Leasehold Reform (Ground Rent) Bill [HL]

Lord Naseby Excerpts

Committee stage
Wednesday 9th June 2021 Grand Committee

[Lord Stunell (LD) [V]]

My Lords, I shall speak in particular about Amendment 1, and the consequential amendments tabled by the noble Lord, Lord Blencathra. It was great fun to listen to him on Second Reading, with his eloquent flow sweeping away the whole caboodle of leasehold legislation and starting again from square one. That was spoken like a true reformer and radical, which, in his heart, I know he is.

Today the noble Lord was a bit more circumspect, but no less radical, with amendments that would not just reform the system but abolish it completely, starting on day one. That is an attractive proposal, especially to leaseholders—but even more so to lawyers. If implemented as drafted, it would leave a trail of wreckage that should keep lawyers employed for many a long year.

However, I suspect that, as befits a former Chief Whip in the other place, the noble Lord has carefully done his homework behind the scenes. No doubt he has had a word with the Minister and secured a commitment to bring back a government-led amendment on Report to comprehensively reform the entire leasehold regime and implement the recommendations of the Law Commission, and in the meantime to freeze the granting of lease extensions on grossly inequitable terms. If that is so, my noble friends and I will be ready add our names to that amendment, when it comes along.

However, perhaps the noble Lord’s quiet chat with the Minister did not go quite as well as he had hoped, and no such agreement was forthcoming—which may be why today he deferred to the amendments tabled by the noble Lord, Lord Young. Among those, Amendment 12, in particular, sets out in impressive detail a somewhat equivalent plan, as the noble Lord, Lord Young, has just spelt out. At first reading, that amendment would seem to provide less of a free lunch for lawyers than Amendment 1 would, and it is sensible, measured and proportionate, as one would expect from the noble Lord.

In his explanatory statement, the noble Lord describes Amendment 12 as a probing amendment. We certainly welcome that probing of the Government’s position and intentions. We too are concerned by the slow pace of reform, and the fact that the current Bill does nothing for existing leaseholders. Instead, the Government are offering jam tomorrow—or possibly the day after tomorrow—for current leaseholders. At least the noble Lord’s amendments offer us a sniff of jam today. I would encourage the Minister, in his reply, to explain fully to us exactly when he will come back with clear plans to achieve the reforms that the noble Lord has already drafted for him. I thoroughly endorse the noble Lord’s concerns about the gaps that could open up.

We should remember that leaseholders’ organisations desperately want this Bill in place, and the Liberal Democrats support their intentions. There should be no delay in its passage. But the Minister owes it to those leaseholders to commit to delivering a comprehensive reform in the shortest possible time. That is not only the right and equitable course of action, but the best way of avoiding disruption to the market.

The noble Lord, Lord Young, referred to the Law Society’s briefing on the Bill. I draw noble Lords’ attention to the Law Society’s belief that leasehold purchasers and their mortgage providers will, understandably, steer clear of taking out leases under the existing legal framework if they can find a much more favourable lease elsewhere in the market, under the new terms in the Bill. That means that existing leaseholders who are trying to sell will be put at a double disadvantage—not only having to pay outlandish charges but having more difficulty in selling their homes than if they had benefited from the new terms.

That risk to a stable market gets worse the longer the second stage of the reform is delayed. Perhaps the fact that that the noble Lord, Lord Young, referred to hereditary Peers’ legislation speaks to that foreseeable risk of endless delay. Two experienced senior members of previous Conservative Governments have tabled amendments in very similar terms to try to pre-empt that delay—which may be some kind of hint that they lack trust in the Government’s commitment to deliver on the second stage. In the Minister’s reply we need to hear exactly when he, as the responsible Minister, and the Government he represents, will bring forward that follow-up legislation, which we believe is now a pressing priority.

[Lord Naseby (Con) [V]]

My Lords, I apologise that I was not able to take part at Second Reading. Some of your Lordships know that my wife was taken very ill with Covid—in fact, we nearly lost her—and I decided to take her away for a rest. I am pleased to say that she is now pretty well.

There are a couple of interests that I ought to declare. I am a vice-chairman of the Shared Ownership Housing APPG. I have taken a particular interest in care homes, so I will be addressing the Committee on Amendment 4. My friends know that I was chairman of the housing committee in the London Borough of Islington from 1968 to 1971, when there was a fair number of lease challenges. Finally, I say to my noble friend on the Front Bench that I welcome the principle behind the Bill and thank Her Majesty’s Government for actually moving things forward.

