Leasehold and Freehold Reform Bill (Second sitting)

Barry Gardiner Excerpts

Committee stage
Tuesday 16th January 2024 Public Bill Committees

[Rachel Maclean]

Q Thank you for that clarification. As a follow-up, if any Government adopted a policy on commonhold such as has been talked about sometimes, but without doing the legal fixes, what would be the risk?

Professor Hopkins: The risk at the moment is that the legal regime that governs commonhold is too rigid. It does not apply effectively in larger, mixed-use developments, because they were not envisaged at the time. The risk is that you mandate a legal regime that does not work. You need a legal regime that works, which could then be mandated if that is what the Government chose to do.

[Barry Gardiner (Brent North) (Lab)]

Q First of all, let me thank you for the Law Commission’s work, which was extensive and hugely helpful. I am conscious that the recommendations on structural dependency rules have not been adopted by the Government in the drafting of the Bill. Even those leaseholders who are going to benefit from the uplift of 25% to 50% of the non-residential limit in the Bill may still be disqualified, because of the shared plant room in underground car parks and so on. Do you believe it would be preferable and helpful to introduce into the Bill at Committee stage some of the recommendations that you made on that?

Professor Hopkins: I do not think I would like to comment on whether specific amendments or recommendations could be introduced. They would have to be seen in the light of what they would do to the scheme that is in the Bill and how the provisions interrelate. That basic uplift from 25% to 50% is significant and will enable many more leaseholders to exercise their rights. There are perhaps things around the edges, but what is there is beneficial.

[Barry Gardiner]

Q I totally agree. It is certainly beneficial that there is the uplift from 25% to 50%. However, if one were to adopt the view that the commission take on structural dependency and those shared services, some groups would be prevented from benefiting unless we adopt the terms that you have recommended.

Professor Hopkins: Yes, although you have to look at what impact that would have in terms of what is in the Bill as it stands.

[Barry Gardiner]

Q Of course, commonhold is not within the scope of the Bill. Indeed, the way in which the Government framed your remit meant that your report was closely constrained in what it could say about recommending that as a tenure. Following on from what the hon. Member for Redditch said, do you think it would be helpful to move to a system where all new build flats had a share of freehold and that that was the only tenure going forward? In effect, that would give us a foretaste, and all the caveats that you outlined to the hon. Member for Redditch could gradually be put in place around that.

Professor Hopkins: It is certainly the case that it is easier to do things with new builds than it is for existing leasehold blocks. Our report includes recommendations on the conversion of existing blocks, which is undeniably more complex than building a commonhold block from the start.

We concluded in our report that commonhold was the preferred tenure because it gives the advantages of freehold; leasehold is really performing a job it was never designed to do. When I gave evidence to the Select Committee on the Ministry of Housing, Communities and Local Government, as it then was, I said that if commonhold works, you do not need leasehold. But whether you then mandate commonhold is not just a legal question; there is a political question there.

[Barry Gardiner]

Q Indeed. Currently, a leaseholder who has three or more flats in a development is instantly disqualified from participating in an enfranchisement claim. The Law Commission concluded that that regulation should be scrapped because it is hard to enforce and can be easily gamed by what I think you called sophisticated investors. You said that the practical effect of that 1993-era policy is to deprive leaseholders of the ability to buy out the freehold and to enfranchise. Are the proposals we are talking about ones you would be pleased to see introduced in Committee to get rid of that barrier?

Professor Hopkins: Again, all these things are Law Commission recommendations, and I am always going to say that the Law Commission would like to see our recommendations implemented—

[Barry Gardiner]

I am delighted; that is what I wanted you to say.

Professor Hopkins: But I cannot say whether they are the right things or the most impactful things to add to the Bill. What is there is great and is going to be hugely beneficial. There are lots of other things in our recommendations that would benefit leaseholders—

[Barry Gardiner]

Q Improve the lot of leaseholders, yes. At one point slightly earlier, you seemed to give the impression that we were—I think this is the polite way of saying it—polishing an excrescence in this Bill. Is that broadly your view, and should we just get on with commonhold eventually?

Professor Hopkins: No, that is absolutely not my view. Whatever happens with commonhold, leasehold is going to be with us for a long time. There are people who own 999-year leases. The system has to work. When we published our reports, we published a summary of what they were seeking to do. We identified them as having two distinct aims. One is to make leasehold work, and work better, for those who now own the leasehold and who will own it in future. Secondly, it is to pave the way for commonhold to be available so that everyone can enjoy the benefit of freehold ownership in future. But we always saw those as two entirely legitimate aims that legislation would need to pursue.

[Barry Gardiner]

Q One way of tackling this would surely be to enable all leaseholders ultimately to gain the benefits that freeholders, or people who have a share of the freehold, currently have, by enabling them to convert to commonhold.

Professor Hopkins: Yes. Conversion is always going to be more difficult than building from the start. We have recommendations that would enable conversion and enable more people to convert than can at the moment, where unanimity is required, but leasehold is going to be with us for a very long time.

