These government amendments are examples of clarifications that have emerged as a result of our discussions; I am sure we would all agree that they are leading to an improvement on the Bill in its original form. Not all of us brought to bear the knowledge and background of a former Chancellor of the Exchequer, which was credited by the Minister a few minutes ago, but, even so, we have been treated with courtesy and respect, and we very much appreciate that.
I turn briefly to the proposals tabled by the noble and learned Lord, Lord Etherton, and the noble Earl, Lord Lytton. The noble and learned Lord made the point that an untidy situation will be left should his amendment not be adopted by the Government. The noble Earl, in his extremely technical presentation of the difficulties and intricacies of leases on big developments, has also shown very clearly the further unfinished business that the Bill by no means addresses. Because of my own interest in the Building Safety Bill, I picked out his suggestion that that Bill—in its current form, at least—could put on to property owners obligations that they will no longer be funded to support should various scenarios sketched out by the noble Earl come to pass.
The Minister’s initial response was that he could not accept Amendment 5; I take that to mean that neither does he accept the arguments that the noble Earl has just presented to your Lordships’ House. It seems to me that, if not here then at some later stage, he will have to answer and have properly investigated the question of whether the Building Safety Bill, if enacted in its present form, would lead to an unacceptable outcome because it would mean that the obligation to inspect, certify and rectify would be placed on the shoulders of a person or body without the means to do it.
The Minister has very helpfully said that he will consider the practical consequences outlined by the noble Earl in relation to Amendment 35. I will be very interested to see how that proceeds. He gave us a little hint that something might come up at a later stage of the Bill. I hope that that will be the case.
In conclusion, I say only that the Minister has been presented with strong evidence from every side that this is an incomplete Bill. It does not tackle the whole problem even in terms of its own limited reference point. I am grateful, as I think the whole House will be, that improvements are being made, but further improvements are needed and the urgency of proceeding to the second stage of leasehold reform is underlined every time one of your Lordships contributes to this debate.
Lord Lennie (Lab)
My Lords, the amendments in this first group, like most that have been tabled on Report, are technical amendments that do not alter the central provisions of the Bill but none the less aim to improve its application. Amendments 1, 2 and 38, each tabled by the Minister, deal with the definition of “regulated leases”. Specifically, they exclude leases of multiple dwellings, with Amendment 2 adding that a regulated lease is considered such only
“if it is granted for a premium”.
Can the Minister confirm whether there have been any impact assessments or informal consultations on the application of these changes?
Amendment 5, tabled by the noble Earl, Lord Lytton, probes the relationship between the Bill and “large and complex buildings”. He gave a large and complex explanation of his amendment. In there somewhere, I think he said that the commonhold might present a solution to the complex problem raised, but it is probably a little more difficult than that. These Benches fully support the removal of ground rent for all leaseholders, but I hope the Minister can confirm what support and engagement are ongoing with this impacted group.
The noble and learned Lord, Lord Etherton, has probed the provision on “deemed surrender and regrant”. I look forward to further clarification from the Minister on this as well—to tidy up the somewhat contradictory nature of the legislation in Clause 1(4) and Clause 6, as the noble and learned Lord explained.
Lord Greenhalgh (Con)
I thank noble Lords for their ongoing engagement and for the substantive points raised. I want to pick up on the issue raised by the noble Earl, Lord Lytton, of orphan freehold syndrome, in particular with regard to complex leases. I point out that leaseholders can collectively exercise the right to manage; they can appoint a managing agent to discharge the stewardship function that the noble Earl outlined.
The noble Lord, Lord Lennie, asked whether we carried out an impact assessment for the two technical changes, which really preserve what is happening today and were not meant to be captured by the provisions of this narrow Bill. We have not carried out any impact assessments. We are looking to continue a practice that we see as being sensible, on occasion. It was never meant to be captured as part of this Bill, so it is not something that requires a full impact assessment as such.
Once again, I commend Amendments 1, 2 and 38 in my name. These changes address important points raised by noble Lords in previous debates on the Bill. I thank noble Lords for recognising that they do so. I think they will agree that they improve the legislation—indeed, as a direct result of the scrutiny in this House—and that it will not have effects beyond those intended. I have listened carefully to the noble Earl, Lord Lytton, on his two amendments; I remain of the view that Amendment 5 is inconsistent with the intent of the Bill and that the case for Amendment 39 needs further consideration.
Lord Greenhalgh (Con)
My Lords, all the amendments in this group relate specifically to Wales. This legislation applies to Wales as well as England, and it is our intention that it works in the best way possible for leaseholders in both England and Wales. We have been working with colleagues in the Welsh Government to understand how the Bill might impact leaseholders in Wales. I take this opportunity to thank Ministers and officials within the Welsh Government for their constructive engagement on the legislation.
Amendments 14 to 24, 45 and 46 make a common-sense change to the legislation that I hope all noble Lords will agree is appropriate. They would see breaches in Wales taken to the relevant residential property tribunal—the leasehold valuation tribunal—instead of the First-tier Tribunal. These are pragmatic amendments, and I hope that they will have support of noble Lords from across the House.
The other amendments in this group confer powers on Welsh Ministers that would, as the legislation is currently drafted, be exercised by the Secretary of State. We have carefully considered which of these powers it would be appropriate to confer and which should be restricted. For instance, we share the concerns that my noble friend Lord Young of Cookham raised at Second Reading about the potential for different commencement dates in England and Wales. This would cause unnecessary confusion for both leaseholders and developers working in both jurisdictions. However, there are areas where we believe that powers should be given to Welsh Ministers to allow them to align these reforms with the housing policy that they are pursuing for Wales.
First, Amendment 4, read with Amendment 40, would give Welsh Ministers the power to update definitions of excepted leases in relation to community housing. This would give the Welsh Government more flexibility and allow them to ensure that this legislation is fit for the purpose of Welsh community housing schemes, including work related to co-operative housing. These amendments recognise the importance of the devolution settlement and are intended to facilitate the Welsh Government in exercising their powers in relation to housing policy.
Secondly, Amendments 11 and 12, read with Amendment 40, would allow Welsh Ministers to increase the size of the penalty in line with changes in the value of money. This would allow them to ensure consistency of approach with other penalties in their competence. For example, they could increase the penalties for breaching the provisions of this Bill in line with increases to other housing-related penalties set by the Welsh Government, even if the UK Government decided not to increase the penalty in England. Conversely, the Welsh Government could decide not to increase penalties even where they were raised in England. However, it is important to note again that any increase, whether in England or in Wales, would only be in line with inflation. It is therefore unlikely that we would see a large gap open up between the levels of penalties in the two jurisdictions.
Amendment 13 would enable the Welsh Government to produce their own guidance for enforcement authorities to achieve the best fit with the Welsh context. This recognises that the Welsh Government’s understanding of the different local authority structures in Wales would ensure the effective implementation of this legislation there. The Welsh Government would also ensure that the guidance is translated into Welsh. We will, of course, work closely with the Welsh Government to ensure consistency across all guidance on enforcement.
I mention at this point that we no longer intend to move Amendments 31 to 34, 36 and 37, related to conferring the powers for Welsh Ministers to make consequential amendments in relation to the Bill. As noble Lords will know, consequential amendments are essential in ensuring consistency across legislation. While we have made every effort to identify where existing legislation needs to be updated in drafting the Bill, we need to ensure that further changes can be made when needed.
Not moving these amendments today does not mean that we are no longer seeking to provide Welsh Ministers with the appropriate powers. However, following discussions late last week with the Welsh Government, we both agree that further engagement is required to ensure that we achieve the right result in setting out how Welsh Ministers and the Secretary of State should exercise their respective powers under Clause 20. To that end, we intend to continue our constructive discussions over the summer and reach an agreeable position to bring forward any appropriate amendments at a later stage. The Welsh Government want to ensure alignment of this legislation, including within the context of their ongoing codification of Welsh law. Our continued joint working should ensure that this can be achieved.
Amendment 35, the final amendment in this group, provides that the default procedure for regulations made under the Bill by Welsh Ministers is the negative procedure.
Taken together, the amendments in this group will ensure that the Bill works in the Welsh context. They recognise the interconnected nature of property law and housing policy and give reasonable powers to Welsh Ministers to adapt this legislation to ensure the best fit for Wales. The amendments that we have not moved will continue to be discussed and do not have a significant impact on the operation of the Bill as currently drafted. I beg to move.
Lord Lennie (Lab)
My Lords, I welcome these technical amendments to recognise the role of the Welsh Government in these matters. While I will not go through each in turn, I would appreciate clarification on a few broad points.
First, the Government stated that provisions are not within the legislative competence of the Senedd Cymru. Can the Minister confirm whether the Government received any advice to the contrary, and whether this was anything to do with the decision to withdraw the amendments that were originally scheduled? Secondly, why were the amendments not included in the initial draft of the Bill? Thirdly and finally, can the Minister detail how the Government have engaged with both the Welsh Government and the wider Senedd during the passage of the Bill?
I am sure the Minister will agree that the principle of devolution has become a cornerstone of our modern democracy; that is exactly why I welcome these amendments. I look forward to clarification on the questions that I have put to the Minister.
Lord Greenhalgh (Con)
My Lords, I will have to write to the noble Lord on exactly what occurred. I know that this issue raised its head only very late last week. I am happy to outline that and put a copy in the Library in response to those questions.
We want to ensure that this legislation works for both England and Wales. This group of amendments achieves this by giving certain powers to Welsh Ministers that would otherwise be exercised by the Secretary of State. We have worked closely with the Welsh Government on this issue and I hope that these amendments will have your Lordships’ support.
Lord Lennie (Lab)
My Lords, I will speak primarily to Amendment 26 in my name, which would ensure that the Government bring forward legislation to end ground rent for existing leaseholders. I also add my thanks to the Minister for making himself and his officials available and for seeking to explore whether there is any chance of a solution to this. There was not, although he described this problem as “a top priority for the Government”. That is something that the noble Lord, Lord Young, heard when, in the other House, he was trying to deal with the question of hereditary Peers in this place. He was persuaded not to move an amendment by the then Government and was promised that legislation would be forthcoming. That was 20 years ago.
Millions of people are trapped in these contracts and the Government must end the feudal system for them as well as for new leaseholders. That is the whole purpose of this amendment—to make life equal for all leaseholders. Almost 5 million properties in England are leasehold dwellings—around one in five of all homes —and the House will be aware that many of them, if not all, are seeing their ground rent increase at incredible rates. The noble Lord, Lord Blencathra, memorably described this in Committee as a legal racket. That is what it is: it leaves a loophole available which sees rents increasing without any explanation, for no service whatever to leaseholders. It is creating immense misery and financial difficulties and there is no reason for the Government to maintain the system when they have already acknowledged how outdated ground rent is.
