Renters (Reform) Bill

Matthew Pennycook Excerpts

Report stage
Wednesday 24th April 2024 Commons Chamber

[Madam Deputy Speaker (Dame Rosie Winterton)]

Before I call the shadow Minister, I remind colleagues that if they wish to intervene on a speech, it is important that they have been in the Chamber since the beginning of the speech, just in case the important point they wish to raise has already been addressed. It is also important that they stay for the duration of the speech, in case other colleagues then refer to the important point that they have raised. I clarify that because we may have a longer speech from the shadow Minister, and people may wish to intervene, so I thought it would be helpful to remind colleagues of those rules.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

I rise on behalf of the Opposition to speak to the new clauses and amendments that stand in my name.

It is a pleasure to finally be back in the Chamber to conclude the remaining stages of this important piece of legislation. I say “finally” because as you will know, Madam Deputy Speaker, the Bill left Committee on 28 November last year—almost five months ago. Indeed, such has been the delay in bringing it back to the House that in the intervening 147 days, the Department even managed to complete all the Commons stages of another piece of housing legislation—albeit a distinctly limited and unambitious one—in the form of the Leasehold and Freehold Reform Bill.

The reason for the delay is, of course, an open secret, with the ongoing resistance to the legislation from scores of Government Members—including many with relevant interests, as private renters across the country have certainly noted—and the undignified wrangling between them and Ministers splashed across the papers for months. The damage caused by the discord on the Government Benches has been significant: not only have thousands of additional private renters been put at risk of homelessness as a result of being served a section 21 notice in the months for which the Bill’s remaining stages have been delayed; the sector as a whole has been left in limbo, not knowing whether the Bill will proceed at all and, if it does, what form it will take.

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[Richard Graham (Gloucester) (Con)]

The hon. Member is making an interesting point about uncertainty. I understand where he is coming from, and many of us on this side would very much like to see section 21 abolition implemented as soon as possible. Does he, however, accept that there is another uncertainty, which is that if the court system is not working adequately, the amount of private housing stock available for many of our constituents who need it badly could easily shrink fast, as indeed I believe has happened in Scotland? That would be a much greater risk than not laying out at this stage the precise date at which section 21 abolition will be fully implemented.

[Matthew Pennycook]

I would say two things to the hon. Gentleman, who makes a valid point. First, the Government have had five years, since they first made the commitment to abolish section 21, to get the courts fit for purpose, and they have not done so. Indeed, the timescales for both possession and litigation have remained essentially unchanged since 2019, so there has been no progress in those five years. The actual process of possession proceedings is also probably one of the more efficient aspects of the county court system. We heard extensive evidence in Committee about the fact that the system is essentially working fairly well and is recovering well from covid, and that these changes would not be significant enough to delay the implementation. Even if that were not the case, I would say to him that we should have clarity about precisely what are the improvements the Government think are necessary. Let us have metrics and let us have timelines, and then we can have an open and transparent conversation about precisely what “ready” means. At the moment, we are entirely in the dark.

We will remain in the dark even if Government new clause 30 is incorporated into the Bill, because it will merely require the Lord Chancellor to publish an assessment of the operation of the county court possession order process in England and its enforcement before the extended application date can be set for chapter 1 of part 1 of the Bill. There is no timescale in which that required assessment needs to be published, and there is nothing that specifies the metrics against which the Lord Chancellor would judge the readiness of the court system. There are no corresponding obligations imposed on the Secretary of State, so if a future Lord Chancellor assesses that funding or other specific measures are required to make the courts ready for the new system, there is nothing to compel the Government of the day to implement them. Even if a future Lord Chancellor were to assess that the courts were more than ready, it remains for the Secretary of State to determine whether they wish to make the relevant commencement order, even if clause 116 is amended by Government new clauses 27 and 28.

[Sir Robert Neill]

Like my hon. Friend the Member for Gloucester (Richard Graham), I understand where the hon. Gentleman is coming from, and I do not have a problem with the abolition of section 21 no-fault evictions. However, as a south-east London MP, he will know that the reality is that the county courts face enormous pressure, particularly in our part of the world. I hope that, before hon. Members perhaps criticise the Government too much, they will talk to their own local county courts, because the data is suggesting that, on average, we could be looking at about 55 weeks from the commencement of a possession claim until the decision is made, and on top of that we have the enforcement period. That is not acceptable, and I want it to be quicker, but we need to accept, therefore, as the Association of His Majesty’s District Judges has pointed out—and I have to say to hon. Members that the data the Justice Committee has is the most accurate—that there has been underfunding of the county courts for many years. Frankly, that has been under Governments of both parties, because I can remember when I was in practice and the hon. Gentleman’s party was in government, and there was underfunding of the county courts then as well. We all have to take our share of responsibility for that, rather than making it a matter of party controversy.

[Matthew Pennycook]

I thank the hon. and learned Gentleman for that point. We all want the processes to be quicker—I do not think that is in dispute at all—and they certainly could be made quicker. Landlords need robust grounds for possessions in legitimate circumstances, and they need the system to operate quickly when they do. The question for us today is: should we essentially put the abolition of section 21 on hold until we have reassurance about an undefined amount of improvement and if we do not know when that is going to be delivered?

[Feryal Clark]

All I have heard is about the importance of ensuring that the courts are functioning quickly enough to enable landlords to evict the tenants they want to evict, but currently renters have just over a month before they are evicted. I had a constituent who lost his son in the most horrific of circumstances—it was in the local papers—whose family was served a section 21 notice. The landlord knew the family had lost a child, but said they had to serve it because the family still had a month and they needed to get them to leave. Where is the protection for renters, and does my hon. Friend agree that kicking abolition of section 21 notices into the long grass means the Government do not care about renters at all?

[Matthew Pennycook]

My hon. Friend is right to highlight the impact on renters, and that is essentially what we are debating. With every month that passes, more private renters are served section 21 notices. Nearly 85,000 of them have been put at risk of homelessness as a result of being served one of those notices, as the Government have delayed the implementation of their commitment. As the Bill is drafted—even with Government new clause 30—Ministers can determine whenever they want to signal to the House that the courts are ready. We have had no assurances on that point, and that is not satisfactory.

In our view, Government new clause 30 is nothing more than a mechanism designed to facilitate the further delay of the complete abolition of section 21 evictions, and we will look to vote against it. With the Government having previously made it clear that there will be a requirement for advance notice of six months before new tenancies are converted, and a minimum of 12 months between that conversion and the transition of existing tenancies—with a proposal that the latter will also be made subject to the assessment required by Government new clause 30—it could be years before renters see section 21 completely abolished, making a complete mockery of the Secretary of State’s recent claim that such notices will be “outlawed” by the next general election.

We know the Government are in no rush to abolish section 21 evictions because they are not laying the groundwork that is necessary for that to happen. Where are the draft prescribed forms for section 8 notices, and where are the proposed amended court forms and civil procedure rules? There is no sign of them, or of any sense of what the regulations required to bring them forward might be. The truth is that Ministers determined long ago, for reasons that are entirely obvious, to essentially kick the can down the road on abolishing section 21 while disingenuously denying it. Although the passage of the Bill will be taken as a signal of abolition before the next general election, private renters outside will know that is not the case, and that implementation has been pushed back, potentially indefinitely.

We believe that hard-pressed renters have waited long enough for the commitment made by the Conservatives over five years ago to be delivered. They require certainty that it will truly be honoured, and section 21 evictions definitively abolished with the passing of this legislation. Our amendment 28 would provide that certainty by ensuring that section 21 of the Housing Act 1988 is repealed on the day that the Bill receives Royal Assent, with saving provisions for any notices served before that date so that they remain valid and of lawful effect. I commend the amendment to the House.

Government new clauses 27, 28 and 30, to which I have made reference, are only three of the 225 Government amendment tabled just before the deadline last week. Before concluding, I will touch briefly on several of the more substantive among them, starting with the small number that will be genuine improvements to the Bill. We are pleased that the Government have responded to our calls to ensure the maintenance of a number of the regulatory obligations that have built up around section 21 notices over the years by tabling Government new clause 14, which gives the Secretary of State the power by regulation to transpose those preconditions and requirements into section 8 eviction notices.

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[Anthony Mangnall]

I thank my hon. Friend for making that point. It is one that I will come on to, in terms of both the impact that the Bill will have on the attractiveness of short-term lets and the bureaucracy and hassle that will arise from this legislation.

From the outset of the Bill’s arrival in Parliament, I have worked to ensure that it strikes the right balance between tenant and landlord—a balance that ensures that the rights of tenants are respected and enshrined in legislation while the rights of landlords, property ownership and contract law are maintained and safeguarded. I believe that a failure to strike that balance would have a disastrous impact on the private rental market in the United Kingdom. Complicating the rental market with onerous requests, bureaucratic measures, additional costs and an inability for people to operate their personal property as they wish would only result in large swathes of the private rented sector throwing up their hands and selling their properties, just as a failure to support tenants would only embolden rogue landlords, diminish standards and increase unfair treatment.

From the start, it has been my mission to find a level playing field that ensures that tenants and landlords can co-operate together in a fair market that has a healthy supply of rental properties, with rights and standards enshrined, costs low and bureaucracy minimal, in a system that respects the rule of law and, perhaps most importantly, has a structure and a court system that is effective and that delivers. All of this has been done because we are in the midst of a supply crisis in the private rented sector, on which we have yet to touch.

On average, 25 prospective tenants inquire about every available rental property, up from eight in 2019, according to Rightmove. Hamptons estimates that between 2016 and the end of 2023, individual landlords sold almost 300,000 more homes than they bought. Last year, the Bank of England warned that demand for rental properties continued to outstrip supply as the number of landlords choosing to exit the market increased. It is therefore vital that responsible landlords have confidence that pragmatic changes are being made to the Bill. Failure to do so would only deepen the crisis.

I have said previously that the failure to have a sensible rental period at the start of a tenancy would likely result in the flourishing of long-term rental properties being used as short-term lets. Given the substantial price difference between short-term lets and long-term lets in constituencies like mine and the constituencies of the hon. Members for North Shropshire (Helen Morgan) and for Westmorland and Lonsdale (Tim Farron), there would be a very real likelihood of people exploiting that loophole.

Landlords incur costs and expenses when entering into a tenancy, and they need the certainty of a minimum period. Many buy-to-let mortgage lenders also require a minimum six-month tenancy agreement when lending to residential landlords. As a result, I tabled amendment 6 with the support of 58 colleagues to ensure that tenants cannot give two months’ notice to leave a property until they have resided in it for four months. I believe that this is in line with the recommendations of the Levelling Up, Housing and Communities Committee. I therefore welcome that the Government have accepted this argument and tabled new clause 15, which mirrors amendment 6. I will therefore not press my amendment.

[Matthew Pennycook]

I wonder whether I can tease out the hon. Gentleman’s reasoning in thinking that the possibility of rental properties being used as short-term lets is so serious. It is an entirely hypothetical problem. Renters who take out a tenancy agreement will have to provide a five-week deposit—they will probably be charged the maximum—and they have to go through a lengthy process to try to get that deposit back. What evidence does he have to suggest that, en masse, tenants will try to game the system in the way he expects?

[Anthony Mangnall]

With the greatest of respect, I am saying that that is one of the reasons why I fear not having a minimum notice period. My constituency has the highest number of second homes and short-term lets of almost anywhere in the country. There is a significant price differential, and a significant amount of hassle is being heaped on landlords by this Bill, which might push them in that direction. This may be one of the foreseeable consequences. I have raised it on Second Reading and in private conversations with the hon. Gentleman.

New clause 2, on rent repayment orders, would enable local housing authorities to impose financial penalties on certain individuals where they believe that a housing offence has been committed by a body corporate. Last year, the Supreme Court delivered a landmark ruling in which it said that, where a rent-to-rent company takes over the running of a property, it cannot pass its legal liabilities on to the property’s landlord. The Government have amended the Bill to reverse that decision, which will mean that landlords can be fined even in cases where a rent-to-rent company or similar has, without the landlord’s knowledge, been asked by a tenant to illegally sub-let a property. According to data from Direct Line, one in 10 renters admits to sub-letting part of the home in which they live, of whom 48% did not disclose it to their landlord and three quarters did not review their existing lease agreement to determine whether sub-letting was permitted. The amendment would deal with the main concern associated with the use of rent-to-rent companies. It would address the problem of landlords and others who willingly hide behind such companies to let properties while avoiding liability for rent repayment orders, without penalising those who are innocent victims of such companies. I welcome and recognise the fact that the Government have seen sense and tabled their own amendment, mirroring my proposed new clause 2, in the form of proposed Government new clause 34. I therefore withdraw proposed new clause 2.

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[Matthew Pennycook]

Let me start by thanking the Clerks, the House staff and the Library specialists for facilitating our debates on the Bill, along with all the experts and external organisations that have engaged extensively with us on it. I also put on record my thanks to all hon. Members who have contributed to our proceedings at all stages, particularly those who served on the Public Bill Committee. I especially thank my hon. Friends the Members for Weaver Vale (Mike Amesbury), for Westminster North (Ms Buck), for North Tyneside (Mary Glindon), for Mitcham and Morden (Dame Siobhain McDonagh) and for Brighton, Kemptown (Lloyd Russell-Moyle) for their forensic scrutiny of the Bill’s provisions, and the considerable efforts that they have made to strengthen it as a whole.

I offer my sincere thanks to the Minister for the manner in which he has approached our exchanges on this important piece of legislation. In being handed this as his first Bill to take through the House, he has been given an unenviable task, to put it mildly, but he has borne his troubles with good grace. I have very much appreciated the civil way in which he has engaged with me throughout and his efforts, within the severe constraints under which he is no doubt operating, to make a number of small but sensible improvements to the Bill.

Once again, I put on the record the thanks of Labour Members to all those who have campaigned tirelessly—in many cases, over decades—for a reformed private rented sector. I particularly thank all the organisations that have joined Labour over recent months in urging the Government to amend the Bill so that it levels decisively the playing field between landlord and tenant, especially the 20 that make up the Renters Reform Coalition.

Labour has consistently argued that the case for fundamentally reforming the private rented sector is as watertight as they come. A state of affairs in which more than 11 million people in England—not just the young and mobile, but many older people and families with children—live day in, day out with the knowledge that they could be uprooted from their home with little notice and minimal justification, and where a significant minority of them are forced to live in substandard properties for fear that a complaint would lead to an instant retaliatory eviction, is intolerable. The sector should have been transformed a long time ago.

The Bill as introduced was a good starting point for the reform that is necessary, but Ministers could and should have strengthened this legislation, rather than progressively watering it down in a forlorn attempt to appease a minority of malcontents on the Government Benches. As a result of the Government’s unwillingness to face down that minority, the Bill that we send to the other place today is not only far weaker than it need be, but in danger of being fatally compromised.

We will not oppose the passage of the Bill tonight, because it is essential that it progresses, but we hope that the noble Lords address that danger and that over the coming months we can convince the Government to think again and ensure that this long-overdue piece of legislation truly delivers for renters.

Oral Answers to Questions

Matthew Pennycook Excerpts

Monday 22nd April 2024 Commons Chamber

[Mr Speaker]

I call the shadow Minister.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

Soaring service charges are placing an intolerable financial strain on leaseholders and those with shared ownership across the country. Among the main drivers of the eye-watering demands with which many have been served over recent months are staggering rises in buildings insurance premiums and the passing on of significant costs relating to the functioning of the new building safety regime. Given that many leaseholders are being pushed to the very limits of what they can afford, do the Government now accept that the service charge transparency provisions in the Leasehold and Freehold Reform Bill—and pleading with freeholders to take a temperate approach—are not enough, and that Ministers should explore with urgency what further measures could be included to protect leaseholders better from unreasonable charges and give them more control over their buildings?

Planning Reform

Matthew Pennycook Excerpts

Wednesday 13th March 2024 Westminster Hall

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

It is a pleasure to serve with you in the Chair, Mr Betts. I congratulate the right hon. Member for Middlesbrough South and East Cleveland (Sir Simon Clarke) on securing this important debate, and commend him for the characteristic clarity with which he set out his position in opening it.

I would also like to thank the hon. Members for Shrewsbury and Atcham (Daniel Kawczynski), for St Albans (Daisy Cooper), and for Westmorland and Lonsdale (Tim Farron) for their contributions. I did not agree with all their points, for reasons I may come to, but I certainly agree with the need to focus the planning system on prioritising genuinely affordable social rented homes, an issue the right hon. Gentleman knows I have spoken about at length, not least in the many weeks of the Levelling-up and Regeneration Bill Committee stage. I also agree with the importance of properly resourcing individual local planning departments, as was mentioned, which is a huge challenge at present.

I think the right hon. Member for Middlesbrough South and East Cleveland would accept that on most matters there is a profound political gulf between us. Yet, such is the mess that the Government have got themselves into with national planning policy, we have found common cause on a number of specific issues related to it. The most obvious point of agreement between the right hon. Gentleman and Opposition Front Benchers—although not the hon. Member for St Albans, I am sad to say—is on the need for enforceable housing targets.

The right hon. Gentleman recognises, as we do, that to get anywhere near the Government’s target of 300,000 homes a year, let alone the annual level of housing supply that England actually requires, we must have mandatory targets that bite on individual local planning authorities. As a result of the revised NPPF, published on 19 December last year, it is an unassailable fact that we no longer have such targets in England. Although it is correct to say that a small number of the initial proposals in the NPFF consultation were ultimately abandoned—for example, damaging proposed revisions to the tests of soundness—many others were implemented. Those include the softening of land supply and delivery test provisions, the emphasis on locally prepared plans providing for “sufficient housing only”, and the listing of various local characteristics that can now be used to justify a deviation from the standard method for assessing local housing need. As a result, the standard method is now explicitly only an advisory starting point.

The predictable result, as Ministers surely knew would be the case when they made the concessions in question to the so-called planning concern group of Tory Back Benchers in December 2022, is that a growing number of councils with local plans at an advanced stage of development, more often than not in areas of high unmet need, are scrambling to reverse ferret and take advantage of the freedom the revised NPPF provides to plan for less housing than their nominal local targets imply. The Government’s manifesto commitment to 300,000 homes a year thus remains alive, but in name only. It is abandoned in practice but not formally abolished, and no amount of protestations to the contrary by Ministers will alter that fact.

As the right hon. Member for Middlesbrough South and East Cleveland has rightly argued in the past, the decision to overhaul national planning policy in this way was, as he said, “disastrous”. It was, as we know, a decision made not in the national interest, but as a grubby concession to Government Back Benchers who were threatening to derail the Levelling-up and Regeneration Bill. It was nothing less than a woeful abdication of responsibility, and it must be undone. A Labour Government will act decisively and early to ensure that it is undone so that we once again have a planning system geared towards meeting housing need in full—that is absolutely a red line for us.

Where we respectfully part ways with the right hon. Member for Middlesbrough South and East Cleveland is on the issue of whether the post-war discretionary planning system is beyond redemption. As the right hon. Gentleman made clear in his remarks, he firmly believes that it is, and that it should be replaced by a zonal planning system of the kind proposed by the “Planning for the Future” White Paper published in 2020, but eventually abandoned. We might notice a trend here in the face of Back Bench pressure from the Government Benches.

We take a different view; while we do not dispute that after a decade of piecemeal and inept tinkering the planning system the Government are presiding over is faltering on almost all fronts, we believe that introducing an entirely new system is not the answer. Instead, we believe a discrete number of targeted changes to the existing system, coupled with decisive action to ensure that every element of it functions optimally, will ensure we significantly boost housing supply and deliver 1.5 million homes over the course of the next Parliament.

As I do not have an abundance of time, I will give just one example of the kinds of changes we believe are necessary to get Britain building at the scale required. It is a change that I think might solve some of the problems that the hon. Member for St Albans identified in relation to St Albans. There is no way to meet housing need in England without planning for growth on a larger than local scale. However this Government, for reasons I suspect are more ideological than practical, are now presiding over a planning system that lacks any effective sub-regional frameworks for cross-boundary planning.

