Leasehold and Freehold Reform Bill

Baroness Fox of Buckley Excerpts

Committee stage
Monday 22nd April 2024 Lords Chamber

It is obvious that this will not be straightforward because of the financial interests of individuals and institutions in prolonging the existence of the leasehold/freehold arrangement. However, if the Government are determined, as the Minister said that they were, to create commonhold as part of a property-owning democracy—the phrase often used by the Government—the move to commonhold must be implemented, and must be implemented as speedily as possible. There must be no more delay; commonhold has been an option for over 20 years. It needs reinvigorating—the word that the Law Commission uses. It needs some of the barriers to be removed. It needs, as the Law Commission states, a cultural change in the way that commonhold and leasehold reform is looked at. That is what is needed, and the Government are in a position to do it. They have said that they want to make that change; unfortunately, the Bill does not enable it, as “in due course” will no longer be sufficient. I look forward very much to this debate and the Minister’s response.

[Baroness Fox of Buckley (Non-Afl)]

My Lords, I shall speak to my Amendment 14. First, I apologise that I was away for Second Reading; I confess that I would probably have made a rather frustrated and angry speech at the Bill’s limitations and the waste of a chance to end leasehold once and for all. However, I come here today in a more conciliatory mood with, I hope, a constructive proposal to create a sunset clause on all new leasehold flats that would allow the Government five years to resolve any outstanding issues for present leaseholders. Because of a time limit, there would be light at the end of the tunnel, and all the rhetoric from the Government and the Opposition condemning leasehold as a feudal, unfair tenure could be turned into a concrete outcome, with no room for broken promises.

There is nothing unreasonable or radical about the amendment. The Conservative Party’s 2019 manifesto promised to enact a

“ban on the sale of new leasehold homes”—

and note that the wording was “homes”, not “houses”—and the majority of leasehold homes are flats. In fact, as the noble Baroness, Lady Pinnock, pointed out, 70% of them are. We know that it is precisely in relation to flats where the real abuse occurs, where the real money is made by third parties in exploitative extraction, and where the majority are denied control of their own finances and lives. That is where this scandal lies.

What is more, the number of leasehold flats is increasing exponentially, whereas the proportion of new-build houses sold as leasehold is falling dramatically, from a 15% high in 2016 to a meagre 1% of all leaseholds in December 2022. Yet the Bill avoids the main problem, and I am hoping that this amendment will give us a way out, and that now is the time to do it. Banning new leasehold houses is not enough and does not, in my opinion, despite what the Minister assured us, uphold the manifesto commitment. The amendment would allow the Government to honour their promise but without doing it in a rush.

Not to be partisan, I was delighted when the shadow Housing Minister, Matthew Pennycook, pledged to scrap leasehold tenure within Labour’s first 100 days in office, but this appears to have been slightly rescinded or fudged. This is therefore an amendment for all sides, to ensure there is cross-party consensus that we will absolutely name the date by which leasehold will have gone—what Michael Gove, the Secretary of State, has called an “indefensible” system of tenure. As far as I can see, everyone, cross-party, agrees with that. If not now, when? This is the first piece of legislation tackling leasehold tenure for new and existing homes in 22 years, outside of building safety. Another opportunity to move against this iniquitous regime may not come around any time soon; it might take another 22 years.

I am keen to learn the lessons of history, because back in 1995, the late Frank Dobson, then the shadow Secretary of State for the Environment, and Nick Raynsford, then the shadow Secretary of State for Housing, brought out an excellent pamphlet entitled An End to Feudalism: Labour’s New Leasehold Reform Programme. It noted:

“Over recent decades the weaknesses and injustices inherent in the British leasehold system have become increasingly highlighted, but reform has been a long time coming”.


It was promised that reform would come under that Government, but reform has sadly been an even longer time coming because, despite a promise to use the 2002 leasehold Bill to sunset any new leasehold buildings, this was reneged on.