That is why the amendment would ensure that the Government bring forward early legislation within 30 days to end the practice once and for all. The amendment of the noble and learned Lord, Lord Mackay, identifies the same issue and tries to deal with it, but I am afraid I do not believe it goes far enough. Ground rent must be ended for leaseholders, including those in existing arrangements, and for that reason I will be testing the opinion of the House on Amendment 26 at the appropriate time.
I confirm the support of these Benches for Amendment 9 in the name of the noble Lord, Lord Stunell, and I also welcome other amendments he has tabled to probe aspects of these provisions. Amendment 9 raises the crucial point that leaseholders must always be informed of arrangements, and I hope the Minister will accept that point. With that, however, I will leave it to the Minister to respond.
Lord Greenhalgh (Con)
My Lords, several issues have been raised in relation to existing leaseholders in previous debates and engagements, and I thank noble Lords for their close examination and engagement with the Government on these issues. However, as I have stated previously, this Bill is deliberately focused tightly on only new residential long leases.
As noble Lords will know well by now, the Government are approaching their leasehold reform programme in two stages. First, the ground rent Bill before us today is intended to look ahead and transform the economic relationship between leaseholders, freeholders and developers. A comprehensive leasehold reform Bill will follow during the course of this Parliament to end unfair practices in the leasehold market, ensure that consumers are protected from abuse and poor service, and reinvigorate commonhold.
Noble Lords are understandably keen to know precisely when this second and more comprehensive leasehold reform Bill will be introduced. They will of course understand that scheduling of legislation is a complex process, and that consideration must be given to the Government’s wider legislative agenda. It is therefore simply not possible to make such concrete commitments at this stage. However, your Lordships should rest assured that the Government have no intention of going slowly when it comes to leasehold reform, which is one of the Secretary of State’s top priorities.
Amendments 6, 7, 8, 26, and 30 ultimately seek to widen the scope of the Bill so that it applies to existing leaseholders. Amendment 6, moved by my noble and learned friend, Lord Mackay of Clashfern, would allow existing leaseholders to pay a capital sum to reduce their ground rent to a peppercorn. As I have laid out in previous debates on the Bill, while we are sympathetic to the aims of this amendment, the Government do not believe that it is necessary. Existing legislation already allows leaseholders of flats to reduce their ground rent to a peppercorn on extending their lease through the statutory route. Meanwhile, leaseholders of houses can buy the freehold of their property and so eliminate ground rent altogether.
In January of this year, the Government committed to allowing existing leaseholders to buy out their ground rent without the need to extend the term of their lease: for example, where their lease is already long. For the purposes of calculating the premium payable for this, the ground rent will be capped at 0.1% of the property value, making it significantly cheaper for leaseholders with onerous ground rents. We will also introduce an online calculator to simplify the process of enfranchisement and ensure standardisation and fairness. We believe that these measures will achieve broadly the same effect as my noble and learned friend’s amendment, so I cannot accept it today.
Amendment 7, in the name of the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, would restrict ground rent for existing leaseholders who enter into non-statutory lease extensions to 0.1% of the value of the landlord’s interest in the dwelling. It is important to state for the record that the peppercorn requirement will apply to the newly extended portion of the lease once an extension has been granted under the voluntary route. In addition, for the period of the lease that reflects the term that remained on the original lease, the ground rent cannot be higher than in that lease. There will be no opportunity for a landlord to use the point of lease extension to increase ground rent.
I have discussed Amendment 8 with the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, and we are of course all of the view that we do not wish to see exploitation of this legislation. However, it cannot be right that we take away the option of a non-statutory lease extension which would enable the leaseholder to pay a lower premium in return for continuing to pay some ground rent on the remaining term of their lease, with limitations as set out in the Bill. Where a leaseholder wishes to follow this route, Clause 6 allows for a monetary ground rent to continue to be paid on the remaining part of a lease—that is, the “pre-commencement lease”. This can be common where the leaseholder wishes to agree this approach with their landlord in return for a reduced premium payment.
The “voluntary” or non-statutory process is a more flexible route to lease extension and can in some cases actually be more cost effective and quicker for both the leaseholder and the freeholder. Naturally, therefore, as I am sure we would all agree, we do not want to remove that option from the Bill. I can reassure the House that as part of taking forward the Law Commission’s recommendations on leasehold enfranchisement we will be considering the matter of non-statutory extensions further, and when the time comes we will again seek input from noble Lords on this important issue.
Amendment 9 is also in the name of the noble Lord, Lord Stunell, and the noble Baroness, Lady Grender. Attempting to amend the Bill as proposed in the amendment will not guarantee the outcome that the noble Baroness, Lady Grender, wishes to see, and the Government continue to consider this issue a matter of implementation detail rather than something to change on the face of the Bill. Amendment 9 would require all landlords to inform leaseholders of the changes introduced by the Bill before entering a formal or informal renegotiation or extension of an existing lease. Where a landlord failed to do so, they would face a penalty of between £500 and £30,000. However, the drafting of this amendment means that it would cover only the period from Royal Assent to the commencement date.
I appreciate that consumer rights and awareness is of particular concern to the noble Baroness, Lady Grender, and indeed the noble Lord, Lord Stunell, and I would be very keen to work with them and others on the issue of implementation. We have concerns that, while we recognise the need to ensure that leaseholders are aware of their rights and are not rushed into a lease extension before this Bill can take effect, we also need to ensure that any penalties are fair, justified and as far as possible are not incurred accidentally. Were the fines set out in the amendment to apply immediately upon Royal Assent, there is limited time to ensure that landlords are aware of the requirements and could end up receiving a fine for extending a lease in line with a request from a leaseholder.
We agree with the principle of this amendment, and I have discussed with the noble Baroness that we would like to work with her on the implementation of the Bill. This will include, for example, provision of comprehensive information to conveyancers, landlord representatives and leaseholder groups to ensure awareness of the new ground rent limits.
I have had constructive conversations with the noble Lord, Lord Stunell, and the noble Baroness, Lady Grender, about how we might get the word out about these upcoming changes. Several solutions were proposed and I was particularly taken by the noble Lord’s suggestion about engagement with the legal profession to ensure that it can best advise its leaseholder clients. I have asked my officials to consider how we might take forward these proposals. This is important not just so that leaseholders are aware of their rights but so that landlords know what is required of them and do not inadvertently receive a large fine. However, we do not believe that financial penalties should apply as proposed by the noble Lord’s amendment, and I hope that he will not move it.
Amendment 30, again in the names of the noble Lord, Lord Stunell, and the noble Baroness, Lady Grender, would put a requirement on landlords to write to their leaseholders to justify the payments by reference to the expenses to be met from the ground rent, or else to confirm that the ground rent is not used to pay any expenses. We agree that transparency is vital in the leasehold sector. However, we do not believe that this is the appropriate way to ensure that existing leaseholders are better informed about ground rents. As noble Lords know, ground rents are charges paid with no clear service in return. Most leaseholders will be aware of this and it is unclear what benefit they would get from receiving a letter from their freeholder or managing agent to that effect.
However, we are working to prepare the sector and leaseholders alike, assessing where better advice and support can be provided through ongoing regular engagement with the sector and our delivery partners. However, I acknowledge the broader concerns raised by the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, in their Amendments 7, 8, 9 and 30 about pre-commencement leases and the consumer awareness challenges in the run-up to this legislation coming into force. It is a noble intention, and we are agreed that leaseholders should have the right information to hand when making important decisions about whether to extend or vary their lease.
I am grateful to noble Lords for raising their concerns about the implementation of this Bill. I understand that it is noble Lords’ desire, as it is mine, to improve the Bill and see it delivered as smoothly as possible. That is why my officials are working carefully to craft an implementation plan that takes account of these concerns, as outlined by the noble Lord, Lord Stunell, and the noble Baroness, Lady Grender, to do what we can to ensure that leaseholders are aware that this change in the law is coming and that they are equipped with the information they need to make the decision that is right for them.
This is a good opportunity to inform your Lordships that I can today commit to the House that the commencement date for this legislation will be within six months of Royal Assent, an issue which my noble friend Lord Young raised on numerous occasions. This issue was raised multiple times at previous stages and, while writing the date into the Bill would be inappropriate for reasons that I hope noble Lords will understand, I am pleased to make that commitment today.
More broadly on consumer awareness, the Government are pleased to hear the recent update published by the CMA on 23 June, whereby settlements secured with a leading housing developer and an investor in the leasehold sector have committed them to changes that will benefit thousands of leaseholders by refunding homeowners who saw their ground rents double, and allow leaseholders to buy the freehold of their properties at a discount. One of those companies has also committed to extending the timeframe that prospective buyers are given to exchange contracts after reserving a property, and to providing people with more up-front information about the annual costs of buying a home.
I am sure that noble Lords will also be pleased to hear that that includes ensuring that all marketing materials provided to consumers before the signing of a reservation agreement clearly and prominently state a greater level of information of benefit to the leaseholder—for example, the tenure of the property, the ground rent payable and any circumstances that may potentially lead to an increase in service charges. These landmark commitments will ensure greater transparency for leaseholders, thereby helping future buyers to make informed decisions without feeling pressured by time constraints. The CMA has made excellent progress, and that is just the start. We support the ongoing investigation and believe it will send a clear signal to others in this sector to follow this lead or face legal action.
Finally, Amendment 26, tabled by the noble Lord, Lord Lennie, would require the Government to produce draft legislation within 30 days to reduce ground rents to a peppercorn in existing long residential leases. I have listened carefully and appreciate the noble Lord’s sense of urgency in wanting to address issues faced by existing leaseholders. I can reassure the House that the Government are working at pace to bring these reforms forward. However, I must once again state that arbitrary deadlines are not useful in this context. It is, frankly, not possible to publish a Bill to the timescale proposed by that amendment. The reforms we are planning are a once-in-a-generation shake-up of the leasehold system, with the effects being felt for years to come.
I have outlined some of the changes, including on enfranchisement, transparency, a commitment on commencement and the ongoing work of the Competition and Markets Authority. I hope that the information I have given satisfies noble Lords that we take the issues facing existing leaseholders very seriously and that we are working at pace to deliver the improvements that all noble Lords here today want to see. As they will no doubt appreciate, this ambitious reform programme is complex and has many interdependencies. Therefore, while being mindful of the need for progress, it is important to take the time required to get it right. It is for these reasons that the Government cannot accept these amendments and I urge that they be withdrawn or not moved.