The limitations of the duty to co-operate were well understood, but it at least imposed a requirement on local authorities to engage constructively, actively and on an ongoing basis to develop strategic planning policies where needed. Its repeal last year through the Levelling-up and Regeneration Act, coupled with the fact that no replacement has been brought forward, leaves us with no meaningful process for planning strategically across boundaries to meet unmet housing need, given the inherent flaws of voluntary spatial development strategies.

Indeed, the Government have now even removed from the NPPF the requirement to help neighbouring authorities accommodate development in instances where they cannot meet their areas’ objectively assessed needs. If we are to overcome housing delivery challenges around towns and cities with tightly drawn administrative boundaries we must have an effective mechanism for cross- boundary strategic planning, and a Labour Government will introduce one.

That is just one example of the kind of planning reform we believe is necessary; others include finally getting serious about boosting local plan coverage. It is appalling that we have a local plan-led system where nearly three quarters of local plans are now not up to date—that cannot be allowed to continue. Another example is reintroducing a strategic approach to green-belt release, rather than the haphazard free-for-all we have had for the past 14 years.

The important point is that we should be focused on bold evolution of the planning system in England, not a complete dismantling of it. Not least because the painstaking creation of an entirely new system, after four years of planning policy turbulence and uncertainty in the wake of the 2020 White Paper, would almost certainly paralyse housing delivery and further exacerbate the sharp decline in house building that is now under way. Reform of the planning system, rather than a revolutionary reconstruction of it, is what is needed, so Labour remains committed to an ambitious yet pragmatic and achievable overhaul of the current system, and much-needed policy certainty and stability once that overhaul is complete.

As much as the right hon. Member for Middlesbrough South and East Cleveland might wish otherwise, it is patently clear that the Government have not only squandered the opportunity to make the planning system work as needed but, in caving in to the demands of their Back Benchers 15 months ago, have actively made things worse, as the planning application statistics released last week make clear. We need a general election so that they can make way for a Labour Government who will do what is necessary to tackle the housing crisis and boost economic growth.

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[Felicity Buchan]

We have to acknowledge that a lot of the settlement in the UK in the course of the last two years has been exceptional, whether it is by Hongkongers or Ukrainians. I agree with my hon. Friend on the arithmetic. If we have big levels of inward migration, we need the housing to house the inward migration, so I agree with him on the basis of the arithmetic—absolutely.

[Matthew Pennycook]

I am glad to hear the Minister recommit to the Government’s housing target of 300,000 homes a year. She says that the Government are committed to delivering that. Does it not concern the Minister that in the wake of the changes to the NPPF, councils across England—I think an example would be North Somerset—are using the exceptional circumstances test in the revised NPPF to determine lower housing targets than are defined through the Government’s standard method? That is to say that the NPPF will result in less housing than the standard method implies and that there is no way the Government can now meet their 300,000 homes a year target on that basis. She surely must recognise that.

[Felicity Buchan]

We have been very clear that our target is 300,000, but we want local communities to buy into it. It is very much an objective. As my right hon. Friend the Member for Middlesbrough South and East Cleveland has laid out very clearly, we need the new housing, and that is why Government are committed.

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[Felicity Buchan]

I think I have been very clear in what I have said about the green belt. The green belt should be protected except for in exceptional circumstances, as has been set out.

Let me make some progress. The Levelling-up and Regeneration Act 2023 will speed up the planning process, delivering a faster and more efficient system, and cut out unnecessary and costly delays. It will ensure that local plans are shorter, more visual and map-based, and built on open and standardised data. They will be concise and focused on locally important matters, with repetition of policies across plans eliminated. New mandatory gateway assessments will reduce the time spent examining plans. To ensure that plans are prepared more quickly and kept up to date on matters including housing supply, there will be a 13-month preparation timeframe and a requirement for councils to commence plan updates every five years.

To respond to the hon. Member for St Albans, I must put it on the record that St Albans has one of the oldest plans in the country. It has been designated. To be honest, I do not know how the Liberal Democrats can stand up and say they have a housing target of 380,000 a year when they object to every single development on the ground. I just do not get it.

Let me move on. We have had quite a lot of talk about nutrient neutrality. I must say that I was hugely disappointed that the Opposition in the House of Lords blocked the Government amendments in the 2023 Act that would have made a targeted and specific change to the law, so that there was absolute clarity that housing development could proceed in areas currently affected by nutrient neutrality. That was done at a cost of 100,000 new homes. It is unacceptable to talk the talk and not to deliver, and the Opposition did not deliver in the House of Lords.

[Matthew Pennycook]

Will the Minister give way?

[Felicity Buchan]

No; I have made it quite clear that there are points I want to put on the record.

The Government continue to work to unlock housing in catchments affected by nutrient neutrality. To address pollution at the source, the 2023 Act created a new duty on water companies in designated catchments to ensure that wastewater treatment works serving a population equivalent to over 2,000 meet specified nutrient removal standards. Competent authorities are then required to consider that this standard will be met by the upgrade date for the purposes of habitats regulations assessments, significantly reducing the mitigation burden on development.

We are also boosting the supply of mitigation by making £110 million available through the local nutrient mitigation fund, to help planning authorities in affected areas to deliver tens of thousands more homes before the end of the decade. Funding will be recycled locally until nutrient mitigation is no longer needed, at which point it will be used for measures to help restore the relevant habitat sites. The fund has already allocated £57 million to eight local authorities, and round 2 of the fund opened for expressions of interest last week. The hon. Member for Somerton and Frome (Sarah Dyke), who is no longer in her place, raised nutrient neutrality. I want to make it clear that Somerset was allocated £9.6 million.

Building on the Levelling-up and Regeneration Act, we consulted on a range of proposed changes to national planning policy to support our objective of a planning system that delivers the new homes we need, while taking account of important areas’ assets or local characteristics that should be protected or respected. We have revised the NPPF to be clearer about the importance of planning for homes and other development that our communities need. The revised NPPF provides clearer protection for the green belt, clarity about how future housing supply should be assessed in plans, and certainty on the responsibility of urban authorities to play their full part in meeting housing needs.

We have removed the need to demonstrate a five-year housing land supply requirement where plans are up to date, providing local authorities with yet another strong incentive to agree a local plan, giving communities more of a say on development and allowing more homes to be built. To make sure that we maximise the potential of brownfield sites, we are consulting on strong new measures to boost house building while protecting the green belt. Under those plans, planning authorities are instructed to be more flexible in applying policies that halt house building on previously developed land, permitted development rights are extended, and the planning authorities in England’s 20 largest towns and cities will be subject to a brownfield presumption when they fail to deliver.

The Government are clear that having plans in place is the best way to deliver development in the interests of local communities, and the revised framework creates clear incentives for authorities to get their local plans in place. Alongside that, the Government remain on track to meet our manifesto commitment to deliver 1 million homes over this Parliament. We have announced a £10 billion investment in housing supply since the start of this Parliament, to support bringing forward land for development, creating the infrastructure and enabling the market to deliver the homes that communities need, as well as supporting local authority planning capacity. This includes the £1 billion brownfield infrastructure and land fund, launched in July 2023, that will unlock approximately 65,000 homes and target at least 60% of funding to brownfield land.

I want to give my right hon. Friend the Member for Middlesbrough South and East Cleveland, who secured this debate, time to sum up, so I will close by saying very clearly that the Government are committed to housing delivery and we are on track to modernise the planning system so that we can achieve that housing delivery.

Oral Answers to Questions

Matthew Pennycook Excerpts

Monday 4th March 2024 Commons Chamber

[Mr Speaker]

I call the shadow Minister.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

In resisting Labour’s efforts to strengthen the Renters (Reform) Bill, Ministers have repeatedly argued that the legislation as drafted strikes precisely the right balance between the interests of tenants and those of landlords, yet by watering down protections for renters and further delaying the long-overdue abolition of section 21 evictions, the package of draft Government amendments to the Bill that we saw last week will tilt the playing field decisively back towards the landlord interest. Are we to believe that the Government have honestly decided, at the 11th hour, that it is landlords who need more rights and powers, or is this not simply a crude attempt to manage an increasingly fractious Tory party at a shameful cost to hard-pressed private tenants?

[Jacob Young]

The hon. Gentleman, like various Members who have spoken, is a committed campaigner on this issue. I enjoyed our time together in the Public Bill Committee. We need to strike the balance he has just spoken about. That is why we are discussing the Bill with both landlord groups and tenant groups. We are meeting colleagues on the Government Benches and the Labour Benches, and those in the smaller parties, too. We are ensuring that when we bring the Bill back it is in the best possible shape so that it affords protections and security for tenants, but protections, in fairness, for landlords too.

Draft Social Housing (Regulation) Act 2023 (Consequential and Miscellaneous Amendments) Regulations 2024

Matthew Pennycook Excerpts

Monday 4th March 2024 General Committees

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

It is a pleasure to serve with you in the Chair, Mrs Cummins. I rise simply to put it on the record that, in the Opposition’s view, this is a straightforward and entirely uncontentious statutory instrument, and as such, not only do we have no intention of opposing it this evening, but, somewhat uncharacteristically, I have no specific concerns to put to the Minister.

Leasehold Reform and New Homes

Matthew Pennycook Excerpts

Wednesday 28th February 2024 Westminster Hall

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

It is an absolute pleasure to serve with you in the Chair, Mrs Harris, and to follow the hon. Member for Hertford and Stortford (Julie Marson). I am very glad that she mentioned the question of a share of freehold: we pushed for that in Committee, and it is one of several measures necessary to pave the way for the commonhold future that so many of us in the House want to see.

I congratulate the hon. Member for Harborough (Neil O’Brien) on securing this important debate, on opening it as compellingly as he did and on the persuasive argument he made yesterday on Report on the Leasehold and Freehold Reform Bill. He spoke in support of greater ambition in addressing the many inequities of the leasehold system. Although I disagree with his assertion in yesterday’s debate that that Bill is our one chance to end the arcane and discriminatory practices that leaseholders and residential freeholders are at the mercy of, it certainly represents our only chance to do so in this Parliament. On the Labour Benches, we wholeheartedly agree that the Government should go further than the Bill does.

I thank all hon. Members who have contributed to the debate. Those contributions, like yesterday’s debate, highlight that there is widespread support across the House for ambitious leasehold and commonhold reform. Once again, I want to put on record the thanks of those on the Labour Benches to all those who have campaigned tirelessly, often over many decades, for an overhaul of leasehold law. In particular, I thank the leaseholders and residential freeholders who have resolutely refused to accept the inequities of the flawed system they are so often at the mercy of, and who have taken it on themselves to vigorously make the case for change.

In responding to the debate, I do not intend to revisit yesterday’s many principled arguments and exchanges on leasehold reform in general. Instead, I will simply provide some further detailed thoughts on some of the specific issues that have been raised this afternoon, starting with the management of private and mixed-tenure estates. The distinct set of problems faced by residential freeholders on those estates with charges and fees is well known and well understood. The Government have publicly recognised for at least six years that it is a very serious problem, and we welcome their decision to use the Leasehold and Freehold Reform Bill to introduce statutory protections for freehold homeowners that are equivalent to those enjoyed by long leaseholders in respect of service charges.

As the Minister will recall, in Committee we pressed for specific changes to strengthen the new estate management regulatory framework, not least to rectify some of the obvious deficiencies of the existing leasehold regulation regime that it mirrors. We hope that the Government will give them further consideration. In our view, of particular importance is the need for a right-to-manage regime for freeholders on private and mixed-tenure estates. It is not enough merely to give residential freeholders on those estates the right to challenge the reasonableness of charges and to hold estate management companies to account. They should enjoy the right to take over the management functions on their estate, and we believe there is appetite among freehold homeowners to exert more direct control in that way. In yesterday’s debate on Report, the Minister made it clear that the Government understand the strength of feeling on the issue and are considering it further. Will the Minister provide a little more clarity today and tell us whether the Government are seriously considering tabling amendments in the other place to provide parity between residential leaseholders and freeholders when it comes to the right to manage?

As the hon. Member for Harborough rightly argued yesterday, ensuring that residential freeholders on existing private and mixed-tenure estates are better protected is one thing, but reducing the prevalence of the arrangements is another. The Government must act to do the latter, as that is the best way of addressing the root causes of so many of the problems that residential freeholders face. However, we believe it would be wrong simply to force local authorities to adopt such estates without corresponding changes to ensure that the public infrastructure and amenities built on them are built to a determined, adoptable standard, so that financially hard-pressed councils are not forced to repair and maintain poor quality roads and common services at great cost. I would be grateful if the Minister could provide some assurances—we touched on this on Committee—that the Government are actively exploring the mix of legislative and policy changes that will be required to make progress on both of those fronts, adoption and common adoptable standards.

[Jim Shannon (Strangford) (DUP)]

I apologise that I could not be here when I was supposed to be, Mrs Harris. I was meeting some people from Hong Kong on issues of human rights and freedom. I thank the shadow Minister for letting me intervene. Leasehold reform has been the subject of much discussion, such as in yesterday’s debate in the main Chamber. Does he not agree that there is a real need for urgent leasehold reform? It affects so many of our constituents—from young people, who are starting their lives, to older people, who are trying to downsize. We must make this change, especially at a time when every penny counts for most people, whether they are young or old.

--- Later in debate ---

[Matthew Pennycook]

I thank the hon. Gentleman for that intervention. I was starting to get troubled when I could not see him out of the corner of my eye; I am glad he has attended the debate and made that point. I am sure the hon. Gentleman will know Labour’s position: our concern is that the Bill does not go far enough by any means. It is distinctly unambitious. However, it does make important changes, and we think it is important that it receives Royal Assent before the end of the Parliament. For the reasons he outlined, we want to see it make speedy progress.

Let me turn to the issue of forfeiture, which the hon. Member for Harborough raised in his speech. As hon. Members will know, throughout the passage of the Bill, Labour has made the principled case for abolishing forfeiture and the windfall it provides to freeholders. As I argued in the debate yesterday, forfeiture is a wholly disproportionate and horrifically draconian mechanism for ensuring compliance with a lease agreement. Its continued use, and the chilling effect that results from its mere existence, continues to put landlords in a nearly unassailable position of strength in disputes with leaseholders. That is why it is routinely used by landlords as a first resort when seeking to recover alleged arrears of payments from leaseholders, and why the threat of it is invoked so often to deter leaseholders from disputing any unreasonable costs and defending claims.

Yesterday’s debate reinforced the fact that there is clearly a broad consensus in the House for getting rid of forfeiture. Although Labour is understandably disappointed that the Government resisted our second attempt to achieve that, we welcome the Minister making it clear that the Government are

“working through the detail of the issue”—[Official Report, 27 February 2024; Vol. 746, c. 197.]

and intend to report back to the House shortly. Can I encourage the Minister to do so as quickly as possible, and to provide us with assurances to that effect today? Determining precisely what, if anything, the House will put in place of the existing system of forfeiture is an extremely complicated undertaking. Given that the Government have had years to develop considered proposals in this area, it would be unfortunate if hon. Members were asked to take a view on complex and technical proposals without the time necessary to properly scrutinise them.

As the Minister considers the matter of forfeiture, can I also press him to review the issue of rent charges? I am glad that the Father of the House and, I think, the hon. Member for Harborough mentioned it in their contributions. We must ensure there are no unintended consequences, but in our view there is a cast-iron case for abolishing section 121 of the Law of Property Act 1925 altogether. The remedies provided for by the Act, which amount, in essence, to freehold forfeiture, are a wholly disproportionate and draconian legacy of Victorian-era property law. Through clause 83 of the Bill, the Government are seeking to make palatable methods of enforcing legitimate and reasonable rent charges that are simply not justifiable in any form, and must be removed. I urge the Minister to reconsider the Government’s position on rent charges.

Before I conclude, I will touch briefly on ground rents, which the hon. Member for Hertford and Stortford mentioned. As Labour argued in Committee, over the past two decades, we have seen a system develop that is increasingly focused on generating assets by gouging leaseholders through ground rents that are, in historical terms, high to start with, and that escalate over the term of the lease. Leaseholders who have worked hard to purchase their homes in good faith are being asked to pay ever more money for no clear service in return, and many are experiencing considerable financial distress and difficulty selling their property, all to sustain the income streams of third-party investors. Unregulated ground rents of this nature in existing leases cannot be justified in our view. As I have previously made clear, I personally share the Secretary of State’s preference to cap ground rent at a peppercorn.

Although we do not discount the risks involved in any of the five options outlined in the recent Government consultation, Labour is clear that the Government must act to protect leaseholders from ground rent exploitation, and that, as I said in Committee, they should be courageous in determining which of the consultation proposals should be enacted.

The Minister made it clear in yesterday’s debate that the Government are considering next steps and were moving at speed in doing so. I will not press him this afternoon for any further detail, as I accept he will not be able to say any more today. However, can I press on him again, as I did on forfeiture, the need to share any detailed proposals with the House at the earliest possible stage, particularly given the implications of the range of options consulted on for the Bill that has now been sent to the other place? It will, as the Minister knows, involve the rewriting of several substantive clauses in the Bill, so we need that detail early on. I look forward to his response.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

It is a pleasure to serve under your chairmanship, Mrs Harris. I thank all the Members who have contributed to the debate and those who are listening to it. The fact that we are talking about this issue for the second time in two days shows how important it is. It is clear, as we discussed yesterday, that Members on both sides of the House recognise that this area badly needs attention and reform. Thankfully, the general consensus across the House is that we have to move in that direction, so I hope the Bill, which went to the other place yesterday, will make fast progress there.

To be clear, the Government absolutely acknowledge this issue. We did so on Report yesterday, in Committee, on Second Reading and before that. Hon. Members have made very important points today, and have raised similar issues previously, about the iniquities in the system. They have spoken about the historical problems on the leasehold side and, more recently, but just as iniquitously, on the estate management side. Even those of us who believe that the Government should be very temperate in intervening in markets know it is right that when markets are not working, we should take action to straighten them out and remove the distortions within them. That is exactly why we introduced the Bill and are trying to ensure that it makes progress in the months ahead. We welcome the Opposition’s commitment to getting it on to the statute book at the earliest opportunity.

There are problems within the leasehold part of the discussion. The estate management issues have come into much sharper relief over the past couple of decades, particularly for those of us who have had significant amounts of new building in our areas. We can see, on a day-to-day basis, that a set of issues with individual estates clearly needs to be resolved.

As my hon. Friend the Member for Harborough (Neil O’Brien) and the hon. Member for Selby and Ainsty (Keir Mather) outlined, there is a particular issue with new homes, which I will talk about in a moment. Without rehearsing some of the previous arguments and discussions, I want to read into the record, for about a minute, the real progress that the Bill makes. It is important that the House and the other place do not forget that, as a baseline, we are making the biggest and most significant change to property law in this country in a generation; we absolutely need to acknowledge that.

We are making it cheaper and easier for leaseholders in houses and flats to extend their lease or buy their freehold. That is a significant intervention. We are increasing the standard lease extension term from just 90 years to 990 years, with ground rent reduced to zero. That is an extremely significant intervention. We are removing the requirement for a new leaseholder to have owned their house or flat for two years before they can benefit from these changes. We are changing the thresholds and non-residential limits within properties, and for the first time allowing leaseholders in buildings with up to 50% non-residential floor space to buy their freehold and take over its management.

Yesterday on Report, we added protections on top of the Building Safety Act 2022 to make the purchase and sale of leasehold and freehold estate properties quicker and easier by proving a maximum time and fee for the provision of information. Vitally, we are requiring transparency over leasehold service charges, which hon. Members talked about a moment ago. We are replacing building insurance commissions for managing agents, landlords and freeholders so that we get away from the frankly outrageous situation whereby there is little clarity about what is being paid for, who pays for it and whether there are kickbacks in the background.

