Leasehold Reform (Ground Rent) Bill [HL]

Baroness Pinnock Excerpts

Monday 24th May 2021 Lords Chamber

[Baroness Pinnock (LD) [V]]

My Lords, I draw the House’s attention to my relevant interest as a vice-president of the Local Government Association and a member of Kirklees Council.

The basic tenet of the Bill is to be welcomed. The excellent briefing by the House of Lords Library states very clearly the intention that

“freeholders or landlords will no longer be able to make financial demands for ground rent. It seeks to do this by establishing that new, long residential leases are only permitted to charge a peppercorn rent (which has zero financial value) … In addition, the bill would prohibit the charging of administration charges relating to peppercorn rents. The bill would also establish a civil penalty regime for those who charge a prohibited rent”.

The Bill sets out the 26 clauses needed to enact that intention.

The Bill is, therefore, both technical and detailed, and I am sure that other noble Lords will be able to use their expertise to probe and challenge different aspects of the Bill and whether it achieves its stated intention. In her excellent contribution, the noble Baroness, Lady Andrews, has already started to challenge and probe the meaning of the clauses in the Bill. I concur with all the questions she asked; they are both relevant and important.

As the Minister said in his opening speech, there are 4.5 million domestic properties with leasehold agreements, of which approximately 3 million are flats and 1.5 million houses. This is, therefore, not a niche issue but one which affects millions of people. My attention was first drawn to an impending scandal when it was reported in local Yorkshire media some three or four years ago that new-build houses had been bought with the new owners seemingly unaware that the developers had attached a spiralling ground rent charge to the property. As the Minister has stated, the Competition and Markets Authority became involved. The situation has been likened to the mis-selling of PPI. An individual case was highlighted in a report in the Independent this weekend. There, the annual ground rent for a one-bed flat in London, purchased for £170,000 in 2018, was to double every five years. In 20 years’ time, the ground rent will have risen from an affordable £1,050 per annum to a completely unaffordable £16,800. Such abuse is the scandal that the Bill seeks to prevent, by permitting only a peppercorn ground rent and banning administrative charges on ground rents, thus closing any further legal loophole through which leaseholders are at the mercy of unscrupulous freeholders. This is welcome news, but it does, of course, penalise those freeholders who have acted responsibly and not exploited the situation.

The additional huge gap in the Bill is its failure to address the situation of existing leaseholders faced with spiralling ground rent costs. This means that leaseholders—often, but not always, first-time buyers—could be left with costs spiralling to unmanageable levels and their property becoming unsellable. The failure of the Bill to deal with past abuses of ground rent and service charges will leave existing leaseholders in a worse position, because it will create a housing market where new-build properties, with zero ground rents, will be far more attractive than those with spiralling ground rents. Who in their right mind is going to purchase a property with those extortionate additional costs attached to it? Then there is what I define as a scam, which some freeholders are using: the so-called informal lease extension, which also includes clauses of doubling ground rents. Using this approach, freeholders agree to an extension, not of 90 years, which reduces ground rents to zero, but, say, of 125 years, which then has within it clauses which double ground rents every five or 10 years. That is an abuse by some freeholders that has to be prevented.

There is a theme in this Bill, which I have challenged before in relation to the Fire Safety Bill: existing leaseholders being left to hang out to dry or, more exactly, of the Government wringing their collective hands, offering empty promises and absolutely failing to take action to protect those who have been completely failed by existing legislation, by highly profitable developers and by freeholders who have lost all sense of integrity. The challenge for this Bill, as in debates on the Fire Safety Bill, is: what are the Government going to do for the innocent leaseholders? The scandal of flammable cladding and fire safety defects, which the Government have contrived to avoid, is happening on their watch. The scandal of spiralling ground rents hitting leaseholders is happening on their watch. This Bill could have been used to provide wider protection for leaseholders: both the innocent victims of the cladding scandal and construction crisis and, now, those who are victims of abuses and unscrupulous behaviour by some freeholders. Will the Minister outline to the House what effective action is being proposed by the Government to provide redress for those leaseholders who are innocent victims in both these scandals? I look forward to the Minister’s reply and to further stages of debate on the Bill.