[Barry Gardiner]

Well, it has been with us for a very long time, hasn’t it?

Professor Hopkins: Yes. So the system has to work, and that is what the Bill achieves in relation to leasehold.

[Richard Fuller (North East Bedfordshire) (Con)]

Q Can we talk a little about discount rates? I think there are two, but there may be more. There is the capitalisation rate and the deferment rate. Could you explain how, if at all, the Bill changes either of those discount rates and what the rationale for that change is?

Professor Hopkins: The Bill ensures that those rates will be prescribed by the Secretary of State. At the moment, on every enfranchisement claim—whether it is the lease extension or the purchase of the freehold—the rate used to capitalise a ground rent and to determine the price paid for the reversion has to be agreed for the individual transaction. That is a significant source of dispute, and it is a dispute where there is a real inequality of arms.

The leaseholder is only interested in what they have to pay for their home and the landlords have an eye not only to that particular property, but also to what it would mean for their portfolio of investments—so they agree a particular rate on one flat in a block, for example. The Bill ensures that those rates are fixed by the Secretary of State and mandated, so there is then no argument about what rate applies in an individual case. It takes away that whole dispute and ensures that the same rates are applied in all claims.

--- Later in debate ---

[Andy Carter]

No, that is helpful. Thank you very much.

[Barry Gardiner]

Q Mr Brewis, I think we all welcome the FCA’s work to try and make things more equitable for leaseholders, so thank you for your endeavours there. I am sure you will be familiar with the Riverside case from before Christmas, in which it was discovered that an FCA-regulated broker could not provide a written contract of the insurance to the first-tier tribunal. Do you find that strange?

Matt Brewis: I cannot talk about individual cases. However—

[Barry Gardiner]

Q Okay. Should there be a case in which an FCA broker is unable to provide a written contract to a first-tier tribunal, would you find that strange?

Matt Brewis: Yes.

[Barry Gardiner]

Q Thank you. After a three-year campaign, that poor leaseholder managed to find out, through the leasehold tribunal, that £1.6 million had been paid to her landlord for the insurance services. You will be aware that this Bill outlaws commission as a permitted charge for landlords to charge. However, you will also be aware that, in that first-tier tribunal case, it was not regarded as a commission. In fact, it was accounted for as a fee, which is chargeable under this proposed legislation. How will that leaseholder know that this legislation does not allow her to be ripped off in exactly the same way as she was ripped off before?

Matt Brewis: The value assessments I talked about require firms to approve what value they are providing, for there to be transparency to a leaseholder around—

[Barry Gardiner]

Q How do you do that if you cannot get a written contract?

Matt Brewis: Under our new rules, which came into force at the start of this year, that needs to be provided.

[Barry Gardiner]

Q But that is not actually here in the Bill, is it? Would it be helpful if, under clause 31 or at another appropriate place, we were to say that a written copy of any insurance contract must be provided to all leaseholders? Then they can at least see what it is they are supposed to be benefitting from.

Matt Brewis: The new Financial Conduct Authority rules around this do provide that, in a way that was not the case previously.

[Barry Gardiner]

Q But the Bill does not.

Matt Brewis: I believe that would be duplication of a clause that is already in the new rules from the regulator, which require a broker to provide that information.

[Barry Gardiner]

Q No, sorry; there is a distinction here. You are talking about the broker providing it to the landlord; I am talking about the landlord providing it to the leaseholder. If you want transparency here, surely that also has to be part of that transparency? Ultimately, we know that it is not the landlord paying for the insurance services—it is the leaseholder. Indeed, in the case that you cannot particularly talk about, it was the landlord getting £1.6 million of a kickback for the privilege.

Matt Brewis: In the event that the freeholder is not forthcoming with the contract, it is incumbent on the insurer to provide a copy of the contract to the leaseholder directly. It is in our rules that the leaseholder has the option of going directly to the insurer now, in order to get a copy of that contract, in a way that was not previously possible.

[Barry Gardiner]

Q To be absolutely clear: a leaseholder can write to the insurer—the insurance company—to obtain a copy of the contract that their landlord has, which insures their property?

Matt Brewis: Yes, and they will be in breach of the FCA rules if they do not provide it.

[Barry Gardiner]

Q Does that rely on the landlord telling the leaseholder who the contract is with?

Matt Brewis: Which insurer it is?

[Barry Gardiner]

Yes.

Matt Brewis: Oh, goodness.

[Barry Gardiner]

Q Because at the moment, there is no compulsion on the landlord to do that, is there? It is certainly not in this Bill.

Matt Brewis: If you follow that chain of events, when they do not know who the broker is and they do not know who the insurer is, and the landlord refuses to provide the documentation—

[Barry Gardiner]

Q Then the leaseholder has no access to the contract.

Matt Brewis: One would hope—expect—that it is a very low-likelihood situation, but that would be the case.

[Barry Gardiner]

Q We have made legislation on the basis of optimism before, and it has not proved successful.