We are scrapping the presumption that leaseholders will pay the freeholder’s legal costs when challenging poor practice. That is another absolutely outrageous historical iniquity that needs resolution. We are rightly extending redress schemes to managed estates. I know that some hon. Members would prefer them to be abolished, but it is absolutely right that there is a redress scheme in place.

As hon. Members know, yesterday we banned the creation of new leasehold houses. I do not like to ban anything at all because I think we have banned far too much in the United Kingdom over the past generation, but sadly, I am absolutely convinced of the necessity of a preclusion on leasehold houses, given the horror stories that have been outlined during the passage of the Bill and in the years leading up to it.

[Matthew Pennycook]

Will the Minister give way?

[Lee Rowley]

I will happily give way to the hon. Gentleman; I hope he is about to agree with me about the necessity of banning only very proportionately.

--- Later in debate ---

[Matthew Pennycook]

I am afraid that I am going to have to disappoint the Minister, because I disagree that the Government banned new leasehold houses yesterday. He did not address this in his wind-up speech yesterday, because he did not have a huge amount of time, but I want him to respond to my concerns about new schedule 2 providing for exemptions that are potentially so wide that they could allow for the creation of significant numbers of new leasehold homes over the coming years. Will the Government review their position on new schedule 2? Are they convinced that it provides for only very limited exceptions in unusual circumstances, as the Minister said yesterday?

[Lee Rowley]

I am grateful for the hon. Gentleman’s intervention. He and I have an active discussion about this, and possibly a slight difference of opinion about the potential impact of what we introduced. I do not wish to misrepresent him, but I think he accepts that some elements of what we brought forward yesterday, possibly those regarding the National Trust, are not controversial or contentious. There is a question about whether the measures should apply if, historically, organisations, entities or companies have agreements in certain ways. It is clear that this will be swept away; we are effectively discussing whether existing permissions on a particular type of prospectus, other than the small number of things such as the National Trust, should be swept away as well. I am sure that we will continue to talk about that, but we think that this proposition is a major intervention that honours the spirit of banning leasehold houses. Others may take a different view, but the Government’s view is that this is a significant step forward that adheres to the spirit of a ban or preclusion, and that will allow us to move forward.

I have highlighted the progress that has been and is being made, subject to what the other place does. I know, however, that hon. Members are very keen that we go further in certain areas, so I want to spend a few moments going through some of their suggestions. My hon. Friend the Member for Harborough made a powerful speech—again, he is the reason why we are speaking about this matter today, and it is important that we continue to have this conversation. We have heard some of the examples, both named and referred to, of the realities created by the system. No system is perfect—we can never design it such that there will not be some attempt to prang it in some way, shape or form—but large holes in the system have clearly built up and been exploited. Those have resulted in, for instance, the removal of trees from a tree-lined street. Unless there is some other reality behind that, there is absolutely no reason for it to happen. We have to move to a place where that does not occur, and we hope that that will be achieved in part by the changes made by the Bill. We recognise that there are further concerns, and we are considering those, but we all agree that some of the examples mentioned are not where we want to be. I hope that we may be able to say more on that going forward.

As I mentioned briefly yesterday, I also recognise this issue personally. I am not speaking today as a constituency MP, but only in the last month I have been in meetings with constituents who raised concerns about a Persimmon development and the clarity of information about service charges. So in my part of the world, I see issues similar to those raised by hon. Members, including my hon. Friend.

My hon. Friend also raised an important point about GP provision. I have been in this job for only four months, but I recognise the importance of this issue. My hon. Friend the Member for South West Bedfordshire (Andrew Selous) is particularly concerned about that, and I have spoken about it with my hon. Friend the Member for Hertford and Stortford (Julie Marson). It is another clear iniquity. As my hon. Friend the Member for Harborough says, people are doing the right thing, have worked hard all their lives and are buying properties, and although the sales particulars of those properties state that new GP provision will be on or near the site, suddenly that provision disappears into thin air between the point when the ink goes on the contract and the point when they move in, or within a few years.

We have already held a meeting on that issue with my right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom), who is a Minister in the Department of Health and Social Care, and we are committed to trying to make further progress. A detailed discussion is needed, because a number of different issues on GP provision need to be unpacked.

First, there is the physical ability to provide bricks—places for people to operate out of—which is obviously the responsibility of the planning system or associated with it. The second issue is whether there could be some provision, but for whatever reason, the configurations, the preferred designs and so on make that cost higher than it otherwise should be. If that is the case, that needs to be looked into again, because there is no reason for making perfect the enemy of the good. Thirdly, we may have the bricks or provisions to provide the bricks, but if we do not have the people to provide the services, it does not help in any instance the people who have been sold the promise in the first place. A number of different issues will need to be unpicked, and I am working with my right hon. Friend from the Department of Health and Social Care on that.

My hon. Friend the Member for Harborough talked passionately and importantly about new homes and the related issues. As he indicated, when someone has done the right thing, it is absolutely incredible and unacceptable that there are the kind of problems that he has highlighted around sewage, snagging and the amount of time people have to take to get their homes up to the standard they thought they were buying in the first place, or to solve the problems they did not think there would be. It is also fair to say that, as MPs, we only hear about the difficult issues, and there are many thousands of homeowners who move into homes on a monthly and annual basis who do not have those issues. That is absolutely great, but we can all see in our postbags that there are significant challenges with regards to new homes. As my hon. Friend indicates, I hope that the new homes ombudsman will make progress, and the New Homes Quality Board is currently seeking to do that.

My hon. Friend the Member for Gravesham (Adam Holloway) is no longer in his place, but he raises an important point about conveyancing. The hon. Member for Selby and Ainsty made a similar point about people being encouraged to use a particular conveyancer, or a particular set of solicitors, and it may be that the output of that process, however it happened, meant they did not get all the information or certain things were not as clear as they could be. That is unacceptable. I recognise that we have to work through that issue. There is a very complicated interaction between standards, regulation and whether people are doing the right thing, even within a regulated industry. I think I should pick that up with my Ministry of Justice colleagues to see whether there is anything that we may be able to take forward.

The hon. Member for Selby and Ainsty made an important and eloquent case relating to some challenges that he and his constituents have experienced. I was campaigning on one of his new estates just a few months ago, possibly for a different candidate. I will make two points. He raised an issue with regards to Harron Homes. I say this not to make any particular point, other than that I had a similar personal and constituency issue with Harron Homes on the Regents Green estate in Grassmoor in my constituency a number of years ago. It took quite a bit of pushing, but in the end, Harron Homes moved and we got hundreds of snags unsnagged. I hope he has similar success on that.

I know the hon. Member’s point was not about seeking advice on how to approach Harron Homes; it was more broadly about the reality that this should not happen in the first place, and he is absolutely right. I hope that some of the work in the Leasehold and Freehold Reform Bill, and some of the things that the New Homes Quality Board is doing on a voluntary basis and the new homes ombudsman will do in the coming years will help to address some of those problems.

My hon. Friend the Member for Worthing West (Sir Peter Bottomley) is not just the Father of the House but the father of many of the innovations and suggestions in the Bill, given how long he has campaigned on this issue. He raised the specific issue of rentcharges, and I would say to him that I am always happy to hold roundtables, but we must make sure they have utility. We are clearly making progress with the Bill, and I hope hon. Members accept that that includes progress on rentcharges. Both I and the Secretary of State continue to be keen to have the discussion around rentcharges to see what might be possible in the future.

It is important to note that there is a complicated interaction, as there always is in such difficult areas of law, between the clear problems we see with rentcharges and the overall structure of how rentcharges are used on a broader basis—rentcharges are, for example, part of the estate management system. That is something we have to try and work through in the round, but I am always happy to talk more and to hold roundtables. We do understand that there continues to be a challenge there.

Leasehold and Freehold Reform Bill

Matthew Pennycook Excerpts

Report stage
Tuesday 27th February 2024 Commons Chamber

[Madam Deputy Speaker (Dame Rosie Winterton)]

Order. Colleagues will see that a lot of right hon. and hon. Members wish to contribute to this debate, which has to finish at 6 pm. I will want to bring the Minister back for a short time. Another Deputy Speaker is taking over in a moment, but let me advise that those speaking from the Back Benches should be prepared to speak for between six and seven minutes, in order for us to get everybody in. I am afraid that that is because of the pressure on time. I call the shadow Minister.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

I start by declaring an interest: my wife is the joint chief executive of the Law Commission, whose work in this area I intend to reference in my remarks.

I rise to speak to the amendments and new clauses that stand in my name. Before doing so, I would like to put on record my thanks to all those hon. Members who served on the Public Bill Committee for so ably scrutinising the many technical and complex provisions that the Bill contains. There were, as one would expect, differences of opinion and emphasis, but it was also evident that there is a shared recognition that the Bill can and should be improved further, and an unusual degree of cross-party agreement as to some of the ways that might be achieved.

Despite reams of Government amendments tabled in Committee and for our consideration today, this Bill remains a distinctly unambitious piece of legislation. That is a matter of deep regret to those on the Labour Benches, not only because the Government’s paucity of ambition will see exploited leaseholders wait even longer for the current iniquitous leasehold system to be ended, but because it is also manifestly clear that there is widespread support across the House to go much further than this limited Bill does. Responsibility for the fact that the Bill does not contain so many of the commitments that successive Conservative Secretaries of State have made over recent years, not least in relation to the promised widespread introduction of the commonhold tenure, ultimately lies with Ministers. They had the opportunity to bring forward bold leasehold and commonhold reform legislation, and they made a political decision not to do so.

Although the Opposition appreciate the understandable desire of many leaseholders to see this Bill completely revamped so that it lives up to the many weighty promises made by the Government since 2017, we made clear at the outset in Committee that we did not intend to try to persuade Ministers to radically overhaul it by means of the many hundreds of amendments that would be required to implement all the Law Commission’s recommendations on enfranchisement, right to manage and commonhold. That remains our position. Whether this Bill receives Royal Assent or not before this Parliament is dissolved, a Labour Government will have to finish the job of finally bringing the leasehold system to an end by overhauling it to the lasting benefit of leaseholders and reinvigorating commonhold to such an extent that it will ultimately become the default and render leasehold obsolete. I reassure leaseholders across the country that we are absolutely determined to do so.

We recognise, however, that this limited Bill will provide a degree of relief to leasehold and freehold homeowners in England and Wales by giving them some greater rights, powers and protections over their homes. For that reason, we are extremely pleased it will complete its passage today, but we are determined to send to the other place the most robust piece of legislation that we can. That means rectifying the Bill’s remaining flaws and incorporating into it a select number of measures to further empower leaseholders and improve their rights. With that objective in mind, we have tabled a series of amendments and new clauses for consideration today. That they are almost identical to a number of those we discussed at length in Committee is a deliberate choice that reflects not only the importance we place on the changes they seek to secure, but the distinct lack of convincing responses from the Minister in Committee as to why the Government felt they needed to resist them.

Part 1 of the Bill concerns leasehold enfranchisement and extension. In seeking to implement the small subset of reasonable and proportionate Law Commission recommendations, it is almost entirely uncontentious. However, we believe that several provisions in this part are defective. We sought to remedy their deficiencies in Committee and we have tabled a number of amendments in an attempt to do so again.

Amendments 4 and 5 concern arguably the most significant provisions in this part when it comes to ensuring that the process of extending a lease or acquiring a freehold is as cheap as possible for existing leaseholders—namely the proposed new valuation process as provided for in clauses 9 to 11 and schedules 2 and 3. The current valuation method has a number of manifest flaws, and we fully support the new method as proposed in the Bill. However, with the applicable deferment rate becoming the primary driver of price to be paid in enfranchisement or extension claims under the new method, as a result of the abolition of marriage and hope value and the peppercorning of ground rents in the valuation calculation, we believe it is essential that it is set in a way that is fair to leaseholders. While the Government ostensibly agree, there is nothing on the face of the Bill to ensure that that will be the case and we therefore remain convinced that this Government, or a future one, could be lobbied by vested interests to set a deferment rate that will be punitive to leaseholders.

In resisting our efforts to amend the Bill in Committee to guard against such an outcome, the Minister argued that the Secretary of State must have flexibility to make decisions on the rate or rates. We agree; we are not suggesting that we bind the hands of Ministers by prescribing the rate or rates on the face of the Bill, but we do believe that the legislation should be amended to place a clear obligation on the Secretary of State to set a rate or rates with the overriding objective of encouraging leaseholders to acquire their freehold at the lowest possible cost.

[Richard Fuller]

The shadow Minister is right that there was a lot of consensus in Committee, so I hope he will not mind me probing him on some of the language he just used about the issue of setting rates. We all want to see what the Government do on deferment and capitalisation rates, but the shadow Minister used the term “punitive to leaseholders”. Does he accept that already embedded in the issues about ground rents and the changes here is a substantial transfer of value from freeholders to leaseholders, that the people who are more likely to suffer from punitive behaviour are those who entered into contracts historically from the freeholder side expecting that those values would be considered, and that it is a public policy decision that will change the value in those contracts?

[Matthew Pennycook]

I understand the hon. Gentleman’s point, which he made in Committee as well, if I am not mistaken. We very much think the risk is on the other side of the scale—that is, that a Government would be tempted to set a rate that is damaging to leaseholders as a result of being lobbied by vested interests. While there is a balance to be struck, we think it is right that we put on the face of the Bill that the objective in setting the deferment rate as part of the premium calculation must be to ensure that leaseholders acquire their freehold at the lowest possible cost. Amendments 4 and 5 would ensure that that is the case and I commend them to the House.

Part 2 of the Bill makes changes to other rights of long leaseholders. It contains the four clauses in the Bill that implement Law Commission recommendations on the right to manage, several of which we have sought to improve, as well as clause 21, which makes provision for a new enfranchisement right to extinguish a ground rent without having to extend a lease. We still have absolutely no idea how this clause—or clauses 7 and 8, for that matter—will interact with any proposals that might emerge from the recently closed consultation on restricting ground rents for all existing leases. The Minister must provide further clarification on that; it cannot be right that we could be dealing with such a significant issue when we get to ping-pong stage, in due course.

We very much welcome the intent of clause 21 and schedule 7, which it gives effect to. Even if unamended, they will ensure that some leaseholders can enjoy reduced premiums and secure nominal ground rent ownership of their properties without the need to go through the challenge and expense of repeated lease extensions. However, we remain unconvinced by the Government’s proposed conferral of this new right only on those leaseholders with leases with an unexpired term of more than 150 years. In resisting our attempt to remove the 150-year threshold from the Bill in Committee, the Minister essentially made two arguments. The first was that there is a need to

“put a finger on the scale”

somewhere. In other words, the Government take the view that the new right must be restricted based on lease length. The second argument was that in determining the threshold for restriction, the primary consideration should be which leaseholders are

“unlikely to be interested in, or do not need, a lease extension.”––[Official Report, Leasehold and Freehold Reform Public Bill Committee, 25 January 2024; c. 271.]

We do not believe that either argument is particularly strong.

First, any long lease threshold for the new right is ultimately entirely arbitrary, as evidenced by the fact that the Government chose a different threshold from the one recommended by the Law Commission.

Secondly, there is a principled argument that we should trust leaseholders to make decisions based on what is right for them and their individual circumstances, rather than denying a broad category of leaseholders a new statutory right on the basis that Ministers know best what is in their interest—a viewpoint that we would have assumed those on the Conservative Benches would support.

As I put it to the Minister in Committee, there could be all sorts of reasons why someone with a lease shorter than 150 years might want to buy out only their ground rent, including simply that they are unable to afford the premium required to secure a 990-year lease under clauses 7 and 8. Denying them that right on the grounds that other leaseholders might advertently or inadvertently disadvantage themselves by using the new right to extinguish only their ground rent strikes us as overly paternalistic and misguided.

We remain of the view that there is a strong case for simply deleting the 150-year threshold entirely given that the “remaining years” test that applies is arbitrary and that the most common forms of lease are 90, 99 and 125 years. Amendment 8 would do so, thereby making the new right to replace rent with peppercorn rent available to all existing leaseholders. I commend it to the House.

Part 3 of the Bill contains a wide range of measures relating to the regulation of leasehold. We have tabled several amendments designed to strengthen the provisions in it. Arguably, the most important are amendment 10 and new clause 3, concerning litigation costs. Although we support the aim of scrapping the presumption that leaseholders will pay their freeholders’ legal costs when they have challenged poor practice, we believe that, in merely limiting the ability of landlords to do so, the Government are creating an incentive for freeholders to litigate in a way that is likely to erode the general presumption they are seeking to implement.

As we argued in Committee, a far more sensible approach would be to legislate for a general prohibition on claiming litigation costs from leaseholders, and then to provide for a limited number of defined exceptions to that general rule by means of regulations—for example, in cases in which the landlord is a leasehold-owned company, or in which the costs are, in the opinion of the tribunal, reasonably incurred for the benefit of the leaseholders or the proper management of the building. Taken together, amendment 10 and new clause 3 would provide for that approach by leaving out clause 35 and replacing it with a new clause that provides for a general prohibition on claiming legal costs from tenants, and for a power to specify classes of landlord who will be exempted from it. I commend them to the House.

Mr Deputy Speaker, we want to see a number of other changes made to the Bill to provide leaseholders with better protection in law and to pave the way for a commonhold future. To that end, we have tabled amendments and new clauses to, among other things: abolish the draconian rent charge remedies provided for by section 121 of the Law of Property Act 1925; provide for mandatory residents’ management companies in new blocks of flats; establish a right to manage regime for residential freeholders on private or mixed-use estates; bring forward legislative options to facilitate leaseholders in new blocks of flats being granted an automatic share of freehold; and regulate managing agents.

Of particular importance to us is the need to ensure that the Bill abolishes forfeiture and the windfall it provides to freeholders. As we argued in Committee, forfeiture is a wholly disproportionate and horrifically draconian mechanism for ensuring compliance with a lease agreement. Over the course of nearly a century, this House has taken intermittent steps to tighten the laws of forfeiture, yet its continued use and the chilling effect that results from its mere existence continues to put landlords in a nearly unassailable position of strength in disputes with leaseholders.

The Opposition are not suggesting for a moment that this House abolishes the right of forfeiture in relation to residential long leases and replaces it with nothing. There must be effective means of ensuring compliance with a lease agreement, and we are more than willing to work constructively with the Government to determine what alternative arrangements are needed to deal with breaches of covenant or unpaid arrears. But forfeiture operates to the prejudice of leaseholders; it cannot be justified, and we must use the Bill finally to do away with it. We believe there is broad consensus across the House for grasping the nettle and abolishing forfeiture, and new clause 5 would do so, and—notwithstanding the very positive noises that we heard from the Minister—I urge hon. Members from across the House to support it.

Finally, let me turn to the 100 Government amendments to the Bill that were tabled last week, 29 of which were submitted just before the deadline on Thursday. In doing so, I feel I must put on record once again the Opposition’s intense frustration at this Government’s continued practice of significantly amending legislation as it progresses through the House. The sheer volume and complexity of amendments that this Government now routinely table to their own legislation represents a departure from established practice and one that acts as a serious impediment to hon. Members effectively scrutinising legislation, and increases the risk that Acts of Parliament contain errors that subsequently need to be remedied.

The Government amendments that have been tabled for consideration today fall into three broad categories—namely, shared ownership, building safety and new leasehold houses. I will take each in turn, starting with shared ownership. Although I am increasingly personally of the view that there is a growing case—one that is reinforced by the treatment of shared ownership in the Bill—for primary legislation to address various issues arising from shared ownership as a tenure, Government amendments 24 and 29, which relate to it, are not contentious and we support them.

Leasehold and Freehold Reform Bill (Ninth sitting)

Matthew Pennycook Excerpts

Committee stage
Tuesday 30th January 2024 Public Bill Committees

[Richard Fuller]

It is a pleasure to serve under your chairmanship, Sir Mark. I remind colleagues that we have moved from the clauses that relate to what was termed the “feudal” system of leasehold to the rather more modern problem of estate management charges, which in large part, although not exclusively, are incurred by those who own their homes. Essentially, the charges have arisen because of issues to do with adoption by local authorities. They are charges for a range of services in what might be termed, but are not necessarily, public areas, and for what might be, but are not necessarily, services or provisions that would normally be provided by a local authority.

