Leasehold Reform (Ground Rent) Bill [Lords] (Second sitting)

Debate between Maria Eagle and Mike Amesbury

Committee stage
Tuesday 7th December 2021 Public Bill Committees

[Mike Amesbury (Weaver Vale) (Lab)]

It is a pleasure to welcome you to your place, Ms Elliott. I welcome the Minister’s and the Government’s response to some of the debates on the Bill in the other place about the maximum level of fine. Given that a number of landlords and freeholders have deep pockets, it will act as a more effective deterrent.

On multiple breaches, I am making an assumption that an element of sense will be applied, so that someone with multiple breaches would be looking at the maximum fine. I know that that will be a judgment call for the enforcement authorities and trading standards, which will be well resourced—we have had the assurance from the Minister today.

The clause picks up on several earlier points made on both sides of the Committee. It is essential that people are informed from the outset of the duties that will be not only implied but overt as a result of the Bill. Residents and leaseholders will be particularly keen to ensure that where they have been wrongly charged and levied—essentially, ground rent should never have happened in the first place—they will be able to retrieve that quickly. I welcome the clauses but there are still a number of questions for the Minister.

[Maria Eagle (Garston and Halewood) (Lab)]

It is a pleasure to serve under your chairmanship, Ms Elliott. I have a couple of points for the Minister. There are extensive provisions on the recovery of prohibited rent, which I generally welcome. I notice that on page 14 of the explanatory notes, under the heading “Financial implications of the Bill”, it says:

“An Impact Assessment has been prepared for the Bill and covers the implications on private sector bodies and home purchasers… The Impact Assessment illustrates a de minimis impact of less than £5m.”

It then says that there is an assumption

“that the number of enforcement cases will be very small.”

One would hope that that would be the case, because one would hope that landlords will not seek to charge and benefit from ground rent in the interim between the Bill coming in and peppercorn becoming payable, when it becomes commenced, by putting provisions into new leases that charge ground rent. One hopes that that is a correct interpretation. The explanatory notes then say:

“Over and above the use of the proceeds arising from the enforcement action, a further amount of expenditure will be required to provide additional capacity within the National Trading Standards function to support local weights and measures authorities. Leasehold law is a complex area, and it is felt that a central support function will aid the effective introduction of the provisions of this Bill. The cost estimate of this support function is £29,000 per annum”,

which is very precise. It is sort of a round figure, but it is quite a small sum. I wonder whether the Minister could explain the assumptions underlying the explanatory notes.

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[Mike Amesbury]

With regard to the excess that could be generated, and terms of the clause and the amendments, there could be a transfer to the Welsh Secretary. Does the Minister envisage that happening in reality, given the situation that many local authority trading standards have faced over the past 11 years? That point has been echoed across the Committee today. Could the Minister elaborate on the discussions that he has had with the Welsh Government, because there are elements of a tidying up exercise here? The Minister said that he had further discussions of other mechanisms that would help trading standards effectively conduct and resource their enforcement role. What are those mechanisms and sources of other potential income?

[Maria Eagle]

I have a couple of probing questions. There is no doubt that it is good to see some enforcement provisions. Given the range of penalties from £500 to £30,000 and given that trading standards have to effectively obtain their costs from the proceeds when undertaking the enforcement activity, is the Minister concerned that that might offer an incentive to trading standards—the enforcement authority—to pitch their fine or notice at a higher level than perhaps might otherwise be the case? Does he agree that going through this administrative fining arrangements, with all the appeals that we see in the schedule, would probably not be worth it for an enforcement authority if it were only going to get £500 at the end of the day, given the difficulty of understanding all the nuance of landlord and tenant law and leases? Is it therefore much more likely that there will not be much enforcement activity?

One of the other concerns for such an officer and an enforcement authority, might be that if there is an appeal to the administrative tribunal by the landlord against the amount being levied by way of penalty, that might be reduced from what the authority originally set out to cover its costs, say, to a much lower figure, closer to £500, which would perhaps most certainly not cover its costs. Is there an incentive in part for the enforcement authority to pitch the fine high, but any tribunal that considers an appeal may cut the fine to such a level that the enforcement authority might not be able to obtain its costs back from the proceeds? Perhaps, therefore, the overall impact will be that the enforcement authority thinks better of engaging in enforcement if it does not have resources it can guarantee will be used to do that. I would be interested to know what the Minister and his Department have considered in respect of the incentives built into the system in the Bill.