I do not want to speak for very long on any of the amendments. I understand my roommate’s enthusiasm, which he has for everything in life, and he does cut through the rubbish, usually. It is nice to see someone cut through, bearing in mind that this is a pretty revolutionary Bill to start with. That is one end of the spectrum, and that covers Amendments 1 and 2. The noble Lord, Lord Young of Cookham, went into it in great detail. I read with great care what he said at Second Reading and the Government would do well to do the same—I am sure they must have done. He covered what might well be in the next Bill. It should be looked at extremely seriously.

I am concerned—I wrote it down before the noble Lord spoke this afternoon—about the position of existing leaseholders when they come to sell. I think that is a fair question, which the Labour Front Bench raised. That problem will be there unless some action is taken. It certainly cannot wait until the second half of this problem is dealt with in another Bill.

One other area concerns me: the situation, which is not uncommon, particularly in the provinces—I am speaking today from Sandy in Bedfordshire—where a landlord offers a 25-year lease on a residential property at a market or rack rent. That is pretty common in mixed-use scenarios; for example, a shop with a flat above, where the owner wants the commercial and residential parts to be leased out concurrently. In those sorts of circumstances, it seems—some would say absurd but that might be going too far—unusual and strange to expect just a peppercorn rent when a lessee is getting the benefit of living in or renting out the property.

The amendments in this group are absolutely crucial and I too look forward to the Minister’s response.

[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? I will move on to the next speaker, the noble Baroness, Lady Grender.

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[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.

[Baroness Grender (LD)]

My Lords, developing adequate housing stock for an ageing population is a significant challenge for this and future Governments. The work of the noble Lord, Lord Best, and the publications by his APPG for Housing and Care for Older People have been essential reading in this area. While we recognise that what is now in the Bill is a compromise achieved following a total exemption for retirement homes in the original consultation, and in spite of the arguments of the noble Lord, Lord Best—whose expertise in this area is significant—when the Minister responds, I still want to understand where the essential difference lies between retirement and other leaseholders, in his or the Government’s opinion. If the straight answer is money required to be spent on common parts, surely a more honest and transparent way to do that is in either the original price or the service charges. However, I hear what the noble Lord, Lord Best, has said today and will study his explanation.

Given that ground rents appear to serve no purpose, as we have already discussed several times and at Second Reading, other than profit for the freeholder or security to borrow to develop more properties, why is this different when applied to retirement homes? I am sure that noble Lords are familiar with the Times investigation into this in November 2019, but it bears revisiting. It uses the example of one retirement property bought for £197,000, in 2009, from the FTSE 250 development company McCarthy & Stone, which was sold for only £26,000 six years later. By the time the flat owner died, she was paying the management company almost £8,000 a year.

The Times went on to say:

“Housebuilders such as McCarthy & Stone argue that without the money they make selling the freehold to management companies they could not afford to provide communal areas for their properties. Yet this is a poor excuse when there are far more transparent ways to raise revenue, such as simply selling their properties for a higher price.”


They often cover that in the service charge. The article continued:

“They insist, moreover, that the majority of their homes have increased in value.”


However, the Times then went on to find that

“one McCarthy & Stone property had lost £45,000 between 2015, when it was bought,”

and 2019. The same investigation found that, as with other leaseholders, elderly relatives are persuaded to use a solicitor who the developer has recommended, who turns out to be the very opposite of an advocate on behalf of the retiree. As the noble Lord, Lord Best, has explained, this group can often be exploited and manipulated.

For those reasons, we are minded to support the amendments in the names of the noble Lords, Lord Kennedy and Lord Lennie, but look forward to hearing the arguments in the closing stages of this debate.

--- Later in debate ---

[Baroness Grender]

This group has two purposes. The first would be to remove Clause 6 altogether to ensure that informal extensions come under the regulations proposed in the Bill; the second, less dramatic amendment would increase transparency in both formal and informal renegotiations or extensions of the existing lease. I shall deal with Clause 6 stand part first.