It is worth bearing in mind how rapidly the issue of estate management charges has grown. From being essentially non-existent, or at least very rare, I think the charges now cover at least 1 million or 1.5 million homeowners—perhaps the Minister will tell us it is an even higher number. One issue is that we are essentially creating a two-tier society of council tax payers: people who pay council tax once to cover a range of public services, and residents in parts of our country who pay for those services twice—once through their council tax and again through their estate management charges.

The provisions in part 4 deal with a number of changes that seek to improve the rights of those subject to estate management charges and to improve access to redress. I commend a number of my local residents and councillors, most importantly Councillor Jim Weir of Great Denham, as well as 30 of my Conservative colleagues who wrote with me to the Prime Minister and Secretary of State to ask them to include the provisions in the Bill. I am grateful to them for doing so. Most particularly, I thank the former Minister—my hon. Friend the Member for Redditch—and the current Minister for their help and guidance on these matters. The provisions will enable us to make a great amount of progress. However, it is clear—and it was clear from the evidence the Committee received—that there is another path, or at least it is clear that the public also desire to abolish or reduce the current system of estate management charges, rather than improving it and the rights that people have. That is what the amendment seeks to achieve.

At issue is the matter of adoption. In the summary on page 4, paragraph 2 of the Competition and Market Authority report that looks into estate management charges and other issues, it states that

“evidence gathered in our market study to date has shown that, over the last five years or so, amenities on new housing estates that are available for wider public use (ie not for the exclusive use of households on the estate), are increasingly not being adopted by the relevant authority. This appears to be driven by the discretionary nature of adoption, housebuilders’ incentives not to pursue adoption and by local authority concerns about the future ongoing costs of maintaining amenities”.

That gets to the crux of the issue. The decision process for creating estate management charges takes place in a cosy discussion between the developers of new estates and the local authorities, both of which have an interest in ensuring that they are not the ones to carry the cost for a range of communal services. Guess who ends up paying the bill? It is homeowners up and down the country, who have no role in that cosy discussion. I wish to influence that cosy discussion through my amendment.

It is tricky to change the process of adoption, and I think you would consider it out of scope, Sir Mark, if we sought to do so in the Bill. In the evidence session, I heard colleagues talk about some of the risks involved in leaving councils with unadoptable roads and poor-standard infrastructure that the council tax payer has to pay to bring up to standard. No one on the Committee wishes to see that happen. My amendment would not force adoption, then, but essentially take the payer—the householder or homeowner—out of the equation for paying for those costs. It would exclude services or works that would ordinarily be provided by local authorities so that they would not count as costs that could be incurred by estate management charges.

My hope is that the amendment would pour a dose of reality on to developers by saying that they could no longer pass the buck for the costs of poor-standard infrastructure used by the public to homeowners on their estates. They would have to bring them up to standard, and then councils could adopt them.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

It is a pleasure to continue our line-by-line consideration of the Bill with you in the Chair, Sir Mark. I rise to speak to amendment 150, tabled in my name and that of my hon. Friend the Member for Weaver Vale. As we have heard, part 4 of the Bill deals with the regulation of estate management. The hon. Member for North East Bedfordshire provided an extremely comprehensive overview of the problem and its prevalence.

The distinct set of problems faced by residential freeholders on private or mixed-tenure estates that part 4 seeks to address is well known and well understood. Those problems include: excessive or inappropriate charges levied for minimal or even non-existent services; charges imposed for services that should by right be covered by council tax; charges that include costly and arbitrary administration fees; charges hiked without adequate justification; and charges levied when residential freeholders are in the process of selling their property.

In addition to a general lack of clarity and transparency about how estate management charges and fees are arrived at and how they break down—these problems are not dissimilar to those experienced by long leaseholders in respect of service charges—residential freeholders on privately owned and managed estates clearly suffer from inadequate transparency in other unique respects. For example, as I have said in past debates on the subject in the House, it would appear to be fairly common for residential freeholders not to be notified of their future liability for charges early in the conveyancing process; many learn of their exposure only at the point of completion. Even in instances in which residential freeholders are notified about their future liability in good time, many have to confront the fact that their contracts do not specify limits or caps on charges and fees.

There is clearly a distinct problem with management fragmentation on many privately owned estates that have been constructed throughout the country in recent years, with residential freeholders even on relatively new estates frequently having to navigate scores of management companies, each levying fees for services in a way that further exacerbates the general lack of transparency and potential for abuse that they face in respect of charges and fees. Underpinning all those issues of concern is a fundamental absence of adequate regulation or oversight of the practices of estate management companies and the fact that residential freeholders currently do not enjoy statutory rights equivalent to those held by leaseholders.

There has been a broad consensus across the House for some time that residential freeholders on new build private and mixed-tenure estates require greater rights and protections, and the Government have recognised publicly—for at least six years, by my count—that they need to act to address the range of problems that freeholders face. Labour therefore welcomes the Government’s decision to use the Bill to create an entirely new statutory regime for residential freeholders based on leaseholders’ rights and is fully supportive of the intent behind the provisions in this part of the Bill.

Although part 4 sets the broad framework for regulating estate management, much of the detail necessary to bring that framework into force will come via regulations. We take no issue with that, and do not intend to pre-empt the regulations by attempting to prescribe a series of requirements on the face of the Bill. However, we believe that, where possible, we should seek to use part 4 not only to provide greater protection to residential freeholders who live on the estates, but to contribute to a reduction in the prevalence of such arrangements—a point that the hon. Member for North East Bedfordshire was driving at.

Although additional protections of the kind introduced under part 4 will almost certainly still be required, in its “Private management of public amenities on housing estates” working paper, published on 3 November last year, the Competition and Markets Authority stated that

“we consider that reducing the prevalence of private management arrangements would be the most direct route to address the root cause of our emerging concerns”.

The CMA made it clear in that working paper that reducing the prevalence of private management arrangements would require a mix of legislative and policy changes more fundamental than the introduction of regulatory protection, and drew attention to the fact that it would result in a wider set of consequential changes, not least the potential for

“significant impact on local authority finances and resources at a time when local authority funding is already stretched.”

That is why, while we very much sympathise with its intent of ensuring that residential freeholders on private or mixed-tenure estates are not charged for services that should by right be covered by council tax, we have reservations about amendment 145. We are concerned that it will, in effect, force local authorities to adopt public amenities on new housing estates, irrespective of circumstance, or—if compulsion is not the intent of the hon. Member for North East Bedfordshire—would see those amenities degrade and deteriorate as a result of not being maintained by either the private management company or the local authority.

[Richard Fuller]

I am grateful to the shadow Minister for his detailed look at my amendment. First, will he explain to the Committee where he sees compulsion on local authorities in the amendment? I cannot see it. Secondly, will he explain why his more material concern about the possibility of items degrading and estate management not doing anything would not be addressed by the strengthening provisions that the Government are putting in the Bill on behalf of homeowners?

[Matthew Pennycook]

Under my reading of the hon. Gentleman’s amendment, if it is ensured that services or works that would ordinarily be provided by local authorities are not relevant costs for the purposes of charges in this part, who will pick up the bill? If the local authority is not compelled to adopt the amenities, our concern is that no one will maintain them. To address his point directly, I worry that his amendment would not ensure that the private estate management company picks up the charge. I will come to why I think our amendment is a superior way of addressing this very real problem.

[Barry Gardiner (Brent North) (Lab)]

I am listening carefully to my hon. Friend. It may interest him to know that I was on a private estate in Kingswood at the weekend, for some reason. It soon became apparent that the developer had gone into liquidation and the estate was being run down in a quite dreadful way. As my hon. Friend said, in that situation, the developer itself and the management of the estate had, to all intents and purposes, ceased—residents were very voluble on things not being done—but the local authority had not adopted the road in the first place, and the services were suffering accordingly.

[Matthew Pennycook]

We are all driving at the same point. I was very much taken by the CMA’s conclusion that reducing the prevalence of these arrangements requires a combination of the mandatory adoption of amenities and putting in place corresponding common adoptable standards. If we do one without the other, we risk some unintended consequences.

My concern about the amendment tabled by the hon. Member for North East Bedfordshire is that we cannot simply remove from estate charges costs that should in an ideal circumstance be borne by local authorities and then expect the private management company to simply pick them up. I fear that the more likely scenario will be that the amenities are not properly maintained. That is a real concern, and should be for residential freeholders on the estates. As the hon. Member for North East Bedfordshire outlined, there are some good reasons why local authorities are reluctant to adopt public amenities on private or mixed-tenure estates.

[Richard Fuller]

I would hate to detain the Committee because we have a lot to go through, but let us understand the economic process here. Initially, the local authority and the developer will work out whether to adopt roads. The developer will then have to decide whether to set up an estate management company, which may or may not deliver facilities and services that would normally be covered by council tax. If the amendment is part of legislation, no property manager in their right mind will accept taking on the responsibility because they will not wish to be liable. Here is the flow of responsibility: one cannot lumber home owners with the cost, the property manager will not be lumbered with the cost for the reasons outlined—it may go bust—so the developer will then have to recognise that there is nowhere for it to turn.

[Matthew Pennycook]

We fundamentally disagree on where the logic chain leads. I do not think that, on the basis of the amendment, the developer will be forced to pick up the costs. It is far more likely that they would build below what would be considered a common adoptable standard and then leave residential freeholders to live with substandard amenities. We could debate this further, but that is my take on the hon. Gentleman’s amendment: it would not force the management companies to do that. That is a real concern.

As I said, there are a variety of reasons why local authorities often do not take on responsibility. The most common one is that the public amenities on new housing estates are not built to a determined, adoptable standard. In those circumstances, one can hardly blame the local authority in question for a reluctance to adopt roads and common services that it will have to repair and maintain a great cost. My central argument is that if we are to reduce the prevalence of these arrangements, we must ensure that we introduce a common adoptable standard for public amenities on estates at the same time as we require mandatory adoption, as the CMA advises.

[Eddie Hughes (Walsall North) (Con)]

It is a pleasure to serve under you, Sir Mark. The civil engineer in me rises to agree with the hon. Gentleman completely; it is slightly embarrassing that we once again find common cause. The point is well made: if a set standard is identified that will be accepted universally by councils as one they would be prepared to adopt, and forced on the developers, the developers will meet that standard, but if they are left with any opportunity to build something substandard, they will always take it and they will frequently try to go further and not even meet the standard that they have prescribed in their own design work. I am sure that all Committee members will have seen examples of that in their constituencies. I again find common cause, and I hope the Minister considers these points.

[Matthew Pennycook]

I thank the hon. Gentleman for that intervention; it is a habit that I hope he continues because I think there is common ground here. When it comes to common adoptable standards, Ministers have often put it to me—the Minister no doubt will; previous Ministers have done—that local authorities have the tools they need to drive up the standards of public amenities that are constructed, but there is clearly something going wrong in that they are not ensuring that those standards are in place. As a consequence—not in every instance, but in many—local authorities have good reason to be reluctant to take them on.

We have tabled amendment 150 in an attempt to challenge the Government to consider how they might utilise the regulatory framework introduced by part 4 to drive up the standards of public amenities on the estates in question—that is the other half of the equation that I think we are all agreed we need. Our amendment would ensure that services or works on private or mixed-tenure estates that are required as a result of defects in construction are not relevant costs for the purposes of estate management. I think that, rather than the amendment of the hon. Member for North East Bedfordshire, would be the incentive that developers need to ensure that high standards are in place at the point that they hand the estate over. Ours is consciously a probing amendment and I hope the Minister will understand and appreciate the problem that it attempts to address, as does the hon. Member’s amendment. I look forward to hearing the Minister’s thoughts on it.

[Alistair Strathern (Mid Bedfordshire) (Lab)]

I rise briefly to add my weight to the comments of the shadow Minister, my hon. Friend the Member for Greenwich and Woolwich. I wholeheartedly share the concerns on this issue expressed by my Bedfordshire neighbour, the hon. Member for North East Bedfordshire. I know that, like me, he has received a lot of correspondence from constituents who find themselves with a variety of challenges and exposed by a situation whereby regulation simply has not kept pace with best practice.

As the CMA outlined last year, we have gone from a situation in which it was simply the norm that estates were adopted by the local authority to one in which that is far from the norm. In the last week, I have spoken to residents right across my constituency who have faced incredibly high service charges. Estate management companies are looking for the next frontier for their rent-seeking behaviour, often by charging fees for services that would normally be covered by council tax. Such is the fragmentation on estates, as the shadow Minister set out, that they sometimes even duplicate the fees charged by other management companies on the same estate.

--- Later in debate ---

[Matthew Pennycook]

Amendment 150 was a probing amendment. I take on board the Minister’s statement that the Government are looking at the issue and that they do not believe that this legislation is the appropriate vehicle to deal with it.

If the Minister is willing to respond again, I would like a bit more clarity on precisely why in many cases amenities on estates are not being built to an adoptable standard. I think we all agree that we would like to see such a system. The Minister introduced a different problem, namely circumstances in which residents might not want their amenities adopted; I think that that would be a relatively small number of estates, but we would have to account for them. In general, we want to reduce the prevalence of arrangements and see adoption becoming mandatory in most circumstances.

Will the Minister expand on why the Government think the common amenable standards are not being met across the board? In a previous debate, the then Minister stated:

“The local authority has powers to ensure that developers build and maintain communal facilities to the standards and quality set out in the planning permission.”—[Official Report, 22 January 2019; Vol. 653, c. 132WH.]

Is something going wrong with the standards that most local authorities require at the planning permission stage? Is the section 106 agreement breaking down in some way? What is the reason? That might give us an insight into the solution that the Government have in mind and into why common adoptable standards are not currently the norm.

[Lee Rowley]

The hon. Gentleman is absolutely right that there are a variety of scenarios. I am not sure that residents of Fenton Street would not take the opportunity to adopt if they were given the opportunity; it is more about the broader challenges of getting a single coherent answer to a very complicated set of questions that have come about in the past few decades or over a longer period.

The hon. Gentleman raises a valid point about the outcome of the planning system. Everybody, irrespective of party, would want the planning system to work to a point where there are common standards for roads and public spaces. There is an interesting question as to why that is not the case. It is an area that as a Minister I intend to look into in more detail.

The question is whether is it a systemic problem or a matter of individual circumstances, where it is working okay in some areas but not in others. Anecdote leads to bad policy and bad law, but in my experience as a constituency MP it has worked in a number of areas and not in others. That suggests that there is variability and that it is therefore not a systemic issue, but that might be different elsewhere in the country. It is an area that I think we should look at more; I am not sure whether it needs legislation. That is an open question, but it is definitely something that I am keen to understand more.

--- Later in debate ---

[Lee Rowley]

Clause 42 introduces new obligations on estate managers where the costs they wish to charge a homeowner exceed an appropriate amount. It mirrors sections 20 and 20ZA of the Landlord and Tenant Act 1985. Subsection (1) places an obligation on estate managers to consult homeowners where the costs for works or services exceed a given threshold. Subsections (2) to (4) confer a power to allow the Secretary of State to determine the appropriate threshold in regulations; the Secretary of State may also determine whether the threshold is to be a total sum or if the costs for individual homeowners exceed an appropriate amount.

Subsections (6) and (7) confer a power on the Secretary of State to set out in regulations the consultation require-ments and the provisions that may be included in the consultation process. Issues that may be in regulations are not exhaustive, but may include matters of relevance, including details of the proposed works, the provision of estimates, and requirements to have regard to homeowner observations and to specify reasons for carrying out the works if they proceed. We recognise that there are occasions where it may not be appropriate or possible for estate managers to consult homeowners—for example, where urgent or emergency works need to be carried out. Subsections (5) and (8) to (10) therefore allow estate managers to seek dispensation from the relevant tribunal of the need to consult. However, should estate managers fail to obtain dispensation or follow the consultation requirements, individual homeowner contributions are capped at the appropriate amount. The Government will engage extensively with stakeholders to determine the appropriate threshold for consultation and what the detail of the consultation arrangements should be. I commend the clause to the Committee.

[Matthew Pennycook]

I wish to probe the Minister a little further on the clause. As he said, it introduces requirements for estate managers to consult managed owners if the costs of any works to be charged as an estate management charge exceed an appropriate amount, which will be set out in regulations. Overall, the Government’s aim in this part of the Bill is clearly to introduce statutory protections for residential freeholders equivalent to those enjoyed by long leaseholders with regard to service charges.

If I understood the Minister correctly, he has confirmed that the Government’s intention with the clause is to establish for residential freeholders an equivalent to section 20 of the Landlord and Tenant Act 1985. If that is the intention, can the Minister confirm that the new requirements provided for by the clause will include requiring estate managers to have regard to written observations from residential freeholders on charges in excess of the to-be-determined appropriate amount, and where necessary to justify in writing the reasons why they awarded a contract to a tenderer that neither submitted the lowest estimate nor was nominated by a resident?

Furthermore, if the clause is indeed intended to mirror the operation of the existing section 20 consultation process, I urge the Minister to consider what might be done to address the known deficiencies of the process, including the fact that a leaseholder’s sole means of redress if they take issue with the landlord’s decision is the tribunal, and that there is no statutory meaning of what “have regard to” means in the context of the consultation. While he does so, I encourage him to take the opportunity to overturn, or at least modify, the decision of the Supreme Court in the 2013 Daejan Investments Limited v. Benson case, which has proved so detrimental to the consultation rights of leaseholders. I make this series of points because the Homeowners Rights Network, among others, has questioned the logic of extending to privately managed estates a regime that is not always effective in protecting residential leaseholders from unreasonable charges associated with major works.

[Lee Rowley]

The hon. Member for Greenwich and Woolwich encourages me to seek to overturn decisions of the Supreme Court! That could start a whole heap of discussion early on a Tuesday morning, but I will withhold further comment for now.

The hon. Member is absolutely right that clause 42 is intended to mirror section 20 of the 1985 Act. He is correct that the intention is to consider written responses as well; I hope that that reassures him. We will need to go through a consultation process: although we have said that our intention is to mirror section 20 of the 1985 Act to give confidence about the direction of travel, what is appropriate for these individual circumstances will need to be discussed, and I hope that we can pick up that discussion within the consultation.

Question put and agreed to.

Clause 42 accordingly ordered to stand part of the Bill.

Clause 43

Limitation of estate management charges: time limits

--- Later in debate ---

[Richard Fuller]

I beg to move amendment 140, in clause 44, page 69, line 6, at end insert—

“(7) The Secretary of State must by regulations provide—

(a) that an estate manager’s litigation costs incurred as a consequence of an application under this section may not be recouped through the estate management charge, except where the tribunal considers it just and equitable for such costs to be so recouped;

(b) for the right of an applicant under this section to claim litigation costs incurred as a consequence of an application under this section from the estate manager, where the tribunal considers it just and equitable in the circumstances.

(8) Regulations under subsection (7) may amend primary legislation.”

This amendment would require the Secretary of State to make regulations preventing estate managers from passing their litigation costs on to residents through the estate management charge, and providing for residents to be able to reclaim their litigation costs from an estate manager.

The amendment, which is in a similar vein to the previous one, is designed to probe the Minister on whether we have got the balance right in the clause to enable effective use of the tribunal by those who would wish to bring a case against estate managers. As we heard when we discussed the clauses on leasehold, one of the biggest concerns that people have is that they will face open-ended litigation costs. In this case, the litigation costs will essentially be cycled back through the estate management charges, and therefore effectively end up being paid by homeowners on the affected estates.

Amendment 140 is designed to prevent that passing on of litigation costs. It also recognises that many homeowners may wish to take action but not have the wherewithal to pay the litigation costs. Paragraph (b) of the amendment therefore enables residents to claim the litigation costs arising from their application. I am interested in the Minister’s view on the balance of litigation in such circumstances—we have spoken about it in relation to other circumstances. I think we all want the tribunal to work, but for that to happen, people must not be put off by the fear that they may face significant direct or indirect litigation costs.