Matt Brewis: For some buildings that have material issues around fire safety or other issues, it can be very difficult to place insurance. It is about time and cost. There is value in the services that brokers provide, and sometimes some of that work is outsourced to property-managing agents. Assuming that is done appropriately—itemised and billed—I have no issue with the payment of commission or brokerage, where it is for services that have been rendered effectively. Where it is a blanket case, in the way that you described—

[Barry Gardiner]

Q Of course, those fees for insurance services are chargeable under clause 31, in proposed new section 20G of the Landlord and Tenant Act 1985, but there is nothing in the Bill that says they have to be reasonable. The Bill says that excluded insurance costs have to be

“not attributable to a permitted insurance payment”,

but not that they have to be costs that are reasonable. There is a difference between a permitted insurance payment and a reasonable permitted insurance payment, is there not?

Matt Brewis: My understanding is that the secondary legislation that will follow will set out what those are.

[Barry Gardiner]

Q God bless the Secretary of State! So we are waiting to see whether the Secretary of State introduces the word “reasonable”—or would it not be better to have the word on the face of the primary legislation?

Matt Brewis: One would still need to define reasonable.

[Barry Gardiner]

I think the law has done a pretty good job of that over the years.

[Matthew Pennycook]

Q To further explore Mr Gardiner’s point about fees, not commissions, what is your understanding of proposed new section 20G of the 1985 Act, which defines these excluded insurance costs? What would that cover? Or is that something for the secondary legislation as well? In which case, what should it cover, to fully protect leaseholders from all types of insurance costs that might be passed on unreasonably?

Matt Brewis: It is quite a significant list. The question effectively is: what are the reasonable costs of writing an insurance policy, and then the appropriate checks to be carried out to ensure that that policy is enforceable? From my perspective, that is focused on providing the information to the insurer or the broker that allows them to appropriately price the insurance—to understand the risk factors of that building, to determine the likelihood of escape of water, the quality of its fire defences and other things, all of which in sum add up to whatever the risk price is. There are different methods for determining what is an appropriate brokerage fee. We have seen some firms come out to suggest that it should be a maximum of, say, 10% of the cost. Others take a time-and-costs-incurred approach, based on how much work they have done. Being clear about things that are directly relevant to the pricing of the insurance is the best starting point for what should be allowed to be charged.

--- Later in debate ---

[Andy Carter]

Q The problem we will find, if we are not careful, in putting through legislation that allows the right to manage is that there is still no route to get somebody to make things happen if you have a council that does not want to get involved. Who is the ultimate person that you can say—

Halima Ali: It has to be central Government. They need to regulate that councils need to start adopting all new build estates going forward and in the situation that we are stuck in.

[Barry Gardiner]

Q Halima and then Cathy, let me pick up this business of the fleecehold estates, as you refer to them. They are a relatively new thing in leasehold; they were not there in the same way 20-odd years ago when we were passing the Commonhold and Leasehold Reform Act 2002. They have been seen as a revenue stream for developers. Do you think that it would make sense for local councils, when they sell public land for housing development, to insist that that public land should not be used for a private estate model in this way? Developers can of course build the homes and you can buy them, and they can make their profit from the payments that you make to buy those homes, but they should not then have an ongoing source of revenue from the substandard management, as you described it, of the estate.

I have one estate in my constituency where they were charging residents for the management of land that they did not even own. It took us months to get the documentation to prove that they did not own that land. The fence that they had mended had actually been mended by the council. Other things like that are going on, but if that restriction were put in place in the first place, they would not be able to do it, would they?

Cathy Priestley: Our understanding is that the land belongs to the developer. It is not public until it is made public through section 106 agreements with the council.

[Barry Gardiner]

Q I understand what you are saying, but I am referring specifically to when a council makes available land that has been publicly owned by it to developers for development and puts that restriction in place.

Cathy Priestley: Well, yes, you would not want more and more privatisation, would you? I do not think any policy is in place that is pushing for privatisation of the management of public open spaces, is there?

[Barry Gardiner]

Q Mr Scoffin, you talked about this issue having wasted six years of your life; I think it has only wasted about 25 years of mine, since before the 2002 Act. You spoke about future development. What would actually make it better for existing leaseholders? There are things in the Bill that I think do improve the lot of existing leaseholders, but how can we make it even better?

Harry Scoffin: There are a number of quick wins. One is to get rid of forfeiture, because that allows these freeholder overlords to extort money from ordinary people. It is not like mortgage foreclosure, where if you cannot keep up with the mortgage payments you get the difference back less the debt; with forfeiture, in theory, a freeholder could take back a £500,000 flat on a £5,000 bill. Now, what the freeholder lobby will say when they come on later is, “There are only about 80 to 90 cases a year.” That is potentially 80 to 90 homeless families a year. More important, in a way, is that it is the threat of forfeiture that gets leaseholders to go, “Oh my God, I’m going to pay that bill.”

