Leasehold Reform (Ground Rent) Bill [Lords]

Desmond Swayne Excerpts

2nd reading
Monday 29th November 2021 Commons Chamber

[The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Eddie Hughes)]

I beg to move, That the Bill be now read a Second time.

As hon. Members may know, I have long championed a root and branch comprehensive reform of our leasehold system. It has been a long journey to get here from my private Member’s Bill—Ground Rents (Leasehold Properties) Bill—to try to overhaul the regulations on ground rents. It is particularly gratifying to be standing here today as the Minister responsible for this hugely important legislation.

The Bill will make home ownership fairer and more transparent for future generations of leaseholders. We will do this by reducing the ground rent on new residential long leases where a premium is paid to a peppercorn. I am sure that this change, which will benefit thousands of future leaseholders, will be welcomed right across the House.

[Sir Desmond Swayne (New Forest West) (Con)]

I lobbied for an exemption for the retirement living industry, which was granted and then withdrawn in January this year. Why was that?

[Eddie Hughes]

I appreciate my right hon. Friend’s strong lobbying on this matter. I think the Government decided that it was appropriate to treat all leaseholders the same and therefore we made that change, although we did allow an extension in the introduction of that to April 2023.

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[Eddie Hughes]

Once again the right hon. Gentleman points out an egregious and unfortunate practice that hopefully we will be finding ways to address in future.

[Sir Desmond Swayne]

That prompts the question of what proposals the Minister may have to enable leaseholders to enforce the purchase of freeholds from such companies. Does he have plans for that?

[Eddie Hughes]

As my right hon. Friend will know, unfortunately I am not the Secretary of State, much as I would like to be. [Interruption] Not yet, anyway. It is best to leave the fine detail of the formation of future legislation to the Secretary of State to decide. However, I look forward to discussing the matter further with my right hon. Friend as we progress.

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[Lucy Powell]

Absolutely. My hon. Friend makes a really good point. People are trapped in this situation, because we all know that when we look to buy a home, we look at the overheads, and the ongoing service charges, ground rents and other costs. In recent years, those things have rightly been added to the affordability criteria, so people often cannot get a mortgage for these homes. That leaves the people living in them trapped in that situation with an unsellable home.

[Sir Desmond Swayne]

Does this not give rise to an extraordinary question about the legal advice provided by solicitors to those who made such purchases?

[Lucy Powell]

I am glad the right hon. Gentleman raises that point, because I am sure colleagues around the House will be keen to highlight—

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[Robert Jenrick]

I think it should be kept under review, like any permitted development. As we have seen with past examples, there are always cases at the edges that concern us, and there are usually ways to refine the permitted development over time to ensure that those cases do not happen again. With the permitted development that the hon. Gentleman mentions, I think—from memory —that we ensured that the developer has to work with the local council to ensure that there are not issues with building safety or loss of amenity to the leaseholders in the building, and that the design of the extra storeys is broadly in keeping with the neighbourhood. I certainly think that the issue should be kept under review.

[Sir Desmond Swayne]

Will my right hon. Friend give way?

[Robert Jenrick]

I will, but I appreciate that many other hon. Members want to speak.

[Sir Desmond Swayne]

As I do!

It would be quite unlawful for the capital cost of the communal areas in a retirement living community to be paid for through an administration charge, so we come back to the question whether it is in the interests of the purchaser to pay a ground rent or to pay the up-front cost in the purchase price. For a category of elderly people, it may well be in their interests to pay the former.

[Robert Jenrick]

My right hon. Friend gets to the nub of the issue. The debate, exactly as he says, was whether it would be better for a retired person looking to move into such a community to pay a somewhat lower purchase price for the property or the share in it that they were taking, and then, for as long as they live there, pay a ground rent, which might escalate at an unfair level, and a service charge. That is not a system that occurs in any other country in the world, including countries such as the United States that are far more advanced in their take-up of retirement properties. I took the view that it would be much fairer and more transparent for an individual to know exactly what they had to pay from the outset: they pay their purchase price and then their service charge, but they do not have to face escalating ground rent. That makes sense to me; I appreciate that there will be differences of opinion, but it was done as a matter of basic fairness.