Lord Stunell (LD)
My Lords, I enthusiastically welcome this amendment from the Government. I am very pleased that the Minister has seen the strength of the arguments put forward by noble Lords from all around the House on this issue. It is not just that the original figure would not have been a significant deterrent for those determined to carry on with bad practice. Worse than that, it was not going to be sufficient to fund or permit trading standards to carry out their enforcement duties. The enforcing body around the country is short of funds and staff, and a new burden placed on it to enforce this provision without the means to do so was a recipe for failure. I am delighted that the Minister has seen the compelling strength of the view that my noble friend Lady Grender and others advanced passionately and congratulate him on persuading his colleagues around government of the need to move forward on this as he has.
Lord Lennie (Lab)
My Lords, the sole amendment in this group increases the maximum penalty to £30,000 per lease, in line with other housing legislation—namely, the Tenant Fees Act. I am pleased that the Minister has brought forward this change following concerns raised in Committee, but I trust that the sum of £30,000 has not been decided purely based on precedent —not just because there is not a direct precedent to compare it to. The use of £30,000 penalties in this legislation will apply to freeholders, many of which are incredibly wealthy businesses. Does the Minister believe that £30,000 will be sufficient deterrent in such cases? As I said, I am concerned that this figure has been chosen because of the so-called precedent. Can the Minister dissuade us of that notion by confirming that an impact assessment has been carried out and, if so, tell us when it will be published?
We welcome an increase in the maximum penalty, but I am not entirely confident that it will be sufficient deterrent. I look forward to the Minister’s assurances.
Lord Greenhalgh (Con)
My Lords, I point out that the maximum penalty would apply per lease and, for highly complex buildings, that soon multiplies to a substantial amount of money, so we believe that we have got the balance right in meeting the need for deterrence while recognising that some freeholders are not in the class of those that own considerable amounts of property. The amendment should be broadly welcomed and will strengthen the enforcement regime as a result, responding directly to the points made at various stages of the Bill. I believe it significantly strengthens the legislation.
Lord Greenhalgh (Con)
My Lords, I will speak very briefly on government Amendment 25, which is a minor technical change to correct a small drafting error.
Clause 17 defines “tenant” for the purposes of Clauses 10, 13 and 16. Clause 16(1)(b) enables an enforcement authority to assist a tenant in an application as to the effect of Clause 7—that is, in regard to the effect of a term reserving a prohibited rent on the terms of a regulated lease. This amendment rectifies a discrepancy in the Bill, in that the assistance provided under Clause 16 would not extend to the tenant’s guarantor, as a guarantor does not have the right to apply for a direction as to the effect of Clause 7. This amendment ensures that there is no discrepancy between the clauses of the Bill. I beg to move.
Lord Lennie (Lab)
My Lords, obviously we welcome this amendment to the drafting error in the original Bill. Can the Minister explain briefly what the consequences would have been if it had not been identified? I mean briefly; I do not want a whole essay on the subject. Is there a risk that similar errors could be identified in other legislation which relates to guarantors?
Lord Greenhalgh (Con)
I thank the noble Lord for testing my knowledge of the consequences of a small technical amendment. I am just glad that we picked it up; I will have to write to the noble Lord on what the consequences would have been had we not done so. This happens from time to time. I am fairly new to the House but, when we find these errors, there are plenty of opportunities to correct them before the Bill receives Royal Assent.
Lord Lennie
“Ground rent for existing long leases
Within 30 days of the day on which section 3 comes into force (for any kind of lease), the Secretary of State must publish draft legislation to restrict ground rents on all existing long residential leases to a peppercorn.” Member’s explanatory statement
This amendment aims to ensure that the Government introduces further legislation to remove ground rent for all leaseholders, whereas the Act currently only applies to newly established leases.
Lord Stunell (LD)
My Lords, this is a devastating case, again, of unfinished business. We have talked several times about unfinished business in respect of reforming the whole leasehold system. The noble Baroness, Lady Pinnock, has spoken with great passion about the need to deal with the unfinished business of getting the damaged blocks discovered since the Grenfell fire put back in a safe and workmanlike position. That is a terrible story, which is still unravelling and still producing—I think we can say—shock and amazement as the evidence comes out of the inquiry at Grenfell. As the noble Baroness, Lady Pinnock, said, it is not an isolated failure. I ought to have started by reminding the House that I was the Minister with responsibility for building regulations between 2010 and 2012, which was well before this but is nevertheless relevant.
There was a failure of regulation, a failure at every level of the supply chain, a failure of the designers and a failure of those responsible for monitoring progress. Of course, the fallout is not simply that one building was found to be dangerous and defective and burned at the cost of 72 lives, but that more than 400 other buildings have been found to be equally defective or worse. As is so often the case, once you begin to look, you see plenty else. The British Woodworking Federation estimates that 600,000 defective fire doors are installed in buildings in this country. In that context, it is good to know that the Government have come forward with a compensation scheme, allocating £5 billion. Perhaps the Minister can tell us whether the guidelines for applying for that compensation have yet been published. My last understanding is that they have not, but maybe he can bring some information to your Lordships’ House today.
It has to be right that this House considers the situation facing those leaseholders and, in so far as we can, safeguards their position. This is actually a very modest amendment; it calls only for a review within six months, not for the spending of government money, so there is nothing for Ministers to shy away from. It would simply make sure that this legislation, relevant to the ongoing tragedy of Grenfell and the ongoing battle that hundreds of thousands of leaseholders are facing with enormous bills—which the noble Baroness, Lady Pinnock, eloquently spelled out—cannot be passed by your Lordships’ House without serious consideration.
I know that the Minister has repeatedly found himself at the Dispatch Box having to say essentially the same thing: “This is not the time; this is not the place; this is not the right legislation.” We have to reply to him: “Well, when is the time? Where is the place? Where is the legislation?” We need to see some answers. Certainly, this is a matter we wish to press in the oncoming vote.
Lord Lennie (Lab)
My Lords, I will speak to Amendments 28 and 29, in my name, and welcome Amendment 27, moved by the noble Baroness, Lady Pinnock, and also in the name of the noble Lord, Lord Stunell.
Amendment 28 is intended to raise four issues, which I have focused on at previous stages of the Bill: lease forfeiture, transfer fees, redress schemes and enfranchisement. This amendment is intended to probe, and, while I will not introduce each issue again, I hope that the Minister can provide clarification in the following areas. On lease forfeiture, can the Minister confirm that legislation will be forthcoming to prevent possession being taken over small debts? On transfer fees, has the Minister made an estimate of how many freeholders are placing charges on the sale of properties? On redress schemes, will the Minister consider a trial for the most serious of leasehold abuses? Finally, on enfranchisement, what assessment have the Government made of the obstacles currently in place?
The intention of Amendment 29 is to raise the need for the Government to champion commonhold arrangements. The House will be aware that the Mayor of London is committed to furthering commonhold, and his manifesto pledged to trial the arrangements in London. Can the Minister confirm what support will be offered to the mayor as part of these pilots? Will he make a statement on the Government’s policy on commonhold?
Finally, I turn to Amendment 27, which calls for a review of the relationship between the Bill and those facing bills for “fire remediation work”. Unfortunately, the Government have again ignored those people during the drafting of this legislation. This Government’s continued mismanagement of the remediation work is one of their most shameful aspects. I hope that the Minister will use this opportunity to finally change track and at last deal with the issues of remediation costs being charged to leaseholders for building safety faults. Rather than another betrayal of their promises to leaseholders, we need legal protections to ensure that millions of pounds of building safety remediation costs are not passed on to innocent home owners and tenants.
Lord Greenhalgh (Con)
My Lords, this group of amendments calls for a variety of impact assessments to be produced. It is, of course, very important that we understand the impact that this legislation will have. That is why we have already produced an impact assessment, which I would encourage all noble Lords to read.
Amendments 27 and 28 would both require impact assessments relating to how this legislation would impact on issues facing existing leaseholders. As throughout the passage of the Bill, I understand noble Lords’ desire to assist existing leaseholders. Noble Lords will be well aware by this point that this is just the first of a two-part legislative programme, with further leasehold reform due later in this Parliament.
We have considered the impact of the Bill on existing leaseholders, and this is informing the process of policy development, ahead of future legislation. This is within the broader context of the important work being done by the Competition and Markets Authority to address unfair terms and mis-selling. As discussed previously, we are committed to measures to help existing leaseholders through significant changes to the enfranchisement valuation calculation, making it cheaper for many leaseholders to extend their lease, buy their freehold or buy out their ground rents.
Noble Lords can rest assured that my officials have been listening very carefully to all of the points that have been raised during the debates on the Bill. However, producing detailed impact assessments is likely only to distract from the important work that is being done on leasehold reform.
The noble Baroness, Lady Pinnock, again raised historic fire and building safety remediation costs. I was struck by the very high bill of around £204,000 per leaseholder that was quoted. This may be a building in Manchester, but I would be very keen to know further details and to understand the approach that has been taken. Very often, when I have inquired and understood the situation, I have found that the most proportionate response is not necessarily considered by the building owner—but I would be very interested to look into that case in more detail.
In response to the noble Lord, Lord Stunell, I say that we are very aware of the polluter pays Bill and the work that is being led by Steve Day of RAQ. We are looking at it very carefully to see whether it could further enhance the proposed Building Safety Bill. Of course, we have already looked at strengthening redress by extending the statutory limitation period in the Defective Premises Act 1972 from six to 15 years, applied retrospectively. This could provide further support to ensure that it is the polluter who pays. We are looking at that very carefully, as I said.
Also in response to the noble Lord, Lord Stunell, on the Building Safety Bill, I say that the first £1 billion of this has of course been in play and spent. In fact, the fund is very much overcommitted. Further details around the further £3.5 billion will be published in September, but works are not being delayed because of that. I am happy to provide assurance that the further expenditure will therefore be outlined at that stage.
Lord Stunell (LD)
My Lords, I always welcome efforts by Ministers to clarify the law, although I sometimes struggle to understand exactly how the law has been clarified. It has been suggested that this is, if you like, a step of relaxation or at least inclusion that will permit landlords to get away with—I think that is the technical term—bad practice. I am sure the Minister will reassure me that that is absolutely not the case and, far from opening a door, it is trying to make sure that the door is firmly shut.
I fear that the technicalities of this will be worked out in the law courts over time, whatever provision the Minister puts in the Bill or takes out of it. I wish him luck and I hope he has succeeded in what he hopes to succeed in. I guess we shall find out, when we do the evaluation in a year or two, how accurate that is.
Lord Lennie (Lab)
My Lords, the Minister will be glad to hear that this amendment is another technical change that we on these Benches fully support. However, has the department identified whether the same drafting issue is present in any earlier legislation?
Lord Greenhalgh (Con)
My Lords, we could not have had more different responses to the government’s amendment. I would like to assure the noble Lord, Lord Stunell, that this is indeed a clarification around enabling landlords to continue to pass legitimate valid charges. It will not promote the practice of continuing ground rents by another name, and I made that point very clearly in outlining this in my speech. I am sorry it was quite technical; obviously, people with legal eyes helped me to formulate the syntax but I give that assurance. But the noble Lord is right: only time will tell how the legislation will work in practice.
