Building Safety Bill

Lord Young of Cookham Excerpts

Lords Hansard - Part 2 & Report stage
Tuesday 29th March 2022 Lords Chamber

I ask your Lordships to support this significant and important set of amendments to ensure that the polluter pays.

[Lord Young of Cookham (Con)]

My Lords, I welcome the amendments tabled by the Government. As my noble friend has explained, they extend the scope of liability, making it more likely that builders will be remediated. The amendments also block some loopholes, and I welcome that.

I begin with a general point about amending this part of the Bill. I understand the caution that many in your Lordships’ House have about amending a Bill at this stage of a Parliament if it has been fully scrutinised by the Commons. However, there should be no such inhibitions about amending this part of the Bill, because although the Bill started in another place, the remediation clauses were added in your Lordships’ House, and the other place has never considered them. So, as part of our role we should feel free to amend the Bill if we feel that that is the right thing to do, not least because the Government have themselves tabled several hundred amendments.

I make it clear that I welcome the amendments on remediation, and I commend my noble friend and Michael Gove on the substantial progress that they have made in beginning to address the crisis facing thousands of leaseholders trapped in unsaleable flats, facing unaffordable remediation bills and repossession as well as, in many cases, high insurance premiums and the costs of waking watches, while continuing to live in a building which is a fire risk.

My noble friend has moved the dial, and is to be commended for that, but, as today’s debate will show, the Bill as it stands falls well short of assurances that Ministers have given to leaseholders, who are the only innocent party in a scandal that has involved developers, contractors, local authorities and, indeed, as is emerging from the Grenfell inquiry, the Government, who knew about the cladding problems 15 years before Grenfell—and did nothing.

In this section of the Bill we are building on the Government’s proposals and we do so after extensive discussions with Ministers and officials, for which we are really grateful. We hope that it may still be possible, even at this late stage, to find common ground.

In particular, we seek to amend the Bill to be consistent with commitments that Ministers have made on the record. I remind my noble friend the Minister of what he told noble Lords in his letter dated 20 January, entitled “Introduction of the Building Safety Bill”. He said:

“The Secretary of State recently announced that leaseholders living in their homes should be protected from the costs of remediating historic building safety defects.”


That letter built on the Statement made by the Secretary of State, Michael Gove, on 10 January in another place. He said:

“First, we will make sure that we provide leaseholders with statutory protection … and we will work with colleagues across the House to ensure that that statutory protection extends to all the work”—


all the work—

“required to make buildings safe.”

The Statement said:

“We will take action to end the scandal and protect leaseholders.”


It continued:

“We will make industry pay to fix all of the remaining problems and help to cover the range of costs facing leaseholders.”—[Official Report, Commons, 10/1/22; cols. 285-291.]


I think we would all agree with that.

However, since then these commitments have been watered down. Not all leaseholders are covered by the Bill, not all buildings are covered by the Bill, and defects have been sub-divided into those that are fully protected by qualifying leaseholders, and other defects that are not. I see no guiding principle behind these distinctions, but the consequence is protecting the contractor/taxpayer and putting more costs on to the only innocent party: the leaseholder.

Turning to Amendment 233, in my name and that of my noble friend Lord Blencathra, I appreciate that there are other proposals that have the same objective as ours, namely Amendments 221 and 234. I am in no way prescriptive about how the problem is tackled. The best way forward may be for my noble friend the Minister to say that he recognises the problem and will come up with the same solution at a later stage, so let me describe the problem.

The Government’s so-called waterfall proposal creates a pyramid of contributions, with developers at the top and leaseholders at the bottom. This is a welcome inversion of the situation under the current law, where the leaseholders are in the firing line, and the Government should be commended for it, but the waterfall does not live up to Michael Gove’s Statement, in which he said that

“leaseholders are shouldering a desperately unfair burden. They are blameless, and it is morally wrong that they should be the ones asked to pay the price. I am clear about who should pay the price for remedying failures. It should be the industries that profited, as they caused the problem, and those who have continued to profit, as they make it worse.”—[Official Report, Commons, 10/1/22; cols. 283-84.]

