Leasehold and Freehold Reform Bill

Lord Moylan Excerpts

2nd reading
Wednesday 27th March 2024 Lords Chamber

[Lord Moylan (Con)]

My Lords, it is a pleasure to follow the noble Lord, Lord Stunell, with whom I served on the Built Environment Select Committee. I declare as interests that until August 2023, I was a member of the board of the Ebbsfleet Development Corporation, and that I own and live in a leasehold flat in London and own nominally a further leasehold flat as a will trustee, though I have no financial interest in it.

Some time ago, the block of flats in which I live was the second block in the country to exercise the right to manage when that legislative provision was introduced. It has worked extremely well for us. It has persuaded me very strongly that the control of the management of the building in which you live is the solution to many of the problems that leaseholders have experienced with their freeholders and managing agents. I am slightly baffled as to why the noble Lord, Lord Stunell, suggests that this is something that only the middle classes can attain to. The residents in the block where I live probably fit the description that he set out, but I do not understand why he says that this can be done only by them. We do not manage the building ourselves. We interview, appoint and periodically change a professional managing agent—a property agent—but that agent reports to us and is accountable to us, financially and in the decisions made. The structure also allows us to put in place a long-term plan. The legislation requires us to have a 10-year plan, which has made the prediction of service charges very much easier.

I strongly support those parts of the Bill aimed at giving residents greater control of the management of the blocks in which they live. However, if, as is not the case where I live, there is profound disagreement between the residents of a shared property concerning heavy expenditure, no legal structure will resolve those issues satisfactorily. We need to bring about a change in human nature, which I am afraid is probably beyond the capacity of your Lordships’ House.

I am concerned that the right-to-manage provisions appear not to extend to local authorities, even where the property is held outside the housing revenue account. That is a point that I may wish to probe further in Committee. I am also concerned that landlords will not be able to recover their legal fees from tenants as a result of disputes and about how that impacts on right-to-manage companies and any other form of tenant control that might be adopted as a result of the Bill. It would in effect make it impossible for the right-to-manage company to take action against delinquent leaseholders, because they do not have the resources or the deep pockets of these freeholders to take legal action and risk being left with large legal bills. I would like to probe that further as well.

Where the right to manage is not exercised, leaseholders must face the prospect of service charges being administered by or on behalf of the freeholder. This is the nub of the matter. I will come to ground rents in a moment; this is a much more important issue. I certainly take the view that freeholders should not make a penny out of service charges. There is no justification for them to do that. I would be perfectly happy if the Bill contained a provision preventing that from happening. I would also be happy if the Bill contained a provision saying that the total revenue to a managing agent was capped at a certain percentage of expenditure. I do not think that it requires, at least in this respect, for a regulator to enforce that. One could simply make such Bills unenforceable in the courts, so that the demand could not be collected.

Where I depart from the Government—and, I think, from nearly all noble Lords who have spoken so far—is on the provisions relating to the retrospective cancellation of ground rents, and indeed of marriage value. I am afraid to say that this is an astonishing proposition from a Conservative Government. As lawyers have said, it clearly threatens to damage the reputation of English law in the eyes of both domestic and foreign investors. It makes a wholly unjustified transfer of wealth from one group of persons to another—an estimated £40 billion being transferred from one pocket to another, with almost no justification involved. It will cause very serious difficulties for pension funds and other good-faith investors. I worry that there will be a tendency in this House not to engage properly with this issue, but to say, “Leave it all to the European Court of Human Rights, because they’re going to sue anyway; let them sort it out”. I think we have to engage with the equity of this issue: with its fairness and justification. I have great difficulties with it.

I come to the question of estate charges. I have not heard until today the expression “fleeceholder charges”; I think we are talking about the same thing. These were brought up with great eloquence by the noble Baroness, Lady Thornhill, and I share her outrage. The reason I mentioned my former membership of the board of the Ebbsfleet Development Corporation is that Ebbsfleet is being developed on this basis. The residents of Ebbsfleet will be paying charges for the maintenance of common utilities—parks, roads, amenities and things like that—which would normally be borne by a council.

I think this is the next great scandal approaching the housing market; I have actually said this in the House before. But I do not think it is the case that one should present this, as the noble Baroness did, as a case of wicked mis-selling by developers, because it is in very large measure attributable to councils that are simply resiling from taking on their duties. They will accept the additional council tax generated by the new properties, but will not take on the responsibilities for maintaining those common amenities. So there are at least two parties involved whose attitude on this needs to be addressed if we are to correct it.

I come finally to two lighter points. First, could we all agree to drop this use of “feudal” as a term of abuse? First of all, not everything about feudalism was bad, despite what the noble Baroness, Lady Finn, may choose to correct me on. But, much more importantly, the law of property in this country was totally reorganised by the Law of Property Act 1925. That made provision for a form of tenure where property was shared and gave it the name “leasehold”. That might be an ancient name—they have got rid of “copyhold” and all the other stuff that existed—but the fact is that leasehold as we know it today is not even 100 years old, let alone medieval. It is the creation of 20th-century law. We should recognise that and stop trying to demonise it by making out that it comes from the Dark Ages.

Finally, and very briefly, although this last point may be thought to stretch the scope of the Bill a little, I shall be making a personal effort at some point to try to persuade the Secretary of State that it is time to amend the building regulations to make starling nest bricks compulsory in new developments.

--- Later in debate ---

[Lord Truscott (Non-Afl)]

My Lords, it is a pleasure to follow the noble Lord, Lord Adonis. I will come to ground rents shortly. I declare an interest as a long-standing leaseholder.

