Leasehold Reform (Ground Rent) Bill [HL]

Lord Mackay of Clashfern Excerpts

Committee stage
Wednesday 9th June 2021 Grand Committee

[The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)]

Before I call the noble Lord, Lord Lennie, I will return to the noble and learned Lord, Lord Mackay of Clashfern.

[Lord Mackay of Clashfern (Con) [V]]

I am glad to say that I have managed to unmute with the help of the host.

I very much support the principles behind these amendments in this group. If it is wrong to have a new lease with ground rent of the kind that we are concerned with, why is it not wrong to have it in existing rents? That is what we need to address, and now, if at all possible, although I am equally strongly in favour of getting the Bill on the statute book as soon as possible and I would not like any delay to result from the other considerations. Nevertheless, these other considerations are very strong and I cannot see why it would not be possible to incorporate dealing with them in the Bill as well as preventing another wave of the problem.

I am very much in favour of my noble friend Lord Young of Cookham’s Amendment 12 and all the complementary ones around it. I had the responsibility a long time ago of looking at this question of leasehold and I confirm what has just been said—that it was certainly my idea to try to get rid of it altogether. I was brought up under the Scottish system, where Scottish tenement property is capable of being owned outright without the necessity of a lease. I also had the experience of later seeing the feu, or feudal, system abolished. It had a rent, called a feu duty, which was part of the basic responsibility of the title, and the Government of the day decided to get rid of it altogether. Of course, that meant that something had to happen to the feu duty. It was capitalised by a very simple formula that the feuer had to pay, and so the whole thing finished. I would love to see something like that happen to the leasehold system but I realise that that is a hope beyond immediate realisation. Therefore, my stance is the same as that of my noble friend Lord Young of Cookham—I think I am right in saying that I participated in the Bill when he was concerned with these matters a considerable time ago. I have suggested a small alteration to his way of dealing with the matter which I will explain briefly later.

[Lord Lennie (Lab) [V]]

My Lords, it was certainly worth waiting for the speech of the noble and learned Lord, Lord Mackay, because we now know we are all batting on the same wicket. As we have heard, Amendment 18, tabled by my noble friend Lord Kennedy and me, in addition to amendments tabled by the noble Lords, Lord Young and Lord Blencathra, introduces the issue of existing leaseholders and brings into question why the Government are not legislating to protect them. To us there seems to be no rhyme nor reason why they are not.

Although the provisions of the Bill are welcome and the Government are right to set future ground rents to zero, they are offering nothing for those tied into existing leaseholds. In 2019, the Ministry for Housing, Communities and Local Government estimated that one in five homes in England were leasehold dwellings. That equates to approximately 4.5 million properties, and the number will have grown since. Many of those households, tied into leasehold arrangements, are subjected to ground rent arrangements overwhelmingly balanced to benefit landlords—what the noble Lord, Lord Blencathra, called legal racketeering. Some leaseholders are being charged extortionate amounts and others have seen their payments rise exponentially.

In fact, the Competition and Markets Authority is currently taking action against both Countryside and Taylor Wimpey, which are doubling some ground rents every 10 to 15 years. There is one factor that every household paying ground rent has in common: they receive little to no benefit from paying that sum. The Government should take action for those already stuck in leaseholds and paying extortionate ground rent charges. Amendment 18, tabled by my noble friend Lord Kennedy and me, seeks to address this by ensuring that the Government bring forward further legislation. Can the Minister confirm whether any further legislation is anticipated or planned on this theme and, if so, when?

The purpose of Amendment 9 is to raise the question of remedial costs for leaseholders. The crux of this matter is that the Government have failed to introduce legislation to deal with the fact that building owners are attempting to pass on the cost of remedial work to leaseholders. Despite promises from Government Ministers that leaseholders would not be forced to pay to fix fire safety problems that were not their fault, the issue is still ongoing. I have a nephew who is a leaseholder in a block of flats in Hackney. The freeholder, Southern Housing, has simply failed to engage with the Government. It has not applied for any grant aid to assist to fix the fire safety problems, leaving the leaseholders potentially to bear the cost. We are talking here about tens of thousands of pounds per household. Can the Minister confirm when legislation will be introduced to prevent leaseholders facing those extraordinary costs?