We have been told at meetings with officials and Ministers that good progress has been made in persuading the industry to accept its responsibility and remediate the buildings for which it is responsible, doubtless incentivised by some of the provisions in the Bill. I commend Ministers for the progress they have made. However, we are left with the issue of what happens to buildings where remediation does not happen—the so-called orphaned buildings. The freeholder has no resources, there is no developer or contractor to sue, and so we reach the end of the waterfall: the leaseholders. What are they supposed to do? Are they supposed to pay for all the non-cladding costs, which they cannot afford? In many cases these are higher than the cladding costs. Should they continue to live in a dangerous building, with properties that they cannot sell and with high insurance premiums?

Let me illustrate this with an example, Northpoint in Bromley. The developer, Taylor Wimpey, a company listed on the FTSE 100, refuses to pay, I am told. The building is already in the building safety fund for cladding, so taxpayers are picking up the bill. Under the waterfall, we come to the resident management company, which is run by the leaseholders. It collects the service charge and therefore has a liability in step 2 of the Government’s waterfall, but it has no assets and does not have an interest worth £2 million, so we reach the end of the waterfall: the leaseholders. Most flats in Northpoint are worth less than £325,000, so there will be zero commitment to be collected from most leaseholders for non-cladding costs, thanks to the Government’s low-value exemption. A handful of the flats in that building are worth more than £325,000, so those few leaseholders are in the invidious position of having to pay £15,000—but they do not have to pay, because waking watches have eaten up their £15,000 caps already, so they pay nothing.

At Northpoint, the non-cladding works are not covered by the building safety fund, so who will pay? The only option for the moment is to ask the leaseholders to pay, wearing their hats as shareholders in the resident management company, but that defeats the point of the caps the Government have proposed for leaseholders. There are many other examples of no liability on someone with assets to pay—the so-called orphaned buildings. It is unacceptable that dangerous buildings, part of this country’s housing stock, should remain in this condition either indefinitely or until prolonged litigation has been completed.

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[Lord Greenhalgh (Con)]

I thank noble Lords who have spoken in this long—a little over an hour on one group—but important debate on ensuring that the polluter pays. I thank the noble Baronesses, Lady Hayman and Lady Pinnock, for Amendment 22, on the levy on social housing. The noble Baroness, Lady Hayman, raised the issues of exemptions from the building safety levy for social housing providers and who the details of the buildings levy will apply to in secondary legislation.

I am pleased to inform the noble Baroness that we are considering an exemption from the levy for affordable housing as a whole, including social housing, housing for rent or sale at least 20% below market rent or sales rates, and shared ownership. The Government recognise that applying a levy to affordable housing would increase the cost of developing affordable housing and would therefore be likely to disincentivise supply, as the noble Baroness said. We consulted on this exemption for affordable housing in our consultation on the levy, which ran from July to October last year.

I hope the noble Baroness understands that her suggestion is under careful consideration and will be addressed in secondary legislation. I will probably have to roughly translate: she should be reassured that the building safety levy will not apply to public housing. That probably makes it a little easier for her to decide what she wants to do.

I turn now to Amendment 200, on the leaseholder protection fund, tabled by the noble Baroness, Lady Pinnock, and the noble Lord, Lord Stunell, which would require the Government to use funds raised by the levy to refund leaseholders who have already paid for safety works. While a noble thing to do, the Government’s primary aim is and should be to protect leaseholders from building safety risks and enable work to be undertaken to ensure this. For this reason, we will not be able to accept the amendment.

On Amendment 221, I thank the noble Baroness, Lady Pinnock, for this amendment. We share her determination to make sure that the industry acts now to take responsibility for fixing building safety defects and that the burden should not fall on leaseholders or taxpayers. The whole tone of the amendment is to get on with remediation and I have great sympathy for that. The principal objective of Clauses 128 and 129 is to make sure that responsible parties pay and to enable us to hold the industry to account. The further amendment I spoke to earlier will make it clear that we can link the scheme to the planning system.

Together, these powers will allow us to monitor compliance of members of the responsible actors scheme and make sure that members take responsibility and act promptly to make buildings safe. We do not believe a 5-year deadline needs to be inserted into the Bill. Our intention is for the measure to achieve its objectives much more quickly. Those that do not meet the scheme conditions may lose scheme membership and may immediately be subject to the planning prohibition, as our amendments make clear. A focus on pace is already built into the Government’s approach. I hope this reassures the noble Baroness that her intention has been more than met by the Government through this Bill, just in another way.

