Leasehold Reform (Ground Rent) Bill [HL]

Earl of Lytton Excerpts

Monday 24th May 2021 Lords Chamber

[The Earl of Lytton (CB) [V]]

My Lords, I welcome the opportunity to debate this Bill and in doing so refer to 45 years of professional interest in the matter and my interest as the first chairman of the Leasehold Advisory Service. Although I have personal interests in residential and commercial lettings, they do not include long leasehold and, as a technician, I take no particular position for or against it. I, too, am a vice-president of the Local Government Association.

First, to positive matters: I pay tribute to the Government for moving to tackle some of the known problems and abhorrent abuses with long leaseholds—especially that of escalating ground rents. For years, I have advised clients against taking on such leaseholds, so that maybe makes me part of the problem. But I do think that much swifter action could have been taken to deal with them—but there we are. I welcome the measures. I also welcome the actions of the CMA. But, before we get too excited, I would just point out that 18,000 escalator rents, as I would call them, equate to 0.4% of all leasehold ground rents.

Anything that speeds up the leasehold transaction process is, of course, good for market confidence. So dealing with unnecessary delays is also extremely welcome. However, I do need to point out some procedural shortcomings here. There is an overwhelming case for remedies, so it is utterly extraordinary to me that the department should have chosen to conduct its consultation via SurveyMonkey. The department then found it necessary, on analysis, to allocate a significant proportion of the responses to a category entitled “General comments that did not answer the question”. Undaunted, but finding there some muddle in responses on leaseholders’ payments for various things, it then resorted to regression analysis to resolve the confusion. I suggest that this is not an appropriate way to conduct consultation on such an important matter, and I feel that in this instance it damages the credibility of the process.

The Government also make the point that leaseholders see no benefit from the ground rent they pay—but it is ostensibly for the use of the shared bits they do not own outright. The same could be said of any rent under any lease—or, for that matter, many taxes—so I regard that argument as potentially disingenuous and unhelpful.

I acknowledge that this is the first part of a two-part approach, but I believe that from the consultation there was a clear expectation that other evils would swiftly be dealt with, such as unjustified charges for rent collection, the fees for consent, unfair rent charge situations and more—all of them abuses at the expense of leasehold and freehold homeowners. There was no reason to delay tackling at least some of these, and it is a disappointment that we have an indeterminate wait for action in some of these areas, which has already been mentioned. I am not sure why the whole process needs to be so convoluted and multistage. The means chosen to achieve the Bill’s ends are complex, and complexity leads to loopholes, avoidance and unintended consequences. A part-reform is always hazardous, and this should be a more coherent and thoroughgoing package.

Between muddle and confusion stalks another character, known as dishonesty. Those with a pre-disposition towards fleecing homeowners are not guided by ethical or moral considerations, and there is no knowing what they may dream up next. This might also explain why the Law Commission’s consultation produced minimal responses on intermediate interest—those lying between the freehold and the long leasehold. To me, it is obvious why: sharp practitioners tend to keep their own counsel and their powder dry.

A preference for keeping things simple prompts me to ask why, more generally, there could not be a statutory redefinition of “quiet enjoyment”, a covenant for which is embedded in every leasehold either expressly or by statutory implication. What is there not to like in specifying that this means no unfair, unjustifiable, oppressive, opaque or deceitful activities?

I now turn to some areas where the Bill may have gone more seriously awry. First, as was pointed by the British Property Federation and the noble Lord, Lord Hammond, the Bill would prevent the granting of any residential long lease at a rack rent. It also makes some complex provisions for mixed-use exemptions, but I am far from clear that these and the meaning of “significant contribution” would actually work or be free from challenge. I expect market sentiment to be negative. This may be unintentional but, if not, I ask the Minister to explain it.

Secondly, the timeframe for providing lease information is tight—potentially unreasonably so. I will leave the point at that.

Thirdly, the proposal to render ground rents under long lease as valueless is not a free bet. In any large and complex building in which individual flat owners have ownership over a small portion only and no direct contractual relationship with each other, there is a need to govern how the common parts—the fabric of the building, its services, its uses and the environment in which it sits—are organised. This and the conduct of the respective interest holders vis-à-vis each other and the building they occupy do not happen by accident but by the legal construct of a lease and the enforceability of governance.

If long leaseholds are the time-honoured, legally understood and principal means for procuring occupation and title in a physically subdivided building, they will continue to be a feature for many years to come. It therefore matters that they function effectively and command confidence and that both tenures be made fit for purpose, with freeholders who are motivated, competent, of substance and, above all, engaged. This measure does not consolidate this parallel need, which I fear is sadly out of scope. As I have observed in separate correspondence with the noble Baroness, Lady Grender, and others—I look forward to her speech later—if you think a greedy landlord is a nadir, you have not encountered a clueless, ineffective or inactive one.

The Bill would reduce the freehold rental value in future long leasehold tenure to nil. I may have missed it, but I do not see that the Bill mandates what happens to the truncated rump of freehold interest and the remaining important functions attached to it. What is to stop cost recovery and these being the vehicle for the very same unfair practices we all want to prevent, or to stop these freeholds falling into the hands of unscrupulous entities, perhaps becoming of negative worth or being bankrupt, with significant implications for leaseholders? We are not necessarily dealing with decent people in the ownership of these assets, so to my mind the remaining freehold should be parked permanently in a safe and competent pair of hands. I invite the Minister to explain why he does not feel that this can happen.

There is also the risk of a wider message getting about that residential long leasehold is intrinsically bad. That is untrue, and in so far as it may be intended to accelerate lacklustre commonhold or support some political platform, there is a need to be very careful that market sentiment does not downvalue wholesale—the investments of more than 3 million homeowners, many of whom are already under severe stress due to fire safety matters. I cannot overstate the importance of this.

Should commonhold take off—I wish the work of the Commonhold Council well—it will likely be many years before it is the main form of apartment tenure. Running two systems is inherently problematic for market confidence, and I did not detect from its briefing that UK Finance, the sectoral voice, views this differently. The Law Commission refers to the divergent interests of freeholder and leaseholder. Insurers, building managers, safety regulators and even fellow leaseholders often have divergent interests, yet come together for specific reasons of mutual convenience and necessity. Commonhold may improve this but it will not make these issues disappear altogether.

I end by thanking all the bodies that sent me briefings, as well as the Minister and his staff for responding to my queries and offering to arrange a meeting. I hope that, with good will and understanding, we can improve this Bill.