Leasehold Reform (Ground Rent) Bill [HL]

Lord Blencathra Excerpts

Committee stage
Wednesday 9th June 2021 Grand Committee

Moved by

[Lord Blencathra]

1: Clause 1, page 1, line 6, leave out paragraph (b)

[Lord Blencathra (Con) [V]]

My Lords, I will, for a change, be very brief, not least because there are a number of amendments in this group in the name of my noble friend Lord Young of Cookham which give a practical way forward and are far superior to mine. I declare a personal interest as someone who pays £602 ground rent per annum on my London flat. While that is a disgraceful rip-off, for no services given, it pales into insignificance compared to the horror stories I heard at Second Reading about leaseholders hit with escalating ground rents running to tens of thousands of pounds.

At Second Reading, I attempted to use mockery to draw attention to the fact that the English leasehold and ground rent laws are an absolutely prehistoric abomination which should not exist in a top G7 country these days. I also said that I fully support this Bill and will do nothing to hold up its becoming law. The only problem is that it does not go far enough and does not deal with the injustices for all those caught up in the current ground rent racket. The peppercorn rent solution, ridiculous though that term now is, does in fact give justice to all future leaseholders, and I welcome that. Amendments 1, 2 and 11 simply apply that same just principle to the current racket. If it is right and just that all future leaseholders, who have not lost a penny, are protected from this evil racketeering, then surely it is far more important to deliver justice to all those who are being ripped off at present, some for extortionate sums, as the House heard at Second Reading. Amendments 1 and 2 simply say that all current ground rents will become peppercorn rents, just as the Bill does for future rents. Amendment 11 offers an alternative, setting a ceiling on the amount which may be demanded in ground rent per annum and giving a refund to leaseholders who are being ripped off by ground rents above £1,000 per annum.

I suspect that my noble friend the Minister will say that this is a very complicated subject, that the Government are working on solutions and that we will see the full details next year in the leaseholders Bill. I accept that my amendments take an absolutist, purist approach, but I do like the detailed, sensible amendments tabled by my noble friend Lord Young of Cookham, which may offer a compromise—letting leaseholders buy their freedom. As my noble and learned friend Lord Mackay of Clashfern will confirm, since he is a far better scholar of ancient Roman law than I ever was, in ancient Roman times slaves could buy their freedom, but very few could afford to buy their manumission. Most were freed by testamentary manumission—that is, in the will of their master—and Caesar Augustus regulated the system. So I call on my noble friend the Minister to become the new Caesar Augustus and set free the millions of leaseholders still paying their salarium.

If the Minister cannot accept my amendments, I would like to hear exactly what is wrong with Amendments 7, 8, 12, 17 and 18, proposed by my noble friend Lord Young of Cookham and Amendment 5 in another group, in the name of my noble and learned friend Lord Mackay of Clashfern. They seem to me to be an excellent way to remove this 800-year-old injustice, bring justice to leaseholders and not deprive freeholders of some of their entitlements. I beg to move.

[Lord Young of Cookham (Con)]

My Lords, I will speak to Amendment 12 and its consequential Amendments 7, 8, 17, 22 and 23. Their effect is broadly the same as Amendments 1 and 2, in the name of my noble friend Lord Blencathra, whose speech I commend. Whereas he was able to express himself in four lines, I am afraid that my amendments have taken up four pages. The amendments also achieve the same as Amendment 5, which we will come to later, in the name of my noble and learned friend Lord Mackay. However, his amendment reserves all the detail set out in mine to the discretion of the Secretary of State, in regulations, and is time-limited. The amendments standing in my name, if accepted, would give a right to buy out ground rents for ever, beginning on 1 January 2023.

As my noble friend Lord Blencathra has just said, the Bill as drafted applies only to future leases, coming into force on such a day as the Secretary of State may appoint by regulations. It does nothing to help existing leaseholders or anyone who buys a lease with a ground rent before the commencement date, but it is government policy that existing leaseholders should have the right to buy out their ground rents. I refer to the Written Statement by the Secretary of State on 11 January this year:

“I am confirming that the Government will give leaseholders of all types of property the same right to extend their lease as often as they wish, at zero ground rent, for a term of 990 years.”


Later comes the crucial commitment:

“We will also enable leaseholders, where they already have a long lease, to buy out the ground rent without the need to extend the term of the lease.”