I turn now to Amendment 231 on social landlords and defects, tabled by the noble Baronesses, Lady Hayman and Lady Pinnock. The Bill already makes provision to protect leaseholders from unreasonable costs and allow guilty parties to be pursued. It contains a requirement on landlords to take reasonable steps to pursue other cost recovery avenues before seeking to recover the costs of remediation works from leaseholders. They need to provide evidence to the leaseholders of the steps taken. Social landlords will have to undertake these measures, including pursuing construction companies or installers where applicable.

To help all landlords, including social landlords, the Government are bringing forward an ambitious toolkit of other measures to allow those responsible to be pursued. This includes extending the limitation period under Section 1 of the Defective Premises Act 1972 to apply retrospectively for 30 years. We are also allowing the High Courts to extend the reach of civil liability to associated companies and creating a new cause of action. This will allow manufacturers, distributors and sellers of construction products to be pursued where defective or mis-sold products have been used in the construction of a dwelling, or where further works are carried out to that dwelling, rendering it unfit for habitation. These amendments make it easier for those affected to force those responsible for defective buildings—developers and construction products manufacturers—to pay.

While we are making it easier to pursue third parties, in parallel, we continue to protect leaseholders, so they are not paying for unreasonable remediation costs. The Bill introduces new statutory provisions which provide that cladding remediation costs cannot be passed on to qualifying leaseholders in buildings over 11 metres. The law is already clear that service charges and any increase in cost must be reasonable. Finally, the Government set a rent policy for social housing which determines the maximum amount of rent that social tenants may be charged and the maximum amount by which rents may increase each year. The rent standard prevents unforeseen hikes to tenants’ rents and is enforced by the Regulator of Social Housing.

Turning now to Amendment 232 in the name of the noble Baroness, Lady Pinnock, and the noble Lord, Lord Stunell, the service charge is the means by which fire safety costs would be recovered and the leaseholder protections measures already prevent costs being passed to leaseholders above the permitted maximum.

I now turn to Amendment 233, tabled by my noble friends Lord Young of Cookham and Lord Blencathra, which seeks to impose a duty on local authorities to pursue responsible developers. It imposes requirements on local authorities to remediate buildings with defects and to recover funds from responsible parties. If no funds can be recovered, the Secretary of State would be required to reimburse the local authority.

We have been clear that industry is responsible for remediating defective buildings. We expect developers to remediate buildings they had a role in developing or refurbishing. Where this does not happen, building owners and landlords will have new powers to pursue those responsible. Local authorities will also have powers under our new remediation orders and remediation contribution orders, as will other regulatory bodies. However, to impose a duty on local authorities to fix buildings or pursue responsible parties is not the right approach. This would absolve industry of its duty to resolve the crisis and building owners and landlords of their responsibilities to make buildings safe. It would also place an unacceptable burden on the taxpayer.

The amendment seeks to create a taxpayer backstop by requiring the Secretary of State to reimburse local authorities for costs they cannot recover. We have been very clear that it is wrong to look to the taxpayer for further funding to fix defective buildings. For these reasons, we will not be able to accept the amendment. I want to deal with the specific issue of the remediator of last resort. I understand where my noble friend Lord Young is coming from. We have asked the industry to provide a fully funded solution for both the cladding and non-cladding costs, including fixing their own buildings and contributing to a fund for the very orphan buildings he has highlighted of between 11 and 18 metres that need cladding remediation. The focus of the industry is on fixing its own buildings, and therefore we can begin to be more focused on where we apply taxpayer funds.