[Matthew Pennycook]

I rise to support the amendment. We discussed litigation costs in relation to clause 34; we strongly argued for a general prohibition with very limited exceptions. The hon. Gentleman is right to draw attention to the fact, which applies to part 4 as a whole, that we should not replicate the flaws of the leasehold system in the newer system of estate management charges. Our arguments in relation to the leasehold regime therefore apply equally here, and the hon. Gentleman is right to raise the point.

[Lee Rowley]

I will try directly to address the point made by my hon. Friend the Member for North East Bedfordshire, to which we are sympathetic. It is important that litigation costs are not passed on. On the leasehold side, there is clear evidence that that is happening, but the question is whether there is clear evidence of it happening in the area of estate management. From speaking to officials, we do not see that clear evidence at the moment. However, if any members of the Committee or others have such evidence, I would welcome it. If it is happening, I am sure that we would be happy to consider the issue as the Bill progresses.

--- Later in debate ---

[Matthew Pennycook]

Briefly, when we discussed the regulation of service charges in clauses 26 to 30, we made a number of specific arguments about how those clauses might be tightened and strengthened. Can the Minister give us a commitment that if the Government determine to amend those clauses in any way, they will seek to read across the equivalent changes to this part of the Bill or, if they do not think that they apply, to justify where wider deviations between the two regimes are necessary? As I said, we are mirroring broadly the statutory protections in place for long leaseholders here, but where they differ, the Committee would certainly welcome clarification as to why.

[Lee Rowley]

I am grateful to the hon. Gentleman for his question. He tempts me into hypotheticals, but I hope that we are demonstrating our willingness to try to work constructively to see where areas can be improved. I must caveat that with clarity that we will not be able to improve every area; of necessity, prioritisations will need to be made. Of course there will be disagreements in this place and elsewhere about what is possible, but we shall see; if there is read-over, we shall see.

Question put and agreed to.

Clause 46 accordingly ordered to stand part of the Bill.

Clause 47

Right to request information

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Richard Fuller]

The Minister or shadow Minister will correct me if I am wrong, but I believe we covered issues to do with penalties earlier. The intent of this proposal is to ensure that damages in the leasehold and freehold system are the same. I therefore think I ought to ask leave to withdraw my amendment.

[Matthew Pennycook]

Without rehashing the debate on clause 30, I rise briefly to put on record that the Opposition think that the point the amendment is driving at is well made. We need equivalence between the two regimes, but we were concerned, notwithstanding damages versus penalties and all the rest, that the proposed financial penalty is too low to act as a serious deterrent to the type of behaviour that we are trying to do away with.

--- Later in debate ---

[Lee Rowley]

My hon. Friend highlights an important point. I think it is better that I write, but in principle, the transparency we seek to bring and the requirement to clearly articulate the charges that have been made, either in the annual report or elsewhere, aim to provide the sunlight that means that it is clear who is paying for what, and, if it is not a reasonable charge, there is a process that can be followed. But I will write to him with more on that, if that is helpful, because we all want to get this right.

[Matthew Pennycook]

I rise briefly to support the argument made by the hon. Member for North East Bedfordshire. There is a specific problem on privately managed estates, which I referred to when speaking to clause 41, relating to the fragmentation of multiple estate management companies. I share his concern, which partly speaks to whether the penalties are appropriate in terms of enforcement. On some estates, residential leaseholders will face a situation where, yes, there may be a requirement for an annual report and there may be a degree of transparency, but the onus will be on them to go through six or seven sets of accounts from the different subsidiaries. We need to look at how we can simplify some of the management structures that companies use, which could cause huge amounts of confusion for residential leaseholders, and, as I say, put the onus on them to try to work through different sets of accounts in a way that they might find difficult to do.

Question put and agreed to.

Clause 51 accordingly ordered to stand part of the Bill.

Clause 52 ordered to stand part of the Bill.

Clause 53

Limitation of administration charges

Question proposed, That the clause stand part of the Bill.

[Lee Rowley]

I hope that some of the comments I am about to make will reassure my hon. Friend the Member for North East Bedfordshire that we are keen to get this right.

Homeowners on managed estates can be subject to excessive administration charges, with little understanding of what fees they may be liable to pay. Subsection (1) puts a stop to that by introducing a requirement for all administration charges to be reasonable. Subsections (2) and (3) require that an administration charge is payable only if the amount or the description of how the amount is to be calculated has been published on an administration charge schedule for 28 days. Subsection (4) sets out other conditions under which an administration charge is not payable to the estate manager. They include circumstances where the estate manager is charging homeowners on the same estate different amounts for carrying out similar tasks, and therefore prevents them from being charged at different rates. I commend the clause to the Committee.

Question put and agreed to.

Clause 53 accordingly ordered to stand part of the Bill.

Clause 54

Determination of tribunal as to administration charges

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Lee Rowley]

Part 5 of the Bill addresses issues relating to rentcharges. Since the Rentcharges Act 1977, the creation of most types of rentcharge has been prohibited. The main class of rentcharge excepted from the general prohibition is known as an estate rentcharge. Estate rentcharges are usually mechanisms for a management company to obtain contributions towards the costs of maintaining communal areas.

Part 4 of the Bill creates new protections for homeowners who pay an estate rentcharge to an estate manager for the provision of estate management services. Clause 58 makes a minor amendment to the Rentcharges Act 1977 to amend the definition of “estate rentcharge” in section 2 of the Act. The effect of the amendment is to ensure that payments may be made to cover improvements to communal areas as well as maintenance and repairs. This ensures that it aligns with the definition of the service charges that leaseholders must pay, and allows estate managers to pass on costs of any improvements to the areas they look after, and will ensure that they meet their legal obligations as well as having sufficient funds to carry out such works. The sums paid for improvement will still be subject to the protections in part 4—for example, the requirement to be reasonable. This is a clarificatory amendment, and I commend clause 58 to the Committee.

[Matthew Pennycook]

This is a clarificatory amendment, and we do not take issue with it. I will speak on our concerns about rentcharges in relation to clause 59.

Question put and agreed to.

Clause 58 accordingly ordered to stand part of the Bill.

Clause 59

Regulation of remedies for arrears of rentcharges

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss new clause 4—Remedies for the recovery of annual sums charged on land—

“(1) Section 121 of the Law of Property Act 1925 is omitted.

(2) The amendment made by subsection (1) has effect in relation to arrears arising before or after the coming into force of this section.”

This new clause, which is intended to replace clause 59, would remove the provision of existing law which, among other things, allows a rentcharge owner to take possession of a freehold property in instances where a freehold homeowner failed to pay a rentcharge.

[Lee Rowley]

An income-supporting rentcharge is an annual sum paid by a freehold homeowner to a third party who normally has no other interest in the property. Under the 1977 Act, no new rentcharges of this type may be created, and all existing ones will be extinguished in 2037. Most income-supporting rentcharges can be for relatively small amounts—typically between £1 and £25 per annum—and the majority of freehold properties affected by these rentcharges are located in the north-west and the south-west of England.

However, a loophole remains. Failure to pay a rentcharge within 40 days of its due date means that, under section 121 of the Law of Property Act 1925, the recipient of the rentcharge may take possession of the subject premises until the arrears and all costs and expenses are paid. The rentcharge owner may alternatively grant a lease of the subject premises to a trustee that the rentcharge owner may set up themselves. The Government believe that that law is unfair and can have a grossly dispro-portionate consequence for a very small amount of money not being paid. This clause seeks to address that and ensure that freeholders cannot be subject to a possession order or the granting of a lease for rentcharge arrears.

Subsection (2) introduces new sections into the 1925 Act. Proposed new section 120B details that no action to recover or require payment of regulated rentcharge arrears may be taken unless notice has been served and the demand for payment complies with the new requirements. Those requirements set out what information the notice must include. The section also sets out that the homeowner does not have to pay the rentcharge owner any administrative fee.

Proposed new section 120C sets out various requirements relating to the serving of notice under proposed new section 120B, aimed at ensuring that freeholders receive the demand of payment at the address of the charged land. Proposed new section 120D confers powers on the Secretary of State to set out in regulations a limit on the amounts payable by landowners, indirectly or directly, in relation to the action of recovering or requiring payment of regulated rentcharge arrears. That provision seeks to avoid abuse of administration costs charged when simply accepting payment of arrears, and the process of removing any restriction on the freehold title at the Land Registry. The charge does not affect the cost that is paid directly to the Land Registry itself.

Clause 59 (3) and (4) to clause 59 seek to disapply rentcharge owners from using the provisions set out in sections 121 and 122 of the 1925 Act. In doing so, they provide additional protection to avoid rentcharge owners rushing to invoke those provisions. The effect of those subsections is to make any action to reclaim arrears using the 1925 Act void retrospectively once the provisions are introduced. Subsection (5) ensures that the provisions of the clause apply to rentcharge arrears that have arisen before and after the changes come into force. Subsection (6) inserts new section 122A into the 1925 Act, which details that an instrument creating a rentcharge, contract or any other arrangement is of no effect to the extent that it makes provision contrary to the provisions in this clause. Clause 59 delivers on a Government commitment to protect freehold homeowners from the disproportionate effects of falling into arrears in the payment of their rentcharge.

I turn to new clause 4, for which I thank the shadow Minister, the hon. Member for Greenwich and Woolwich. It seeks to abolish section 121 of the 1925 Act. The effect of the new clause would be that a failure to pay any form of rentcharge would prevent the owner of the rentcharge from granting a lease on the property, or from taking possession of it until the fee was paid. We are sympathetic to the issue raised by the shadow Minister, and we have recognised that forfeiture is an extreme measure and should only be used as a last resort. Although in practice it is already rarely used, I recognise that the potential consequences may feel disproportionate. That is why we have included clause 59, which disapplies this remedy for income-supporting rentcharges where we know that homeowners pay nominal sums for very little in return.

As with leasehold forfeiture, any changes will require a careful balancing of the rights and responsibilities of interested parties. We are concerned as to what this new clause could mean where a homeowner pays estate rentcharges that are essential for the management of their estate, or any other form of legitimate rentcharge. The Government want to ensure that where they are required to be paid, these charges are paid in a timely manner so that the smooth running of the estate can continue. If estate management companies are unable to recover these sums, there is the potential that the costs will fall to other homeowners or that the upkeep of the estate will worsen. We are keen to understand any unintended consequences before abolishing section 121 of the 1925 Act all together. We need to weigh up the needs of the estate with the stress and uncertainty that we know this law can cause for some homeowners and lenders. We are listening carefully to the arguments, and I am happy to give the hon. Gentleman that commitment. I hope that, with those reassurances, he may consider not moving his new clause.

[Matthew Pennycook]

I was slightly surprised, in a welcome way, by the Minister’s response, in that he seemed to indicate that the Government are open to considering the abolition of section 121 of the 1925 Act all together, notwithstanding the need to ensure that there are no unintended consequences, but we are debating clause 59 as it stands, which does not propose that, so I hope to convert the Minister’s sympathy into agreement with our position if I can.

Part 5 of the Bill concerns rentcharges, which in general terms can be understood as an indefinite, periodic payment made in respect of freehold land by the current freeholder to a third party or “rent owner” who has no reversionary interest in the charged land in question. In some cases, the charge relates to the provision of a service; in others it is, in effect, simply a profit stream for the interested third party. All rentcharges, as the Minister made clear, are covered by the Rentcharges Act 1977, which prohibited the creation of new so-called income-only rentcharges and provided that all such rentcharges will be extinguished in 2037.

The 1977 Act does not detail the remedies available to a rentcharge holder whose rentcharge is not paid, although any can simply sue for a money judgment. It is section 121 of the Law of Property Act 1925 that creates two additional remedies for rentcharge non-payment. First, unless excluded by the terms of the rentcharge itself, there is a right for the rentcharge holder to take possession of the charged land in question and retain any income associated with it so long as the money owed, whether demanded or not, is unpaid for 40 days. Secondly, unless prohibited by the terms of the rentcharge, and assuming that the money owed is outstanding for at least 40 days, there is a power to demise the land to a trustee by way of a lease in order to raise the funds necessary to pay the arrears and costs.

In short, the 1925 Act provides for the power to seize freehold houses for non-payment of a rentcharge, even if the arrears are merely a few pounds, and allows the rentcharge holder to retain possession or render it in effect worthless by means of maintaining a 99-year lease over it, even if, as demonstrated by the 2016 case of Roberts v. Lawton, the rentcharge is redeemed or the underlying debt cleared. In our view, the remedies provided for by the 1925 Act are a wholly disproportionate and draconian legacy of Victorian-era property law. As I have said, the 1977 Act prohibited the creation of new rentcharges and provided for existing rentcharges to be abolished in 2037, but 13 years from now is still a long time away and any lease granted prior to the abolition will remain in force. Rentcharges are therefore an area of law in respect of which legislative reform is long overdue, and the need to protect rent payers from what amounts, essentially, to a particularly severe form of freehold forfeiture as a result of the relevant remedies provided for by the 1925 Act is pressing.

With clause 58 having amended the definition of estate rentcharge, clause 59 seeks to provide for revised remedies for arrears by amending the 1925 Act. As the Minister has set out, clause 59, in place of the existing two remedies for rentcharge non-payment under the Act, proposes requiring the third party or rent owner to issue an appropriate demand before they can seek to recover or compel payment, and gives the Secretary of State the power by regulation to limit the amount payable by the freehold homeowner in respect of rentcharge arrears or to provide that no amount is repayable. Although we appreciate that the intent of the clause is to better protect freehold homeowners from the existing disproportionate remedies that are available to rentcharge holders when rentcharges go unpaid, we believe it is an overly complicated and onerous attempt to make more palatable the methods of enforcing rentcharges provided for by the 1925 Act that are simply not justifiable in any form.

No one disputes that there might be a need for legitimate and reasonable rentcharges. Indeed, if and when the Government finally deliver on the pledge to require all new houses in England and Wales to be sold as freehold properties, such charges will become even more important as a means to ensure that freehold houses contribute towards communal estate services. However, the threat of their being enforced by means of the draconian remedies in section 121 of the 1925 Act must, in our view, be removed.

--- Later in debate ---

[Lee Rowley]

I am grateful to the hon. Gentleman. He makes a strong case for his arguments. As I have indicated, although I will not accept new clause 4, we do think there is an argument that is reasonable to be had here, while recognising that we need to consider the consequential potential of any change. I am happy to discuss that further with him separately to see whether we can make further progress at a later stage of the Bill.

[Matthew Pennycook]

I thank the Minister for that answer. I am tempted to not move the new clause, but I can only deal with the piece of legislation in front of me. What is in front of me is not a placeholder clause that says, “We will review the 1925 Act”; it is a clause that puts in place an amended version of the remedies. We feel so strongly about this point that we will vote against clause stand part, but I will take the Minister up on his offer to discuss a more sensible way of dealing with the types of contraventions that we have discussed.

Question put, That the clause stand part of the Bill.

--- Later in debate ---

[Lee Rowley]

Clause 64 makes provision for the commencement of the Bill. The substantive provisions of the Bill will come into force on a day appointed by the Secretary of State by regulation. For a number of policy areas, regulations need to be drafted and laid before Parliament before the provisions in the Bill can commence. Hon. Members should be assured that we are not intending to have any unnecessary delay in implementation, and the Department is working hard to plan and carry out the associated programme of secondary legislation. Subsection (2) sets out that the provisions for section 59, namely the regulation of remedies for rent charge arrears, come into force two days after the Act is passed. I commend the clause to the Committee.

[Matthew Pennycook]

I have two brief points. On the general commencement provisions, the Minister just made it perfectly clear that there are no firm dates for commencement on all the issues that require regulations. I take on board what he said about not seeking any unnecessary delay, and that is welcome. However, I push him to go slightly further to give us a sense of the timetabling of some of the more important provisions in the Bill, because leaseholders watching our proceedings will want to know when the rights provided for by the Bill can be enjoyed.

I have a point specifically on subsection (2), which specifies that clause 59 comes into force at the end of a period of two months, as I understand it—the Minister said “two days”, and I think it is two months. Given that some of the provisions in clause 59—I am thinking particularly of new subsection 120D(4)—bring the relevant provision into force on First Reading on 27 November 2023, why is there a two-month delay after Royal Assent? Why not bring the measures into force on Royal Assent?

[Lee Rowley]

I am grateful to the hon. Gentleman for his questions. Obviously, as he will know, I do not need to push too heavily the point that we need to get the Bill through this place. We are trying to move it as quickly as we possibly can, but the other place may have other ideas, although I hope that it will not. I hope I can provide assurances that we will try to get these things moving as quickly as possible.

On the hon. Gentleman’s specific point about subsection (2), I thank him for correcting me; it is two months. As I understand it—I am happy to go away and review it—there is a relative convention in these instances. However, given the desire and intention of all parties, including the Secretary of State, to move as quickly as possible, we will see whether we can speed it up.

Question put and agreed to.

Clause 64 accordingly ordered to stand part of the Bill.

Clause 65

Short Title

Question proposed, That the clause stand part of the Bill.

Leasehold and Freehold Reform Bill (Tenth sitting)

Matthew Pennycook Excerpts

Tuesday 30th January 2024 Public Bill Committees

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

I rise to say simply that the Opposition welcome this group of Government new clauses.

[Barry Gardiner (Brent North) (Lab)]

I, too, welcome the new clauses, but I do so in the knowledge that they do not provide a perfect solution. My concern, and the question I put to the Minister, relates to situations such as the one that I outlined the other day. Where information is held by a series of Russian dolls, as it were, the ultimate one of which is located in the Cayman Islands—as is the case with Wembley Central Apartments in my constituency—what ultimate redress do the leaseholders have? Damages does not get to the nub of the problem.

[Lee Rowley]

As the hon. Member has outlined, we spoke about this issue on Thursday. I have a lot of sympathy for the point that he makes, and I think we agreed that we would explore it further; I was going to write to the hon. Gentleman and the Committee, if I recall correctly. He is right to raise and highlight that point. Where we can make further progress, we should try to do so. As I know he will appreciate, there is ultimately a challenge when entities move out of jurisdictions, but that should not mean that we should not have a look at whether we can make things better, if not perfect.

Question put and agreed to.

New clause 42 accordingly read a Second time, and added to the Bill.

New Clause 43

Estate management: sales information requests

“(1) An owner of a managed dwelling may give a sales information request to the estate manager.

(2) A ‘sales information request’ is a document in a specified form, and given in a specified manner, setting out—

(a) that the owner is contemplating selling the dwelling,

(b) information that the owner requests from the estate manager for the purpose of the contemplated sale, and

(c) any other specified information.

(3) An owner of a managed dwelling may request information in a sales information request only if the information is specified in regulations made by the appropriate authority.

(4) The appropriate authority may specify information for the purposes of subsection (3) only if the information—

(a) relates to estate management, estate managers, estate management charges or relevant obligations, and

(b) could reasonably be expected to assist a prospective purchaser in deciding whether to purchase a dwelling.

(5) The appropriate authority may by regulations provide that a sales information request may not be given until the end of a particular period, or until another condition is met.

(6) In this section and sections (Effect of sales information request) to (Enforcement of sections (Effect of sales information request) and (Charges for provision of information))—

(a) a reference to purchasing a dwelling is a reference to becoming an owner of the dwelling, and references to selling a dwelling are to be read accordingly;

(b) ‘sales information request’ has the meaning given in subsection (2);

(c) ‘specified’ means specified in, or determined in accordance with, regulations made by the appropriate authority.

(7) A statutory instrument containing regulations under this section is subject to the negative procedure.”—(Lee Rowley.)

This new clause, to be inserted after NC14, would provide for the owner of a managed dwelling to give a sales information request to the estate manager in anticipation of selling the dwelling.

Brought up, read the First and Second time, and added to the Bill.