The obvious question for the Minister, raised by these amendments, is why the Leasehold Reform (Ground Rent) Bill does not deliver government policy on ground rents. Why should we have to wait for the next piece of legislation to honour the commitment? On waiting for promised legislation, I am once bitten, twice shy. As Opposition spokesman in another place, when the hereditary Peers were removed, I was assured by the then leader of the House that stage two of House of Lords reform would be in place for the first round of elections to your Lordships’ House, by 2001. Twenty years on, I am still waiting.

There is still no firm commitment from the Government on when the Bill will come into force and, the longer the Government leave setting a date, the greater the risk that new monetary ground rents will continue to be created. The Government could stop this by indicating even a provisional date for this legislation to come into force, which would shift the bargaining power in favour of prospective purchasers of leasehold properties. That is why Amendment 22, in my name, prescribes a date of 1 January 2023 for this right to buy out ground rents to come into force.

The case for giving existing leaseholders this right was well made by the Law Commission. They took head on the counterargument that this right is unnecessary because leaseholders can extinguish the ground rent by extending their lease. I quote from Law Commission paper 387, entitled Leasehold Home Ownership: Buying your Freehold or Extending your Lease. Paragraph 3.63 of the consultation paper states:

“we explained that the 1993 Act right to a lease extension has been criticised for requiring leaseholders simultaneously to extend the term of their lease (and therefore pay the landlord for the deferral of the reversion) and to extinguish the ground rent (and therefore pay the landlord the value of the remainder of the original term). We noted suggestions that leaseholders should be able to choose between extending their lease, extinguishing their ground rent, or both, in order to reduce the premium payable on the lease extension.”

The paper continued:

“Support for the introduction of a right to extinguish the ground rent under a lease without extending the lease (whether alone, or together with the right discussed immediately above) was widespread. Consultees who supported this option included various professional bodies, the majority of commercial freeholders, a majority of firms and individual professionals, and a significant majority of leaseholders and other individuals.”


I continue to quote from the report, which states:

“Generally, consultees’ reasoning for supporting a right to extinguish the ground rent without extending the lease focussed on the predicament of leaseholders who are subject to onerous or doubling ground rents in long or very long leases. Both professionals and leaseholders explained that these leaseholders have no need to extend their lease term (which may be as long as 999 years), but wish to buy out their ground rent before it becomes onerous, and/or to make their property saleable. It was said to be ‘pointless’ to require them to claim an extended lease term purely to solve this problem.”


The report goes on to say:

“Several consultees considered that, given the forthcoming ban on ground rents in the majority of new leases, the right to extinguish ground rent in an existing lease (which is very long and does not require extending) would help to avoid the creation of a ‘two-tier’ market, consisting of leases with ground rent and those without. This argument was most persuasively made by a number of leaseholders from 1 West India Quay Residents’ Association. Pointing out that media coverage of the ground rent scandal has led prospective buyers to scrutinise ground rent obligations much more closely, Antonio De Gouveia wrote: ‘If Government is to cap or eliminate ground rents on new leases (which we think they will do), then there is even more reason for new legislation from the Law Commission to enable all leaseholders in our building to buy out their ground rent (onerous or not)’.”


I note in passing that the point about a two-tier market was made in the helpful briefing for the Bill from the Law Society. This all led the commission to its conclusion in paragraph 3.108:

“We recommend that leaseholders who already have very long leases should be entitled to extinguish the ground rent payable under their lease without also extending the term of the lease.”


My amendments deliver that. They have been drafted so that costs are kept to a minimum. No valuation is required because proposed subsection (6) of Amendment 12 sets out the terms, based on Law Commission examples. There is no prejudice to enfranchisement rights and timescales are set out to prevent any delay by the freeholder.

My amendment also addresses a different complaint raised by the Law Commission, namely that the current process for statutory leasehold extensions is too long and cumbersome. Landlords have options to game the system to make it as difficult as possible for leaseholders to exercise their rights. Look at paragraph 2.23 of Law Commission report 392.

My Amendment 12 therefore seeks to give effect to the Law Commission’s recommendations for simplification by proposing a straightforward way in which to buy out monetary ground rents without the need for notice and counter-notice, as exists under the current legislation. There will be nowhere for unscrupulous landlords to hide if the approach suggested in this group of amendments is adopted.

