Leasehold and Freehold Reform Bill

Lord Sandhurst Excerpts

Committee stage
Monday 22nd April 2024 Lords Chamber

[Baroness Taylor of Stevenage (Lab)]

My Lords, our Amendment 17 would enable the Secretary of State—or, in Wales, Welsh Ministers—to change the description of premises that are excluded from collective enfranchisement rights. Such a change would be subject to the affirmative resolution procedure. I thank the noble Lord, Lord Thurlow, for all his time in discussing the Bill with me, and I acknowledge his expertise in this area.

Clause 28, which our amendment targets, makes changes to the non-residential limit for collective enfranchisement claims. At present, Section 4(1) of the 1993 Act excludes from the right to enfranchise buildings in which 25 % or more of the internal floor area, excluding the common parts, can be occupied or are intended to be occupied for non-residential use. The clause increases that non-residential use percentage to 50%. We welcome the change, which enacts recommendation 38 of the Law Commission’s final report on leasehold enfranchisement and was supported by the National Leasehold Campaign, among others.

Of course, if the purpose of the non-residential limit is to confine enfranchisement to predominantly residential blocks, the Law Commission determined that the existing 25% limit does not achieve that purpose. There is a significant amount of evidence that, instead, it regularly prevents leaseholders from undertaking collective freehold acquisitions because a sizeable proportion of buildings fall slightly above it and that 25% is a significant bar to the ability of leaseholders to undertake a collective freehold acquisition. The Law Commission further argued that

“the arbitrary nature of the limit makes the bar to enfranchisement a source of considerable frustration for many leaseholders”.

We accept that there is no easy or non-arbitrary way in which to determine where that bar should be. However, it is the stated intention of the Bill to bring as many leaseholders as possible into enfranchisement, and it is therefore questionable as to whether limits under 50% would feel inherently fair. We would hope that a 50% non-residential limit would mean that the number of genuine cases excluded would be small and would remove the opportunity for developers to play the system, because only a genuine split between commercial and residential would apply.

Our main concern on this clause is that there is no flexibility built into it, and we are keen to probe whether a review after a period of time to determine whether the non-residential policy as set out is working in practice could be undertaken, or another mechanism used, so that changes for the limit in respect of collective enfranchisement rights do not require primary legislation but can be enacted through regulations. Enacting small but necessary changes that may occur in relation to the Government’s proposed limit—for example, whether that relates to individual cases that fall just above the limit, or a change in the criteria on using internal floor area to determine the rights, or changing altogether the criteria on which the limit is based—may need alternative mechanisms to resorting to future primary legislation. That is the purpose of our amendment.

I will comment briefly on the other amendments in this group. We understand the reasons for the amendments of the noble Lords, Lord Sandhurst and Lord Thurlow, and look forward to hearing the comments of the Minister on those amendments. In relation to the Question on whether the clause should stand part of the Bill, to be put by the right reverend Prelate the Bishop of Manchester, we understand the Church position as a landholder, but we feel it would go against the spirit of increasing the enfranchisement through the Bill to retain the 25% limit.

[Lord Sandhurst (Con)]

My Lords, I shall speak to Amendment 17A. I am sorry that I was unable to speak at Second Reading. I should also say that the noble Baroness, Lady Deech, who is unavoidably detained, has added her name to that amendment. We therefore have her support as well. Amendment 17A is directed at Clause 28 on mixed-use premises with substantial proportions of business and residential tenants. Currently, collective enfranchisement and lease renewal is not permitted where more than 25% of the premises are business premises. That figure is going to be changed to 50%, thereby making it easier for residential tenants to go down the collective enfranchisement route.

That will introduce management issues—I do not say that they are necessarily problems, but they are certainly management issues. The Bill proposes that, if 50% of the occupants are residential, that will be enough. That will mean that, unless more than half of the building is occupied by business premises, all residential tenants will be entitled to be enfranchised. That will create issues for management and, in particular, problems where some of those residential tenants are overseas companies. We know that there are increasing numbers of those, particularly in London.

Mixed-use buildings pose greater management challenges than purely residential ones. Freeholders need to be responsive and active property managers. Business tenants require swift responses so that they can manage their businesses. If they want changes to the premises and so on, they need their landlord’s consent so that they can go ahead. If there are difficulties with obtaining that consent because, for example, some—or possibly a large number—of the residential tenants are overseas companies, then one can see how unattractive such premises will become as business premises for the business occupiers.