New Clause 44

Effect of sales information request

“(1) An estate manager who has been given a sales information request by the owner of a managed dwelling must provide the owner with any of the information requested that is within the estate manager’s possession.

(2) The estate manager must request information from another person if—

(a) the information has been requested from the estate manager in a sales information request,

(b) the estate manager does not possess the information when the request is made, and

(c) the estate manager believes that the other person possesses the information.

(3) That person must provide the estate manager with any of the information requested that is within that person’s possession.

(4) A person (‘A’) must request information from another person (‘B’) if—

(a) the information has been requested from A in a request under subsection (2) or this subsection (an ‘onward request’),

(b) A does not possess the information when the request is made, and

(c) A believes that B possesses the information.

(5) B must provide A with any of the information requested that is within B’s possession.

(6) A person who is required to provide information under this section must do so before the end of a specified period beginning with the day on which the request for the information is made.

(7) A person who—

(a) has been given a sales information request or an onward request, and

(b) as a result of not possessing the information requested, does not provide the information before the end of a specified period beginning with the day on which the request is made,

must give the person making the request a negative response confirmation.

(8) A ‘negative response confirmation’ is a document in a specified form, and given in a specified manner, setting out—

(a) that the person is unable to provide the information requested because it is not in the person’s possession;

(b) a description of what action the person has taken to determine whether the information is in the person’s possession;

(c) any onward requests the person has made and the persons to whom they were made;

(d) an explanation of why the person was unable to obtain the information, including details of any negative response confirmation received by the person;

(e) any other specified information.

(9) A person who is required to give a negative response confirmation must do so before the end of a specified period beginning with the day after the day on which the period referred to in subsection (7)(b) ends.

(10) The appropriate authority may by regulations—

(a) provide that an onward request may not be made until the end of a particular period, or until another condition is met;

(b) provide for how an onward request is to be made;

(c) make provision as to the period within which an onward request must be made;

(d) provide for circumstances in which a duty to comply with a sales information request or an onward request does not apply;

(e) make provision as to how information requested in a sales information request or an onward request is to be provided;

(f) make provision for circumstances in which a period specified for the purposes of subsection (6), (7) or (9) is to be extended.

(11) In this section and sections (Charges for provision of information) and (Enforcement of sections (Effect of sales information request) and (Charges for provision of information)), ‘onward request’ has the meaning given in subsection (4)(a).

(12) A statutory instrument containing regulations under this section is subject to the negative procedure.”—(Lee Rowley.)

This new clause, to be inserted after NC43, would require an estate manager who has been given a sales information request to provide the information requested, and request that information from other parties.

Brought up, read the First and Second time, and added to the Bill.

New Clause 45

Charges for provision of information

“(1) Subject to any regulations under subsection (2), a person (‘P’) may charge another person for—

(a) determining whether information requested in a sales information request or an onward request is in P’s possession;

(b) providing or obtaining information under section (Effect of sales information request).

(2) The appropriate authority may by regulations—

(a) limit the amount that may be charged under subsection (1);

(b) prohibit a charge under subsection (1) in specified circumstances or unless specified requirements are met.

(3) If an estate manager charges the owner of a managed dwelling under subsection (1), the charge—

(a) is an administration charge for the purposes of this Part, and

(b) is not to be treated as an estate management charge for the purposes of this Part.

(4) For the purposes of this Part, the costs of—

(a) determining whether information requested in a sales information request or an onward request is in a person’s possession, or

(b) providing or obtaining information under section (Estate management: sales information requests),

are not to be regarded as relevant costs to be taken into account in determining the amount of any estate management charge.

(5) A statutory instrument containing regulations under this section is subject to the negative procedure.”—(Lee Rowley.)

This new clause, to be inserted after NC44, would regulate charges for the provision of information under NC44.

Brought up, read the First and Second time, and added to the Bill.

New Clause 46

Enforcement of sections (Effect of sales information request) and (Charges for provision of information)

“(1) A person who makes a sales information request or an onward request (‘C’) may make an application to the appropriate tribunal on the ground that another person (‘D’) failed to comply with a requirement under section (Effect of sales information request) or (Charges for provision of information) in relation to the request.

(2) The tribunal may make one or more of the following orders—

(a) an order that D comply with the requirement before the end of a period specified by the tribunal;

(b) an order that D pay damages to C for the failure;

(c) if D charged C in excess of a limit specified in regulations under section (Charges for provision of information)(2)(a), an order that D repay the amount charged in excess of the limit to C;

(d) if D charged C in breach of regulations under section (Charges for provision of information)(2)(b), an order that D repay the amount charged to C.

(3) Damages under subsection (2)(b) may not exceed £5,000.

(4) The appropriate authority may by regulations amend the amount in subsection (3) if the appropriate authority considers it expedient to do so to reflect changes in the value of money.

(5) A statutory instrument containing regulations under this section is subject to the negative procedure.”—(Lee Rowley.)

This new clause, to be inserted after NC45, would provide for the enforcement of obligations under NC44 and NC45.

Brought up, read the First and Second time, and added to the Bill.

New Clause 1

Abolition of forfeiture of a long lease

“(1) This section applies to any right of forfeiture or re-entry in relation to a dwelling held on a long lease which arises either—

(a) under the terms of that lease; or

(b) under or in consequence of section 146(1) of the Law of Property Act 1925.

(2) The rights referred to in subsection (1) are abolished.

(3) In this section—

“dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;

“lease” means a lease at law or in equity and includes a sub-lease, but does not include a mortgage term;

“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002.” —(Matthew Pennycook.)

This new clause would abolish the right of forfeiture in relation to residential long leases in instances where the leaseholder is in breach of covenant.

Brought up, and read the First time.

[Matthew Pennycook]

I beg to move, That the clause be read a Second time.

It is a pleasure to continue our line-by-line proceedings with you in the Chair, Sir Edward. For the sake of probity, simply because I will make reference to the organisation’s work, I once again declare that my wife is the joint chief executive of the Law Commission.

The reason for tabling the new clause is simple: forfeiture is a wholly disproportionate and horrifically draconian mechanism for ensuring compliance with a lease agreement, and it needs to be abolished through the Bill. To remind the Committee, the law of forfeiture gives the landlord the right, following a breach of a clause in the lease or an unpaid debt of £350, or a lesser sum if it has been outstanding for more than three years, to terminate the lease, regain possession of the property and pocket the unmerited windfall gain that would accrue from its sale.

Not all forfeiture actions relate to trivial breaches—some are made in response to serious transgressions of a covenant in a lease, such as instances of persistent and egregious antisocial behaviour—but many are initiated for entirely trivial breaches, such as nominal ground rent or service charge arrears. The current laws of forfeiture render it entirely possible, for example, for a tenant to lose possession of a £500,000 flat or house for a debt of as little as £351, or even £15 if unpaid for more than three years, with the landlord keeping the entire difference between the value of the property and the debt owed.

[Eddie Hughes (Walsall North) (Con)]

The hon. Gentleman is making a compelling speech. It seems crazy that in the 21st century somebody can lose possession of their property for such a small amount of money. I sincerely hope that he continues his compelling speech in such a way that he has a very positive effect on the Minister.

[Matthew Pennycook]

I thank the hon. Gentleman for that helpful intervention. I hope that I do have that effect, and that he can use his good offices to persuade the Minister of the merits of adopting new clause 1.

[Richard Fuller (North East Bedfordshire) (Con)]

The shadow Minister is making a good point, but to play the cynic on this issue, there is a difference between things that could take place and things that are taking place. What is the evidence? We should probably get rid of this latent power in any case, but how often is the power being used in practice? Is this a real thing that is happening?

[Matthew Pennycook]

I thank the hon. Gentleman. If he allows me to develop my case, I will address that very point, which was well made.

Not only is the potential penalty for a breach incredibly draconian in the circumstances in which it is used, but even in instances in which a lease is not terminated, with the landlord gaining the financial benefit of any capital loans attached to it, the laws of forfeiture can lead to a significant financial loss for leaseholders. Take the following scenario. For whatever reason, a leaseholder accumulates a small arrears—perhaps a demand has not been received—and the freeholder or managing agent issues reminders, which add to the initial debt. That debt is then handed over to a debt collector, whose means of remuneration incentivise them to pursue it aggressively. The leaseholder might then attempt to pay, but they also have to find the money to cover large legal costs. If there is a mortgage, the bank is often drawn in to secure its interest, so a compulsory loan is added to the leaseholder’s account. In our view, it is the lack of any proportionate relationship between a breach of a lease and its consequences that makes forfeiture so unjust.

Since 1925, this House has regularly taken steps to make it more difficult for a freeholder to successfully forfeit a lease. For example, the Housing Act 1996 and the Commonhold and Leasehold Reform Act 2002 introduced prohibitions on the serving of a section 146 notice under the Law of Property Act 1925 in relation to service charges and breach of a covenant, respectively, in instances in which the amount payable has not been determined. Those were not the first attempts to constrain the laws of forfeiture. History shows that Parliament has returned to the matter every few decades in an attempt to mitigate forfeiture’s manifest injustices. Despite the laws of forfeiture being made stricter, a great many freeholders and managing agents still routinely use forfeiture powers as a first resort when seeking to recover alleged arrears of payments from leaseholders, and they rely—this is in some ways the more important point—on the mere threat of forfeiture, and the financial risks it presents, to deter leaseholders from disputing any unreasonable costs and defending claims.

Those who advocate retaining forfeiture often argue that it is a minor issue that does not affect many leaseholders. However, although termination of a lease under forfeiture may be relatively rare—I deliberately use the word “may”, because His Majesty’s Courts and Tribunals Service does not track the number of cases—evidence from across the country shows hundreds of cases and scores of outright forfeitures on average each year. As I said, the threat is as damaging as the use of the power, because it puts landlords in a nearly unassailable position of strength in disputes vis-à-vis leaseholders, which is why forfeiture is routinely threatened in money disputes.

Because the law of forfeiture remains so manifestly unjust, despite successive attempts to render it more palatable, there have been many calls over recent decades for more wholesale reform. For example, hon. Members may know that in 2006 the Law Commission proposed abolishing the current law of forfeiture and replacing it with a statutory scheme for the termination of tenancies. It even drafted legislation, the Termination of Tenancies Bill, to implement that proposal. Yet nothing has been done. Indeed, the relevant section of the Law Commission’s website states—this amused me—that, 18 years on,

“We are awaiting the Government’s response to our recommendations”—

eighteen years and counting.

There is, of course, a need to carefully balance the rights and responsibilities of landlords and leaseholders, and there must be effective means of ensuring compliance with a lease agreement, but those means must be appropriate and proportionate to the breach in question. We can debate precisely what alternative arrangements are needed to deal with breaches of the covenant or unpaid arrears, whether orders of some kind are necessary to sell a property when a debt is not paid, and what kind of measured method is appropriate to removing problem tenants from a building—we heard about that in our oral evidence sessions. The starting point, however, must be that we finally grasp the nettle and abolish forfeiture, and the windfall it provides, once and for all. It operates to the prejudice of leaseholders and it cannot be justified.

The Secretary of State made clear on Second Reading that he was open to this Committee looking at how we end the abuse of forfeiture. I believe there is a broad consensus across the House—indeed across this Committee —that we should consign it to history, even if there is a debate about precisely what replace it with. Following the point made by the hon. Member for Walsall North, I sincerely hope that the Minister will not disappoint us and the many thousands of leaseholders who support the abolition of forfeiture by resisting this new clause out of hand. I very much look forward to his response.

--- Later in debate ---

[Lee Rowley]

I am grateful to the hon. Member for Greenwich and Woolwich for this new clause and for the opportunity to debate it. The hon. Gentleman set me a challenge at the end of his speech. He said he hoped I would not resist the new clause out of hand—I will not resist it out of hand, but I may resist it. In all seriousness, this is an important part of the discussion and I do not disagree with what the hon. Member for Greenwich and Woolwich and my hon. Friend the Member for Redditch said—I absolutely accept it. I am happy to confirm that the Government are aware of the strength of feeling on this issue and sympathetic to some of the objectives of the amendment. It is absolutely the case that forfeiture is an extreme measure. That is why we committed on Second Reading to look at this.

On the question from my hon. Friend the Member for North East Bedfordshire, it is difficult to get numbers. As has been outlined by others, the principle is clearly a real problem. The disproportionate nature of the outcome completely outweighs the likely loss being pursued. The Leasehold Knowledge Partnership, or one of the other witnesses, suggested in oral evidence that there were 80 to 90 forfeitures a year, but the Government do not have specific data to validate that at this stage. We understand that most of the threats are defused during the process—particularly if a mortgage company is involved, it tends to, in extremis, step in and offer to put the amount of money on to the mortgage or equivalent. The evidence base is and will always be challenging, but we absolutely accept that the principle is disproportionate and unreasonable.

However, as with so many of these clauses and elements of law, there is the question of how to make something in the system better while still ensuring the ability to balance all the things underneath. That is probably one of the reasons why this place has returned to this issue so often over the decades—it is not just because the Government may not respond in time, as the hon. Member for Greenwich and Woolwich indicated. This new clause is definitely well intentioned. We are sympathetic, but we do not necessarily believe in the full abolition of forfeiture without some form of replacement for some elements of it that may still have validity—not the forfeiture itself, but a recognition that people cannot just not pay things without some form of process to address that. That is one of the reasons we cannot accept this amendment at the moment.

However, I do not condone the abuse of forfeiture. I want to be absolutely clear that we are listening very carefully to the arguments being made. We have already committed to look at this again, and we are currently looking at it. I hope we will be able to say more at future stages of the Bill. With those reassurances, I hope the hon. Member for Greenwich and Woolwich will consider withdrawing his clause.

[Matthew Pennycook]

That was a slightly frustrating response from the Minister. I had hoped for a little more. I am glad that he thinks the new clause is well intentioned and sympathises with some of its objectives. From the Opposition’s point of view, as with rent charges, another example of draconian and wholly disproportionate Victorian-era property law, we need to cut the knot and get rid of these provisions entirely. As I said, we can have a debate on what we replace them with. We are very clear that there must be a replacement. There must be an effective means of ensuring compliance with a lease agreement, but it must be appropriate and proportionate to the breach in question. We all agree that forfeiture is not proportionate or appropriate to the breach, so why retain it? What I did not get from the Minister, but had hoped for, was a clear indication that that is the Government’s intent, at whatever stage of the Bill.

I suspect this is one of those new clauses that the Minister has resisted—perhaps not out of hand, but resisted none the less—but that we may see back in a different form at a later stage with the Government’s seal of approval. However, I would like to make very clear our strength of feeling on the matter, and I will therefore press the clause to a vote.

Question put, That the clause be read a Second time.

--- Later in debate ---

Brought up, and read the First time.

[Matthew Pennycook]

I beg to move, That the clause be read a Second time.

As I made clear at the outset of our line-by-line consideration of the Bill, while we have no intention of trying to convince this Government to radically overhaul this limited piece of legislation to enact the Law Commission’s recommendations on enfranchisement, right to manage and commonhold in full, we do want to make the case for a limited number of new measures that would give future leaseholders greater control and strengthen the foundations on which bolder reform will be enacted. New clause 2 seeks to incorporate one of those measures into the Bill—namely, that all leases on new flats should include a requirement to establish and operate a residents’ management company responsible for all service charge matters, with each leaseholder given a share.

The new clause seeks to remedy two significant flaws in the current leasehold system. The first is that unless leaseholders in blocks of flats either take it upon themselves to acquire the right to manage, collectively enfranchise and then establish an RMC or buy a property on a development where an RMC has been set up, they find that despite being the people who pay all the costs associated with maintaining and managing their building, they have no control whatever over how their money is spent. The second is that the rights that this House has chosen to give leaseholders to empower them to exercise a degree of control over the management of their buildings—for example, the right to make an application to the first-tier tribunal, to appoint a manager under section 24 of the Landlord and Tenant Act 1987 or to acquire the right to manage under the Commonhold and Leasehold Reform Act 2002—can be exercised only following what is often an arduous and costly legal process.

New clause 2 would go some way to remedying both of those problems. It would mean that, where a new residential block of flats was constructed and its units sold, the development would have to be a tripartite lease between the freeholder, leaseholder and a new residents’ management company. Each leaseholder in the block would own a share of the RMC and it would be under their exclusive control, giving them full responsibility for services, repairs, maintenance, improvements, insurance and the cost of managing their building, and thereby enabling them to control how their money was spent. Their share of the company and ability to influence the management of their building would be theirs by right and at no additional cost.

The importance of this proposed measure lies not only in the greater control it would give to leaseholders over the maintenance and management of their buildings, but in it being one of several ways by which we can lay the groundwork for a future in which leasehold has been rendered obsolete and commonhold is the norm. New clause 2, even if it is in operation for only a few years prior to commonhold being made the default tenure for new blocks of flats, as is our intention, would facilitate the reinvigoration of that tenure by creating a cohort of leaseholders who, of necessity, have experience in running their building as they would under a commonhold arrangement, even if that experience extends only to appointing and overseeing a managing agent—hopefully one properly regulated as a result of the Government’s accepting our new clause 25.

In facilitating leaseholder control of the operation of a site and giving them responsibility for everything covered by a service charge, new clause 2 would also further undermine freehold by depriving unscrupulous landlords of the ability to extract income from leaseholders using opaque and potentially unlawful practices such as appointing managing agents that are just related companies and using captive insurance brokers.

Lastly, if enacted in conjunction with leaseholders being given a mandatory share of freehold, as provided for by new clause 29, mandatory RMCs in new blocks of flats would ensure that we have a standardised management model and an agreed set of rules for those new blocks of flats where the freehold is collectively owned, making the process of converting buildings to commonhold at scale far easier.

Let me be clear with the Committee: we do not pretend that this is a perfect solution. It would obviously not help those leaseholders who have already purchased their flats and who do not currently have an RMC. We will need other solutions, building on the measures already in the Bill, to address the challenges that they will continue to face. However, if the Committee believes —as I think it does—that commonhold is the ideal form of tenure, and that reinvigorating it is the solution for blocks of flats, we should take practical steps to pave the way for that to happen. New clause 2 is one of the ways we can do so, and I urge the Minister to consider it.

[Lee Rowley]

I thank the hon. Gentleman for his new clause which, as he has indicated, seeks to require the establishment of leaseholder-owned management companies for all new leasehold flats. I understand that his intention is to ensure that, by default, all leaseholders of new flats would be responsible for the management of their buildings. I support the well-intentioned desire to give more homeowners control over the management of their buildings. The Bill as a whole is intended to do that, and I hope everybody accepts that it is moving in the right direction.

As the hon. Gentleman knows, existing leaseholders can already use the right to manage to take over management responsibility for their building. It is an established no-fault right that allows leaseholders to take over management responsibility when a majority of them wish to do so. The Bill accepts and implements key elements of the Law Commission recommendations that broaden access to the right to manage and reduce leaseholders’ costs when they make a claim. The Bill gives leaseholders the right to take control over their building, but it does not compel those who do not wish to. There is an important point there: I understand the intentions behind the new clause, but there is a question about compulsion and there may be a question about operation if some leaseholders do not wish to step up. For that reason, the requirement would not easily apply in some scenarios and a blanket requirement to establish such companies is probably not appropriate.

Although I accept, understand and sympathise with the intention of the new clause, I am afraid that we will resist it because there are times when it would not be appropriate for it to apply, and we should not change the law on that basis.

[Matthew Pennycook]

I am disappointed by that response from the Minister, as he would expect. We very much agree that the Bill is moving in the right direction, but we do not think it goes far enough for two reasons, which I will reiterate to help the Committee to understand why we feel strongly about this issue. Yes, the right to manage is an established right. The Bill makes provisions to enhance and expand access to RTM, but the RTM application process comes after an arduous and costly legal process. We are saying that, as a matter of right, residents in new build blocks of flats would have an RMC put in place and a share of it, without that cost. That is one point.