Finally, I address Amendments 201, 202, 229, 234, 235, 236 and 237 in the name of the noble Earl, Lord Lytton. Amendments 201 and 202 would hold the Crown liable where properties escheat—that is probably not the right pronunciation—and would prevent liquidators and trustees in bankruptcy renouncing the leases of buildings with fire safety defects. The Bill already prevents freeholders evading liability by simply escheating their properties where they do not want to pay. It also makes provisions in relation to insolvency and bankruptcy. Freeholders will still be liable where they were, or were connected to, the developer, or had a net worth over £2 million per in-scope building on 14 February. As I have said before, taxpayers should not be held liable. For this reason, I will not be able to accept these amendments. Amendment 229 is unnecessary as landlords are already prevented from passing on costs unless they have explored all other routes of funding.

I turn to the important Amendments 234 to 237. These cover building safety cost orders, providing powers to make regulations, stipulating liability and establishing a building safety cost fund. Liability for remediation costs is already set out in the Bill, as are provisions for building owners and landlords to go after associated developers, companies and manufacturers of defective products. For this reason, I will not be able to accept these amendments.

My noble friends Lady Neville-Rolfe and Lord Young of Cookham raised the position of enfranchised leaseholders and asked whether we have made life harder for them via Amendments 186 to 193. I want to be absolutely clear that nothing in the amendments increases liabilities for enfranchised leaseholders. No leaseholder will be worse off; all are measures to make the polluter pays principle apply to enfranchised leaseholders.

I hope that I have gone some way to provide assurances on the Government’s approach.

[Lord Young of Cookham (Con)]

Before my noble friend sits down, I am really grateful to him for the explanation he has set out but can he tell the House what happens where there is a building and no one has any money— the leaseholders cannot afford it, there is no freeholder and there is no developer or contractor to pursue? Who then puts that building right?

[Lord Greenhalgh (Con)]

My Lords, in practical terms, we have a £5.1 billion fund, of which we have committed the first stage of £1 billion. We have an additional £4.1 billion for buildings over 18 metres and an additional £4 billion for cladding remediation, yet we are asking industry to fix its own buildings. That gives us the ability to focus on the few buildings my noble friend is talking about, because we have got the developers that built these buildings to go on and fix them in a proportionate way and we do not have to use the core of money that we already have. Noble Lords can test the opinion of the House, but that is a practical way of dealing with the problems—focusing the current funds on those few buildings where that scenario applies.

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[Lord Young of Cookham (Con)]

My Lords, as noble Lords may know, I am not in the habit of making long speeches, but this group of amendments covers a huge range of issues and is arguably the most important group today. I am proposing seven amendments and I have added my name to four others. I will be as brief as I can, and the good news is that I do not propose to intervene in this debate again.

I will go through the amendments in the order in which they appear, starting with Amendment 115, moved by the noble Earl, Lord Lytton, to which I have added my name. It seeks to expand the service charge protection of Schedule 9 to buildings of all heights. At the moment, as we heard, buildings under 11 metres get no help at all from the proposed waterfall. Unless developers agree to fix those buildings voluntarily, or leaseholders are willing to engage in litigation, there is no meaningful help on offer.

As mentioned in earlier debates, buildings under 11 metres can be just as dangerous as buildings over 11 metres. The fire at Richmond House, the 9-metre building that burned to the ground in less than 11 minutes in September 2019, shows the dangers. Buildings under 11 metres are excluded, even though they have exactly the same defects, for which leaseholders bear no responsibility at all. They suffer exactly the same consequences as those in taller buildings: unaffordable service charges, repossession and bankruptcy. I see no equity or principle behind this decision, which is there solely to save money.

When we asked about this in meetings on the Bill, we were told there was no systemic problem with cladding in these buildings—a statement that brings no consolation to leaseholders, such as this one, one of many who have written to me. The letter says:

“I am a leaseholder in a building well under 11 metres. We are three storeys high with 10 flats. We are therefore excluded from any support from the Government, yet our freeholder/managing agent is taking us to court on Friday to ask them to agree to us having to pay for the cost of remediation—a £26,000 service charge in 2022 per leaseholder. We are told the freeholder does not have the means or obligation to pay for these works that we need to reduce the annual insurance premium. We are told that the only way to pay for these works is via the leaseholder and that we will be legally responsible to fund the money and pay it upfront so that the management agent has the means to pay for works.”


The letter continues:

“I hope the Minister will see fit to bring our needs in line with leaseholders in larger properties and protect us from at least some of the costs that we currently face.”


