Leasehold Reform (Ground Rent) Bill [HL]

Debate between Lord Lennie and Lord Stunell

Report stage
Tuesday 20th July 2021 Lords Chamber

[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.

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[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.

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[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.

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[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?

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[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.

Leasehold Reform (Ground Rent) Bill [HL]

Debate between Lord Lennie and Lord Stunell

Committee stage
Monday 14th June 2021 Grand Committee

[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.

Leasehold Reform (Ground Rent) Bill [HL]

Debate between Lord Lennie and Lord Stunell

Committee stage
Wednesday 9th June 2021 Grand Committee

[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?

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[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?