There is a more fundamental difference of principle, which is that if we are serious about reinvigorating commonhold, we need a number of steps. We need the legal changes that are recommended by the Law Commission, and we need to do those as one process, not in a partial way. However, there are other non-legislative policy changes that we need to make if we are to pave the way for commonhold. This new clause is one of them, and we feel quite strongly that it should be included in the Bill.

The Minister argued that there may be limited cases in which a mandatory RMC is not appropriate. If the Government want to bring forward their own amendment to provide for general RMCs across the board with limited exceptions, they are more than welcome to do so. However, we feel strongly, on a point of principle, that we should take this step alongside providing a share of the freehold, which I will argue for when I speak to new clause 29. Given our strength of feeling on this issue, as with the previous new clause, I will press this one to a vote.

Question put, That the clause be read a second time.

--- Later in debate ---

Brought up, and read the First time.

[Matthew Pennycook]

I beg to move, That the clause be read a Second time.

I will be relatively brief in speaking to the new clause, because I trust that it is self-explanatory, and we believe that the case for it is robust and well understood. Part 4 of the Bill, which we have already considered, will give residential freeholders on private and mixed-tenure estates rights to challenge the reasonableness of estate management charges and to hold estate management companies to account that are equivalent to those of leaseholders, but it does not give those same residential freeholders the right to take over the management functions on their estate.

We appreciate the concern among some that the right to manage would be too complex and onerous in a freehold estate setting, but it is only a right; it is not a requirement that it be exercised. We believe that there is evidence of an appetite among residential freeholders not only to be able to change a poorly performing or exploitative estate manager, for which part 4 provides, but to have more direct control of the management of their estates. We also believe that it is right in principle that there is parity between residential leaseholders and freeholders when it comes to the right to manage. New clause 5 simply seeks to provide them with that right.

In their June 2019 response to the 2018 consultation on reforms to the leasehold system in England, the Government committed to considering the implications of introducing a right to manage for residential freeholders, as part of their wider commitment to ensuring that leaseholders and residential freeholders enjoy equivalent rights. The Secretary of State made it clear on Second Reading that this Committee should look at the issue, as well as the issue of the abuse of forfeiture. On that occasion, the hon. Member for Redditch went even further. She stated:

“I know that the Government intend to introduce a right to manage for freeholders”.—[Official Report, 11 December 2023; Vol. 742, c. 677.]

We hope that she is right and that that remains the Government’s intent, but there are no Government amendments that would incorporate the power to establish a right to manage regime for freeholders on privately managed estates. New clause 5 would do so, and I hope the Minister will accept it.

[Lee Rowley]

I am grateful to the hon. Gentleman for tabling the new clause.

Let me separate my remarks into two parts. First, am I relatively sympathetic to the hon. Gentleman’s point? The answer is yes: there is a strong case for the measure. It has not been brought forward to date, and we will have to see whether it is possible to do so in the future. I cannot guarantee that, but we are looking at it and listening carefully. I understand the hon. Gentleman’s point, and he made a strong case for it. We will not be able to do everything that we have said throughout this process, in the end, but I assure him that we are interested in this potential area.

However, we will resist the new clause, not because it is the convention to do so but because we genuinely think that it is not the right measure, even if we did agree with the principle. To go back to the Henry VIII powers discussion, this is probably an area in respect of which, if we were to do something—again, there are no guarantees—we would do it on the face of the Bill.

--- Later in debate ---

[Matthew Pennycook]

I think I quote the Minister accurately when I say that he said, “Let me see how to get out of this one.” He is developing a reputation not just for reasonableness but for undue honesty. This is one of those features of the parliamentary process that I think anyone watching our proceedings will struggle to understand: there is clearly agreement here, and there is clearly a high chance that the Government are going to introduce a right to manage on privately managed estates, yet the Minister cannot accept the new clause.

I take the point about the particular drafting of the new clause. It was done to put the onus on the Government, who have the resources to bring forward the necessary amendments, given that it is a complex area. I did not hear a clear commitment from the Minister to bring forward those provisions. If he had given one, I would have withdrawn the new clause, but he has not. All he has said is, “We’re looking and listening but won’t be able to do everything”—despite the fact that the Government are dumping hundreds of amendments into the Bill at the last minute and no doubt will dump hundreds more. If we want to put these important measures in the Bill, we can, and we think we should. We feel strongly about this issue and I am going to press the new clause to the vote.

[The Chair]

We look forward to a Labour Government always accepting Opposition amendments. [Laughter.]

Question put, That the clause be read a second time.

--- Later in debate ---

Brought up, and read the First time.

[Matthew Pennycook]

I beg to move, That the clause be read a Second time.

I hope that on this occasion the Minister will give me enough reason to withdraw the new clause. I always prefer to withdraw a new clause with a commitment that the Government will introduce what we seek to incorporate into the Bill. New clause 25 raises the important issue of the regulation of property agents, particularly managing agents.

For all that the various measures in the Bill seek to give leaseholders greater control over the buildings in which they live, and to give residential freeholders greater control over their estates, managing agents will remain responsible for day-to-day management in almost all circumstances. In the case of newly empowered leaseholders involved in either an RMC or an RTM company, there will be managing agents they have to take advice from and instruct. The ultimate success of many of the provisions in the Bill, and the extent to which leaseholders experience a tangible improvement in the quality of the services they receive, is dependent on the performance of those managing agents.

--- Later in debate ---

[Lee Rowley]

I will not detain the Committee particularly long on this provision. I regret that we will not be able to accept new clause 25, for two reasons. First, I accept that people come down in different places on the use of broad Henry VIII-type powers, but we are not sure that those would be proportionate here. This measure concerns a considerable framework that would require a significant level of scrutiny to make it work. We are not convinced that it would be agreeable or acceptable to the Delegated Powers and Regulatory Reform Committee, either.

Secondly, the new clause relates to an area that has been under debate for a number of years, as the hon. Member for Greenwich and Woolwich has outlined, and we think that it is without the scope of the Bill. It is a significant area on which further consideration is needed, and we do not think that there is space for that among all the other discussions. That will ultimately be a matter for the House to determine, but the Government do not think that this is the place to do it, given its significance and given the significance of the other things that we are trying to bring forward in the Bill.

[Matthew Pennycook]

I expected a little more from the Minister, because the Government have accepted in principle that property agents need to be regulated. We think it important that this matter be discussed in connection with this Bill, and that some form of regulation be introduced. As I say, the effective functioning of many of the provisions in this Bill will rely on the standard of managing agents being driven up, and on substandard agents being driven out of the market.

At the moment, all the Minister is saying is that the lack of an overarching regulatory framework in this area is fine. The Government have had four and a half years and are comfortable with taking many more years to come to consider this matter. From our point of view, that is not good enough. The Government have had the working group’s report for some time. They should have made better progress in implementing at least some of its recommendations, if not the vast majority of them. I will press new clause 25 to a vote.

[Lee Rowley]

I should put it on record—just in case, although it was many years ago—that I used to be an estate agent. I should probably make that clear.

--- Later in debate ---

Brought up, and read the First time.

[Matthew Pennycook]

I beg to move, That the clause be read a Second time.

I do not intend to press new clause 26 to a vote, because it is very much a probing amendment. My remarks on it will be brief because it is extremely simple and straightforward.

Leasehold enfranchisement and the right to manage are extremely complex areas of law. There are at least eight Acts relevant to the rights of residential leaseholders, namely the Leasehold Reform Act 1967, the Landlord and Tenant Acts 1985 and 1987, the Housing Act 1988, the Local Government and Housing Act 1989, the Leasehold Reform, Housing and Urban Development Act 1993, the Commonhold and Leasehold Reform Act 2002 and the Building Safety Act 2022. There are also two Acts relevant to residential freeholders on private and mixed-tenure estates, namely the Rentcharges Act 1977 and the Law of Property Act 1925, both of which we have debated extensively.

This limited Bill has made significant changes to almost all of those Acts. If and when it receives Royal Assent, it will add a further layer of complexity and interpretation to a legislative landscape that is perplexing even to those with legal training. The law as it relates to residential and freehold leaseholders is crying out for consolidation. The statute law must be made clearer, shorter and more accessible so that those who work with the law, are concerned with making it or need to access or use it can do so more easily.

This is not a consolidation Bill, but the Opposition believe that it would be useful to give the Secretary of State the power to amend a number of the Acts to which I referred, so as to facilitate their consolidation. I trust that the Minister will see the benefit of incorporating such a power into the Bill, and I hope that he will accept it.

[Lee Rowley]

I am grateful to the hon. Member for Greenwich and Woolwich for moving new clause 26. He is right that this is an extremely complicated area of law and that there is a significant amount of interaction and overlap between the relevant legislation, which has built up over many decades. He is also right that there is a legitimate question to be asked about whether consolidation or spring cleaning of the relevant Acts is reasonable and proportionate. I am grateful to him and his party for seeking to provide the Government with additional powers to do so. The challenge is in whether that would be proportionate and whether the broad powers are necessary, even given the points that he made.

While I understand the points that the hon. Gentleman highlighted, the Government are taking a self-denying ordinance. We believe that such broad powers should be used only when absolutely necessary and that the test is not met in the case, so we will resist the new clause if the hon. Gentleman chooses to press it, although I hope that, as he indicated, he will not do so.

[Matthew Pennycook]

I commend the Minister for continuing to deny himself additional powers to do very sensible things. Notwithstanding that self-denying ordinance, I hope that he will at least take on board the point and give some further consideration to how we might tidy up the statute law in this area. It has been complex for all members of the Committee to understand. As I said, it is complex even for those with legal training, let alone those who need to access or use the law, whether or not it is through one of the means of redress we have been debating.

I hope that the Government will give some further thought to what might be done on the issue, but I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 27

Qualifying leases for the purposes of the remediation of building defects

“Section 119 of the Building Safety Act 2022 is amended by the insertion after subsection (4) of the following —

‘(5) The Secretary of State may, by regulations, amend subsection (2) so as to bring additional descriptions of lease within the definition of “qualifying lease”.’” —(Matthew Pennycook.)

This new clause would give the Secretary of State the power to bring “non qualifying” leaseholders within the scope of the protections of the Building Safety Act 2022.

Brought up, and read the First time.

[Matthew Pennycook]

I beg to move, That the clause be read a Second time.

[The Chair]

With this it will be convenient to discuss new clause 28—Meaning of “relevant building” for the purposes of the remediation of building defects—

“Section 117 of the Building Safety Act 2022 is amended by the insertion after subsection (6) of the following—

‘(7) The Secretary of State may, by regulations, amend subsection (2) so as to bring additional descriptions of building within the definition of “relevant building”.’”

This new clause would give the Secretary of State the power to bring buildings which are under 11m in height or have fewer than four storeys within the scope of the protections of the Building Safety Act 2022.

[Matthew Pennycook]

New clauses 27 and 28 concern building safety. The building safety crisis exists within the context of leasehold property and has been rendered more acute by the iniquities on which the leasehold system rests, yet the solutions to the specific problems faced by leaseholders in unsafe buildings are different from the general failings of the leasehold tenure that the Bill has sought to address in a limited number of areas. However, while the provisions in parts 1, 2 and 3 of the Bill are not answers to the problems of dangerous cladding and non-cladding defects, the relationship between the building safety crisis and residential leasehold properties makes the Bill the ideal vehicle for implementing a number of those solutions.

As the Committee will know, the building safety crisis is far from over. It has been almost seven years since the horrific fire at Grenfell Tower that claimed the lives of 72 innocent men, women and children, yet the Minister will know that there remain many thousands of unsafe buildings across the country that still require remediation.

[Barry Gardiner]

The Minister may also know that last night in my constituency the London fire brigade had to attend with 125 firefighters and 25 fire engines—three with the tall turntables—to put out a fire at King Edward Court. More than 100 people were evacuated from the building—safely, I am pleased to add—but the cladding on that building was similar to that at Grenfell. Here we are, seven years on from Grenfell, and three and a half years since the survey of that building took place in which it was reported that the cladding was of that combustible type, and still the Building Safety Act 2022 has not been able to ensure that, between the manager and the developer, those residents remain safe.

[Matthew Pennycook]

I am very glad that the residents were evacuated safely, but my hon. Friend highlights a problem that will apply to many other buildings across the country. The pace of remediation is far too slow. We often talk about remediation works as if they were just a practical issue—“When will it start and when will I be updated?”—but for so many residents there remains a very real risk to their health, their safety and in many cases their life. That is why we need to grip the crisis and ensure that it is addressed. No one disputes the fact that some progress has been made over recent years in addressing the building safety crisis, or the fact that the Minister has personally devoted considerable time and attention to the issue, but it really is a damning indictment of the Government’s record that nearly seven years on, the crisis remains unresolved for the vast majority of blameless leaseholders whose lives remain blighted by it.

--- Later in debate ---

[Lee Rowley]

I am grateful to the hon. Members for Greenwich and Woolwich and for Brent North for the new clause and the contributions to the debate. I put on record how sorry I was to hear about Petworth Court, on which I was briefed overnight. It must have been a real challenge, and very scary for the residents of the property. I hope that we can move that on as quickly as we can. I am grateful for the efforts of London Fire Brigade and others, which ensured that no one came to any harm. It is a salutary reminder of the importance of the work that has been outlined by the hon. Members, which we all support.

The hon. Member for Greenwich and Woolwich asked me a number of detailed questions. We have had many exchanges on these issues in the past, so he will appreciate that this is a sensitive and detailed area, and one that we need to get right. The Building Safety Act 2022 made huge steps forward, and there have been many steps forward in the practical reality of building remediation. I want to ensure that we deal with those questions in turn and in the depth that they deserve. We will have different views on some of those questions. Take, for example, the perpetuity issue. Without going into detail, my answer is that all the buildings have pathways to remediation, so long as they choose one or, in extremis, an actor in the system forces them to take one, and that once the remediation has happened the perpetuity point should become moot and fall away. However, it is better that I write to the hon. Gentleman and the Committee on all those points in due course.

Putting those important matters aside, we come to the question of whether the Secretary of State should have specific powers to amend the definition of “qualifying”. This gets to the point of where the Secretary of State’s powers should lie, which is obviously a contested matter. It is one on which the Government have a clear view, which we have articulated, notwithstanding the challenges that that brings to some people who are impacted by it. That is better dealt with in primary legislation, rather than through the Secretary of State making changes or having the ability to make regular changes. On that basis, we will resist the new clause.

Let me turn to new clause 28 on buildings under 11 metres, in the name of the hon. Members for Greenwich and Woolwich and for Weaver Vale. I have taken a particular interest in buildings that are under 11 metres, and I and the hon. Gentlemen have had interactions on the issue in the past. There are specific issues about a small set of buildings that are under 11 metres. The previous Minister, my right hon. Friend the Member for Pudsey (Stuart Andrew), and I have made repeated commitments from the Dispatch Box, from as far back as 2022, to look into each and every one of those buildings, and we have done so. A number of them have been raised with us, and we are working through them and getting to the end of the processes.

I encourage any hon. Members with examples—and I see occasional repetitions in parliamentary questions—to raise them with the Department, as I know members of the Committee have, and we will see what we can do to move those cases on or get clarity that no works are required. With almost all under-11 metre buildings, when we get to the end of the discussion there are no works required under the PAS 9980 assessment. That is positive. There is a clear reality that buildings under 11 metres are less likely to be impacted by this issue, and we will resist the new clause on that basis.

As a result of the fire, as I said to the hon. Member for Brent North, it is important that we make progress. Significant progress has been made, and I am grateful to the hon. Member for Greenwich and Woolwich for his recognition of that. Every month, we see more buildings complete and more buildings starting the process. Where freeholders are willing to make their buildings safe, we have mechanisms and processes in place, both centrally and locally, to make sure that is happening; and I continue to see lots of progress. It will take time, but we are cognisant of the importance of moving fast, and we have certainly sped up over recent months.

[Matthew Pennycook]

I thank the Minister for his response. I will pass over his criticisms of the technical flaws of the new clauses. Their intent is very clear; we can debate whether primary or secondary legislation is the best means of achieving it. I think there is a point of disagreement on qualifying and non-qualifying leaseholders. On a point of principle, we think that the distinction is arbitrary and we should get rid of it. From the evidence I have seen across the country, we should also undoubtedly get rid of it on a practical basis. I do not have responsibility for building safety directly any more—my hon. Friend the Member for Weaver Vale does—but I continue to hear of cases where buildings with a significant proportion of non-qualifying leaseholders see remediation works stalled or held up entirely.

I have always conceded that buildings under 11 metres are small in number and that there is not a systemic issue, but because of the drafting of the Building Safety Act, there remains a problem about liability. In those cases where the Government certify that the buildings are unsafe and require remediation—as the Minister knows, I have a case in my constituency—the stage that we have got to, after many years, is that the Government ask the original developer to put them right. We do not know what lies behind that request or whether there is any enforcement of it, so we are at the same point that we were at many years ago.

We come back to the question, “What is the need for the distinction?” I would argue that if under-11 metre buildings are that small in number, that is all the more reason for opening them up to access for Government grants should they require that—where the developer will not remediate them voluntarily. But that is beside the point.

I thank the Minister for his willingness to provide me detailed answers to all five of the non-specific questions—that is very welcome—but on the point of principle raised by new clauses 27 and 28, there is a clear difference of opinion. I think it is worth us putting on record, again, our strong feelings about that, so I will push both new clauses to a vote.

Question put, That the clause be read a Second time.

--- Later in debate ---

Brought up, and read the First time.

[Matthew Pennycook]

I beg to move, That the clause be read a Second time.

When making the case for new clause 2, which sought to ensure that all leases on new flats should include a requirement to establish and operate an RMC with each leaseholder given a share, I stressed that it was one of several ways by which we could lay the groundwork for a future where commonhold is the norm. New clause 29 seeks to press the Government to bring forward legislative options to enact another—namely, mandating that leaseholders in all new blocks of flats should automatically be granted a share of the freehold.

I want to be clear about what such a proposition entails. It is not an alternative to leasehold. If such a measure were brought into force, any leaseholder resident in a new block of flats would own both a lease and a share of the freehold. It would, in effect, ensure that all new blocks of flats were collectively enfranchised by default, without the need for leaseholders in them to go through the process of acquiring their freehold. The advantages of having a default share in the freehold is that it would give the leaseholder a direct say in what happens in their building, as is the case with those that have been collectively enfranchised. It would also provide for additional valuable rights, such as the right to a long lease extension on the basis of a peppercorn rent—or, in other words, the rights that will be accorded to existing leaseholders under clauses 7 and 8 but without the cost of paying a premium to the freeholder that is still required to exercise that modified right.

As we know, having flat owners with a share of freehold can cause tensions—for example, in agreeing how to proceed on crucial decisions such as whether to cover the costs of major works through service charges. That is why it is essential that proper management arrangements are in place as a matter of course, to reduce the likelihood of damaging disputes between neighbours, and why we proposed mandatory RMCs on new blocks of flats as a corollary to the new clause. Much like new clause 2, new clause 29 would also help give leaseholders greater control over their buildings and pave the way for commonhold as the default tenure.

Labour is unequivocal about the fact that commonhold is a preferable tenure to leasehold, in that it gives the benefits of freehold ownership to owners of flats without the burdensome shortcomings of leasehold ownership. As we have heard, the Law Commission made 121 recommendations on commonhold, designed to provide a legal scheme that would enable commonhold to work more flexibly and in all contexts. We share the concern expressed by Professor Nick Hopkins in our evidence sessions:

“With commonhold having failed once, there is a risk of partial implementation”—[Official Report, Leasehold and Freehold Reform Public Bill Committee, 16 January 2024, c. 39, Q84.]

of those recommendations and “a second false start” that could be “fatal” to the tenure. That is why we have not sought to persuade the Government to incorporate any subset of Law Commission commonhold recommendations into the Bill. We need to reform the legal regime for commonhold in one go, and Labour is committed to doing so if the British people give us the opportunity to serve after the next general election. Given your indication earlier, you are confident of that outcome too, Sir Edward.