I make it clear that the reason for the Bill’s very limited scope was to bring an end to unfair practices as quickly as possible. That was the advice of the Law Commission, which said that it was better to have a two-step process so that the iniquity of escalating ground rents could be brought to a close, and then we could move on to the much more complex piece of legislation that will inevitably take the Department and Parliament a great deal of time to prepare and pass. I think that that was probably the best way to proceed.

Two further points emerge as a postscript to the events of the past few years. First, as my right hon. Friend the Member for New Forest West (Sir Desmond Swayne) said, we need to think about the conveyancing solicitors who gave or failed to give advice in the process of house sales. They failed in their duty to their clients: many constituents have come to my surgeries who were oblivious about the homes that they were buying. That applies not only in the situation we have discussed, but with respect to management fees, which may be very high or—as the right hon. Member for Alyn and Deeside (Mark Tami) mentioned—may involve charges, for example for putting up a satellite dish, building a conservatory and so on. Conveyancing solicitors need to take much greater care to bring such matters to the attention of their clients.

Secondly, the work of the Competition and Markets Authority must move forward at pace. It has already ensured that some of the major developers have settled, but I encourage all developers behind the sale of these properties, many of which they mis-sold to members of the public, to do the decent thing—the inevitable thing—and settle, so that the purchasers get some compensation for the issues that they have faced. I see that many are on the cusp of doing that, but I hope that the remaining ones will do so quickly.

I also hope that the Government will ensure that the second Bill features in the next Queen’s Speech and is delivered early in that Session. There is, as I have said, a great deal of work for the Department to do in preparing that Bill and ensuring that it is sufficiently comprehensive, but I think it extremely important that it does so, and that within the course of this Parliament we deliver comprehensive reform to leasehold. It should include 990-year leases, a simpler, cheaper enfranchisement process, ending marriage value, improving the position of leaseholders in the management of buildings, and ending—as has already been suggested—the building and selling of new houses as leasehold, because there really is no justification for that.

Finally, I hope that that Bill will look to the destination of a world beyond leasehold. That is the end point towards which we must work. I established the Commonhold Council to see how we could chart that course, and it seems to me that all the complex issues that are raised are surmountable—that is the evidence from the council so far. It also seems to me that commonhold will never take shape to any substantial degree in this country without a major Government intervention, which means indicating that it is our tenure of preference, or setting an end date for new leasehold properties. I favour the latter: I think we should say clearly that, beyond a certain date, no property, whether it be a flat or a house, should be built unless it is commonhold. I hope that the Bill to be introduced in the next Session will set that course, because I think it would be an important step towards ending a feudal system and helping us to move forward as a country.

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[Sir Desmond Swayne (New Forest West) (Con)]

I have had the nub of my argument with my right hon. Friend the Member for Newark (Robert Jenrick), but it comes down to this: the retirement living industry’s business model funds the capital requirement for the communal areas through a flow of future ground rents from the outset. The Minister said that he has given the industry time to change its business model. My answer to that is: if there was a problem with an escalating ground rent, it would be perfectly appropriate to have dealt in a measure such as this with that specific problem, rather than telling the industry to change its entire model. Nevertheless, this is where we are.

The business model must therefore have changed by 1 April 2023. The difficulty is with the time it takes to sell properties in the retirement living sector. The industry’s estimate is that some 4,000 apartments will remain unsold in part-sold developments. If someone was to complete on one of those properties on 1 April, they would be paying all the capital costs up front, whereas someone who had completed on 31 March would be expecting to pay a ground rent for the remainder of their tenure. That creates a huge legal confusion and a sense of injustice among the tenants in those properties. So I put a solution to the Minister: a technical amendment to the Bill to enable part-sold developments to continue to sell the unsold properties with a ground rent, provided those properties were built when it was lawful to charge a ground rent. That strikes me as proportionate. We are not dealing with a huge problem or a huge number of properties, but with some 4,000. My proposal seeks to avoid the confusion and difficulty that would arise with two different types of tenures in the same development. That seems a not unreasonable thing to ask Ministers to consider in Committee and on Report.