Amendment 10, meanwhile, raises the issue of service charges in shared ownership properties. The purpose of the amendment is to highlight the sky-high fees that many residents in those properties are being charged, often with little return. Will the Minister use this opportunity to explain what steps the Government will take to help those in shared ownership agreements who are facing extortionate service charges?

Amendment 11 raises the important point of informal arrangements, which can be used to bypass the central provisions of the Bill. I look forward to clarification from the Minister in this area, and on the questions raised by Amendments 22 and 23, tabled by the noble Lord, Lord Young. I understand that the purpose of the amendments is to give time to prepare for all involved parties, but we should consider that the Bill’s proposals have been discussed for some time already. None the less, I trust the Minister will respond to the points made by the noble Lord.

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[The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)]

I call the next speaker, the noble and learned Lord, Lord Mackay of Clashfern. Lord Mackay, could you unmute, please? Lord Mackay? Perhaps I can return to him. In the meantime, I shall call the next speaker, the noble Lord, Lord Stunell.

[Lord Mackay of Clashfern (Con) [V]]

My Lords, I am of the same view as my noble friend Lord Young of Cookham about the difficulty of understanding exactly why business premises of any sort are exempt from this. No doubt there is an explanation. If so, it is necessary to ensure that the precise reason for business premises being exempt should be the basis of their definition. This is my point. I am sorry; I seem to have difficulty in unmuting without help, for some reason that I have not understood so far. Maybe I will gradually learn as the day goes on.

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By disadvantaging these specialist providers, with the competition from other developers so fierce and older purchasers sensibly proving so discerning, the future health and confidence of the retirement housing sector depends on not damaging its prospects now. I hope the Minister will accept that, while this may seem a very minor exemption from the ground rents ban, it is important in not deterring the growth of what is still a fledgling industry that the nation badly needs to grow and flourish. I beg to move.

[Lord Mackay of Clashfern (Con) [V]]

My Lords, I very much admire the detailed knowledge that the noble Lord, Lord Best, has of this and many other areas of importance. I heartily agree with him. Your Lordships will appreciate that I may have a special interest in this area, in view of my years.

As a matter of interest, I wonder how the age of 55 was chosen. I hope he may be able to give me a short explanation of that, because it is of interest to me.

[Lord Naseby (Con) [V]]

My Lords, I too pay tribute to the noble Lord, Lord Best. I am in my 80s and, from talking among friends, I am aware of at least two couples who are beginning to think about retirement homes. The noble Lord, Lord Best, is quite right. We discussed this issue before I even knew it was coming up in the Bill.

This sector of the market is, first, growing—that in itself is very encouraging—and as a country we have been a bit slow in this area compared with other countries. Secondly, it is growing in the sense that it was clear, back in my days as an MP, that there was a scepticism about retirement homes with all these extra facilities, but now it is taken as the norm and people are particularly fussy. If, as the noble Lord, Lord Best, says, a number are caught by this time dimension, it seems sensible that any business that started by the dates he puts in his amendment should be exempt.

I do not understand why 55 was chosen. The retirement age is still going up, so 55 seems a bit generous, frankly. Another 10 on top of it would not have gone amiss, but that is a minor issue. I hope Her Majesty’s Government take the points made by the noble Lord, Lord Best, very seriously; they need addressing.

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Moved by

[Lord Mackay of Clashfern]

5: After Clause 2, insert the following new Clause—
“Leases with an option of redemption
(1) In this Act a lease with an option of redemption means a lease which meets the following conditions—(a) it is a long lease of a dwelling,(b) it is in force on the “relevant transition date”, and(c) it is not an excepted lease.(2) The “relevant transition date” is the day on which this section and the other relevant provisions of this Act come into force in relation to leases of that kind.(3) After the relevant transition date the tenant has an option to pay a capital sum to the landlord, on payment of which the rent payable under the lease shall be a peppercorn rent.(4) The capital sum in subsection (3) shall be calculated in accordance with a formula specified by regulations made by the Secretary of State.(5) The option to pay a capital sum to the landlord set out in subsection (3) may only be exercised within two years of the relevant transition date.”