In response to the noble Lord, Lord Lennie, I have never heard anything quite so overwhelmingly positive about an amendment that I have moved—perhaps we are reaching a new era in understanding. I am not aware of this being relevant in any other part of our approach to the reform agenda that we are putting forward. However, leaseholder legislation covers many decades. Despite having studied some land law in the 1980s, I am not in a position to give a very detailed legal answer on that point.
Lord Lennie (Lab)
My Lords, I welcome the amendment of my noble friend Lord Berkeley, which returns the House’s attention to the application of ground rents charged by the Crown, such as the Duchy of Cornwall. It is a bad day to be away from the Scilly Isles, but there you go. My noble friend is probing the issue again, after clearly incomplete answers in Committee. I look forward to the Minister’s response.
Since the Minister was also unable to provide answers to my questions during Committee, I hope he will be able to do so on this occasion. They are these. First, can he confirm how many Crown properties this relates to? Secondly, do the Government intend to engage the residents of these homes?
Lord Greenhalgh (Con)
I now turn to Amendments 42 and 43, brought to your Lordships’ House by the noble Lord, Lord Berkeley. I understand that it is his wish for the Duchy of Cornwall to be considered as private land and not Crown land under this Bill. Irrespective of the definition, both Crown land and private land are captured by the Bill. This Bill will therefore apply to the Crown Estate, of which the Bill stipulates the Duchy of Cornwall is part. As I am sure noble Lords are all aware, the Duchy of Cornwall is a private estate which has a Crown exemption. However, the purpose of this Bill is not to decide how these estates are defined; rather it is to get a better deal for future leaseholders to prevent them being exploited by ground rent in the leasehold market.
The Duke of Cornwall’s estates will be treated as any other private landlord under the provisions of this Bill and will no longer be able to collect ground rent in future leases. I will clarify again that this Bill is narrowly focused on ground rents and not all leasehold matters. That is why, in response to the noble Lord, Lord Berkeley, we have not yet written to the Duchy of Cornwall about the issues around enfranchisement and other matters, but we will be doing so as part of the second stage of the legislation. I will obviously keep noble Lords informed if we get a response, but the noble Lord, Lord Berkeley, seems rather sceptical of that. Nevertheless, we have made that commitment and will write at that stage.
The Government have committed to an ambitious, large-scale reform programme, and we will deal with all these other issues not related to ground rents in the near future. I am very sorry that, on two occasions now, I have not been able to give a precise response to the noble Lord, Lord Lennie, but I will make sure that we get the information to him at the earliest opportunity, in writing, and lay a copy in the Library—I believe that is precisely what you have to do in these circumstances.
The Government will consider the concern of the noble Lord, Lord Berkeley, regarding the Crown Estate exemptions from the parliamentary undertaking on enfranchisement rights for leaseholders in the next stage of the leasehold reform programme. I can also reassure the noble Lord that the Government will consider his concern in tandem with the Law Commission’s recommendations on the issue of enfranchisement rights for leaseholders. On that basis, I ask the noble Lord to withdraw the amendment.
Lord Lennie
Member’s explanatory statement
This amendment aims to ensure that the provisions also apply to retirement properties, whereas at present the Bill will prevent provisions coming into force for retirement properties before April 2023.
Lord Lennie (Lab)
My Lords, this amendment may be the final one to be considered by the House today, but I hope the Minister agrees that the issue at hand is very important none the less. It relates to retirement properties, which are excluded from the main provisions of the Bill. I was grateful for the Minister’s confirmation in Committee that they will soon be included, following the transition period. While this is welcome, I hope the Minister confirms that there are no reasonable circumstances in which this period would be extended.
Over 50,000 people in the UK live in retirement community units and they each deserve the same housing rights as everyone else. That is why I remain concerned that they will not benefit from the provisions until much later. I have no intention to divide the House on this issue, but I hope the Minister recognises that I am not alone in raising it, given the interest in Committee.
Finally, I ask the Minister to confirm how the department is informing these 50,000 residents of their leasehold rights and that they will be delayed by at least two years. I beg to move.
Lord Stunell (LD)
My Lords, I speak only briefly to say that the noble Lord, Lord Lennie, has raised an important issue that was debated in Committee, to some extent, when I heard voices calling in both directions. The overwhelming requirement of this legislation is that it leaves certainty in the market about the position of leaseholders. However partial or slow it may be, or however much you might criticise it overall, the noble Lord, Lord Lennie, has advanced a very strong case that this should apply to all leasehold contracts from a set date and not with a phased introduction.
I would be interested to know if there is a reason for this staggered introduction and, if so, what it is. A number of major landlords run very large businesses on the leaseholding of retirement homes, not all of which have always proceeded entirely ethically. There have been some well-evidenced scandals, one of which I played a part in unravelling when I was at the other end of this building. I hope the Minister has not been too influenced on this provision by any pressure he may have received from landlords about some complexity, difficulty or whatever with an earlier introduction. I would be interested to hear the Minister’s justification for the subsection that the noble Lord, Lord Lennie, is proposing to delete.
Lord Greenhalgh (Con)
My Lords, in considering Amendment 44 in the name of the noble Lord, Lord Lennie, it is important to once again lay out the rationale for the transition period for the retirement sector. In October 2018, the Government launched a consultation on reforms to the leasehold system, which attracted over 1,200 responses. In our response to the consultation, published in June 2019, we announced that we would
“proceed with the proposal to exempt retirement properties”
from the peppercorn ground rents policy. This decision was made on the basis that developers of retirement properties incur additional costs, as a result of the communal spaces that are characteristics of these kinds of developments.
However, having reviewed this in further detail, we concluded that arguments in favour of an exception did not outweigh the desirability of ensuring that those who purchase retirement homes are able to benefit from the same reform as other future leaseholders. Therefore, we decided to capture retirement properties in the Bill, so that those who live in retirement housing are protected from exploitation in the same way as other leaseholders. We announced this in January this year, and it is effectively a change in the Government’s position. I am sure all noble Lords agree that, as a basic matter of fairness, those buying retirement properties should also benefit from these reforms.
As a result of this change, we have consulted closely with the retirement sector and continue to do so. As such, we have decided to grant a transition period in recognition. As a result of their initial exemption, this new transition period will allow developers of retirement properties time to adapt to the forthcoming changes. We believe this transition period has been fairly granted, in balancing the needs of developers and fairness to leaseholders. It will be sufficient to allow the retirement sector to adapt to the changes. The Government do not wish to extend the period at the expense of leaseholders. I give that undertaking; we believe we have got it right.
As it stands, the commencement date for retirement properties is no earlier than 1 April 2023. We have no reason to believe that the commencement date will be any later than this. Given the sector was first informed in January this year, this commencement date has given them over two years’ notice.
This issue has been carefully considered and we believe we have struck the right balance for both lease- holders and developers. Indeed, in Committee, we had a competing amendment from the noble Lord, Lord Best, which would have extended this transition period. I am sure noble Lords agree that our proposals are a pragmatic and fair compromise between these two positions. I beg to move that the noble Lord withdraws Amendment 44.
Lord Lennie (Lab)
I will briefly comment on the position that has been arrived at on retirement properties. Initially, there was to be an exception for retirement properties; then it was decided that there would not be. That was from 1 April this year, giving two years’ notice. The main argument of the noble Lord, Lord Best, was that this would cause price rises, as it would falsely inflate the market from people not receiving ground rent and prices would therefore go up. That may have had some justification, but was not part of the Government’s assessment of what would happen to retirement properties. I am happy to withdraw the amendment, but we need to look closely at the impact this has on retirement property leaseholders.
Leasehold Reform (Ground Rent) Bill [HL]
Lord Lennie ExcerptsMonday 14th June 2021
(3 years, 5 months ago)
Grand CommitteeRead Full debate Leasehold Reform (Ground Rent) Act 2022 View all Leasehold Reform (Ground Rent) Act 2022 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-III Provisional third marshalled list for Grand Committee - (11 Jun 2021)
Lord Stunell (LD) [V]
My Lords, as my noble friend Lady Grender has clearly set out, the current provisions in the Bill to enforce compliance by those who are determined to do wrong will not work, and that view has been strongly supported by the noble Lord, Lord Naseby, and by the noble Baroness, Lady Jones of Moulsecoomb. The three reasons for that are quite clear: the penalties themselves are trivial; the enforcement system will be ineffective; and rogue landlords will prosper.
First, the penalties themselves are trivial. The noble Lord, Lord Naseby, has made the point perhaps better than I can, but in many cases £500 will be less than the current annual leaseholder charge. Indeed, with escalation clauses in place, over the lifetime of the lease £500 might be seen as very small change indeed. The case for making these penalties bite is overwhelming, simply because the unscrupulous who carry on as though the law has not changed will readily write off these penalties as essentially meaningless. I shall not engage in a bidding war with the noble Lord as to how high we should go, but each of us in our different ways would make the point that £500 is nowhere near enough to be effective as a deterrent.
It is not just nowhere near enough to be effective as a deterrent; it is not anywhere near enough to pay for a sound enforcement policy. The enforcement system will be ineffective. It is supposed to be paid for by the pitifully small fines, which will be paid not by all those who offend but all those who are successfully prosecuted—only those fines will contribute to the funding of the trading standards department. It will therefore be the case that the trading standards department exercises passive power only, exercised, if at all, only when a big fuss is made about a particular case, perhaps by a local councillor or an MP.
It is extremely doubtful that any responsible financial officer of a local authority, when building a budget for the next year, would authorise the recruitment of staff to enforce legislation on the basis that it would be funded by £500 for each case that is won. Of course, it would need recruitment of staff because, as my noble friend Lady Grender pointed out, there has been a 50% reduction in staff in trading standards over the past decade and a loss of skills to go along with that. This new burden, to be dealt with effectively, would have to have additional resources. I am sure that the Minister is not content simply to put in place a deliberate paper tiger of enforcement—unless that does in fact suit the Government’s purpose: something that looks okay in the Bill but about which their landlord friends can be told, “Don’t worry, just keep your head down and carry on.”
That brings me to Amendment 16, to which I have added my name. We have to stop rogue landlords prospering. Of course, they already do prosper, and that is what the Bill is all about: stopping abuses or restricting behaviour which, though lawful, ought not to be. Those with a great deal of power in a contractual relationship, the landlords, are imposing oppressive terms on those with very little power, the leaseholders. And those who impose the most care the least. Rogue landlords will weigh up the risks and rewards and reach a commercial judgment. They can easily afford to treat the penalty system as a small marginal cost as it stands; they know it will not even cost them £500 per breach but only £500 per breach which leads to a successful prosecution—that is quite a different thing.