We see informal leasehold extensions as a significant potential loophole and the next obvious area to exploit for the “something for nothing” industry in this area. Therefore, we wish to ensure that informal leasehold extensions are regulated in the same way. I appreciate that there may be extenuating circumstances where there is a need for an informal extension—for example, if someone inherits a home and needs to make a relatively quick sale on a very short lease—but those circumstances should be the exception, not the rule. I fear that this will become standard practice unless the Government find a comprehensive way to restrict its use. If noble Lords who speak after me in this debate have concerns and examples of the advantages that an informal leasehold extension provides, I am more than happy to hear suggestions of better solutions than this, but the key question for this debate is how to prevent informal extensions being used, as they currently are, to exploit leaseholders and how that can be reflected in the Bill.

I will be using, in particular, specific examples provided in a detailed blog on this issue by Louie Burns. Sadly, he died a year ago. He was a trustee of the Leasehold Knowledge Partnership and an expert practitioner in the area of leasehold extensions. I have taken the liberty of sharing the link to his blog with noble Lords participating in the debate on this group of amendments.

Louie Burns called such offers “Trojan horse offers”. He described an offer from a real case he dealt with, made by a large London-based freeholder, on a property valued at £230,000 with a ground rent of £75 a year, doubling every 33 years, and a current lease of 75 years. The cost of extending the lease using statutory legal rights would be a total of £13,250, securing a lease of 165 years with zero ground rent.

Often, the freeholders in this scenario are professional money makers. They make money from licensing fees hidden in the lease, through claiming a finder fee for the building insurance, when people have no choice as to who building insurance is provided by, through service charges and ground rent—and, of course, through money paid to extend the lease.

The freeholder writes to the leaseholder offering to extend the lease back up to 99 years—which means that, 17 years later, the lease will need extending again —for £10,200, plus VAT of £1,000, with ground rent at £250 doubling every 10 years, with a short deadline of 30 days to make a decision offered by the freeholder. In the small print, of course, the leasehold is extended only to 99 years—or the freeholder may offer 125 years, without explaining that the extension is from the date that the lease was originally granted, not the date of the extension offered.

Louie Burns went on to explain how the costs described, over a 24-year period, added up to more than £100,000, which will go to the freeholder. Please remember that this is a specific real case, which he provided as an example. When compared, unfavourably, with the statutory route, costing about £13,000, with zero future ground rent, that is beyond shocking. We need to bring this sharp practice under some form of regulation.

The other option is to accept Amendment 13, which would impose an obligation to explain. If leaseholders had the full picture and knew both their statutory rights and the full costs over 24 years, say, they would have much greater control. The alternative is an informal extension to 99 years—which, as I said, would have to be renewed 17 years later, and then in turn makes the flat impossible to sell, and prohibitively expensive to maintain, with the ground rent alone.

An informal extension of a lease also means that the leaseholder is not protected by the law, and the freeholder can make changes by saying things such as:

“We are not looking to amend your lease in any way, we will only modernise the terms of your lease.”


Louie Burns, in his blog, told people to beware of the term “modernise” as used here, because it means “amend”. An informal leasehold extension is a quick route for a freeholder to add additional payment. It is also a quick route for a solicitor to receive a fee—which may explain why, often, solicitors do not give a warning.

The statutory route is slower. With banks and building societies now showing reluctance to lend for such leasehold arrangements, yet again, the person who suffers the most, and is caught between freeholder and lender, and cannot sell, is the leaseholder, who has received minimal information. Sometimes Ministers like to solve such transparency issues through guidance. But if the aim is to ensure that the freeholder complies with the law, I suggest that the transparency approach should be in the Bill. I beg to move.

[Lord Naseby (Con) [V]]

My Lords, the noble Baroness has done us a great service. We have all read about these situations. I am not aware of the details of any of them, but there has been enough coverage in the responsible media for me to see that this is a problem. I hope my noble friend on the Front Bench will be able to address it.

I assume that in this group we are also dealing with my noble friend Lord Young’s Amendment 12, although I notice that it is not listed. It says “After Clause 6”. Is that after this debate?

[The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)]

It was in the first group.

[Lord Naseby (Con) [V]]

We have dealt with that one, have we?

[The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)]

Yes, we have.

[Lord Naseby (Con) [V]]

I apologise. I very much support what the noble Baroness said. I need do no more than ask my noble friend on the Front Bench to take it really seriously.