My Amendment 17 provides for the First-tier Tribunal to have jurisdiction in dealing with any issues arising from the exercise of the rights given by Amendment 12 and mirrors the provisions in Clauses 13 and 15. Amendment 12 goes further, in that it would also permit the tribunal at its discretion to award damages to a tenant denied rights to buy out a monetary ground rent, which is intended to serve as a deterrent to landlords denying such rights. Amendment 22 brings in the commencement date of 1 January 2023, giving those involved time to make the necessary preparations. Amendment 23 is consequential.

Why not use the Bill to give an option to millions of existing leaseholders, rather than wait for another Bill that deals with ground rents? There is no disagreement on policy, and here we have the vehicle. I await the response from my noble friend the Minister and hope that he will set the tone for this Committee by looking favourably on this first group of amendments.

--- Later in debate ---

[Lord Greenhalgh (Con)]

My Lords, we want to move as speedily as possible but, as I stated in my reply, we do not want to set a deadline for things. We want to get this on the statute book very speedily in this Session; that is why it is so early in this Session. That is my answer.

[Lord Blencathra (Con) [V]]

My Lords, I am grateful to all noble Lords who have participated in this debate. I feel rather guilty that I am responding when it really should be my noble friend Lord Young of Cookham, who put forward an impeccable case today for the reforms he has suggested.

The one thing that has come through loud and clear to the Minister from all noble Lords is that the current system is totally unsustainable. My amendments are probably not appropriate; I believe the amendments of my noble friend Lord Young of Cookham are. If they cannot be accepted into this Bill, it is desperately important that we get them in the full leasehold reform Bill which we expect next year. If my noble friend wishes to put down his amendments on Report, I will support him; he may not wish to push them to a vote, but perhaps the Government need to see on Report that we are serious about talking about the injustice of the current leasehold system.

My noble friend the Minister has said that this is a difficult area and that he is committed to giving leasehold reform “high priority”. If I may say so, the Law Commission is a worthy body, but its problem is that it is full of lawyers; they see leasehold reform as a matter of dotting some “i”s, crossing some “t”s and tweaking an 800 year-old system a bit here and there to make it work better. As politicians—and as politicians in the Commons would say—we find the whole system iniquitous. It is wrong. Perhaps it is those of us from a Scottish background who cannot believe that you buy a property and do not fully own it; it is an extraordinary, wrong system. When the Bill comes next year, we do not want leasehold reform tweaked; we want it stopped for all new contracts.

The wonderful innovation of commonhold failed because we gave developers and other money-grubbing people the choice of continuing with leasehold or commonhold. We thought they would implement common decency and common sense, but they operated a system which made the most money—well, we cannot criticise that; it is inevitable. When the new Bill comes, let there be no choice. Let it be clear that commonhold will be the only system acceptable for all new purchase contracts in future.

That still leaves the problem of current leaseholders. I am very certain that, with Amendment 5 from my noble and learned friend Lord Mackay, the amendments from my noble friend Lord Young of Cookham on a buy-out scheme must be the right direction to go in, because it affords justice to leaseholders who can get out of this wicked system and gives some compensation—too much in my opinion, but who am I to say?—to current freeholders who would demand the right not to be stripped of all their benefits.

On early implementation, I refer my noble friend Lord Young of Cookham to Amendment 26, where I suggest that the Bill should be implemented on Royal Assent. I appreciate that we may need to make exceptions for property for old folks’ homes—I am not sure what the current term is for an old folks’ home, but I believe that is to be exempted for a couple of years for us to figure out how to do it. The rest of this Bill should be implemented as soon as possible after Royal Assent.

With those words—and my apologies; my camera was off a lot of the time so that my machine did not run down, but I heard all the debate—I am grateful to all noble Lords who have taken part and, in conclusion, emphasise to my noble friend once again that the Government might get away with not sorting out leasehold and ground rents in this Bill, but they will not get away with it next year when the big Bill comes. I beg leave to withdraw my amendment.

Amendment 1 withdrawn.

Leasehold Reform (Ground Rent) Bill [HL]

Lord Blencathra Excerpts

Committee stage
Monday 14th June 2021 Grand Committee

[Lord Blencathra (Con) [V]]

My Lords, I declare a personal interest as someone who pays ground rent on my London flat. I am coming at this from a slightly different angle from the noble Lord, Lord Lennie.

