Leasehold Reform (Ground Rent) Bill [HL]

Baroness Wheatcroft Excerpts

Monday 24th May 2021 Lords Chamber

[Baroness Wheatcroft (CB)]

My Lords, I must start by declaring an interest as somebody who pays a ground rent. It is not a peppercorn—it would probably buy a few kilos of peppercorns—but I cannot claim to find it too onerous.

The Minister began his remarks by saying that the Bill is intentionally limited in scope, but I can only echo the words of the noble Lord, Lord Blencathra: why is it so limited? It is clearly ludicrous at this stage to be talking about a peppercorn rent. Clause 4(3) states:

“In this Act a ‘peppercorn rent’ means an annual rent of one peppercorn.”


That may explain why weights and measures will be policing this, presumably to check whether the peppercorn is of a certain size and weight. Otherwise, the whole thing is so outdated.

For new properties, the Bill is of course a good move, but existing ground rents need to be addressed. The Competition and Markets Authority estimates, as others have cited, that 18,000 leases have a doubling ground rent clause that applies between every 10 and 15 years. The Minister acknowledges that this is a serious issue. Simple mathematics shows why. If the ground rent is just £200 a year in year one but doubles every 10 years, by year 41 it will be £3,200. By year 71 it will have reached £25,000 a year. No wonder, then, that ground rents are now marketed as profitable investments. According to one of the organisations promoting such an investment, it is possible to generate a return of 5% to 10% a year on a ground rent. Where else can one find such a return without risk and without delivering any service? This is clearly too antiquated.

Of course, one can argue that those who buy leasehold properties with onerous ground rents are subject to the rule of caveat emptor. The noble Lord, Lord Hammond of Runnymede, was eloquent on this subject, and hoped that conveyancers who failed to point this out to their clients would be brought to book. Certainly, there are lawyers out there who are trying to bring such cases and trying to get potential clients interested in such a move. But caveat emptor does not have to apply in every case. Just as the Government moved to protect consumers from onerous interest rates on payday loans, for instance, ground rents now could and should come into the category where people need to be protected by the state.

Clause 2(5) states that statutory extensions will not be subject to these provisions. Why should that be the case? A long lease, many will tell you, is as good as a freehold. Would not this legislation have been the opportunity to demonstrate that, by dealing with the anomaly of escalating ground rents in leases that are being extended under statutory provision? Perhaps reform could go further. Given the existing rights to extend leases, would it not make sense to insist that new properties sold with leases of 99 years or more should be sold with a share of freehold?

Ground rents come on top of service charges. When will the Government move to deal with the malpractice of many landlords in imposing greedy service charges? Far too often, contracts are given to related companies at prices which are really robbing the tenants. These problems often affect new-build properties as much as existing ones—another reason why insisting that a share of freehold should be included in the selling price makes sense. Then the people living in the properties can get themselves together and organise the management of the block.

It is notable that developers of retirement homes have been particularly averse to this legislation. Could that be because they are some of the worst offenders on service charges, yet they argued that they need ground rents as well. They claimed that the ground rents went towards looking after the communal areas—but surely service charges can provide that, and clarity over service charges is what is required in all these situations. So, finally, when will the Government move to make service charges an area that they monitor very carefully and take action on?