Leasehold Reform (Ground Rent) Bill [HL]

Baroness Healy of Primrose Hill Excerpts

Committee stage
Wednesday 9th June 2021 Grand Committee

[Lord Naseby (Con) [V]]

My Lords, I apologise that I was not able to take part at Second Reading. Some of your Lordships know that my wife was taken very ill with Covid—in fact, we nearly lost her—and I decided to take her away for a rest. I am pleased to say that she is now pretty well.

There are a couple of interests that I ought to declare. I am a vice-chairman of the Shared Ownership Housing APPG. I have taken a particular interest in care homes, so I will be addressing the Committee on Amendment 4. My friends know that I was chairman of the housing committee in the London Borough of Islington from 1968 to 1971, when there was a fair number of lease challenges. Finally, I say to my noble friend on the Front Bench that I welcome the principle behind the Bill and thank Her Majesty’s Government for actually moving things forward.

I do not want to speak for very long on any of the amendments. I understand my roommate’s enthusiasm, which he has for everything in life, and he does cut through the rubbish, usually. It is nice to see someone cut through, bearing in mind that this is a pretty revolutionary Bill to start with. That is one end of the spectrum, and that covers Amendments 1 and 2. The noble Lord, Lord Young of Cookham, went into it in great detail. I read with great care what he said at Second Reading and the Government would do well to do the same—I am sure they must have done. He covered what might well be in the next Bill. It should be looked at extremely seriously.

I am concerned—I wrote it down before the noble Lord spoke this afternoon—about the position of existing leaseholders when they come to sell. I think that is a fair question, which the Labour Front Bench raised. That problem will be there unless some action is taken. It certainly cannot wait until the second half of this problem is dealt with in another Bill.

One other area concerns me: the situation, which is not uncommon, particularly in the provinces—I am speaking today from Sandy in Bedfordshire—where a landlord offers a 25-year lease on a residential property at a market or rack rent. That is pretty common in mixed-use scenarios; for example, a shop with a flat above, where the owner wants the commercial and residential parts to be leased out concurrently. In those sorts of circumstances, it seems—some would say absurd but that might be going too far—unusual and strange to expect just a peppercorn rent when a lessee is getting the benefit of living in or renting out the property.

The amendments in this group are absolutely crucial and I too look forward to the Minister’s response.

[The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)]

I call the next speaker, the noble and learned Lord, Lord Mackay of Clashfern. Lord Mackay, could you unmute, please? I will move on to the next speaker, the noble Baroness, Lady Grender.

[Baroness Grender (LD)]

My Lords, the debate so far has underlined the urgent need for reform across the entire leasehold sector and has reflected some of the strongly made arguments at Second Reading. In particular, many of the amendments are about the 4.5 million current leaseholders who are still captured by this unfair legacy and the failure to shift to commonhold, initiated in the 2002 Act.

I start by taking this opportunity to thank the Minister for discussions in advance of Committee and to stress our strong support for the Bill’s intentions. Its primary purpose is to chop off the head of the snake: the continuing supply of investment opportunities for freeholders on which they can base their borrowing for the next batch of unsuspecting leaseholders. I therefore hope that it goes through the parliamentary process with considerable speed. That said, what we cannot afford is any loopholes that enable this “something for nothing” industry to continue. When we debate later clauses, noble Lords will see that I believe there is a significant loophole that will be exploited: informal extensions, more ON which later.

As the relevant Committee, it is vital that we continue to remind ourselves of the shocking unfairness out there for many leaseholders. Last month, the Daily Mail featured a story about Carole Patterson, aged 44, an administrator in human resources whose ground rent on her flat in south London doubles every five years, rising to £1 million a year in 50 years’ time. The freeholder, MEA Real Estate Ltd, is prepared to waive the ground rent for a one-off payment of a whopping £100,000, described as

“a quarter of the value of the property”.

Given the value of that property, it is now almost impossible for her to sell on. Currently, leaseholders exist in a climate that was probably signed off by a solicitor, supposedly on their behalf. For all the Caroles, it is critical that this reform begin, and soon.

I therefore thank the noble Lords, Lord Kennedy and Lord Lennie, for Amendment 18, which I have also put my name to. It addresses the critical need for a swift resolution to the problem of existing leaseholders, and therefore asks for the next Bill to be delivered in draft form as quickly as possible. We recognise that the Law Commission has suggested a longer period, but the Government do not always do what it recommends. At present, a third of Law Commission recommendations are not implemented, some due to timing, but others because the Government have decided not to implement them. At certain points, politicians need to decide and act. With chronic unfairness built into the system for 4.5 million leaseholders, this is one of those moments.