This failure to use legislation 22 years ago to resolve the situation means that over 2 million further leasehold properties have been created—the very debt traps that have caused so much misery for so many. Are we just going to allow this Bill to pass, knowing that we will create more leasehold flats, and therefore more problems and more debt traps ahead? As Sebastian O’Kelly from the Leasehold Knowledge Partnership bluntly put it to MPs:

“You’re out of step with the rest of the world, so stop creating more leaseholds”.


I was delighted to hear the Minister assure us that nobody wants this, but I want that promise to be written down rather than just stated.

I stress that the amendment is not trying to dictate how this should be done. Rather, it would give the elected Government of the day, whoever that is, the space and flexibility to decide on whatever schemes are appropriate to ensure that third-party investors—the rentiers—are no longer permitted to interfere in what will be, I hope, a thriving sector of flats throughout the UK.

The amendment is not prescriptive, as I have said. Commonhold is not even mentioned directly, even though I agree with all those who have said that it is best suited to deliver ownership and management of residential flats for the future. The main point is to set a sunset clause to ensure that, whichever party is in government, there are no more broken promises and that the “in due course” we heard about earlier has an end date. What is more, the amendment, via proposed new subsection (3)(c) and (d), would ensure that existing leaseholders are not left behind. In a way, what is not to like?

However, it is difficult to know exactly who or what I am arguing against, because I am not quite sure that I even understand why this could not have been done in this legislation. The answer has not been forthcoming. I want to look at just a couple of objections.

In this Chamber, the noble Baroness, Lady Penn, explained from the Dispatch Box earlier this year that reforming leasehold for flats is “inherently more complicated” than for houses, as they required an arrangement to “facilitate management” of the buildings. Surely the “it’s complicated” defence is a red herring. There have been endless consultations and commissions, and decades-worth of academic and policy research, as we have heard from the noble Baroness, Lady Taylor of Stevenage, and as the noble Baroness, Lady Pinnock, pointed out. We have had the Law Commission, with its 121 recommendations. An expert advisory group, the Commonhold Council, was launched in May 2021 by the Government precisely to prepare home owners and the market for widespread uptake of a collective form of home ownership. So, as the former Housing Minister, Rachel Maclean, told the other place at Second Reading:

“All the work has already been done”.—[Official Report, Commons, 11/12/23; col. 676.]


For the remaining complexities, this amendment would give Parliament one more term as a reasonable timeframe to work at any outstanding issues—for example, around the complications of shared ownership, which we heard about earlier.

--- Later in debate ---

With all these assurances in mind, I ask the noble Baroness kindly to withdraw her amendment.

[Baroness Fox of Buckley (Non-Afl)]

My Lords, I forgot to declare my interest as a leaseholder. I feel as though I might have to declare an interest to the noble Earl, Lord Devon, as a serf, or at least somebody who is rather pleased that democracy has allowed me to move from that particular interest.

In her response, the Minister said that all this change needs to be managed. In response to my amendment, she said there should not be a ban without due consideration. Fine, but this was a sunset clause in five years; it is hardly rushing it. The endless contributions that have been made suggest that this has been talked about for a very long time. The noble Lord, Lord Kennedy, made the point that we can all go back. This sort of response, saying that we need to go slowly and that it needs to be managed, makes it seem a little unclear as to what the Government are responding to. Nobody here is exactly rushing through.

Also, can I have some clarification on the idea of a danger to the supply of new homes? I was glad that the Minister responded to the noble Earl, Lord Devon, saying that there does not appear to be any evidence of that, but she said we had to be careful about a ban without due consideration. She herself said that it could damage the supply of new homes, and to be honest I think that is an unjustified threat—although not by the Minister. I keep hearing this: “If we rush this through, nobody will ever build a flat again. We have a housing crisis; what are we going to do?” I know the developers are saying that, but I was interested in the fact that Lendlease is one of those saying that this may disrupt building supply, but actually it seems to be building away and thriving, with massive developments in Australia, where it is from and where, indeed, there is a form of commonhold of which Lendlease was supportive. It is not going to stop the development of houses. We can build, build, build—just not build, build, build leaseholds, surely.

[Baroness Scott of Bybrook (Con)]

My response to the noble Earl, Lord Devon, was a response on commonhold. My response to the noble Baroness, Lady Fox, was more about the fact that her amendment would just ban the sale of leasehold, which I suggest would give an uncertainty to the market.