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[The Minister for Housing (Christopher Pincher)]

I thank the Front Benchers from the official Opposition for their support for the Bill. I am grateful to them, as is the whole House. It is a pleasure to see them still in their places. We know there is an Opposition reshuffle going on. It must feel to them that it is taking as long for the Leader of the Opposition to conduct his reshuffle as it is to reform leasehold. We trust that we can get on a little bit quicker than he can.

It has been a real pleasure to listen to the debate unfold. We have had a valuable and considered set of speeches. One of the ornamentations, one might say, of our Standing Orders is that they allow right hon. and hon. Members to range freely across the terrain in a Second Reading debate, and that is what has happened tonight. As the House will know, the Bill is narrowly focused on leasehold ground rent reform, but the debate has allowed the House to debate more freely the wider question of leasehold reform, retrospection and other matters. We will be addressing them in future, but let me say, before I make some further and more detailed points, that I am grateful to the hon. Member for Reading East (Matt Rodda) for his very thoughtful contribution. It sounds to me as though he is going to write me and the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for Walsall North (Eddie Hughes), a very long letter. We look forward to working with him to resolve the issues he raised.

I am grateful to my right hon. Friends the Members for Chipping Barnet (Theresa Villiers) and for New Forest West (Sir Desmond Swayne), and my hon. Friend the Member for Loughborough (Jane Hunt) for raising the issue of retirement sector ground rent reform. As the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for Walsall North, said, we have made it absolutely clear that the retirement sector has had an exemption of a further 12 months to get its business model in order. We believe that that is a right and proper amount of time, because there are a number of business models that the sector can use to effectively and appropriately levy reasonable charges that are transparent and fair on residents. It sounds as though my right hon. and hon. Friends may be interested in amendments. They know the process by which to pursue those, if they so wish. However, there will always be disparities between one set of buildings and another and between new buildings to which ground rents will not apply and older buildings to which ground rents will apply. I suspect that those differences will be factored into market calculations or will have little effect on the actual challenges that face residents.

[Sir Desmond Swayne]

The case for an amendment—I thank the Minister for his guidance in that respect—on the retirement sector is that it was clearly given an exemption and was assured throughout last year that that exemption would hold, but that exemption was suddenly withdrawn in January this year. Given the time that it takes to change the model and to sell such properties, this is crying out for amendment.

[Christopher Pincher]

I am grateful to my right hon. Friend; he is not so much an ornament as an energetic battery in this House. We look forward to seeing what further proposals he has in due course.

My hon. Friend the Member for Wimbledon (Stephen Hammond) put his finger on it when he described how complicated the matter of wider leasehold reform is. He asked whether the Solicitors Regulation Authority and conveyancers will be engaged; whether tighter definitions will be employed; what happens in more complex developments to repair charges; and what the interaction is with the Building Safety Bill. That is why the Bill is so narrowly defined, as the Law Society advised—so that we can get on and deal with the most egregious offences on ground rents and then move on to the more complicated matter of wider leasehold reform.

As my right hon. Friend the Member for Newark (Robert Jenrick) said in what I thought was a very eloquent and forceful speech, making it clear without saying a word how integral he has been to the advancement of these reforms, they are really quite challenging. We know that leasehold is woven into the tapestry of our law and our tort. We know that in parts of the country, particularly the north-west—I think you know it as well as anybody, Mr Deputy Speaker—businessfolk of yesteryear, factory owners, would buy land in order to build houses and tie workers to those factories. Unpicking those sorts of complicated arrangements needs to be thought through carefully. With an all-you-can-eat feast, as the hon. Member for Weaver Vale (Mike Amesbury) knows full well, if someone stuffs themselves rather too quickly and rather too much, there may be unfortunate consequences down the line. We want to avoid those sorts of challenges with this Bill.