That successful prosecution will be rare without Amendments 14 and 15, which seek to generate the money for there to be a team of people who can enforce it. That is where the importance of Amendment 16 lies, in introducing an effective banning order regime. Only with a clear process for banning repeat offenders, driving them out of the market, can the stakes be raised sufficiently high to deter rogue landlords and, in the most egregious cases, drive them out of business.
I want to hear the Minister say to your Lordships that he genuinely wants this Bill to deliver an effective regime of penalties and punishments that will safeguard the good intentions of this legislation against the small minority of unscrupulous landlords who seek to bypass it and who continue to exploit leaseholders regardless. One way the Minister can do that is by accepting these three amendments. The Bill as drafted certainly does not give us those assurances. If he does not accept the amendments, he surely has a duty to your Lordships, and to leaseholders themselves, to explain what alternative mechanisms he proposes to put in their place instead.
Lord Lennie (Lab) [V]
My Lords, Amendments 14 and 15 refer to the penalties contained in the Bill, whereas Amendment 16, as we have heard, refers to the banning orders regime. I am pleased that the noble Baroness, Lady Grender, has introduced these, so that the Committee can consider whether these current penalties are appropriate and whether the banning orders should be extended.
First, on the issue of financial penalties, as we have heard, the amendments would increase the minimum financial penalty from £500 to £5,000, and increase the maximum penalty from £5,000 to £30,000. Given the sums of money which are involved in leasehold arrangements and the costs associated with ground rent, the current penalties seem lower than would be expected. If the Minister is not able to accept the noble Baroness’s amendment, I hope he will explain and justify how the Government arrived at those figures.
On the banning order regime, the noble Baroness brings forward the question of whether the provisions of the Housing and Planning Act should be strengthened. The amendment proposes the banning of landlords from collecting ground rents if they receive multiple penalties. On the same issue, I would be grateful if the Minister could explain whether consideration has been given to banning landlords from renting properties at all when they receive financial multiple penalties. Tenants must be protected from rogue landlords who break legislation over and over again. I hope that the Government will detail what steps they are taking to hold these repeat offenders to account.
The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)
My Lords, I also join the noble Baroness, Lady Grender, in recognising that today marks the fourth anniversary of the Grenfell Tower tragedy, which was the largest loss of life seen in a residential fire since the Second World War. My thoughts are with the survivors and the bereaved.
I thank noble Lords present and those participating virtually for all their time and effort in scrutinising the Bill so far. We have had very good discussions in this Committee and through our engagement meetings. I am grateful for the commitment from all noble Lords to improve the Bill and to reform leasehold more generally.
I have listened to the concerns raised by noble Lords that the penalties set out in the Bill are not high enough and that there should be more significant consequences for those who breach the provisions of the Bill multiple times. It is vital that the Bill contains enforcement measures that offer a strong deterrent to any freeholders and their managing agents who try to get around its provisions, and in so doing protects leaseholders. Amendments 14 and 15 in the name of the noble Baroness, Lady Grender, would raise the penalties that can be imposed per breach from a minimum of £500 and a maximum of £5,000 to a minimum of £5,000 and a maximum of £30,000 pounds —and my noble friend Lord Naseby would seek to quintuple it to a maximum of £25,000 pounds.
In response to the noble Lord, Lord Lennie, penalties in the Bill have been set with reference to the typical ground rent collected currently by landlords. I believe that the penalties have been set at an appropriate level to act as an effective deterrent without resulting in a disproportionate enforcement regime. I point out that £500 is a minimum only and that freeholders could easily be liable for multiple fines for the same building; a flat containing 40 leases could leave a freeholder exposed to a maximum fine of £200,000, which is a significant penalty. I ask noble Lords to also note that, through the Bill, we are introducing a minimum penalty amount. I believe this is the first time that this has happened in leasehold law—we have not seen this in other leasehold legislation. This will act as a strong deterrent to any landlord who considers breaching the provisions of the Bill. In addition, the penalty applies per lease, so freeholders of multiple properties could receive higher penalties if they breach the legislation multiple times.
In addition to any financial penalties, enforcement authorities and the tribunal can order the freeholder or their agent to refund any prohibited rent within 28 days, including interest. As I said, the enforcement regime in the Bill is the first time that a penalty regime has been applied to ground rent. This landmark change will ensure a strong deterrent in the protection of leaseholders.
Amendment 16 from the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, seeks to allow a housing authority in England to apply a banning order under the Housing and Planning Act 2016 against landlords who receive three or more maximum penalties from an enforcement authority under the Bill. Banning orders under the Housing and Planning Act 2016 are intended for the most serious rogue private sector landlords and are not intended for leasehold housing. I note again that the penalties in the Bill apply per lease, so enforcement authorities can impose multiple penalties on freeholders who commit multiple breaches. Enforcement authorities and the tribunal can also order a refund of any prohibited rent.
The noble Baroness, Lady Grender, asked what incentives there are for local authorities to carry out enforcement penalties set at this level. They retain proceeds and, as I have pointed out, multiple breaches incur multiple penalties. There is also a point of principle here: that local authorities should not consider the potential financial windfall when deciding to take enforcement action; they should seek to set fines relating to the breach, and therefore they should be proportionate.
Lord Lennie
“Assessment of financial impact for tenants in long leases of dwellings
(1) Within 30 days of the day on which section 3 comes into force (for any kind of lease), the Secretary of State must publish an assessment of the financial impact of this Act for tenants in long leases of dwellings.(2) The assessment must consider whether further legislation is necessary to address the financial consequences of this Act for tenants in long leases of dwellings, including but not limited to in relation to—(a) lease forfeiture;(b) transfer fees;(c) redress schemes;(d) enfranchisement.(3) The Secretary of State must lay the assessment before Parliament.”Member’s explanatory statement
This amendment would ensure that the Government must publish an assessment considering the financial impact of this Act for leaseholders, and whether further legislation is required.
Lord Lennie (Lab) [V]
My Lords, this Bill has the support of these Benches because it begins to address the myriad problems facing leaseholders across the UK, but unfortunately it barely scratches the surface. That is why Amendment 19 would require the Government to
“consider whether further legislation is necessary”
in four areas: lease forfeiture, transfer fees, redress schemes and enfranchisement.
On lease forfeiture—the concept of a freeholder taking possession of a property over a debt of a few thousand pounds—there is a clear need for reform. The Law Commission has already consulted on this. Transfer fees—where freeholders place a charge on the sale of a property, often of around 0.25% of the sale price—are preventing home owners selling their homes. There seems no justification for the continued existence of these fees. Meanwhile, the potential for redress schemes should be evaluated to consider the most serious of leasehold abuses. On enfranchisement—the process of extending a leasehold or purchasing a share of the freehold—the Government must look at some of the obstacles currently in place. All in all, as I said earlier, the Bill barely scratches the surface of the issues facing leaseholders. Further legislation in this area is clearly required.
I am pleased that the noble Baroness, Lady Pinnock, has tabled Amendment 20, which raises the question of
“whether a further extension of the ground rents ban could benefit existing leaseholders, especially those facing bills for fire remediation work.”
The issue of remedial costs was brought up in my earlier Amendment 9, and I hope that, this time, the Minister will give a cast-iron date for when the Government will bring forward legislation to properly protect leaseholders.
In Amendment 21A, the noble Lord, Lord Berkeley, probes the application of ground rents charged by the Crown, including the Duchy of Cornwall. The noble Lord is right to probe the issue and to draw attention to the Law Commission’s work in this area. I look forward to clarification from the Minister. I would be interested to hear whether the Minister can confirm how many Crown properties this relates to and whether the Government intend to engage the residents of these homes.
Baroness Pinnock (LD) [V]
My Lords, I will speak to Amendment 20 in my name and that of my noble friend Lady Grender. I draw the Grand Committee’s attention to my relevant interests, recorded in the register, as a member of Kirklees Council and a vice-president of the Local Government Association.
Today marks four years since the Grenfell tragedy, which cost the lives of 72 people. It took away from many others their homes and their livelihoods. Those who survived will for ever have the dreadful memory of that night, leaving a dark mark on the rest of their lives. That tragedy has rightly cast a long shadow over the construction industry. Questions asked immediately following Grenfell are still failing to be adequately answered.
The Government know that the Grenfell fire was accelerated by the use of flammable cladding. They know that hundreds of other buildings have the same or similar cladding, with the same fire risk. They also know that post-Grenfell investigations of these self-same buildings have uncovered further fire safety defects, such as the lack of building regulation-required fire breaks. The Government’s response to this life-threatening catalogue of errors is half-hearted at best. Leaseholders are being forced by the Government to carry the financial and emotional burden of the total inadequacy of the Government’s response.
The reform of leaseholders’ obligations is of course a central purpose of this Bill. I understand that the Bill seeks to prevent future unwarranted financial burdens being placed on leaseholders through ground rent demands. The purpose of Amendment 20, in my name and that of my noble friend Lady Grender, is for the Government to assess the financial impact on leaseholders of this Bill after six months. It is a perfectly reasonable and sensible amendment that I hope the Government will be minded to accept.
The cladding scandal has revealed the enormous financial impact on leaseholders. In a housing association block of flats in the Manchester area, leaseholders have been sent bills for £95,000, when those very flats were built to enable people on lower incomes to buy their own homes. Given that the value of their asset is now zero, paying any bill of that size is simply impossible for the leaseholders.
Those leaseholders who have, often unknowingly, signed up to escalating ground rent penalties are also omitted from the Government’s thinking. For instance, one leaseholder found that his annual ground rent for a one-bed flat in London was to double every five years on a flat that was purchased for £170,000 in 2018. In 20 years’ time, the ground rent will have risen from an affordable £1,050 per annum to a completely unaffordable £16,800 per annum. As with the innocent victims of the cladding scandal, these leaseholders need help from the Government, hence subsection (2) of my amendment.
There is an accumulation of evidence that leaseholders are not getting fair treatment as malpractices are uncovered. Those leaseholders facing massive bills for putting right fire safety defects have done everything right and nothing wrong. Those leaseholders who face increasingly large bills, having unwittingly signed up to ground rent clauses, are also victims of a housing scandal.
Amendment 20 is the opportunity for the Government to turn their attention to righting failures in the housing system for leaseholders, current and past. On the day when we remember Grenfell, let this also be the day when the Government finally agree to find financial solutions for leaseholders who have been left to pay the enormous price of the wrongs of the housing industry. I look forward to the Minister’s response.