--- Later in debate ---

Although I accept from the noble Lords who spoke in the debate that there are issues that need to be probed further, spoken about and listened to, perhaps in a round-table discussion before we get to Report, our instincts are that these are shoring up the interests of commercial leaseholders because, let us face it, freeholders are where the money is.

[Baroness Fox of Buckley (Non-Afl)]

My Lords, the descriptions that have been put forward—the right reverend Prelate described these thriving communities, which sounded idyllic, and the noble Earl, Lord Lytton, talked about making sure that we understood that there might be some bad players but that there are also some very enlightened players—made it sound as though this is really just a question of having the right people in charge, whereas I think it is a systemic problem.

One of the reasons why I am anxious about this is that although it is always nicer to have friendly, non-rip-off freeholders—that is genuinely a positive thing—we should not be grateful that we are not being ripped off in the homes that we live in. The system problem is that people lack autonomy and control over where they live and their destiny. I just throw in that a successful community depends on people retaining their autonomy rather than being grateful that they are being looked after.

What the noble Baroness, Lady Thornhill, pointed out is incredibly important; the noble Lord, Lord Truscott, also made an excellent speech laying some of this out. There are thriving communities with mixed-use abilities all over the world that do not use leasehold. We are now getting to a point where we are saying, “If we don’t have leasehold here, we’ll never have a local swimming pool and there will be no community centres. What will happen to all the shops?” That is mythological. Although I agree that one needs to look at the complexities, and I for one am actually all for nuance in relation to this and not just blunderbussing away, we should also stop myth-building about the wonders of the system, when in fact the reason why we want enfranchisement in the first place is that when our citizens buy a house they should have control over it. It is their home, and they can work collectively on building the community. At the moment they are denied that, which is why we are trying to tackle the problem of leasehold in the first instance.

[Baroness Scott of Bybrook (Con)]

My Lords, I thank all noble Lords for their contributions, and I start by thanking especially the noble Baroness, Lady Taylor of Stevenage, for Amendment 17, which seeks to amend the description of premises that are excluded from collective enfranchisement rights, where leaseholders would otherwise qualify. I know the amendment is well intentioned, with the aim that there is flexibility to amend the description of exceptions without new primary legislation. The amendment introduces a broad power for Ministers to change fundamental elements of the structure of the regime, which are substantive areas of policy. The Government are already making changes to primary legislation by increasing the non-residential limit from 25% to 50%, following extensive consultation, which is right and proper. The powers in this amendment would affect the very core of the regime and how it is structured rather than amending mere procedural changes.

To make sure that stakeholders have certainty as to how the law will work in practice, changes to the fundamental structure of the statutory regime should be clear and stable. Although the intention behind the amendment is noble, the Government are not able to accept it as it is not proportionate or reasonable for the proper functioning of the regime. It would be a sweeping power to change the fundamental structure of the enfranchisement regime after it has been approved by Parliament.

This amendment would introduce uncertainty into the new system, meaning that both leaseholders and landlords would need to second-guess whether changes may be made at relatively short notice, introducing volatility to the regime. This could potentially lead to undesirable outcomes, such as undermining confidence in long-term investment decisions for mixed use-premises, or lead to irregular design of floor-space in anticipation of future changes. I want to make it clear that the Law Commission has spent years considering qualifying criteria and assessed different options in its consultation process before putting forward its recommendations to increase the non-residential threshold to 50%.

The amendment could also remove rights of leaseholders or landlords in a disproportionate way and create unnecessary uncertainty and divergence likely to complicate the overall regime, with consequential effects on the behaviour of different stakeholders in different ways. Therefore, I hope that I have convinced the noble Baroness that the amendment is not proportionate, and that it is not moved.

I thank my noble friend Lord Sandhurst for Amendment 17A, which would exclude long leases held by overseas companies from being qualifying tenants for the purpose of collective enfranchisement. The Government’s aim is to improve leasehold as a tenure and address the historic imbalance of power between freeholders and leaseholders. The Bill does not confer different rights on leaseholders by how their leases are held. The Government do not think that implementing such a definition, in respect of which leaseholders have rights and which do not, is workable or desirable.