My noble friend the Minister is an honourable man, and I therefore believe him when he says that the Government want this Bill to come into force as soon as possible; he has urged us not to push any amendments which might delay its passage. I am therefore mystified at Clause 25 and the very bitty commencement dates. As the noble Lord, Lord Lennie, said, Bills often have different commencement dates, but the only things coming into effect on Royal Assent are the regulation-making powers and the usual consequentials at the end of the Bill, which we have just voted through on the nod. If the Bill is as urgent as the Government and we on this Committee say it is, why have we no date for the commencement of the only thing which really matters—the abolition of new ground rents and their replacement by the new peppercorn regime? Every week which goes by allows more iniquitous leases to be created.

I understand that the residential homes sector has been granted more time to adjust. I am sure that Messrs McCarthy and Stone and others will put that time to good use, adjusting their service charges to take account of any future ground rent losses. But as we consider what to do about the commencement dates at Report, we really need to know, very firmly on the record, when we will see the second and third legs of this three-legged stool. When will the Government introduce a fully-fledged leasehold reform and abolition Bill, and when will they introduce provisions like those advocated by my noble friend Lord Young of Cookham and my noble and learned friend Lord Mackay of Clashfern to have a proper ground rent buyout system?

I know that my noble friend the Minister will say that it is up to the usual channels and that he cannot make promises on when other Bills will be introduced, but we need to stress to him, and to the rest of the Government, that we will be very impatient unless we hear a firm commitment that this will be as soon as possible—ideally, in the next Session of Parliament and not sometime in this whole parliamentary period.

We have all said that this Bill is a good first start—a very good one leg of the stool—but we must see firm promises on the introduction of the next two legs or I, at any rate, will not be content to agree the commencement mishmash in Clause 25 when we come to Report.

[Lord Stunell (LD) [V]]

My Lords, I address my remarks to Amendment 26, just spoken to by the noble Lord, Lord Blencathra. I strongly support what he said and the arguments that he put forward in support of his amendment.

One key risk of separating out the legislation for all new domestic leases from those of the 4.5 million existing domestic leases is that a gap will open up in the market between homes traded under existing leases and those traded under the new regime. As the noble Lord, Lord Blencathra, has just said, the existing leases are very disadvantageous compared to those that will be formed under the new Bill. In many respects, existing leaseholders will be under a double disadvantage. They will have a home that may be identical in every respect to one that is subject to the new Bill, with a lease signed a week after Royal Assent—or maybe in two years, when it is finally implemented. The existing leaseholder will be at a permanent long-term disadvantage up to the point when stage 2 of this reform comes into force.

This amendment would bring the Bill into force immediately. It would mean that the long tail behind the existing leaseholder system would be cut off. There would be no new leaseholders stuck with the old system, with a Bill that has had Royal Assent but not been brought into effect. It would, as quickly as possible, create a bigger market of those with new leases rather than old leases.

In its turn, that will throw up disparities between the two categories of leaseholder resident. Those who have an existing lease—particularly those with an informal lease extension, which might have huge escalating charges written into it—will find that the gap between them and their near neighbours under the new system widens and widens. Inevitably, that will lead to a two-tier market; perhaps at first only at the margins but, over time, as the number and proportion of new leases on the market increase in relation to the number of existing leases, that gap will widen. The disadvantage suffered by those holding existing leaseholders will also widen and will be twofold: first, they will find it harder to sell their leases on, because they will be less attractive to purchasers than those leases available under this Bill; and, secondly, in the meantime, they will be stuck with paying through the nose the exorbitant terms of their existing lease.

Amendment 26 from the noble Lord, Lord Blencathra, is a good step forward in the absence of any real commitment by the Government to bring much closer together this Bill, stage 1 of reform, and the next Bill, stage 2 of reform. The noble Lord is absolutely right to press the Government and to express his concern that that announcement has not yet been forthcoming. Indeed, Ministers have been very reluctant to make it. We need to know when stage 2 will be before your Lordships’ House. We need to know how soon it will be that the follies, injustices and oppressions of the current system will be stopped. We need to make sure that as few people as possible find themselves in the unenviable position of hearing, “Take it on these terms or take it on no terms.”

In an earlier debate we debated the four things that the noble Lord, Lord Kennedy, thought should be reviewed. The Government did not accept that. In our first day’s work we tried to make sure that there was some definite timetable for future reform. The Government were not willing to accept that. Today’s amendment from the noble Lord, Lord Blencathra, would, unfortunately, still not achieve it, but it might be a powerful lever to force the Government toward bringing these two stages of reform closer together, cutting off the tail of existing leases being signed as quickly as possible, and, as soon as possible, reforming the whole system.