Lord Lennie (Lab) [V]
My Lords, I thank the Minister and all noble Lords who have spoken in this debate. The Minister’s response seemed to be that the amendments are unacceptable to the Government, either because they deal with future leaseholders or because they would delay the Bill being enacted. I find that quite astonishing. As a number of noble Lords have said, this is the fourth anniversary of Grenfell. The Minister’s suggestion that we are waiting for the building safety Bill—still to be proposed—to help deal with some of the issues of Grenfell is quite shocking. It will be even more shockingly felt by the families who suffered loss there. The Government were given the opportunity to build a better Bill, get a grip on the situation and give this rather timid legislation some proper teeth and real purpose, but that does not seem to be their will. We will wait for Report but, in the meantime, I beg leave to withdraw the amendment.
Lord Lennie (Lab) [V]
My Lords, we also strongly support Amendment 21. It rightly asks whether the Government can improve the definition of “rent”. Unfortunately—we heard much of this from the noble Baroness, Lady Grender—there is a litany of housing legislation that is in desperate need of modernisation. I hope the Minister will use today’s debate to explain what further legislation is planned to bring the provisions up to date.
On the specific issue raised by the noble Lord, Lord Young of Cookham, can the Minister confirm what engagement the Government have had with NGOs and representatives of tenants on the issue thus far? Can he confirm whether the Government have any plans, as suggested by the noble Baroness, Lady Grender, to update the definitions available in the Leasehold Reform Act 1967 and the Landlord and Tenant Act 1985?
Lord Greenhalgh (Con)
My Lords, this amendment from my noble friend Lord Young seeks to capture within the definition of rent other charges, such as fixed service charges, if they are reserved as rent in leases. It also seeks to exclude from the definition of rent variable charges or insurance if they are reserved or form part of the rent. The comments on a proposal regarding the definition of rent received from my noble friend Lord Young and other noble Lords continue to be carefully considered. I am very grateful to all those who have given it such close examination and look forward to hearing the further deliberations from the Law Society.
This is an important point to discuss today, as the treatment of what is meant by a ground rent and a rent lies at the heart of what the Government wish to convey through the Bill. It sets the tone for leasehold reform legislation to follow. On the specific meaning of rent, I am not unsympathetic to my noble friend Lord Young’s intention in his amendment. Since the very outset, this Government have been alert to defining what is meant by a ground rent in such a way as to discourage avoidance activity by sectors of the property market which make a habit of such activity. I believe we are all agreed that preventing such activity is of the utmost importance.
To give noble Lords some more of the context behind our reasoning for this definition, we started from a similar position to many of the Committee when approaching this issue by seeking to define closely what is meant by a ground rent. It is a logical approach; tightly drawn definitions are often meat and drink to a strong legislating body such as this House. However, I ask your Lordships to reflect on the seeming ease with which some parts of the leasehold sector have found ways around generation after generation of leasehold legislation, drafted with the greatest care and scrutinised in both this House and the other place, as my noble friend Lord Young knows well.
After very extensive consideration, we have concluded that we would need to take a different approach to the definition of rent for the leasehold sector. We therefore purposely defined rent widely to prevent landlords avoiding the restrictions in the Bill by including spurious periodic changes under any other name. As stated at Second Reading, the Bill intentionally uses a wide definition so that it includes anything in the nature of rent, whatever it is called. For example, we are mindful of not wanting to allow for a new garden rent or parking space rent replacing ground rent after the Bill is passed. That is why the meaning of rent in the Bill is drafted in such broad terms.
Any change faced by leaseholders that looks and sounds like a rent, whatever it is called, will therefore be open to challenge through trading standards and the First-tier Tribunal. Freeholders, landlords and even managing agents acting on behalf of a landlord will be able to refund this rental charge, whatever it is called, and may face a penalty fine. This imposes a potential liability on managing agents and ensures that they will scrutinise future contracts with great care.
We agree that it is not necessary for a lease to reserve charges, such as service charges and insurance, as rent. Under the Bill’s definition of rent, landlords will need to consider whether to itemise other charges separately in the lease. I point out that fixed service charges are a valid way for freeholders to charge for services where leaseholders and freeholders enter into a lease agreement. We are aware of criticism of the misuse of fixed service charges on occasion; these charges are generally in payment for a tangible service and differ from ground rent. Under the Bill, landlords will need to consider whether to itemise these in the lease agreement, and to be clear what the charge is and what a leaseholder receives in return.
I thank my noble friend Lord Young for raising the points made previously by my noble friend Lord Hammond of Runnymede. He raised two specific points, one on the definition of a ground rent for long leases over 21 years where a rack market rent is charged. I welcomed my noble friend Lord Hammond’s thoughts on this and am happy to undertake today that my officials and I will continue to engage with him and others as we look further into this matter. My noble friend Lord Hammond also raised a point on intermediate leases where there is a head lease or multiple properties. I point out that there are a number of potential options to address the complexities in this scenario. Once again, I am grateful to him for raising this issue and will continue to explore the matter further before Report.
Above all, I welcome the efforts of my noble friend Lord Young to achieve our shared objective of a clear definition of rent. However, I fear that my noble friend’s amendment would add complexity and provide opportunities for landlords to find workarounds to a Bill otherwise closed off by the simple definition it currently contains. I am interested to see what the Law Society comes up with and to see the revised drafting.
In response to the noble Lord, Lord Lennie, we have engaged with a number of NGOs and stakeholders in preparation for the Bill and I am happy to provide details of that in writing. While I appreciate the intention behind my noble friend’s amendment and I am happy to continue discussions with him, I ask him to withdraw his amendment.
Lord Lennie
Member’s explanatory statement
This amendment would ensure that the Bill comes into force within 6 months of the day on which it is passed, if regulations are not introduced by then.
Lord Lennie (Lab) [V]
My Lords, this final group of amendments is in relation to commencement. The Minister will be aware that different clauses of the Bill are intended to come into force on different dates and the Minister has the power to determine when certain parts are introduced. This is not a rare practice for primary legislation, but the Government should explain when they intend to reserve the power of commencement and whether there are any circumstances whereby the commencement could be postponed indefinitely.
Amendment 24 places a six-month limit, whereby the provisions will come into force if the Government have not already introduced them. I would be grateful if the Minister could confirm whether the Government intend for the provisions to come into force within six months and, if so, whether they would be minded to accept this amendment by way of a guarantee. As I have said during previous groupings, the provisions of the Bill are welcome, and I am sure that the whole Committee will want to see their introduction without delay. I am sure that the Government are determined to commence the provisions as soon as suitable but I am concerned that unforeseen events could lead to unnecessary postponement.
Lord Lennie (Lab) [V]
My Lords, the Minister seems to be trying to take three positions at the same time in response to this amendment: no unnecessary delay; to get the regulation right; and either not to have a date or to have a date depending on whether he can go away and get the stronger line from the ministry. I wish him well with that, because we are all saying that either a date needs to be hard, fast and managed or stage two must be timetabled into the legislative process. We welcome the review that will take place between now and Report and we look forward to something concrete coming back from the Minister in advance of Report. However, in the meantime, I beg leave to withdraw the amendment.
Leasehold Reform (Ground Rent) Bill [HL]
Lord Lennie ExcerptsWednesday 9th June 2021
(3 years, 5 months ago)
Grand CommitteeRead Full debate Leasehold Reform (Ground Rent) Act 2022 View all Leasehold Reform (Ground Rent) Act 2022 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 1-II Second marshalled list for Grand Committee - (9 Jun 2021)
Lord Mackay of Clashfern (Con) [V]
I am glad to say that I have managed to unmute with the help of the host.
I very much support the principles behind these amendments in this group. If it is wrong to have a new lease with ground rent of the kind that we are concerned with, why is it not wrong to have it in existing rents? That is what we need to address, and now, if at all possible, although I am equally strongly in favour of getting the Bill on the statute book as soon as possible and I would not like any delay to result from the other considerations. Nevertheless, these other considerations are very strong and I cannot see why it would not be possible to incorporate dealing with them in the Bill as well as preventing another wave of the problem.
I am very much in favour of my noble friend Lord Young of Cookham’s Amendment 12 and all the complementary ones around it. I had the responsibility a long time ago of looking at this question of leasehold and I confirm what has just been said—that it was certainly my idea to try to get rid of it altogether. I was brought up under the Scottish system, where Scottish tenement property is capable of being owned outright without the necessity of a lease. I also had the experience of later seeing the feu, or feudal, system abolished. It had a rent, called a feu duty, which was part of the basic responsibility of the title, and the Government of the day decided to get rid of it altogether. Of course, that meant that something had to happen to the feu duty. It was capitalised by a very simple formula that the feuer had to pay, and so the whole thing finished. I would love to see something like that happen to the leasehold system but I realise that that is a hope beyond immediate realisation. Therefore, my stance is the same as that of my noble friend Lord Young of Cookham—I think I am right in saying that I participated in the Bill when he was concerned with these matters a considerable time ago. I have suggested a small alteration to his way of dealing with the matter which I will explain briefly later.
Lord Lennie (Lab) [V]
My Lords, it was certainly worth waiting for the speech of the noble and learned Lord, Lord Mackay, because we now know we are all batting on the same wicket. As we have heard, Amendment 18, tabled by my noble friend Lord Kennedy and me, in addition to amendments tabled by the noble Lords, Lord Young and Lord Blencathra, introduces the issue of existing leaseholders and brings into question why the Government are not legislating to protect them. To us there seems to be no rhyme nor reason why they are not.
Although the provisions of the Bill are welcome and the Government are right to set future ground rents to zero, they are offering nothing for those tied into existing leaseholds. In 2019, the Ministry for Housing, Communities and Local Government estimated that one in five homes in England were leasehold dwellings. That equates to approximately 4.5 million properties, and the number will have grown since. Many of those households, tied into leasehold arrangements, are subjected to ground rent arrangements overwhelmingly balanced to benefit landlords—what the noble Lord, Lord Blencathra, called legal racketeering. Some leaseholders are being charged extortionate amounts and others have seen their payments rise exponentially.
In fact, the Competition and Markets Authority is currently taking action against both Countryside and Taylor Wimpey, which are doubling some ground rents every 10 to 15 years. There is one factor that every household paying ground rent has in common: they receive little to no benefit from paying that sum. The Government should take action for those already stuck in leaseholds and paying extortionate ground rent charges. Amendment 18, tabled by my noble friend Lord Kennedy and me, seeks to address this by ensuring that the Government bring forward further legislation. Can the Minister confirm whether any further legislation is anticipated or planned on this theme and, if so, when?
The purpose of Amendment 9 is to raise the question of remedial costs for leaseholders. The crux of this matter is that the Government have failed to introduce legislation to deal with the fact that building owners are attempting to pass on the cost of remedial work to leaseholders. Despite promises from Government Ministers that leaseholders would not be forced to pay to fix fire safety problems that were not their fault, the issue is still ongoing. I have a nephew who is a leaseholder in a block of flats in Hackney. The freeholder, Southern Housing, has simply failed to engage with the Government. It has not applied for any grant aid to assist to fix the fire safety problems, leaving the leaseholders potentially to bear the cost. We are talking here about tens of thousands of pounds per household. Can the Minister confirm when legislation will be introduced to prevent leaseholders facing those extraordinary costs?