Amending the definition of a qualifying tenant for collective enfranchisement will make it harder for other leaseholders in a building to meet the numbers required to enfranchise, should they so wish. Attempting to restrict some leaseholders may well disenfranchise others, meaning that many leaseholders up and down the country could lose the opportunity to exercise their rights. Furthermore, it would remove the existing rights of some leaseholders and complicate the system overall, contrary to the aims of the Government.

I understand that the intention of the amendment may be to safeguard against circumstances in which non-resident or overseas companies do not take an active interest in the management of a building or are slow to respond. However, we expect that most multi-occupancy buildings will be managed by professional management companies on behalf of freeholders, as they are now.

I thank my noble friend again for the amendment, but I cannot accept it because it runs contrary to the aims of the Government and may restrict leaseholders’ rights. I therefore hope that he is content not to move his amendment.

I thank the right reverend Prelate the Bishop of Derby for speaking on behalf of the right reverend Prelate the Bishop of Manchester, with whom I have had a number of meetings about this issue. I am happy if the right reverend Prelate takes back the fact that I will continue that discussion if the right reverend Prelate the Bishop of Manchester so wishes.

I thank my noble friend Lord Moylan for his clause stand part notice. Clause 28 increases the non-residential limit for the collective enfranchisement claims to proceed in mixed-use buildings from 25% to 50%. The clause implements a Law Commission recommendation that has been subject to comprehensive consultation by the Law Commission and the department. I note the right reverend Prelate’s and my noble friend’s concerns, which have been raised through various consultations with freeholders and landlords.

The Bill’s impact assessment considers the impact of increasing the non-residential limit for collective enfranchisement claims, including the potential impact on freeholders, high streets and businesses. The increase to 50% strikes a fair and proportionate balance and will ensure that leaseholders are not unfairly prevented from claiming the right to manage in respect to buildings that are majority residential. It protects the freeholders and commercial leaseholders in buildings that are majority commercial. Freeholders can also protect their commercial interests by taking a leaseback of the commercial unit, securing their interest with a 999-year leaseback at a peppercorn rent.

We recognise the importance of the responsibility of building management and, as I have said, would expect that those who exercise their right to take over their buildings will employ professional managing agents—ensuring that the building is managed with the appropriate expertise, as we have heard from the noble Lord, Lord Truscott, about the issues that he is aware of.

The Government consider that this increase is proportionate, and I ask the right reverend Prelate and my noble friend to support Clause 28 standing part of the Bill.

I thank the noble Lord, Lord Thurlow, for Amendment 18, which seeks to apply a residency test to the collective enfranchisement claims in buildings with more than 25% non-residential floorspace. As we have discussed, Clause 28 amends the Leasehold Reform, Housing and Urban Development Act 1993 to increase the non-residential limit for collective enfranchisement claims from 25% to 50%.

Clause 28 implements a Law Commission recommendation that seeks to broaden access to collective enfranchisement for leaseholders living in mixed-use buildings where the non-residential elements constitute up to 50% of the floorspace. The existing qualifying criteria require leaseholders representing at least 50% of the flats in a building to participate in a collective enfranchisement claim. When combined with these existing criteria, the noble Lord’s amendment would allow claims only in mixed-use buildings with more than 25% non-residential floorspace, where at least 25% of the flats are owner-occupied.

For leaseholders in mixed-use buildings where less than 25% of the flats are owner-occupied but more than 25% of the floorspace is non-residential, this new clause would have the effect of removing all the benefit of Clause 28. This would leave leaseholders unable to collectively buy the freehold of their building because of how their neighbours chose to use their properties. It would also complicate all claims in buildings with over 25% non-residential floorspace, as participating leaseholders would be required to demonstrate that they are owner-occupiers. This could lead to claims taking longer and costing more, and would provide freeholders with another opportunity to frustrate leaseholders’ right to buy their freehold. This is counter to the Government’s aims in this area to broaden access to collective freehold ownership for all leaseholders, and to simplify, not complicate, the system leaseholders use to do so.