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[Mike Amesbury]

The clause seems fairly proactive, essentially hand-holding through the process, which in one dimension is most welcome. However, I still question the incentives for people to go down the enforcement authority route—trading standards—rather than the tribunal route for cost recovery. I am curious.

[Maria Eagle]

I have a similar concern to my hon. Friend’s. The clause states that, “An enforcement authority may,” not “must”, which means that it may not. It may decide that it does not wish to. If it were to take enforcement action itself, it can retain the proceeds of any enforcement that occurs, but there is no indication that the costs of assisting a tenant, which may be just as an extensive as if it were to carry out the enforcement action itself, are recoverable in any way. Does that not suggest that the relevant enforcement authority may choose not to?

Leasehold Reform (Ground Rent) Bill [ Lords ] (First sitting)

Debate between Maria Eagle and Mike Amesbury

Committee stage
Tuesday 7th December 2021 Public Bill Committees

[Mike Amesbury]

I thank the Minister for his brief explanation. As my hon. Friend the Member for Garston and Halewood quite elaborately argued, this Bill is not about the many; it is just about the new. There are 1.5 million people who will still be in this system, many of whom write to us asking for us to advocate for them in this place. It is a particular issue in the north and north-west, and Wales. This Bill will do nothing for those people. In addition there is a plethora of complexities associated with the Bill—service charges, interesting management fees and so on—which we have spoken about at considerable length. So, while the Bill is welcome, it is narrow in scope and certainly does not deal with the situation here and now.

[Maria Eagle]

I very much welcome the intent of the Bill, which is to replace the standard charging of ground rent of real monetary value to leaseholders with a peppercorn rent. I welcome that very much; it is an entirely good and proper reform. Anybody who has had to deal with land law over the years—whether as a lawyer, or just as an MP trying to advise constituents—knows just how complicated it is to change these ancient and difficult land law provisions, which go back to feudal times in many ways and which very much have case law behind them. As we can see from this simple Bill alone, significant provisions have to be added to do the simplest things. I have every sympathy with the Minister, who has a record of trying to grapple with the complexities of English land law since he was Back Bencher. It is by no means easy.

I welcome, generally, clause 4, which reduces to a mere peppercorn the ground rent that is chargeable for new leaseholders. That is entirely to be welcomed. However, I want to set out to the Minister the difficulties that many of my constituents have. Thousands of them have in the last few years bought leasehold houses. This is particularly an issue in the north-west. As my hon. Friend the Member for Weaver Vale rightly said, there has arisen a penchant for selling newly built, often detached houses as leasehold properties. That has, and can only have been to enable the freehold—the reversionary interest—to be turned into a financial product that, over years, often decades, provides a stream of income for whoever retains the reversionary interest, who is often not the original developer or builder of the properties. It is sold on in financial markets to those who are interested in long-term investments providing a stream of income.

Many of my constituents, trapped in such leases, had no idea when they bought the houses that that would be the case, and that they would owe obligations for decades to whoever held the reversionary interest. They had absolutely no idea that the person who held the reversionary interest could change, and that it would be traded on financial markets and bought by people who wanted to exploit to the maximum the provision for income generation over years. The Bill, unfortunately, does not help any of my constituents who are stuck in such provision.

I am entirely in favour of changing that provision by means of the Bill, which I welcome, but there is an argument to say that the Bill actually makes things startlingly worse for those already trapped in such leasehold provisions that have ground rent and sometimes accelerated ground rent. It makes starker the fact that it is anomalous. I have many constituents on a number of estates across my constituency of Garston and Halewood who are finding it difficult to sell their properties. They have suddenly realised that they do not own a house, as they thought they did, but that they are renting it.

I am extremely anxious that the Minister does not rest on his laurels, having got this complicated piece of simple legislation through the House and on to the statute book, but that he realises that there is so much more to do to assist those who are stuck—particularly in my constituency and in the north-west—in newly built houses that they now find they do not really own. They are being financially exploited by remote owners of a reversionary interest that will endure for perhaps 99 or 999 years.

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[Mike Amesbury]

On Second Reading, my right hon. Friend the Member for Alyn and Deeside (Mark Tami) highlighted the issue that could arise where, within a single development, on one side of the road would be properties built in its first phase, under the current arrangements, and on the other side of the road properties built in the next phase, under the new arrangements. It is simply inequitable. When people come to market, which property will they purchase? The Minister is familiar with these issues, and my hon. Friend the Member for Garston and Halewood is right that they need tackling, despite the difficulty.