[Lord Mackay of Clashfern (Con) [V]]

My Lords, this is an amendment on the principles that my noble friend Lord Young of Cookham explained when speaking to his amendment. The only reason why I thought of doing it this way was to make it part of the legislation now, if that was acceptable, with a degree of flexibility in the Secretary of State’s powers to fix the way payment would be adjusted or assessed. I thought it might help to deal with this situation now rather than later. As I said, this is based to an extent on the way feu duty was dealt with in Scotland when it was made compulsory to stop it altogether as we departed from the feudal system. My suggestion may be attractive in the sense that it avoids dealing with a lot of detail now. On the other hand, it may not be very wise to leave it so doubtful, especially when there are other concerns associated with the payment of ground rent, such as the maintenance of insurance policies and so on. I beg to move.

[Baroness Grender (LD)]

As in the earlier group, we support the principle of this amendment. I reiterate that the elegant drafting by the noble Lord, Lord Young of Cookham, in the earlier group is the drafting that we would prefer—and very much look forward to seeing on Report.

On Amendment 5, our concern would be about any kind of delay in this process, which would be driven by having to produce subsequent drafting of regulations for how the amounts would be calculated. Therefore, we would prefer the wording used by the noble Lord, Lord Young of Cookham.

I also take this opportunity, given that the Minister, in his summing up of the first group of amendments on trying to extend to existing leaseholders, made an argument about the proportion and percentage of pension funds that are currently invested in freehold property and the disruption that this might cause to pension funds, to ask him to elaborate on what kind of proportion that might affect, and what the balance is between the 4.5 million leaseholders who currently experience quite a significant negative impact in terms of ground rent in particular in the abuse of this system, and the pension fund system.

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[Lord Greenhalgh (Con)]

My Lords, I shall try a second time, because obviously I did not manage it the first time. We have not made a commitment to abolish by fiat existing ground rents. We have committed to make it as easy as possible for leaseholders to enfranchise or to buy themselves out of the ground rent obligation. That of course then becomes a phased approach to the 4.5 million people who are paying ground rents. Of course, we are looking to the Competition and Markets Authority to deal with the issue of onerous ground rents. That is the policy position; the noble Baroness is implying something that we have not committed to.

[Lord Mackay of Clashfern (Con) [V]]

My Lords, I am grateful to all who have taken part in this short debate. It is quite important to have in mind the possibility of a variable way to buy off the ground rent, and that such a way of fixing that by a Minister in a regulation is flexible and could be of use in that regard. In the meantime, I am happy to withdraw my amendment.

Amendment 5 withdrawn.

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[Baroness Grender (LD)]

My Lords, this is a fairly small amendment but may make a big difference for leaseholders. In a way, it is about replicating what I thought was a very successful late-stage amendment to the Tenant Fees Act. We are trying to introduce a greater level of transparency for leaseholders.

Before being required to pay a rent under an existing lease, the landlord must provide the tenant in writing with the justification for the cost of the rent and an explanation of what the payment will be used for. I fully understand and recognise, given the arguments made at Second Reading and those made so far today, that in reality, a lot of us would say that the ground rent is used for absolutely nothing—except buying a new Porsche for a very wealthy freeholder, for instance. However, I still believe that there should be an explanation and accountability and that we should use the opportunity of the Bill to ensure greater accountability. A lot of people who campaign in the area of leasehold reform want to see a display of comprehensive, accurate data on properties. They want to see how long the lease is, what the ground rent is and what the nature of the ground rent is. We already heard in the debate at Second Reading that some people are charged a ground rent without any notification; suddenly they are asked for a particular sum and they may then get into dangerous grounds of forfeiture if they cannot pay it.

The sentiment I am particularly trying to push for—I will be very happy if the Minister says that the wording is not quite right, but that he understands and recognises the sentiment and will come back with further drafting on Report—is that people who currently have to pay freeholders ground rent should get some sense of accountability regarding the amount, the future amount and what it goes towards.

I also take this opportunity to point out that ground rent demands already have to be accompanied by a statement of leaseholder rights, so there is absolutely no reason why the Government cannot prescribe a standard form of information to be given to leaseholders in this area.

Also, could the Minister in summing up answer a question I asked on Second Reading about the CMA’s action against Countryside and Taylor Wimpey? I asked whether, if the process the CMA is currently undergoing fails and it has to go to court, the Minister would consider putting more emphasis in the Bill on consumer protection law. With that I mind, I beg to move.