Last week’s Sunday Times had an article showing that, despite what the Government say, buildings under 11 metres remain unsaleable and unmortgageable, as quotes from the major lenders in the article underlined.

We were also told that there were not many such buildings. That is good news, but it follows from that that the extra cost of putting this inequity right is so small that I hope the Minister can accept it.

I should have said at the beginning that I am grateful to Martin Boyd, Liam Spender and Sue Bright, who in their personal capacity have helped me with some briefing.

I turn now to Amendment 117 in my name and those of my noble friend Lord Blencathra and the noble Earl, Lord Lytton. It seeks to expand the service charge protections to enfranchised buildings and buildings where the right to manage has been exercised. This would ensure that all leaseholders are treated equally.

It has been the policy of successive Administrations to encourage leaseholders to enfranchise and buy their freeholds, and to move away from a feudal system of tenure. That process began in the 1960s, when leaseholders could buy their houses, and was extended to flats in the 1990s. Since then, there have been other measures to encourage leaseholders to buy their freeholds, with the security of the independence that goes with it, and measures to promote and enhance right to manage. We are promised legislation in the next Session to take this policy forward.

Against that background, it would be perverse if the legislation before us today put enfranchised leaseholders in a worse position than leaseholders who are not enfranchised, but that is what Clause 120 does. The Government cannot hope to succeed in encouraging more resident-owned and resident-run buildings unless they treat all buildings affected by fire safety issues equally. As I understand the legislation, once your building is “not relevant”, it in effect becomes a second-class building in perpetuity.

I have looked at the government amendments tabled since Committee stage but they seem to make the position worse by confirming that these buildings are excluded. That means that people living in these buildings are being left to fend for themselves, either by undertaking litigation or by recovering what they can from the building safety fund. An excellent article in the recent edition of Inside Housing shows the problem with the fund:

“If the rate of remediation through the fund continues at this pace, it will be decades before all blocks receive funds—never mind see work completed.”


I hope that my noble friend will be able to confirm what he said in Committee, which appears to contradict what is in the Bill. He said:

“My noble friend Lord Young asked the very important question of whether enfranchised properties will have to pay all the costs for remediation. I want to be absolutely clear—read my lips—no, they are not. This will not apply to buildings which have exercised a right to collective enfranchisement, or to commonhold land, which in this case, admittedly, is very few buildings. New subsection (3) in government Amendment 63 is very clear on that point. I am happy to speak to my noble friend afterwards, but I am very clear that they are not expected to shoulder the burden. They are effectively leaseholders that have enfranchised as opposed to freeholders. I hope that helps.”—[Official Report, 28/2/22; col. GC 262.]


However, under Clause 20, these buildings are left to fend for themselves if the developer does not pay or if they do not have the wherewithal to engage in litigation against a well-resourced developer. They miss out on the guarantee in paragraph 8 of Schedule 9 that no leaseholder will have to pay for cladding costs, because they do not live in a relevant building. They are not treated as leaseholders but as freeholders.

My amendment does no more than achieve the ambition set out by the Secretary of State in another place on 10 January, when he said that

“we will protect leaseholders today and fix the system for the future.”—[Official Report, Commons, 10/1/22; col. 286.]

Perhaps my noble friend the Minister can confirm that, if you have not enfranchised, you are protected by the caps on what you can pay but, if you have enfranchised, there is no such protection. I hope that my noble friend will look at that again.

I turn to Amendment 123 in my name and those of my noble friends Lord Blencathra and Lady Neville-Rolfe. This would change the definition of qualifying leases so that buy-to-let landlords with interests in up to five properties, including their main home, benefit from the leaseholder cost protections in Schedule 9. While we welcome the Government’s movement on this, we would like to go a little bit further.

As I mentioned in Committee on 24 February, there are many buildings where flats are owned by buy-to-let landlords. If those landlords cannot pay their share of the bill, it will mean that not all of the money is available to do the works to the whole building and so remediation will not commence, to the disadvantage of all the residents in the block, who will continue to live in unsafe premises. Many landlords hold their buy-to-let properties as part, or in some cases all, of their pension provision. According to data that the Government provided in July 2021 in response to the noble Lord, Lord Carrington, of the 2.2 million buy-to-let landlords paying income tax, 1.5 million—68%—fell within the basic income tax band.