[Maria Eagle]

I have every sympathy with that point because I know of examples in my constituency. In the past few years, as these egregious excesses were coming to light and before legislation could be drafted, the Government have tried to impress upon developers that they should not do this kind of thing, and there have been voluntary arrangements. House builders have made voluntary arrangements, sometimes midway through the completion of a phased development, such that some buyers of properties built in the early phases of a development have had to pay ground rent, or accelerating ground rent, service charges and some of the other things that have not been dealt with in this legislation, but in later phases that has not been the case; so there is a difference between properties—even those built to the same design in different phases of one development.

One could say that caveat emptor is the basis of land law in England. It is indeed: “Let the buyer beware.” However, I have a lot of sympathy with constituents of mine who were rushed into buying a property so that they could access Help to Buy, who were first-time buyers, who had not done a degree in English land law before they sought to become homeowners—which, let us face it, is most people—and who relied upon the advice they were given. I have many criticisms of the legal profession and the solicitors—even conveyancers—who advised some of my constituents, because it seems to me that there has been a potential failing, in some cases, there.

In any case, the Minister has come to this, wanting to do something about it—indeed he has drawn a line in the sand, as he said—but he must not forget those individuals that, in drawing the line, he has not helped, and who may in fact find their predicament more starkly highlighted, and may find it more difficult to move on and sell the property that they now have than they would have done without this legislation.

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[Mike Amesbury]

The evidence out there grows by the week. There is a genuine fear that landlords, freeholders and developers will look for other opportunities in response to the legislation. We already see those service charges up and down the country. I know it is a particular issue in London and the south-east, but every city across the country has seen some interesting non-transparent service charges—that includes estates and houses.

[Maria Eagle]

Does my hon. Friend agree that it is important that the Committee prevents the inclusion of loopholes in the Bill that could be widened by clever lawyers and then exploited by developers and those with a financial interest in keeping things as they are? His proposals are trying to prevent loopholes from being left in this admirable but small piece of legislation.

[Mike Amesbury]

I concur. That is exactly my point. I know that a similar amendment was tabled in the other place, as the Minister will be aware. We certainly need reassurance. There are lots of good intentions from the Minister and his Department with regard to this legislation, but we need to look at every opportunity to close those loopholes. I would like to have further discussions as the Bill continues its parliamentary journey—it is a conversation we need to continue. However, in that spirit, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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[Mike Amesbury]

I thank the Minister for his explanation. If we look at the evidence provided by the National Leasehold Campaign and the Leasehold Knowledge Partnership, and take our mind back to the Select Committee call for evidence, I think in 2018, which I know he had a keen interest in at the time, there was a real concern about access to tribunals. Decisions seemed to be weighted against leaseholders. On the worry about access to, and supported provided to, tribunals, what reassurance can he give that the situation can improve as a result of the changing legal landscape?

[Maria Eagle]

I wish to ask the Minister a question. I apologise to him; obviously we have not yet reached the debate on the commencement provisions, but he might be able to enlighten us on the Government’s intention. Clearly, it is entirely welcome that clause 7 would simply replace the unfair term in the lease that asks for real money for ground rent rather than the peppercorn, which the legislation is intended to outlaw, but the commencement provisions are not totally clear about when that provision will be commenced.

My understanding is that there will be a regulation-making power for the Government to bring into force the Act on the day that they wish to do so. My concern about not being clearer about when clause 7 comes into force is that there may be a gap between when the Bill is passed and when the clause is commenced by the Government, because they will have to make a regulation to do so. Does that leave a space for unscrupulous landlords to continue to have unfair contract terms in their leases after Royal Assent but before the commencement of the legislation?

I wonder whether the Minister could assuage concerns by making it clear that it is the Government’s intention not to have a big gap between Royal Assent and commencement such that a loophole could be created in which clause 7 has not yet been commenced, preventing unscrupulous characters who may want to induce potential tenants into leases with contract terms that would be outlawed by the Bill from doing so. A simple commitment from him that there will be no such gap would satisfy me entirely.

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[Mike Amesbury]

I thank the Minister for his explanation. He referred to the fact that I and a considerable number of other Members spoke about this matter on Second Reading and have done so throughout the campaign to reform the feudal leasehold system. I cannot quite understand the objection to the clause, given that the lack of transparency has been a major factor in the leasehold landscape—we have referred to the CMA investigation and mis-selling by solicitors. The clause would help to improve the landscape and improve the situation for leaseholders. It makes perfect sense to include provisions on transparency of information in the Bill that the Government are arguing for and which we are scrutinising and challenging. We support clause stand part.