My mum is on £33,000 a year, for a three-bed with no swimming pool, no gym and no garden. The freeholder is one of Britain’s richest men, sheltering in a tax haven in Monaco—a billionaire. Everyone who is not a leaseholder says, “Why would you pay that? That’s more than someone’s salary.” She says, “If I don’t pay it, I’ll lose the property.” So get rid of forfeiture.

[Barry Gardiner]

Q Was forfeiture not part of the 2002 Act?

Harry Scoffin: Yes. They draw it out. There is a process now in the courts, where you can go, “Oh, I forgot to pay it” or “Here’s the money.” The point is that it does not give leaseholders the confidence to challenge unreasonable bills. They have the sword of Damocles hanging over their heads—they are being treated almost like criminals. The Law Commission recommended in 1985, in 1994 and more recently in 2006 getting rid of this iniquitous element, arguably the most feudal element of leasehold. It has not been done. The Government recently asked the Law Commission to update its 2006 report, so we know work has been done, but it is not in this Bill.

I think you spoke earlier today about this section 24 business. That is a really important issue that many Members may not be aware of. Since the Building Safety Act came in, there has been a very interesting regime about the accountable person, trying to make developers and freeholders take responsibility for their buildings. This was heard in tribunal in December—I was there—and I understand that Michael Gove has taken a personal interest in this, but there is again no guarantee that we can get the fix.

The problem is that, at the moment, any building over 18 metres cannot have a court-appointed manager, because the court-appointed manager cannot be the accountable person. It is like an aeroplane being flown with two pilots flying in completely different directions. The freeholder, who has been stripped of his management rights—because, basically, he has defrauded leaseholders or been absentee, is not doing remediation works in a timely manner, or is not giving information—will now be the accountable person. But the manager cannot manage the building, because you will have two managers for one property.

The tribunal for Canary Riverside—I add a disclaimer that this is my sister estate; we have the same freeholder, so I was there at the tribunal—said that, as much as we would like to help the leaseholders at Canary Riverside, Parliament has made it very clear that, while a non-freehold owning right to manage company or a non-freehold owning resident management company can be the accountable person, a court-appointed manager specially vetted by the tribunal is no longer allowed to be one.

What is happening at Canary Riverside is that the freeholder—the same one that we have—is looking at getting back a building that he was removed from controlling in 2016. There was even a letter from the Secretary of State to the leaseholders, which they cleverly submitted to the tribunal, saying that he was the man who passed this Act and he genuinely, honourably, had no idea that that was the implication. That is another thing, because many blocks are not going to be able to buy the freehold or be able to get right to manage. They are in a monopolistic position with these freeholders. If there is no ability to buy the freehold, you are trapped.

In our building, we cannot sell the flats. We cannot even give them away at auction. It needs to be allowed that a manager appointed under the Landlord and Tenant Act 1987 can be the principal accountable person where a tribunal deems it appropriate.

There is one other major point. At the moment, many people may stand to benefit from getting the right to manage or buying the freehold, with the 25% rule going up to 50%. I know that because I have campaigned for it for the last six years. Nick Hopkins at the Law Commission used to have a joke that he would probably have to take out a restraining order against me, because I really pushed on this issue. The problem is that there are so many people who would benefit from that, but if they have that plant room or that underground car park, they still will never be free. They will never be able to get the freehold or right to manage. That is something that the Law Commission already recommended. We can get that into the Bill.

Another point to note is that if you cannot participate, for whatever reason, in buying the freehold—you do not have the money to join your neighbours—in perpetuity, you will never be able to buy that share of the freehold ever again. If you cannot get the money together, you are out. That needs to be sorted. The right to participate was very popular with the Law Commission consultees. That absolutely needs to happen.

There is one last thing. Nickie Aiken MP and other MPs, such as Stephen Timms, have been pushing on this point. At the moment, to buy the freehold or get right to manage, you have to get 50%. In our building, which is 20 years old, we are very lucky that we have managed to get 82% of the leaseholders. Do you know how much work that has involved? It is cornering people in lifts, paying the £3 to the Land Registry, doing some weird investigations. It is Herculean. You have to go back to 1931 in this country to find a political party that has won a general election with 50% of the vote, so why is it fair for residents who are being ripped off to be told, “You need to get 50%”? That should come down, because most big blocks, particularly the newer ones, will never hit 50%, and given that the Government are talking about a long-term housing plan and about building up in the cities, we have to make flat living work. We have the second lowest proportion of flats of any country in Europe, after Ireland—

[Barry Gardiner]

Q Sorry, can I just ask you to amplify what you were saying about the 50%? I understand the difficulty, if you have 900 people in a high-rise block, to co-ordinate to get 450 plus one to do it, but surely many of those apartments will be buy to let, so you may not ever be able to meet or get in touch with the actual leaseholder. You are going to be able to do that only through a subtenant, and that makes it almost impossible, doesn’t it?