Amendment 10, meanwhile, raises the issue of service charges in shared ownership properties. The purpose of the amendment is to highlight the sky-high fees that many residents in those properties are being charged, often with little return. Will the Minister use this opportunity to explain what steps the Government will take to help those in shared ownership agreements who are facing extortionate service charges?
Amendment 11 raises the important point of informal arrangements, which can be used to bypass the central provisions of the Bill. I look forward to clarification from the Minister in this area, and on the questions raised by Amendments 22 and 23, tabled by the noble Lord, Lord Young. I understand that the purpose of the amendments is to give time to prepare for all involved parties, but we should consider that the Bill’s proposals have been discussed for some time already. None the less, I trust the Minister will respond to the points made by the noble Lord.
The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)
My Lords, we have heard a great deal today about the difficulties facing some existing leaseholders, particularly in relation to ground rent—poignantly in the speech by my noble friend Lord Blencathra and, with some powerful examples, from the noble Baroness, Lady Grender.
We are very concerned about leases with high and increasing ground rents. We are aware that such onerous conditions affect not only the affordability of living costs for affected leaseholders but their ability to sell or even re-mortgage their properties. That is why we asked the Competition and Markets Authority to conduct an investigation into potential mis-selling and unfair terms in the leasehold sector. This included the issue of onerous ground rent. Following a detailed investigation, in February last year the CMA published its report, which estimated that the issue of doubling ground rent has affected more than 18,000 leaseholders. In March this year, it informed developers that they may be in breach of the law. Noble Lords will agree that this is very serious indeed, and the Government welcome the CMA’s continued efforts to bring justice to home owners affected by unfair practices.
Our commitment to existing leaseholders certainly does not end there. As I made clear at Second Reading, this is just the first of a two-part legislative reform programme that will improve the leasehold system. Further legislation later in this Parliament will address a range of issues facing existing leaseholders. In answer to the noble Lords, Lord Stunell and Lord Lennie, the aim is to have that next stage in the third Session.
On 7 January the Secretary of State announced a package of leasehold reforms covering enfranchisement valuation and 990-year leases. This is the first part of our response to the Law Commission’s reports on leasehold and commonhold. We will respond to the remaining recommendations in due course. We are absolutely committed to a comprehensive and ambitious programme of reform to create a fairer and more transparent leasehold market, but we need to make sure we get it right. That takes time, which is why we have started with this ground rent Bill, focused tightly on ground rents on new residential long leases.
I turn to the specific amendments before us today that deal with existing leaseholders. My noble friend Lord Blencathra has tabled Amendments 1 and 2. The whole House will have been left in no doubt as to his views of ground rents and the leasehold system following his barnstorming speech at Second Reading. His two amendments both aim to extend this Bill so as to reduce ground rent for existing leaseholders, and we can all understand his reasons for laying them.
I am grateful to colleagues from across the House for their close examination of the issues facing existing leaseholders. However, the decision to focus this legislation tightly on new leases was a very deliberate one. We are working to make the leasehold system fairer and more transparent for leaseholders, but we also need to ensure that we are fair to freeholders. Setting existing leases to a peppercorn raises complex issues and could have negative consequences that may extend beyond the leasehold sector. As just one example of these consequences, your Lordships will be aware that there are pension providers who hold existing investments dependent on ground rent income that were entered into some years ago. These are long-term financial commitments that service the needs of many of our elderly citizens.
I note again that we are in the throes of planning to bring forward further legislation on leasehold reform, and the changes to the valuation process will make a real difference for many existing leaseholders, especially those with fewer than 80 years remaining on their lease.
I come to the six amendments tabled by my noble friend Lord Young of Cookham regarding the right to buy out ground rent in pre-commencement leases, Amendments 7, 8, 12, 17, 22 and 23. As noble Lords will know, there is already statutory provision for leaseholders of flats to reduce the ground rent they pay to a peppercorn on payment of a premium when they extend their lease, and leaseholders of houses can buy their freehold and so extinguish ground rent liability that way under existing legislation. The Government are aware that for some leaseholders this may be prohibitively expensive. This is why we have announced forthcoming changes to the valuation process that will cap how ground rent is treated, reducing the premium to be paid for leaseholders with onerous ground rents.
In addition, the Law Commission has recommended that leaseholders should be able to choose to pay to extinguish their ground rent without extending their lease, as my noble friend Lord Young mentioned. I can confirm that the reforms we will bring forward in future leasehold legislation will enable leaseholders, where they already have a long lease, to buy out the ground rent without the need to extend the term of the lease. We are considering the remainder of the Law Commission’s recommendations and will respond in due course.
I know that my noble friend Lord Blencathra has asked me to be a latter-day Caesar Augustus, but I point out that we have not addressed this in this legislation because reform of enfranchisement and historical ground rents is complex and interlinked. It is important to address these issues together in the forthcoming legislation. The cost of enfranchisement is directly related to ground rents and other components, such as the length of the lease. That is why we are looking to do that in a second tranche of reforms in the third Session of this Parliament. That is the plan.
These planned changes will directly address the issue underpinning the amendments from my noble friends Lord Blencathra and Lord Young. Future leasehold reforms will allow existing leaseholders to pay a more affordable premium and buy out their ground rent when they extend their lease or purchase their freehold. This will be less costly for leaseholders than under the current approach to enfranchisement valuation. I hope that noble Lords will agree that these changes mean that the amendments are not needed, as their effect is being achieved through work beyond the Bill.
Lord Stunell (LD) [V]
My Lords, I will simply support the carefully presented argument from the noble Lord, Lord Young, with a case study which also shows a way in which the system might be exploited. On a new housing development outside Leicester, homes have been sold on leases with index-linked ground rents. So too have the parking spaces that go with them; the leases of the parking spaces are separate and also index-linked. There have been endless and, so far, fruitless battles to sort out the situation. Indeed, some leaseholders, facing rising charges and challenging their validity, have been presented with agreements signed with what they claim are forged signatures. Needless to say, they employed, of necessity, the developer’s nominated solicitor to advise them when they first purchased. The allegation is that he was a party to the alleged forgery.
Should the Bill—or, rather the next one because, as we have all fully understood, this Bill will not help anybody with an existing lease in Leicester—provide these residents with some relief? The Committee has heard from the Minister that it will, in due course, but how will they stand in relation to separate leases that they hold for their parking spaces? Is it open to a legally hawk-eyed owner of the lease to designate them as commercial? If they come as part of a car park that is also occupied by visitors to local shops, is the car park a commercial one, or does there exist some way of exempting the parking places of residents—not necessarily those living over shops, but those adjacent to commercial premises? Will they be entitled to redeem those leases on the car parking places under the terms of this Bill or its successor, or, in that case, will the evidently unscrupulous developers be able to claim that it is a commercial, not a residential, lease and therefore exempt, and that the accelerating payments can continue?
If the Minister says, “It is a matter of common sense”, then I would say that in Leicester it is not. If it will not be the amendment in the name of the noble Lord, Lord Young of Cookham, it certainly needs to be something more than is in the Bill as it is now, setting out clearly that leases ancillary to the proper use of the home will be included in the legislation and there will be no loopholes left for exclusion. It would be good to hear the Minister say that he agrees and will bring a suitable amendment back on Report.
Lord Lennie (Lab) [V]
The purpose of the amendment is to probe the application of the Bill where premises are part business and part residential. High streets across the four nations of the UK include properties that fit this description, and I hope that the Government have drafted the Bill with these in mind. I look forward to hearing the Minister’s confirmation of how the Government intend the Bill to apply to premises that are part business and part residential.
I have two questions. I would appreciate it if the Minister could confirm whether the Government have an estimate of how many part-business, part-residential properties could be impacted by the Bill. Will he also confirm what engagement the Government have had with the owners of such buildings as part of the drafting of the Bill?
Baroness Grender (LD)
My Lords, developing adequate housing stock for an ageing population is a significant challenge for this and future Governments. The work of the noble Lord, Lord Best, and the publications by his APPG for Housing and Care for Older People have been essential reading in this area. While we recognise that what is now in the Bill is a compromise achieved following a total exemption for retirement homes in the original consultation, and in spite of the arguments of the noble Lord, Lord Best—whose expertise in this area is significant—when the Minister responds, I still want to understand where the essential difference lies between retirement and other leaseholders, in his or the Government’s opinion. If the straight answer is money required to be spent on common parts, surely a more honest and transparent way to do that is in either the original price or the service charges. However, I hear what the noble Lord, Lord Best, has said today and will study his explanation.
Given that ground rents appear to serve no purpose, as we have already discussed several times and at Second Reading, other than profit for the freeholder or security to borrow to develop more properties, why is this different when applied to retirement homes? I am sure that noble Lords are familiar with the Times investigation into this in November 2019, but it bears revisiting. It uses the example of one retirement property bought for £197,000, in 2009, from the FTSE 250 development company McCarthy & Stone, which was sold for only £26,000 six years later. By the time the flat owner died, she was paying the management company almost £8,000 a year.
The Times went on to say:
“Housebuilders such as McCarthy & Stone argue that without the money they make selling the freehold to management companies they could not afford to provide communal areas for their properties. Yet this is a poor excuse when there are far more transparent ways to raise revenue, such as simply selling their properties for a higher price.”
They often cover that in the service charge. The article continued:
“They insist, moreover, that the majority of their homes have increased in value.”
However, the Times then went on to find that
“one McCarthy & Stone property had lost £45,000 between 2015, when it was bought,”
and 2019. The same investigation found that, as with other leaseholders, elderly relatives are persuaded to use a solicitor who the developer has recommended, who turns out to be the very opposite of an advocate on behalf of the retiree. As the noble Lord, Lord Best, has explained, this group can often be exploited and manipulated.
For those reasons, we are minded to support the amendments in the names of the noble Lords, Lord Kennedy and Lord Lennie, but look forward to hearing the arguments in the closing stages of this debate.
Lord Lennie (Lab) [V]
My Lords, the welcome provisions of this Bill will not apply to retirement properties until at least April 2023, despite previous suggestions by the Government that these properties would be included. This is echoed by the contribution of the noble Baroness, Lady Grender. It represents a clear U-turn, without any explanation, and for this reason I have tabled Amendment 25 with my noble friend Lord Kennedy, intended to bring retirement properties in line with all other homes.
If the Government had placed the April 2023 date in the hope of creating a transition period, the Minister should explain to the Committee exactly why this is needed, when it has been accepted that no period is necessary for other properties, as part of this. Given that over 50,000 people in the UK live in retirement community units, I hope the Minister can explain what consultation has taken place with groups representing those residents and their families.