This point is reinforced by the recent report on the remediation and financing of building safety work by the Levelling Up, Housing and Communities Select Committee in another place. It said:

“Buy-to-let landlords are no more to blame than other leaseholders for historic building safety defects, and landing them with potentially unaffordable bills will only slow down or prevent works to make buildings safe.”


It wanted total exemption, but we do not go quite so far. The committee rightly pointed to the kinds of landlord who will be affected:

“We heard from landlords who find themselves outside of the scope of the protections, who invested in properties to support their children, to provide income after being made redundant, to help pay for the costs of caring for relatives, or to provide for their retirement, now facing bills they cannot afford. One contributor told us they had invested in flats using compensation from the Criminal Injuries Compensation Authority ‘after the murder of my husband in the 7/7 atrocity’ and now faces ‘vast bills’”.


Our amendment would align the provisions of the Bill more closely with the Bank of England’s definition of a portfolio landlord as being one with four or more mortgaged buy-to-let properties across all lenders in aggregate. It would also ensure that most private landlords who are leaseholders would be covered by the Bill. The Government’s most recent English private landlords survey shows that 83% of private landlords rent out between one and four properties.

I understand that the Minister has indicated to the National Residential Landlords Association that he might be open to considering a formula which would enable landlords to access support under the government scheme where their portfolio of properties is valued at a certain amount, instead of simply counting how many there are. There are huge variations in the value of property for a multitude of reasons. For example, someone who has 10 other properties may have significantly less means than someone who only owns one property. Yet the government approach will penalise the individual with less means purely because of the number of properties their own. Some buy-to-let owners may have significant equity in their properties while others may be mortgaged to the hilt or in negative equity. The current approach is very crude and does not differentiate between the wealth of those affected, so I wonder whether the Government are considering that option.

I move to Amendment 126, which is a technical amendment. At the moment it is not quite clear whether the protections being given to leaseholders can be sold on to future buyers. It is important that that should be possible, in order to get the market moving again. Clause 121 defines a “qualifying lease” as one held by “a relevant tenant”. A relevant tenant must on 14 February this year meet the occupation and property ownership provisions set out in Clause 121. The Government say that this clause allows protection to be passed from someone who qualifies on 14 February to a future buyer, but I am not sure that that is the case because the restrictions the Government are imposing on who can benefit from help, such as those owning more than four buy-to-let properties, depend on the same definition of relevant tenant.

If the Government’s view of Clause 121 is correct and the existing wording allows leases with protection to be sold on, the Government may have made a drafting error. If the lease can be sold and the protections passed to a buyer, the characteristics of the buyer are irrelevant. If so, it means someone with 10 flats—six more than the four allowed—could come in, buy up a lease and still get protection. I do not think that is what the Government intend. It is important that we get the market moving, but also that we do not give opportunistic cash buyers the chance to buy up these leases and benefit from protections that other buy-to-let landlords will not get.

Amendment 153, which amends government Amendment 152, is technical. Given the passage of time and the fact my notes are in very small print, I think I will pass over that.

I turn now to Amendments 157 to 160 and 163, which are really important. They deal with the amount leaseholders have to pay for non-cladding costs. On this, my preference is for Amendments 155 and 156, which mean zero liability; the leaseholder pays nothing. The Government say these caps are necessary because of legal advice. The claim is that to impose measures on developers and landlords, it is necessary for leaseholders to contribute in some cases.

As with all legal matters, there appears to be a diversity of opinion among professional lawyers on the Government's judgment that Article 1, Protocol 1 requires leaseholders to contribute anything. But if my noble friend the Minister advises your Lordships that those two amendments—the ones with zero cost—mean that he can no longer assert that the legislation is compatible with the ECHR, then Amendments 157 to 160 come into play and limit the liability. My noble friend Lord Blencathra will speak to Amendment 158.

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Moved by

[Lord Young of Cookham]

117: Clause 120, page 127, line 33, leave out subsection (3)
Member’s explanatory statement
This amendment ensures leaseholders in enfranchised buildings are not excluded from the protection in the Bill.