Regarding the readiness for this change on the part of the freehold investment sector and the ongoing oligopoly of housebuilders, it is possible to argue that, since the leasehold reforms of 2002 or perhaps earlier, they have been forewarned that the clear intention over time of various Governments, of all parties, has been to move out of the leasehold system. If they are not prepared for that scenario, the problem belongs fully with them and not with the Government.

As my noble friend Lord Stunell—also a member of the former Chief Whips club in our own party—said, we of course support the intention of Amendments 1 and 2, in the name of the noble Lord, Lord Blencathra, to move more swiftly to cover all leaseholds. We also support his Amendment 11, which would limit ground rents with a relevant cap of £250 and provide for reimbursement. It is an interesting approach, given that, as I understand it, a property in London with a ground rent of more than £1,000 a year, or of over £250 per annum in the rest of the country, now falls into the definition bracket of an assured shorthold tenancy. That means that for some aspects of leasehold obligations, the courts do not have jurisdiction, especially regarding forfeiture, which was much discussed at Second Reading. I therefore look forward with interest to the Minister’s response to this issue.

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[The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)]

Before I call the noble Lord, Lord Lennie, I will return to the noble and learned Lord, Lord Mackay of Clashfern.

[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.

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I therefore ask noble Lords not to press their amendments.

[The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)]

I have received a request to speak after the Minister from the noble Lord, Lord Young of Cookham.

[Lord Young of Cookham (Con)]

I am very grateful to the Minister for his reply. I press him on what he said right at the end about the importance of getting the Bill through “as speedily as possible”. I accept that, but if it is important that Parliament processes this legislation speedily, is it not then incumbent on the Government to announce an early date for the implementation of the Bill?

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[Lord Young of Cookham (Con)]

My Lords, Amendment 3 in my name is designed to shed light on what the Government mean by premises that significantly contribute to “business purposes”. We may move into less turbulent territory in this group.

I begin by asking the Minister a fairly basic question: if ground rents are, as I believe, a feudal anachronism or, in the words of my noble friend Lord Blencathra, “legal racketeering”—a payment for which one gets nothing in return—why are they being banned only for future dwellings and not for all premises? Surely a combination of a lease and a conventional rent would suffice for the commercial sector and we could simply strip Clause 2 out of the Bill entirely. This may go beyond my noble friend’s negotiating brief but, if we are to have this distinction, we need some clarity.

By way of background, when I put the Leasehold Reform, Housing and Urban Development Act on the statute book, one of the most contentious issues was the exemption from enfranchisement of mixed-use buildings, with shops on the ground floor and flats above. After a healthy dialogue between the two Houses, when your Lordships’ House still had a healthy representation of the country’s freeholders and the other place was concerned more with leaseholders who actually had votes, we ended up exempting properties where the commercial use was 25% or more of the total space. That Act was about the collective enfranchisement of a building, whereas this Bill is about individual leases within a building, so the same definition may not work. There is, none the less, the same need for clarity and, with the current definition, I can see scope for argument and the possibility for a freeholder to introduce a ground rent by arguing that the leases in his building qualify for Clause 2 exemption.

Suppose, for example, a new block of flats is specifically designed so occupants can work from home. The developer not only builds in all the relevant infrastructure in each flat but has a communal space on the ground floor that can be hired as a conference room to get around Clause 2(3). Could he then claim exemption and include ground rents in all the leases in the flats?

I was grateful to my noble friend for the time he spent with me on Monday, when he explained that the object of exemption was where a ground-floor shop had a flat above it and it was essential, for the efficient operation of the shop, for the shopkeeper to live above it. Perhaps the parliamentary draftsmen had in mind publicans, who often live above licensed premises. My concern remains that the wording is too loose, so it can provide loopholes and give rise to litigation. I wonder whether, between now and Report, my noble friend could consider an alternative and tighter wording. I beg to move.

[The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)]

I call the next speaker, the noble and learned Lord, Lord Mackay of Clashfern. Lord Mackay, could you unmute, please? Lord Mackay? Perhaps I can return to him. In the meantime, I shall call the next speaker, the noble Lord, Lord Stunell.

[Lord Mackay of Clashfern (Con) [V]]

My Lords, I am of the same view as my noble friend Lord Young of Cookham about the difficulty of understanding exactly why business premises of any sort are exempt from this. No doubt there is an explanation. If so, it is necessary to ensure that the precise reason for business premises being exempt should be the basis of their definition. This is my point. I am sorry; I seem to have difficulty in unmuting without help, for some reason that I have not understood so far. Maybe I will gradually learn as the day goes on.