[Maria Eagle]

I have some concerns about the Minister’s suggestion that we should not keep clause 8 in the legislation, partly because of the exchange that we just had on clause 7. I expressed a little sedentary shock that six months may pass between Royal Assent and the commencement of clause 7. A lot of leases can be signed in six months, which I consider an extended period, and clauses that will become prohibited may not be at the time.

Leases are difficult enough to read as a layperson without having to be aware that the law has been changed to prohibit a particular clause and that a rent set out in a lease should be replaced with a peppercorn rent. One would have to follow Hansard reports of Bill Committees carefully, as well as the commencement of legislation, to have an understanding that there was a prohibited clause in a lease that one had just signed. Even then, one must understand the legal language in leases, which is not the easiest thing for lay people, perhaps first-time buyers. It is extremely useful to have a provision such as clause 8 in the legislation to make it clear that there is an obligation on landlords to inform tenants of this interim period of time.

If the Minister had said in our debate on clause 7 that the delay was going to be a week or two weeks, then perhaps I would not have risen to support this clause, but we are talking about six months. Many leases have clauses that are to become prohibited later on, but the tenant who signed them may not understand that. We wish that were not the case but there are some landlords out there who wish to induce people to sign leases with charges attached that are shortly to become unlawful. Perhaps then there will be some money paid over, and it is more difficult to get that back than not to pay it in the first place.

Given that there is likely to be a period of up to six months between Royal Assent and commencement of the legislation, clause 8 is a valuable provision to keep in the Bill. I cannot understand why the Minister wants it removed. I would be happy if he were to tell me that commencement of the legislation would take place within a week or two of Royal Assent. I would not then be so concerned about this gap. I am concerned that we are creating or allowing too many loopholes that enable our constituents who are signing new leases to fall into traps that those who wish them to sign leases want to induce them into. The fewer loopholes, the better. Clause 8 is an important provision to leave in the Bill and I would vote for it to stand part of the Bill.

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[Mike Amesbury]

My only concern is the obvious one about resources. I refer to my declaration in the Register of Members’ Financial Interests, as I am a vice-president of the Local Government Association. Over the last 11 years, resources have been somewhat depleted as a result of austerity and Government cuts. Although there is the control and skill capacity locally to be the foot soldier for enforcement, it is a matter of having the people and resources to carry that out and implement it.

I notice that on the Bill’s journey in the other place, a reference was made to future local government settlements. The last 11 years have not been good if we use them as an example of potential resources. I would be interested in the Minister’s reply on that important and vital matter.

[Maria Eagle]

It is good to see that there is some provision about enforcement because there is often a gap in legislation, so the law is made and practical enforcement is not set out. I find it quite an interesting approach to enforcement to say that local trading standards or weights and measures authorities in England and Wales “must enforce” in their own area the standard statutory obligation of such an authority but

“may enforce…elsewhere in England and Wales.”

I may be wrong, but that seems a fairly novel approach to enforcement. I am not saying it is bad, but I would like the Minister to set out in a little more detail why the clause is worded in this manner and whether there are any precedents in respect of other enforcement arrangements that have been drawn on to set out the provision.

Subsection (2) says:

“A district council that is not a local weights and measures authority may enforce section 3 in England (both inside and outside the council’s district).”

We have the prospect of roving entrepreneurial weights and measures departments perhaps thinking that they can go and levy fines of up to £30,000 for a breach somewhere else entirely. I think I have read somewhere that they get to keep the proceeds, so this is quite an interesting tax farming idea—perhaps going back to old England, whereby the collector is given a percentage of the takings. Like my hon. Friend the Member for Weaver Vale, I was going to ask what provision the Government will make to enable a local authority’s trading standards department to search out such breaches. Perhaps they intend to enable trading standards from elsewhere in the country to come galloping in.

[Maria Eagle]

I agree with my hon. Friend about the savage reduction in available resource that the Government have visited on Liverpool. I am interested to hear from the Minister about the intention of this formulation and whether he anticipates that trading standards from out of area will be galloping around the country doing enforcement work in the manner that the clause lays out, because it is not something that I have seen before in legislation. I may be wrong, but it is not something that I can recall seeing.

[Mike Amesbury]

Perhaps there will be a VIP fast lane for the new hit squad that goes across the country.

[Maria Eagle]

I will be interested to see whether there is any kind of entrepreneurialism undertaken by trading standards around the country, but I would like to hear what the Minister has to say.