A great deal of thought has gone into the definition of rent to avoid the sort of loopholes that the hon. Member for Manchester Central (Lucy Powell) mentioned. We want to ensure that we close loopholes that would allow freeholders or landlords to collect ground rent. We considered a closely defined meaning for “ground rent”, but at the end of the day, we came to the conclusion that that would be something of a fixed target, because experience teaches us that clever operators with clever lawyers often find loopholes in such circumstances. A flexible definition of rent will help us to ensure that the tribunal will have the flexibility to consider what actually represents a prohibited rent, even if it is not explicitly called “ground rent”—the sorts of prohibitive and prohibited charges to which she referred.

We have made it absolutely clear that we will introduce legislation to ban leasehold houses; we have made that manifesto commitment and will introduce legislation as soon as we are able. We will also ensure that the second part of our legislative reform addresses the challenges with respect to existing leaseholders and retrospection, because we are committed to addressing the historic imbalance in the system.

Meanwhile, I am grateful for the work that the CMA has done, which I hope the whole House will welcome. We want to make sure that the CMA moves as quickly as possible to tighten up on egregious practices; we look forward to its report and to the next steps that we will then undertake. I assure the House that we will move as rapidly as possible.

My hon. Friend the Member for Blyth Valley (Ian Levy) is not in his place, but he has certainly raised with me the issue of ground rent in future long leases. In January, we announced that we would legislate to change the way in which the cost of buying a freehold or extending a lease is calculated to make it cheaper and easier for leaseholders. I hope that that gives my hon. Friend some reassurance.

The Bill is the beginning of a process that we, the Conservative Government, have started and that others, for too long, have shirked. It will ensure fairness and transparency in our leasehold system. I look forward to working with right hon. and hon. Members across the House in the coming weeks to get this vital legislation on the statute book and working for leaseholders. I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Leasehold Reform (Ground Rent) Bill [Lords] (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Leasehold Reform (Ground Rent) Bill [Lords]:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 9 December 2021.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill may be programmed.—(Craig Whittaker.)

Question agreed to.

Leasehold Reform (Ground Rent) Bill [Lords] (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Leasehold Reform (Ground Rent) Bill [Lords], it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Craig Whittaker.)

Question agreed to.

Leasehold Reform (Ground Rent) Bill [Lords]

Desmond Swayne Excerpts

Report stage & 3rd reading
Monday 24th January 2022 Commons Chamber

[Mike Amesbury]

I thank my hon. Friend for that intervention and all the work he and the Select Committee have done to move the matter forward. Together with the Select Committee and many others, I certainly want to see this system kicked into history.

I reaffirm that campaigners have waited long enough for change, and we should not keep them waiting any longer. A former Secretary of State, the right hon. Member for Newark (Robert Jenrick), referred to the Bill as the “appetiser” before “the main course”. Again, I affirm that what we need is an all-you-can-eat buffet of reform here and now.

Amendment 1, tabled by the right hon. Member for New Forest West (Sir Desmond Swayne), would prevent some retirement properties from being bound by the legislation. Unfortunately, we are not able to support the amendment. In fact, in Committee I tabled an amendment that would have done quite the opposite. Those who buy retirement properties should have been able to benefit from this new legislation and be put on par with everybody else. Justice is justice. The right hon. Member has certainly been consistent, but consistently wrong on this matter.

[Sir Desmond Swayne (New Forest West) (Con)]

Has it occurred to the hon. Gentleman that for many purchasers it will be in their interests to pay a lower purchase price and pay a ground rent, rather than to have to pay a very much higher price at the outset?

[Mike Amesbury]

I will agree to disagree. The Government have proposed a compromise, giving a longer transition phase for retirement properties, and we will support that approach, as was stated in Committee.

I find that the concerns of retirement community developers do not outweigh the need for those buying retirement properties to be treated fairly as consumers. Given the notice that the retirement community has had about the change, the transition period is generous enough. Many in the industry have done the right thing and already moved away from this income stream model, and I ask that their colleagues do the same.