The Bill before your Lordships’ House today is, in my view, profoundly disappointing, as one or two noble Lords have said. As the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, said in the other place, leasehold is a “fundamentally unfair system”, and his aim is the effective destruction of the leasehold system. Leasehold is, in his words, “outdated” and “feudal”, although I know that the noble Lord, Lord Moylan, does not like that word. I agree with the noble Baroness, Lady Finn, that leasehold has no place in the 21st century. The Bill falls a long way short of its objective of the destruction of leasehold, as the noble Baroness, Lady Andrews, also said.

As it stands, the leasehold system is virtually globally unique—in a bad way—to England and Wales. It perpetuates a property market where around 10 million leasehold dwellers are at the mercy of freeholders and associated freehold professionals who sponge off them. Leasehold codifies and preserves, in the modern age, the medieval relationship between the serf and the lord of the manor, because that is historically where leasehold comes from. I agree with the noble Baroness, Lady Finn, on this. As a historian with three degrees in history, I can assure noble Lords that it is quite the historic pedigree. There is a gap between those who own property outright and those who do not. This applies not just to the great estates that still own huge chunks of prime London and other areas but our country as a whole.

The Secretary of State, Mr Gove himself, said in the other place that the Government would destroy the feudal leasehold system:

“We will do so by making sure that we squeeze every possible income stream that freeholders currently use, so that in effect, their capacity to put the squeeze on leaseholders ends”.—[Official Report, Commons, 11/12/23; col. 659.]


The noble Baroness, Lady Thornhill, repeated this. We hear that Mr Gove is having trouble fulfilling the Tories’ election manifesto pledge to reduce all ground rents to peppercorns. The noble Lord, Lord Adonis, referred to this. But Mr Gove is being opposed by the Treasury, Downing Street and freeholder interests. Meanwhile, as noted in the debate, the Competition and Markets Authority has ruled that there is no legal or commercial justification for ground rents. Ground rents provide no service and are purely rent-seeking.

I have very little sympathy for the self-serving arguments of vested interests that want not only to water down the Bill further but to emasculate it completely. The effect of reducing ground rents to peppercorns is exaggerated by the pension industry and freeholder lobby groups. I do not agree with the noble Lord, Lord Moylan, on this point. Some are hiding behind the European Convention on Human Rights and the right to property. The noble Lord, Lord Adonis, referenced this. Apart from this making an excellent case for an opt-out from the ECHR, which I would have thought the noble Lord, Lord Moylan, would welcome, I point out that the rights of leaseholders need protecting too.

We were told that marriage value was to be abolished under the Bill—

[Lord Moylan (Con)]

I have never actually argued that we should withdraw from the European Convention on Human Rights. I have an open mind.

[Lord Truscott (Non-Afl)]

I did not say that at all. I said that I would have thought that the noble Lord would welcome an opt-out from the ECHR on this. If that is not the case, I am happy to accept what he says.

Going back to marriage value, I do not think that marriage value should be replaced with a deferment rate that makes lease extensions even more expensive than they are now, because the deferment rate that the Government are talking about setting is merely marriage value by another name, and it can end up with leaseholders paying even more for lease extensions than they pay now, because it depends on the rate. In my view, His Majesty’s Government should completely abolish the outmoded concept of marriage value based not on what a property is currently valued at but on what a freeholder imagines it may be worth in the future. However, I welcome the Government’s commitment to an online calculator, so at least leaseholders know what the cost of extending their lease might be.

I listened carefully to the Minister’s opening speech, and I hope that she can assure the House that, when the Bill becomes law, it will indeed be cheaper and easier for existing leaseholders to extend their lease or buy their freehold. The greater transparency on charges, including insurance, and the end of the unfair presumption of leaseholders always paying all the landlord’s legal costs is a step forward. As it stands, the system is heavily weighted in favour of the landlord or freeholder. Any legal challenge is fraught with risk, uncertain and extremely costly. Very few leaseholders attempt it. As noble Lords have said, the stories of excessive and padded service charges and extortionate insurance premiums are legion and endemic. These abuses must be brought to an end as soon and as far as humanly possible.

The extension of right to manage in residential blocks is long overdue. I do not accept that mixed residential and commercial blocks cannot be managed by right-to-manage companies, or that investments will dry up as those who live or invest in such blocks are given more say over how they are run.

I regret the absence of the regulation of property management agents, as the noble Lord, Lord Best, has repeatedly raised, or even an insistence that they should be trained and qualified. Property agents can control millions of pounds, and the standards of some of them are unbelievably poor. I know of no other body that manages potentially such large sums of other people’s money that is wholly unregulated. Voluntary codes and redress schemes are not enough.

Commonhold is once again being insufficiently promoted by His Majesty’s Government, as mentioned by the noble Lord, Lord Young of Cookham, and others, including the noble Baroness, Lady Taylor of Stevenage. It may be unpopular with developers but I believe it offers a realistic alternative to the flawed leasehold system.

On forfeiture clauses in leasehold, which a number of noble Lords and the Minister mentioned, although I agree that no one should lose their home for service charge arrears of a few hundred pounds—these can be dealt with by the county court and bailiffs—forfeiture clauses can be a useful deterrent to other breaches of the lease that are otherwise difficult to enforce, such as persistent anti-social behaviour. I look forward to these and other issues being fully debated as the Bill progresses through your Lordships’ House.