I am pleased that the noble Lord, Lord Best, who is deeply knowledgeable, has tabled an amendment to consider the application of this legislation to retirement homes where development has begun prior to commencement. I hope the Minister will offer an explanation of what steps the Government will take to support residents, which this clause relates to.
Baroness Grender (LD)
As in the earlier group, we support the principle of this amendment. I reiterate that the elegant drafting by the noble Lord, Lord Young of Cookham, in the earlier group is the drafting that we would prefer—and very much look forward to seeing on Report.
On Amendment 5, our concern would be about any kind of delay in this process, which would be driven by having to produce subsequent drafting of regulations for how the amounts would be calculated. Therefore, we would prefer the wording used by the noble Lord, Lord Young of Cookham.
I also take this opportunity, given that the Minister, in his summing up of the first group of amendments on trying to extend to existing leaseholders, made an argument about the proportion and percentage of pension funds that are currently invested in freehold property and the disruption that this might cause to pension funds, to ask him to elaborate on what kind of proportion that might affect, and what the balance is between the 4.5 million leaseholders who currently experience quite a significant negative impact in terms of ground rent in particular in the abuse of this system, and the pension fund system.
Lord Lennie (Lab) [V]
My Lords, this amendment returns the debate to the question of existing leaseholders and appears to allow existing leaseholders to pay a fee to exempt them from ground rent. As I said in the earlier group, ground rent arrangements are overwhelmingly balanced to benefit landlords and the system needs urgent reform for all involved.
I am grateful to the noble and learned Lord, Lord Mackay, for explaining that this was based on the Scots departing from the previous feudal system, but I am concerned that his amendment, if applied literally, could lead to landlords charging extortionate termination fees. None the less, I appreciate that he sees the need for reforming the system and I look forward to the Minister’s response.
Lord Greenhalgh (Con)
My Lords, I spoke earlier about the Competition and Markets Authority investigation into potential mis-selling and unfair terms in the leasehold sector. This included the issue of onerous ground rent. Our commitment to existing leaseholders does not end with the CMA investigation. As I have mentioned several times, this Bill is just the first of two-part legislation to reform and improve the leasehold system. As noble Lords will know by now, further legislation later in this Parliament will address a range of issues facing existing leaseholders.
My noble and learned friend Lord Mackay of Clashfern’s Amendment 5 would give an option of redemption on existing leases, allowing leaseholders to pay a capital sum to reduce their ground rent to a peppercorn. The broad aim of such an amendment to allow existing leaseholders to buy out their ground rent has been discussed previously, so I will avoid repeating the detail at length.
As noble Lords will recall, existing legislation already allows for the leaseholders of flats to reduce their ground rent to a peppercorn when they extend their lease, while leaseholders of houses can eliminate ground rent completely by buying the freehold of their property.
In January the Government responded in part to the Law Commission’s reports on leasehold and commonhold reform. This included a commitment to allow leaseholders who already have a long lease to buy out the ground rent, without the need to extend the term of their lease. We will respond to the remaining Law Commission recommendations in due course.
I hope that noble Lords will agree that the work currently being undertaken beyond the Bill means that this amendment is not needed. Noble Lords can rest assured that this Government have a desire to reform the leasehold system at the earliest opportunity and the ground rent Bill represents the first stage in a two-step legislative programme.
I point out—as was raised just now by the noble Baroness, Lady Grender—that there are pension fund investments and we need to take that into account. That is why the Government believe it is right not to take a big bang approach to the abolition of existing ground rents but to make it easier to enfranchise and to offer that in the most leaseholder-friendly way. That is why we have made a number of commitments where people will be able to buy out ground rents without the need to extend their lease, as well as making enfranchisement as easy as possible, along the lines of the recommendations of the Law Commission. That is the balance that we want to strike to ensuring that existing leaseholders will have the mechanism and the ability to remove ground rents. I therefore ask that my noble and learned friend withdraws the amendment.
Lord Stunell (LD) [V]
My Lords, I am happy to speak in support of this amendment and am delighted to have the support of the noble and learned Lord, Lord Mackay of Clashfern, for the words of my noble friend Lady Grender in advocating for this change. It can hardly be a radical call to ask for accurate data to be available before a transaction is completed; yet, as the example I drew from Leicester in an earlier debate shows, that accuracy is often not present and the transparency is sometimes deliberately disguised. There is absolutely no particular obligation on those taking part in that transaction to make sure that the consumer is aware. It is very much caveat emptor, and one is in the hands of the legal representation one has—if any—in conducting it.
The Bill should state that there must be a clear explanation of the length and terms of the ground rent—the minefield that lies ahead of escalation charges and the development of the terms, some of which are not perhaps deliberately concealed but are well hidden in the small print. Reference has been made even to requiring release letters to cover pets, never mind alterations to the premises. Many issues have been used deliberately or have perhaps inadvertently fallen in such a way as to put leaseholders at a serious disadvantage. Of course, the hand they hold at that point is extremely weak, because if they decide to contest the payment, they have to consider not only the legal costs and the associated trouble and stress but the risk of forfeiture if they fail to pay. Paying and arguing afterwards is not a very successful basis for performance, either.
There are grounds for accuracy, transparency and accountability. We know that the CMA is actively looking at this area. If the Minister can give us some assurances about how he intends to proceed if the CMA does not do the business, I would find it a very helpful way forward.
I press the Minister to say that this is a sensible amendment that protects leaseholders and that any good landlord should be happy to comply with it. Therefore, I hope he will feel able to accept it.
Lord Lennie (Lab) [V]
My Lords, this amendment would ensure that landlords with existing leases explain why they are charging ground rent and that agents publicise the details of any such ground rent. Both of these points are pertinent and I am pleased that the noble Baroness, Lady Grender, tabled the amendment.
The first issue of ensuring that landlords explain why they are charging ground rent is so important precisely because there is often no reason to charge ground rent. Residents get no material benefit from paying these sizeable fees, yet the landlords often increase the charges exponentially. If the Minister is reluctant to accept the amendment, could he estimate how many landlords currently offer explanations for the ground rent they charge?
On the second issue of ensuring that estate agents publicise the details of any ground rent, I understand that Rightmove has recently changed its policy to encourage agents to do exactly this. Can the Minister confirm whether the Government have any plan of their own to follow this and encourage it further?
Lord Greenhalgh (Con)
My Lords, to respond directly to the noble Baroness, Lady Grender, I appreciated the point about the importance of seeing where the CMA’s investigation ends up and the potential need to look at consumer protection should that not succeed. I do not want to pre-empt the investigation at this stage, but it is an important point, because one of the fundamental purposes of the Bill is to increase transparency and clarity for home owners. I listened carefully to the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, and I thank them for putting forward these amendments, which look at the issue of transparency and seek to add to that agenda.
I shall start by addressing Amendment 6, which would put a requirement on landlords to write to their leaseholders setting out why they are charging rent and what it is being used for. As noble Lords know, and I have mentioned previously today, it is our intention that no rent can be charged beyond that of a peppercorn for regulated leases once the Bill comes into effect, admittedly for new leases, unless special rules applicable to shared ownership leases or leases replacing pre-commencement leases apply.
In the Bill, “rent” has been defined in a way that will preclude landlords sneaking prohibited rents into leases under another name. This will ensure that there is clear transparency in the lease as to what is charged as “rent”—which is to say, generally, a peppercorn—and what is charged in return for a “service”. It is also important for your Lordships to note that, where a leaseholder may be dissatisfied with service charges, there are statutory processes they can use to seek redress. I am sure that noble Lords will agree that while this amendment is a welcome attempt to increase transparency, the Bill as drafted delivers the important changes that we want to see in the system.
I turn to Amendment 13, which would require a landlord to inform leaseholders of their rights under housing law in England and Wales and in relation to the Bill before entering formal and/or informal renegotiations or extensions to an existing lease. I note the concerns of the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, that without such an amendment there may be a rush for landlords to incentivise leaseholders to extend their leases before the changes in this Bill come into force. The effect of this, in their view, would be to ensure that ground rent on these leases could continue to be collected, thus trapping more people in a situation of ground rent payments in the system we are trying to stop.
Unfortunately, as drafted, the amendment would not come into effect until after the Bill commences, and it would not have the desired impact that the noble Lords seek. However, I assure noble Lords that we are working closely with a wide range of stakeholders who are committed, as the Government are, to ensuring that leaseholders are aware of their rights and what routes of redress they can take. I also invite the noble Lords to join me in these efforts to ensure that these important messages reach as far as possible. Communication of these important points is key. I therefore ask the noble Lords not to press the amendments.
Lord Lennie (Lab) [V]
My Lords, the Motion moved by the noble Baroness, Lady Grender, on Clause 6 exposes the extortionate legal racketeering that goes on in this sector. We are right to seek clarification. We cannot allow a situation to develop whereby landlords are pressuring tenants to agree informal extensions as a means to continue their ground rent arrangements. The fact remains that leaseholders need greater legislative protection. While the Bill will, I hope, set the foundations for that, there is much more that needs to be done. I hope that the Minister explains the intention behind Clause 6 and considers whether further provisions are necessary to prevent any exploitation.
Amendment 13 would require landlords to inform tenants of any ground rent extensions. This raises the question of whether lease extensions will be agreed before the changes in the Bill are implemented. Can the Minister estimate the legislative timetable for this Bill and when it might receive Royal Assent? Can he also confirm whether the ministry has received any reports of lease extensions being rushed through before these changes have been brought into force?
Lord Greenhalgh (Con)
My Lords, I have just spoken of this Government’s efforts, including working with our key stakeholders, to strengthen leaseholders’ awareness of their rights and what entering into a lease might mean for them. The noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, have tabled a Motion to oppose Clause 6 standing part of the Bill. I acknowledge the concerns that have been raised, but I point out that we have made a conscious decision that the Bill should not create barriers to non-statutory leasehold agreements. Part of the reason is that more flexible processes outside the statutory route can, in some cases, be more cost-effective and quicker for both the leaseholder and freeholder, so we want to allow this option and choice to remain.
I reassure your Lordships that we do not want leaseholders to be taken advantage of in this situation, so we are working to ensure that better information, advice and support are offered to them, and we will consider where we can strengthen this where appropriate. By making the system more transparent and exposing inappropriate practices, as described by the noble Baroness, Lady Grender, and others, we can protect leaseholders.
It is important that your Lordships note that the Government are considering the Law Commission’s recommendations on enfranchisement. They include recommendations on voluntary informal lease extensions. When the time comes, I will be more than happy to engage with noble Lords on this, as we have done on this Bill.
Our overall approach to increasing awareness and making things fairer and more affordable will help protect more leaseholders, whichever route they choose. I therefore ask the noble Baroness to withdraw the Motion.