Harry Scoffin: Some leaseholder advocates say, “We do not touch the 50%,” and I do not understand them for it, but the fact is that they just say, “Give leaseholders more information.” I have to be honest: even once you have got in touch with guys from Singapore, Hong Kong, the middle east and all the rest of it, when you try to explain what leasehold is, it goes over their head; when you say “right to manage”, it goes over their head. They say, “Well, I’ve bought the flat. I don’t need to get involved.” And then you say, “It’s £2,000 or £3,000. We all need to do it—each—to club together.” These guys are mean—some of them—and they are not going to get involved. So the fact is that at least on right to manage, where you are not compulsorily acquiring the freehold interest, it should at least come down to 35%, in line with the suggestion from Philip Rainey KC, whom you will be hearing from on Thursday. The London housing and planning committee also said that 50% is very, very difficult in large developments, particularly in London. So that does need to be thought about at least—it coming down on right to manage.

[Barry Gardiner]

Ms Ali wants to come in.

Halima Ali: I just want to make this specific point. It is clear that rules and regulations regarding leasehold and RTM are not working. It is very—what is the word, Cathy?

[Barry Gardiner]

Q Unfair? Unjust? Inequitable?

Halima Ali: It is very unfair and inadequate, and it makes no logical sense for freeholders on a private estate to be given the same rules and regulations when it is not working for leaseholders.

[Barry Gardiner]

Q It is the imbalance of power.

Halima Ali: Yes.

[Rachel Maclean]

Q Harry, can I just ask you a couple of things? On the forfeiture point, is it your view that there is absolutely nothing in the Bill to prevent the forfeiture issue?

Harry Scoffin: There are not specific provisions to improve the position on forfeiture. I would love it to be abolished, but if we have to have some form of mechanism that is still going to be called “forfeiture”, at least say that if it happens, the equity is returned to the departing leaseholder when the flat is sold and it is just the debt that the freeholder gets back. The idea that he gets a windfall is obscene. That has to go. At the moment, forfeiture can kick in at £350, so what some law firms are doing is, for a breach of lease, a 350-quid charge, so forfeiture already kicks in there. So bring that up. Some people have suggested £5,000. I would go even higher—£5,000 is the figure for personal bankruptcy proceedings—and bring it up to £10,000.

There will be these freeloading freeholders that will come before you today or on Thursday and say, “Well, if these leaseholders are not paying, the whole building is going to fall to rack and ruin. It’ll be like this country in the 1970s where the bins weren’t getting collected and bodies were piling up. You’ve got to keep the lights on in a block of flats.” What you say to them is, “Sue for a money judgment.”

--- Later in debate ---

[Ms Rimmer]

Q Could you speak up a little, please?

Mr Andrew Bulmer: Sorry—yes. I am afraid that I do not have a voice that projects, but I will do my best.

We warmly welcome regulation of managed estates; it is an anomaly that the management of those estates is unregulated. I was in the room earlier and I heard some eloquent discourse around the fact that some of these estates exist at all as managed areas and that those common areas are not adopted. I have personal experience of managing estates where there are two grass strips, a couple of gullies and a little piece of road, for which you need to set up a limited company, find directors, get them insured, do a health and safety risk assessment and a whole load of other stuff—a whole load of on-costs—for what amounts to, as I say, two strips of grass and a couple of gullies. Clearly, for that kind of small estate, that is utterly disproportionate and I strongly recommend that those areas are adopted by the council. There has to be a way through it, through planning legislation, section 106 agreements, commuted sums and so forth. I would strongly make that point.

On the regulation of those estates that either exist and cannot be adopted or alternatively perhaps are part of a much more complicated scheme and it is therefore inevitable that they will be managed areas, then, yes, absolutely bring them in. I would recommend that you align the regulations and the processes for reporting and service charge accounts, or charge accounts, as closely as you possibly can to the reformed leasehold regime so that there is consistency.

[Barry Gardiner]

Q Mr Bulmer, would it not be easier for your members to just pursue a claim in the county court, rather than go through the whole business of forfeiture in order to recover what are sometimes actually quite trivial sums?

Mr Andrew Bulmer: Would it be easier? I am not entirely sure. A substantive point was well made earlier. At the very minimum, there was a call for the equity that is left in a forfeited property to be returned to the leaseholder.

[Barry Gardiner]

Q Just so that the public and everybody is absolutely clear on this, at the moment, for a debt to your freeholder in excess of £350, you could lose the entire property, valued at several hundred thousand pounds, and the difference is not given to you. Is that correct?

Mr Andrew Bulmer: As I understand it, that is absolutely correct. Yes, the freeholder takes a lot.

Just to be clear, it might just be worth saying that we represent only managing agents. We do not have freeholders as members and we do not represent freeholders. That is sometimes misunderstood and, while I am clarifying, probably 50% or thereabouts of the estates that my members manage are RMC controlled. We also have members in Scotland who are freehold entirely, so we are very comfortable with freehold, commonhold and resident control.

[Barry Gardiner]

Q Your members do come in for a lot of flak, I know, and I just want to put it on record that I do not think that they are only the agents doing wicked freeholders’ biddings. They have a difficult job to do and many of them do it well. Do you find that your members’ mental health improves when they are dealing with tenants who are in a right-to-manage block, where they have that sense that it is they that are in ultimate control, as opposed to dealing with people on behalf of a freeholder who has that control?