[Lord Mackay of Clashfern (Con) [V]]

My Lords, I support this. It is highly important that a person buying a property which is subject to this kind of rental arrangement should know precisely what its details are, as a necessary condition of the purchase. It seems essential to me to point out the whole nature of the responsibility for ground rent and what can happen, not only next year but in years to come. A person buying a property is entitled to know all the burdens on it at the time of purchase.

[Lord Stunell (LD) [V]]

My Lords, I am happy to speak in support of this amendment and am delighted to have the support of the noble and learned Lord, Lord Mackay of Clashfern, for the words of my noble friend Lady Grender in advocating for this change. It can hardly be a radical call to ask for accurate data to be available before a transaction is completed; yet, as the example I drew from Leicester in an earlier debate shows, that accuracy is often not present and the transparency is sometimes deliberately disguised. There is absolutely no particular obligation on those taking part in that transaction to make sure that the consumer is aware. It is very much caveat emptor, and one is in the hands of the legal representation one has—if any—in conducting it.

The Bill should state that there must be a clear explanation of the length and terms of the ground rent—the minefield that lies ahead of escalation charges and the development of the terms, some of which are not perhaps deliberately concealed but are well hidden in the small print. Reference has been made even to requiring release letters to cover pets, never mind alterations to the premises. Many issues have been used deliberately or have perhaps inadvertently fallen in such a way as to put leaseholders at a serious disadvantage. Of course, the hand they hold at that point is extremely weak, because if they decide to contest the payment, they have to consider not only the legal costs and the associated trouble and stress but the risk of forfeiture if they fail to pay. Paying and arguing afterwards is not a very successful basis for performance, either.

There are grounds for accuracy, transparency and accountability. We know that the CMA is actively looking at this area. If the Minister can give us some assurances about how he intends to proceed if the CMA does not do the business, I would find it a very helpful way forward.

I press the Minister to say that this is a sensible amendment that protects leaseholders and that any good landlord should be happy to comply with it. Therefore, I hope he will feel able to accept it.

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[Lord Mackay of Clashfern (Con) [V]]

My Lords, Clause 6 is inconsistent with the spirit of the amendments in the first group, which were heartily supported. In a sense Clause 6 stands against them, and for that reason I suppose it is logical to say that it should not stand part.

I am also very impressed by Amendment 13. There is a need to deal with this situation, in which people find themselves unconsciously in a very difficult position. I hope my noble friend will find it possible to deal with this in a satisfactory way.

[Lord Stunell (LD) [V]]

My Lords, I thank all those who have spoken. I particularly thank the noble and learned Lord, Lord Mackay of Clashfern, whose legal background and desire to make sure that the consumer gets the right result are very much assisting our argument on this occasion.

My noble friend Lady Grender set out our case very clearly. I want to make it clear that informal leasehold extensions can be as bad an evil, if not a worse, as some of the other abuses that have been talked about. They are the worst for being concealed. If you are offered what appears to be a new lamp for old, and the only difficulty you might face is that somebody may modernise the terms of your lease, it is very likely that what modernising the terms of your lease consists of will escape your eagle eye.

It is like all those “Change my settings?” messages that one gets on websites. One wants to get on with the business. You click and carry on; you certainly do not read paragraph 123 on page 17, where you find that bedded in it there is a hidden charge, which you never find out until the moment it matters most. At the low-entry bar, I hope the Minister will say that he will come back and show us how we can incorporate into the Bill the claim for transparency we make in Amendment 13.

By saying that the clause should not stand part, we are following the logic of what the noble and learned Lord, Lord Mackay of Clashfern, pointed out: it is absolutely contrary to the spirit and direction in which the Minister claims this legislation is intended to go. It is a major loophole, because it means that existing leaseholders who might find a way of using this new legislation to have a new lease find themselves drawn on an escalator—an escalator of continuing and repeated higher charges over the lifetime of that lease. That may well be the nuclear weapon amendment, but I hope it emphasises to the Minister the significance of Clause 6 and the damage it can do, and no doubt will do, in many cases that have already been spelt out.

I very much hope that I shall hear from the Minister a positive reaction to this and that we can move forward on Report with a proposal, coming from his side of the Chamber, that will help to remedy this major deficiency in the legislation we have in front of us today.