In conclusion, the Bill marks another milestone in the slow journey to put the feudal system of leasehold into the history books. I thank all those campaigners who have educated legislators and the Government to secure change. The investigation and intervention from the Competition and Markets Authority have shone an authoritative light on the leasehold scandal. Developers have been exposed and are now responding by ditching the practice of doubling ground rents every 10 years. I urge Ministers to strengthen the Bill for all leaseholders and back new clause 1.

[Sir Desmond Swayne]

I draw your attention, Madam Deputy Speaker, and the attention of the House to my entry in the Register of Members’ Financial Interests.

I am deeply embarrassed about the way that the retirement living industry has been treated over the past few years in the progress to this Bill. In recognition of the significantly greater capital costs of building developments that have communal areas, which have traditionally been funded through an income stream of ground rent, the industry was granted an exemption, or an assurance that it would be exempt from the provisions of the Bill, back in June 2019. That exemption was then withdrawn in January 2021. I understand that the decision to withdraw the exemption was made almost a year earlier, in February 2020, and that discussions about revoking the assurance of exemption had actually begun in August 2019. Throughout all that period, the industry continued to be reassured that the exemption was good and would hold, and it was not.

Throughout that period, the industry continued to raise capital on the basis of the model with which they had been told they could continue. The amendment goes one tiny little bit towards trying to remedy the damage that has been done. It accepts that the practice will have to end, but it asks for one tiny concession, namely that, when the provisions of the Bill bite in March 2023, properties that are part-sold can continue to sell the residual remaining flats or properties on the basis of a continued ground rent. Without that, what we will have is some properties within a development being worth significantly more in terms of the purchase price than others, and some properties paying a ground rent and others not. It will be hugely complicated and divisive. Therefore, the amendment merely asks for that to be addressed. At the most, if the provision were to pass, we anticipate that this would account for about 2,000 properties. I ask the Minister to reflect on this, and, even at this late hour, accept the amendment.

[Justin Madders (Ellesmere Port and Neston) (Lab)]

I rise to speak in support of new clause 1, tabled by my hon. Friend the Member for Weaver Vale (Mike Amesbury).

To respond to the previous speaker, the right hon. Member for New Forest West (Sir Desmond Swayne), on the issue of ground rents, it is clear that service charges are for communal areas. Indeed, McCarthy Stone’s website says very clearly—

[Sir Desmond Swayne]

rose—

[Justin Madders]

Go on then.

[Sir Desmond Swayne]

It is unlawful to charge ground rent for the maintenance of a communal area. They are clean different things.

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[Eddie Hughes]

I would love to be tempted by something like that, but given that we have just gone through two years of a rather unexpected global pandemic, it is best not to pin these things down too firmly.

Unfair practices have no place in the housing market, and the Government are committed to ending them. That is why, in addition to our proposed reforms, we asked the CMA to carry out an investigation into the potential mis-selling of homes and unfair terms in the leasehold sector. We are clear that we want to see existing homeowners who have been affected obtain the justice and redress they deserve. During 2021, through determined negotiations, the CMA secured commitments from Aviva, Persimmon, Countryside Properties and Taylor Wimpey to amend their practices, which included righting the wrongs of doubling ground rents and houses being sold as leasehold. These settlements will help to free thousands more existing leaseholders from unreasonable ground rent increases. I am sure the whole House will join me in welcoming the progress the CMA has made.

Indeed, the investigation continues, and we are closely monitoring those developers and landlords that have failed to sufficiently change their practices, such as those described by my hon. Friend the Member for Warrington South (Andy Carter). The action against major industry players serves as a warning to other developers with similar arrangements in place. Let me be absolutely clear in reiterating the Government’s position: we want to see other developers come to the table.