Mr Andrew Bulmer: We do a mental health survey of our members. We have done it now for, I think, three years. I am sad to report that the answers of property managers to the question of “Is your life worthwhile?” are in the bottom 17% of the UK population, which is certainly a cause for concern. We ask for the sources of stress, and they include the cost of living and things external to their work, but it is roughly equally balanced between freeholders and leaseholders.

[Barry Gardiner]

Q So people can be equally bloody minded whatever they are.

Mr Andrew Bulmer: I think it rightly places property managers roughly in the middle of all this. Shall we say that?

[Barry Gardiner]

Q In terms of sinking funds and reserve funds, do you believe that there should be a separation and an accountability for income and expenditure in and out of those funds to the tenants?

Mr Andrew Bulmer: I would go further than that and say that we have been calling for a standardised chart of accounts for quite some time and that standardised chart of accounts would be able to separate out and highlight the various funds. It is important that each individual leaseholders’ funds can be readily identifiable in terms of their own account.

[Barry Gardiner]

Q Thank you. That is extremely helpful and I am sure the Minister has taken very good note of it. You will remember that this was something in the 2002 Act, and the British Property Federation have lobbied for it. Would you agree that there should be separate trust accounts to make sure that there is no financial mismanagement by the freeholder?

Mr Andrew Bulmer: Yes. The Property Institute standard, the old ARMA standard for member firms, requires separate accounts for each development and for those to be trust accounts—it is leaseholders’ money held on trust.

[Barry Gardiner]

Q You mentioned the code of conduct for your members. ARMA also had a code of conduct, did it not? It introduced a code of conduct back in the early noughties. What went wrong?

Mr Andrew Bulmer: First of all, it still does have that code of conduct. We are in the middle of rebranding from ARMA to TPI. Just to be clear, the legal entity is The Property Institute, but we are still running on the ARMA and IRPM brands for the next few weeks, when the branding will finally change. I am not quite sure what the phrase, “What went wrong?”—

[Barry Gardiner]

Q Let me put it this way: what does the new code of conduct specify that you consider to be a great improvement on the old one?

Mr Andrew Bulmer: There is a plethora of codes. I am good with this: when I was residential director at RICS, I project managed the delivery of the third edition of the RICS code. There is a fourth edition of the code, which I think sits with the Department for Levelling Up, Housing and Communities at the moment. Separately from that, Baroness Hayter’s overarching code of practice, inspired by RoPA, is in draft form and goes across all agents. There is then the ARMA standard. There is a plethora of codes. It is the RICS code that the Secretary of State adopted, so again I would love to answer your question, but I do not quite understand it yet. How can I help you?

[Barry Gardiner]

Q I want to know how you feel that the latest code of practice you have instigated has helped to tighten probity and ensure that the transparency and probity of the dealings between a freeholder and a leaseholder have been improved by what you have done.

Mr Andrew Bulmer: We are not a regulator. For firms to join us, they volunteer to do so. It is to their credit that they do so, but there is a limit to what we are able to enforce. We can embrace standards, and our job is to raise standards by pulling—

[Barry Gardiner]

Q You can throw somebody out of the institute, can you not?

Mr Andrew Bulmer: And we have done so. We can raise standards by pulling firms and members along. We can have adventurous conversations, we can set standards and, in extremis, we can remove agents from the institute. We have done that for both individuals and firms. But, ultimately, we are not a regulator, and if you are truly to drive standards you need both pull and push. The role of the regulator would be to push.

[Barry Gardiner]

I think you have given a very eloquent explanation of why, try as you might, we need to ensure that within the primary legislation we have the adequate safeguards, because they cannot be done by voluntary effort outside in a complete and effective way. Thank you.

[The Chair]

Are there any further questions from Members? No? Okay, in which case I thank the witnesses for attending today. We will move on to the next panel.

Examination of Witnesses

Kate Faulkner OBE and Beth Rudolf gave evidence.

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[The Chair]

We have a very enthusiastic witness. I call Barry Gardiner.

[Barry Gardiner]

Thank you. I make it 296.91, actually, but please correct me if Google thinks I am wrong.

Professor Leunig: May I ask whether you used a calculator to work that out?

[Barry Gardiner]

Of course.

Professor Leunig: Phew! I was once involved in setting a question for Carol Vorderman on “Who Do You Think You Are?”. They wanted her to work out something like that, and I said, “You’ve got to give her a calculator.” They said, “No, she’s Carol Vorderman.” No one can work out 1.027⁹⁴ in their head, not even Carol Vorderman. They finally agreed to put a calculator to hand, which she used, I believe.

[Barry Gardiner]

So she didn’t do it in her head.

Professor Leunig: Even Carol Vorderman cannot do that in her head. If you had said that you had done it in your head, I would have put you above Carol Vorderman.

[Barry Gardiner]

Q No, no—on my calculator.

Back to the Bill. There is an argument put forward for ground rent—the Government’s proposal is to take it down to a peppercorn or indeed abolish it entirely—that these are inalienable property rights, so there must be compensation and there must be proportionality. Could you elaborate for the Committee on whether the same argument was used when we compensated slave owners for the loss of their property, and whether you think that there is an analogy there?

Professor Leunig: Property rights are never sacred in the sense of being inviolable, because a property right is over and above the right to be compensated for the loss of property, so a properly inviolable property right would ban the emancipation of slaves, ban compulsory purchase and so forth.

But the Government often take actions that, de facto, end someone’s business. One of the saddest things I did in Government when I was economic adviser to the Chancellor was meeting a group of people affected by Brexit. One of them was a seed potato exporter. Under EU law, seed potatoes cannot be imported into the EU, so on the day that we left, this person’s business was completely kaput. He asked for compensation, but it was not granted. We can argue the rights and wrongs of that, and we can argue the rights and wrongs of Brexit, but it seems to me that the fundamental sovereign right of Parliament is to make decisions that some people like and some people do not like. If people are really unhappy, they can judicially review it. A lot of rich people own ground rents, and they may well be judicially reviewed. Sometimes almost anything is reviewed, certainly in the world of property.

I am not a lawyer, but it seems to me that there is a plausible case for Parliament to stand up and say, “We believe there are social advantages to doing this, and we have therefore done it.” That is the standard defence in law, and we did this at the end of covid. I was involved in the compulsory arbitration for a commercial rent scheme; indeed, it was one of the things I came up with as an idea in my time as a civil servant. At the end of covid, just about every restaurant had a huge accumulated rent debt. The standard commercial clause says that on any day you are behind with your rent, the landlord can go in, occupy the property and seize everything that is in it. We put that into abeyance for covid, without compensation, because we had a public policy reason for wanting restaurants shut.

[Barry Gardiner]

Q Indeed, we actually did it after the Custins v . Hearts of Oak Benefit Society legal decision in 1967, which had reversed the Government’s decision on marriage value. We then legislated to make it absolutely clear that marriage value should not be counted.

Professor Leunig: There we are.

[Barry Gardiner]

Q In 1993, that was turned over. But it is public policy that trumps those property rights.

Professor Leunig: Correct, and that was what we decided at the end of covid, when restaurants, particularly those that served fine wine, came to us to say, “As soon as we restock our cellar, the landlord will turn up, reoccupy the property, seize all the wine and sell it for the back debt.” They said, “We are literally not willing to bring wine on to the premises.” It was clear that that was an inefficient outcome that risked undermining the high street, risked undermining the future of hospitality and risked undermining a sector that is the biggest employer of young people. We therefore created a compulsory arbitration scheme to prevent that from happening. Nobody judicially reviewed that, even though there were some unhappy landlords, because they understood that we had a public policy purpose for doing so. The weight of evidence that you have heard today suggests that there is a public policy purpose here but, as I say, I am no lawyer.

[Barry Gardiner]

Q Thank you. That is extremely helpful. Please do refuse to answer if this is outwith your bandwidth, but in terms of the way in which leasehold in particular enables the freeholder to extract a revenue stream and the way in which developers develop properties precisely to extract that revenue stream, do you believe that that has had any bearing on the value of land in the UK and the fact that it appears to be at a higher price—obviously there are density and population issues, but on the whole it seems to be of a higher value—than land elsewhere in comparable populations?

Professor Leunig: Let us be clear: land for housing is of higher value and agricultural land is of slightly higher value, but industrial land is often not.

[Barry Gardiner]

Q And there is a huge premium when land is transferred from agricultural to construction use, is there not?

Professor Leunig: Gobsmackingly. The field with three horses next to Heathrow airport that I go past if I ever go to Heathrow is a tragedy. It is a really dreadful little bit of land. It is used for nothing other than three horses, but its value is constrained, because it is zoned for agriculture. I think the answer is: very little. Most of the large developers are not in this in order to make a fast buck out of ground rent and so on. Indeed, from memory, I think I can put on record that Taylor Wimpey behaved very honourably, having inadvertently had doubling rents in the north-west—

[Barry Gardiner]

Q You would say that of Persimmon and FirstPort.

Professor Leunig: Hang on; I will exercise my right to finish the sentence. It actually bought them back from the people to whom it had sold them, and it had not sold them at a particularly high price. It was just a local convention in the north-west that houses were sold on leasehold. The national companies hired solicitors, who did the normal thing in their area. Just as there is in government, there is often a lot more cock-up than conspiracy in the private sector. I am much more worried about the people who buy the leases later on with a view to finding the loopholes and exploiting them, just as people buy up medicines that are not quite out of patent to force the prices up. That is why I think it is good to set up a legal system that prevents the sharks from sharking, or whatever the verb is, but I would not want to tar all developers with that brush. In terms of property prices, I should say that I think it is overwhelmingly the planning system—we can see that if you look at somewhere like Manchester, which has lots of flats where land prices are not that high. Land prices are high in London and the south-east because we do not release enough land for housing.