Again, I reassure hon. Members that we take the plight of existing leaseholders extremely seriously, and we are making moves across a number of areas of Government policy to reflect that commitment. It is on that basis that I ask the hon. Member for Weaver Vale to withdraw the new clause, and to work with me on the development of further reforms to support existing leaseholders, as I have described—or, alternatively, the hon. Member for Greenwich and Woolwich (Matthew Pennycook) and the hon. Member for Ellesmere Port and Neston (Justin Madders), with his experience through the work of his APPG.

On amendment 1, which is in the names of my right hon. Friend the Member for New Forest West (Sir Desmond Swayne) and my hon. Friend the Member for Waveney (Peter Aldous), as hon. Members will know, it is our intention to protect leaseholders from unfair practice through this Bill by ensuring that in future regulated leases are restricted to a peppercorn rent unless excepted. The Government believe that those who purchase retirement homes should benefit from the same reform as other future leaseholders. While we would like the provision of the Bill to come into effect as soon as possible, we have decided to give the retirement sector additional time to prepare for these changes. The transition period for retirement properties is being granted in recognition of the fact that the sector had previously been informed that it would be exempt. We have provided this additional time—first announced over a year ago, on 7 January 2021 —for the sector to prepare for these changes. As such, the ground rent Bill will come into force no earlier than 1 April 2023 for retirement homes. We have carefully considered this to ensure we are striking the right balance—giving the retirement sector time to transition and ensuring that protection for leaseholders comes as quickly as possible.

Amendment 1 seeks to exempt retirement properties from the peppercorn rent provisions where part of the development remains unsold at the commencement of the Bill and where the development itself was commenced prior to 6 July 2021. There is a simple reason why I am rejecting this, which is that we want to protect more leaseholders. The amendment would mean that many new leases enter the market charging a monetary ground rent, with more consumers of retirement properties being left outside the Bill’s protections.

[Sir Desmond Swayne]

What was the rationale for granting the exemption in the first place? Surely the Minister recognises that, for many people in the retirement sector, it will be in their financial interest to pay a lower purchase price and have a continual ground rent, rather than to pay a significantly greater capital sum upfront. Individual circumstances will of course differ.

[Eddie Hughes]

I was delighted when I was appointed as a Minister for the Department on 16 January 2021. The negotiations to which my right hon. Friend refers pre-date my time at the Department, so I will have to take his word for what happened. It is important that as many people as possible benefit from the provisions of the Bill. We have offered a generous transition period and many people have already adopted their operating models, so he can be reassured: the sector will cope.

The amendment could serve only to incentivise any retirement developer to sell simply one unit on a development before commencement of these provisions in order to continue to charge ground rents on all the properties in that development. The amendment would risk providing a loophole. Throughout consideration of the Bill, arguments concerning the transition period have been made on both sides: there have been those who wished to extend the period, including by application to part-sold properties, and those who wished to remove the period entirely.

On Second Reading, we heard arguments by my right hon. Friends the Members for Chipping Barnet (Theresa Villiers) and for New Forest West in favour of amending the transition period for the sector. Subsequently, I had helpful conversations with representatives of the retirement development sector, whom I met on 8 December. I am grateful to them for taking the time to explain their position to me.

We appreciate that there are likely to be some developments that will continue to include a mixture of properties with monetary and peppercorn ground rents. That will not be limited to retirement properties, and we do not consider that that is a compelling case for retirement sector leaseholders to be exempted or treated differently. I put it to you, Madam Deputy Speaker, that there is a simple way to avoid this: reduce all ground rents to a peppercorn.

The Bill provides a clear-cut date for consumers. If a regulated lease is sold after the date, there can be no monetary ground rent. That is transparent and easy for consumers to understand. Indeed, many consumers may already be planning their purchase based on that date, secure in the knowledge that they will be protected from pointless monetary ground rents from that point forward. To bolster the clarity and transparency provided by the Bill, we will of course ensure that all relevant leaseholders are aware of the legislation and the impact that it will have on them, before the Bill comes into force. I therefore ask Members not to press the amendment.

Question put, That the clause be read a Second time.