[Barry Gardiner]

I will exercise my right to interrupt.

Professor Leunig: Absolutely.

[Barry Gardiner]

Q I think you are looking at this from a historical point of view. Your example of the north-west was perfectly apt, but there have been modern developers and companies—and I would cite Persimmon and FirstPort—that deliberately go about creating this as an extractive opportunity. Yes, it is much more modern, but surely it then has an impact, if it is allowed to continue, on land value.

Professor Leunig: It could do for sure, yes. If you can extract more money for the product that you are able to sell, you are willing to pay more for the constituent parts. However, I would not want anybody here to think that if we move from leasehold to commonhold, houses will suddenly become affordable in the south-east. That would not be a credible economic prediction.

[Barry Gardiner]

Thank you.

Professor Leunig: For that, you need to build more houses.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

Q I am trying to keep my interventions very brief, because I will be speaking a lot next week, but I could not resist asking you a couple of questions given your history, knowledge and background that is much more than my own. You have emphasised very clearly and articulately the rights of the people sat around this horseshoe to make decisions that will have economic impacts. Can I get your understanding of what you think the economic impact of the Bill as it stands broadly is?

Professor Leunig: First of all, I repeat what I said earlier, namely that it seems to me that a lot of it is up to the secondary legislation. In particular, I think that issues of compensation are entirely in secondary legislation and regulation. As I say, I am not a lawyer; I find it very hard to read a Bill. It is not my skillset at all. I would not like to have your job.

I think that the biggest effect is the dynamic effect of creating a much cleaner and clearer property market. We have a rather ossified property market in Britain; it has become more ossified over time. There are all sort of reasons for that, including the fact that far more people are now under stamp duty, as well as the effect of financial regulations that mean someone needs a relatively large deposit to get on the housing market. There is a bunch of other costs that we really could simplify and get rid of. Take searches, for example. You can buy a house that is two years old and you have to do a completely clean set of searches. Why? When did we last find a mine in central London? We know this stuff pretty well.

I think this is part of clearing up the housing market and if we do so it can have quite big dynamic effects—for example, facilitating the better movement of people in response to opportunity. Such opportunities may be economic. I do not want to sound too Norman Tebbit and say, “Get on your bike.” However, there can be opportunities to go and live next to an aged parent who has suddenly fallen ill, in order to provide better care for them, or opportunities to move nearer to better schooling. Whatever the opportunity is, a more flexible housing market allows people to move to a house that is better suited to their needs.

All those things are good dynamic effects that in the medium term are strongly pro-growth and I see this Bill being part of it, but it is a small step forward. A move to commonhold would be a better step forward to a nice, clean system, where everybody knows exactly what they are buying and nobody is left wondering, “What sort of freeholder is this? Are they an exploitative one? Are they a reasonable one?” Many freeholders are perfectly reasonable.

--- Later in debate ---

[The Chair]

I am quite keen to wrap this up before the Minister concludes speaking in the Chamber, because otherwise we will have to keep the witness for at least an hour during votes, and I do not really want to inconvenience him that much. Can we have very quick questions and swift answers if possible, please?

[Barry Gardiner]

Q The Norwegian example that you have cited related to land that, I understand, did have a rental value because it was agricultural land, whereas you cannot rent out a piece of land that already has a building on it, obviously, except to the tenants. I think there is a relevant difference. Have you made a study of elsewhere in the world, such as Australia, Hong Kong and America—the British empire led us to seed leasehold around the world—and what they do?

Dr Maxwell: In relation to your first point on the Norwegian case, yes, as I said, it was different. It is about agricultural land value. The value was equivalent to several thousand euros. As for what happened with the adoption of, say, strata title in Australia and so on, that is not within my knowledge. What I know or have studied in detail is—

[Barry Gardiner]

Q I just found it a strange example to choose Norwegian agricultural land, rather than where we know it has actually happened—where these payments were not made, the courts did not find that huge payments needed to be made, and there were no huge court cases. If we look at where else in the world this has happened, actually, it has happened without that sort of thing. I understand you are a lawyer, and no lawyer I have ever known has wanted to refuse a client the opportunity to go to court. But it seems odd that we are not talking about where we know it has happened in an exactly parallel situation. Our leasehold system was introduced in those countries, transformed into strata title or condominium structures, and no great crisis resulted.

Dr Maxwell: The very short answer to that is that we are dealing with article 1 of the first protocol to the European convention on human rights. Countries such as Australia, and particularly places such as Hong Kong now, are not signatories to the convention, nor do they have a domestic law-giving effect to it. That is why we are dealing with article 1 of the first protocol, and that is why we are dealing with case law from other jurisdictions that is, perhaps, not directly analogous.

As for the sorts of cases, or whether any cases were brought in those jurisdictions when that system was adopted, that is not something I am aware of or can comment on, unfortunately.

[Barry Gardiner]

Thank you very much.

[The Chair]

And then, very succinctly, Andy Carter.