We have also expressed a clear preference for commonhold to be the default tenure. That would be a policy decision distinct from the implementation of the Law Commission’s recommendations and would necessarily have to follow the legal scheme those recommendations would introduce. However, there will inevitably be a transitional period after the reformed legal regime for commonhold has been introduced, during which Government would need to consult thoroughly on the practicalities of making commonhold the default tenure for flats. The introduction of a mandatory share of freehold in all new blocks of flats, as proposed by the new clause, alongside the requirement to establish and operate an RMC with each leaseholder given a share, would be a sensible staging post on the path towards a commonhold future by making conversion to commonhold at a later date a far simpler process. We urge the Government to accept the new clause.

[Lee Rowley]

I am grateful to the hon. Gentleman for his new clause. As he has outlined, in share-of-freehold arrangements leaseholders will own the freehold in larger blocks; they are usually the shareholders of a resident management company from which directors are elected to manage the property. As such, there is no third-party landlord, but instead the leaseholders are themselves joint landlords. We appreciate that there are benefits to share-of-freehold arrangements, and obviously there is the opportunity for people, should they wish, to look at that when making decisions about the properties they live in.

Without seeking to detain the Committee, the reality is that although the new clause is well intentioned and understandable, it would be a significant building out of the Bill; it would be a significant additional framework. Again, it goes back to the point about the size of the Bill and exactly what it is able to do. I realise that we return to that often, and some colleagues in this room will wish us to go as far as we possibly can. That is understandable, but given the scale of the new clause—I realise that the hon. Gentleman probably will push it to a vote as a result of my comments—a pretty large and complicated legal framework would need to be put in place. I am afraid that at the current time it is challenging to have the space to do that, as much as I share the hon. Gentleman’s overall objective of trying to give people greater choice, and as a consequence we will resist the new clause.

[Matthew Pennycook]

I welcome the Minister’s response to the extent that he recognised the benefits of share of freehold. I am not surprised that he resists the new clause; there is no doubt that it would be a significant build-out of the Bill, as he put it. We hope that we will see other significant build-outs of the Bill and finally see a ban on new leasehold houses, as the Government have committed to, at some point. Maybe we will even get a couple of hours to debate that—who knows?

We think that this is an important provision that should be incorporated in the Bill for the reasons I have give, but mainly because—perhaps this is a point of disagreement between us and the Government—we think that we must be serious about paving the way for commonhold with the Bill and cannot leave everything to a future Government to enact. As I said, we should take some practical and specific steps to lay the groundwork for that future, which I think we all want to see. As we felt with mandatory RMCs, we feel that these two specific measures would enable us to go some way on that journey. For that reason, I will push the new clause to a vote—it will probably be the final one.

[Rachel Maclean]

I want to make a brief remark in sympathy with the shadow Minister’s policy objectives. I will not be supporting his new clause, but I have had extensive discussions with the Minister, who knows that I feel strongly that we should have a pathway to commonhold in the future.

Commonhold is a system that works well. Commonhold, or a version of it, works extremely well in almost every other major developed country in the world. We are quite unique in the UK—for some bizarre reason—in having this leasehold system, which is to the great regret of me and the leaseholders who live in such houses and flats. Unfortunately, something like 1.5 million people live in leasehold houses and something like 5 million people overall live in leasehold dwellings. It does not need to be that way.

In 2002, the former Labour Government did try to legislate in this regard, but a number of those measures were not enacted—we are going back into ancient history. Nobody really seems to know why it did not happen, but we now need to seize the opportunity. This Bill has been a long time in gestation; it has benefited from the contributions of many Ministers to get it to this point. I know that the Minister is listening to me, and I think it is important that we do not miss the opportunity, even at this late stage, to introduce some of the commonhold framework measures that the Department has been looking at in great detail. I hope that the Minister has listened, and he and his officials will take that point away.

--- Later in debate ---

Brought up, and read the First time.

[Matthew Pennycook]

I beg to move, That the clause be read a Second time.

[The Chair]

With this it will be convenient to discuss the following:

New clause 31—Review of the percentage of qualifying tenants required to participate in a claim to acquire the Right to Manage—

“The Secretary of State must before the end of the period of two years beginning with the day on which this Act is passed—

(a) review the effect of the participation limit contained in section 79(5) of the Commonhold and Leasehold Reform Act 2002, with particular consideration given to whether it represents an unjustified barrier to leaseholders exercising their rights under Chapter 1 of Part 2 of that Act, and

(b) report to Parliament, in whatever manner the Secretary of State thinks fit, with proposals for reform.”

This new clause would require the Secretary of State to consider, within two years of the Act coming into force, whether the current requirement that 50% of leaseholders must support an application for the Right to Manage should be lowered.

New clause 33—Proportion of qualifying tenants required for a notice of claim to acquire right to manage—

“Section 79 of the CLRA 2002 is amended, in subsection (5), by leaving out ‘one-half’ and inserting ‘one-third’.”

This new clause would reduce the proportion of qualifying tenants who must be members of a proposed right to manage company for an RTM claim to be made.

[Matthew Pennycook]

These are the last new clauses that I will speak to on behalf of the Opposition. In our fifth sitting, we considered eligibility for leasehold enfranchisement and extension, including the welcome changes that the Bill makes to the non-residential limit on collective enfranchisement claims. However, increasing access to collective enfranchisement by rendering more leaseholders eligible does not necessarily mean that take-up will significantly increase. That is because there are other barriers to exercising the statutory right to freehold acquisition. Some relate to the complexity of the process, but perhaps the most notable is the requirement under section 13 of the 1993 Act that at least half of qualifying tenants in a building must participate in the claim.

While there is no escaping the need to organise collectively to initiate a claim, in some buildings, particularly large blocks of flats, securing the participation of the minimum numbers of tenants required to take part in the service of the initial notice can be next to impossible, given the number of units that are occupied by tenants renting privately from the leaseholder. We therefore believe that there is a strong case for considering whether the minimum participation rate for collective enfranchisement should be reduced.

Precisely what the revised minimum participation rate might be is a matter for debate. We have not sought to be prescriptive in order to allow the Government the freedom to consider what threshold best strikes the right balance between encouraging enfranchisement and ensuring that there is sufficient participation to sustain the proper ongoing management of the building.

New clause 30 would simply require the Secretary of State to consider, within two years of the Act coming into force, whether the current 50% participation threshold should be lowered. New clause 31 would have the same effect in relation to the right to manage, where, in many ways, the argument for lowering the participation threshold is even stronger, owing to the fact that there is really no need for half of all qualifying tenants to remain involved in an RTM company once it has been established.

Again, determining the revised minimum participation rate is a matter for debate, and we have left that question for another day. If I am right in remembering, my hon. Friend the Member for Brent North is proposing, by way of his new clause 33, that that threshold should be a third of qualifying tenants, which strikes us as a reasonable proportion. However, what new clause 31 seeks to secure is the Government’s agreement in principle that the 50% threshold for an RTM acquisition should be reconsidered. These, quite consciously, are probing amendments, but I very much look forward to the Government’s thoughts on the principle of whether that 50% threshold is right, and whether there should be scope in the future to look at it again.

--- Later in debate ---

[Lee Rowley]

After a number of days of often great agreement across the Committee, it is my job, unfortunately, to point out where we cannot agree, so I apologise for doing that again. The hon. Member for Greenwich and Woolwich has indicated that he is probing the Government with new clauses 30 and 31—at least, I hope he is. We understand the point that he is making, but we are seeking to apply the Law Commission’s recommendation that the participation level should remain at 50%. On that basis, we are not proposing to change that at this time. I do not think it is necessary to create the report, because we have taken a view within this legislation that—

[Matthew Pennycook]

Will the Minister give way?

[Lee Rowley]

I will, happily.

[Matthew Pennycook]

This may not be the case in the Minister’s constituency, but I have very large blocks of flats in my constituency that, as my hon. Friend the Member for Brent North has just made clear, consist of hundreds of buy-to-let flats and flats owned by overseas investors. Are the Government really content to say that in those cases—in large urban centres, these blocks are springing up all over the place—the barrier to collective enfranchisement and RTM acquisition is higher? Effectively, many of these leaseholders will be locked out of the rights in this Bill purely by the design and ownership arrangements in their building. Surely the Minister must recognise that there is a subset of buildings that will not enjoy the rights that the Bill provides for, and that the Government should look again at what can be done in those circumstances.

[Lee Rowley]

There is no doubt that there are challenges. There are always challenges with individual buildings, but there is a specific challenge here, which the hon. Gentleman has outlined. My hon. Friend the Member for Cities of London and Westminster (Nickie Aiken), who is not serving on this Committee, has outlined that to me, and I have had the privilege of talking to a number of her constituents who are impacted by the understandable challenges that the hon. Gentleman raised.

The question is not about the Government being unwilling to look at this in the future or unwilling to discuss this further in relation to the Bill. I know this is a probing amendment, but the narrow sense of the question is: should we be legislating to create reports? I am always reluctant to legislate in that way. I understand why the Opposition would do it and why the other place do it, all too often, in my view, but I am not sure I am keen on this happening, so the Government are keen to resist it on that basis. But on the broad point about whether we would return to this if it was not working, either in this discussion or more broadly, the answer is: of course—that would be a reasonable thing for the Government to do in the future.

I appreciate the points made by the hon. Member for Brent North about new clause 33, and I know that the measure is potentially in operation elsewhere. I hope that he will agree that, when a minority can make decisions, a whole heap of additional considerations and questions are opened up. At this stage, we remain of the view that the proportion should be 50%, and for those reasons we will oppose the new clause, should it be pressed to a vote.

[Matthew Pennycook]

I will end on an optimistic note, because I got enough from the Minister to suggest that he is conscious of the issue and is open to looking at it again, either in the context of the Bill or at a later date. Setting aside the precise drafting of the new clauses, which have allowed us to debate the issues, the Minister recognised that we may need to look at the substantive point again. We may well come back to this at a later stage of the Bill.

[The Chair]

Barry Gardiner, do you wish to comment?

[Barry Gardiner]

Thank you, Sir Edward. It has long been recognised that my hon. Friend the Member for Greenwich and Woolwich is a much more reasonable gentleman than I am. I would be inclined to press the new clause to a vote, but I do not want to try the patience of the Committee. My hon. Friend and I will discuss these matters further and, if the Government do not act, we will see what we might do on Report. I will therefore not press the new clause.

[Matthew Pennycook]

I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 32

Premises to which leasehold right to manage applies

“Section 72 of the CLRA 2002 is amended in subsection (1)(a), by the addition at the end of the words ‘or of any other building or part of a building which is reasonably capable of being managed independently.’”—(Barry Gardiner.)

This new clause which is an amendment to the Commonhold and Leasehold Reform Act 2002 adopts the Law Commission’s Recommendation 5 in its Right to Manage report which would allow leaseholders in mixed-use buildings with shared services or underground car park to exercise the Right to Manage.

Brought up, and read the First time.

[Barry Gardiner]

I beg to move, That the clause be read a Second time.

I am very happy to move the new clause, which would amend the Commonhold and Leasehold Reform Act 2002 to adopt recommendation 5 of the Law Commission’s right to manage report. That would allow leaseholders in mixed-use buildings with shared services or an underground car park to exercise the right to manage.

We had some debate on this issue last week. I recall, from the time of the 2002 Act, that flatted developments—especially mixed-use blocks—had not taken off yet in England in the same way as they have over the past 22 years. Given the proliferation of mixed-use buildings, the paradigms of the 2002 Act are therefore now outdated and unfair. Developers have sought to use the Act to secure the exclusion of leaseholders on the basis of shared services. If the Government do not move on the issue of shared services, many of the leaseholders in mixed-used buildings who would otherwise have benefited from the uplift in the non-residential limit from 25% to 50%—which, as I said last week, I welcome—will still not qualify for the right to manage or for enfranchisement.

We heard from the founders of the National Leasehold Campaign and from Free Leaseholders on this point. It was clear from the evidence that the presence of a plant room or underground car park alone can disqualify leaseholders from appointing their own managing agent and controlling the service charges, which they already have to pay but do not have any influence over.

The Law Commission did a great deal of work on the right to manage. It stated:

“We recommend that premises should be eligible for the RTM if they are a building or part which is reasonably capable of being managed independently. This means that if leaseholders cannot demonstrate that their premises are either a self-contained building or self-contained part of a building, the RTM will still be available if the premises are nevertheless a building or part which is reasonably capable of being managed independently. This might be straightforwardly demonstrated where parts of a building are already subject to separate management arrangements.”

That is the Law Commission’s case, and it looked into this with great care. It said:

“We think this will lead to fewer Tribunal cases and where there are still disputes the focus will instead switch to whether the premises can properly be managed autonomously, rather than their physical attributes.”

So I plead the backing of the Law Commission; I plead the common sense of some of the foremost jurors of our age. I am sure that the Minister will take on board their wisdom, if not mine.

--- Later in debate ---

[Lee Rowley]

I beg to move amendment 28, in title, line 5, leave out “charges and costs payable by residential”

and insert

“the relationship between residential landlords and”.

This amendment is consequential on amendments to Part 3.

This is a consequential amendment to remove the reference to part 3 in the long title of the Bill. It ensures that it provides an accurate description of the Bill’s contents to reflect the impact of the measures the Committee has brought forward. That includes the amendments to enable the first-tier tribunal to vary or discharge an order to appoint a manager of a premises without an application.

Amendment 28 agreed to.

[Matthew Pennycook]

On a point of order, Sir Edward, may I take the opportunity to put on record our sincere thanks to you and your colleagues in the Chair for overseeing our proceedings over recent weeks; our hard-working Clerks for their assistance; the Doorkeepers and Hansard reporters for facilitating the Committee’s work; and officials in the Department and our own staff for their support? I also briefly thank all hon. Members who have contributed to the Committee’s deliberations and debates. It is not entirely unexpected, given the uncontentious nature of the Bill; nevertheless, we very much appreciate the generally constructive and good-humoured nature of our proceedings.

Finally, I thank the Minister for his thoughtful engagement with the arguments the Opposition have made in an attempt to improve this limited Bill. He has dutifully held the line in attempting to justify the decision to resist a large number of sensible and reasonable amendments. Nevertheless, I suspect we can look forward to seeing a number of them return with the Government’s seal of approval in the Bill’s remaining stages.

[Lee Rowley]

Further to that point of order, Sir Edward, I wish to put on record my thanks. I echo the thanks of the hon. Member for Greenwich and Woolwich to everybody who has been involved in the Bill, and I thank him and all colleagues here who have helped us get through this. I am grateful for colleagues’ time and also—even though I may not be in order in making this acknowledgment—I thank those in the Gallery who have taken the time to come here and listen. I am grateful to everyone for getting the Bill through this stage and I look forward to seeing everyone on Report.

Leasehold and Freehold Reform Bill (Seventh sitting)

Matthew Pennycook Excerpts

Committee stage
Thursday 25th January 2024 Public Bill Committees

This amendment ensures that the nature of the right conferred by Schedule 7 is better described by paragraph 1(1).

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

I beg to move amendment 6, in schedule 7, page 119, line 12, leave out sub-sub-paragraph (a).

This amendment would ensure that all leaseholders, not just those with residential leases of 150 years or over, have the right to vary their lease to replace rent with peppercorn rent.

[The Chair]

With this it will be convenient to discuss Government amendments 76 to 78.

[Matthew Pennycook]

It is a pleasure to continue our line-by-line consideration of the Bill with you in the Chair, Mr Efford. For the sake of probity, I declare once again that my wife is the joint chief executive of the Law Commission, whose reports on leasehold and commonhold reform I will continue to cite throughout my remarks.

Part 2 of the Bill makes changes to other rights of long leaseholders. Four of its five clauses are concerned with improving the right to manage, but as we touched on briefly at the end of the Committee’s previous sitting, clause 21, which brings schedule 7 to the Bill into effect, makes provision for a new enfranchisement right to buy out the ground rent and vary it permanently to replace the relevant part of the rent with a peppercorn rent, without having to extend the lease.

We welcome the intent of the schedule. The reform will ensure that leaseholders can enjoy reduced premiums and secure nominal ground rent ownership of their properties without the need to go through the challenge and expense of repeated lease extensions. In the Law Commission’s final report on enfranchisement rights, it considered in great detail whether there should be a range of lease extension rights in order to provide greater flexibility than is currently afforded to leaseholders as a result of the provisions in the Leasehold Reform, Housing and Urban Development Act 1993 that require them simultaneously to extend the terms of their lease and to extinguish their ground rent.

The rationale for providing greater flexibility in this area is that in allowing leaseholders to choose either only to extend their lease or only to extinguish their ground rent, leaseholders could avoid paying the landlord the value of the remainder of the original terms and the deferral of the reversion, with the result that premiums would be reduced accordingly.

While taking into account the clear benefits that greater flexibility would provide for in terms of reduced premiums, the Law Commission, in its reports, clearly wrestled with whether it was sensible to recommend a more nuanced approach to lease extension rights. It did so, because of the complexity that the availability of different lease extension options would inevitably create, and the corresponding opportunities that such complexity would present to unscrupulous landlords who might seek to take advantage of those leaseholders unable to access costly professional advice about the best choice to make from the available options.

Without doubt, allowing for choices other than a uniform right to a fixed additional term at a nominal ground rent will make the statutory right to a lease extension more complicated. I will return shortly to the implications of clause 21 and the schedule in that regard. However, on the principle of allowing for greater choice, the Law Commission ultimately decided that despite the increased complexity that it would engender, leaseholders who have a lease with a long remaining term should, on payment of a premium, be entitled to extinguish the ground rent payable under the lease without extending the terms of it.

The commission felt, rightly in our view, that that right is likely to be utilised mainly by those with relatively long leases who are subject to onerous ground rent provisions, or those with relatively long leases and ground rents that are not definitionally onerous but still entail, for a variety of reasons, a significant present or future financial burden. In such cases, even if the premium payable is not significantly reduced, the prescribed capitalisation rates provided for by schedule 2 to the Bill should make valuations simpler and enable the change to be made by means of a simple deed of variation, rather than a deed of surrender and regrant, as required to extend the terms of a lease now.

The schedule implements the Law Commission’s recommendation for that right to extinguish the ground rent only. As I have made clear, we support it. We have, however, moved the amendment, which would delete the Government’s proposed 150-year threshold, to press the Minister on the reason or reasons for which the Government have decided to confer that right only on leaseholders with leases with an unexpired term of more than 150 years.

To be clear, we understand fully the argument made by those who believe that the right to extinguish a ground rent without extending a lease should only be conferred on those with sufficiently long leases—namely, that the premium for the reversion increases significantly as the unexpired period of the lease reduces, and leaseholders with leases below a certain threshold should therefore be, in a sense, compelled to peppercorn their ground rent and to extend at the same time by means of the reduced premiums that clauses 7 and 8 of the Bill should enable.

However, what constitutes a sufficiently long lease for the purposes of conferring this new right is ultimately a matter of judgment. The Law Commission recommended that the threshold should be set at 250 years on the basis that the reversion is of negligible value at that lease length. The Government chose not to accept that recommendation and instead are proposing a threshold of 150 years. The Minister may provide us with a different answer in due course, but we assume the reason they did so is simply that this will make the new right to extinguish a ground rent available to many more leaseholders.

However, if that is the case, it obviously follows that setting a threshold of, say, 125 years or even 100 years would make it available to even more of them. The argument against doing so is that leaseholders with leases below a certain threshold should be, in effect, compelled to extend their lease at the same time as peppercorning their rent because not doing so would, in many cases, disadvantage them.

However, that obviously raises more fundamental questions, such as whether it should be up to leaseholders to navigate the wider range of options that will be made available to them if and when this Bill receives Royal Assent, and whether the fact that some leaseholders with relatively short leases may either advertently or inadvertently disadvantage themselves by extinguishing without extending their lease should mean that everyone below the 150-year threshold is prohibited from enjoying the new right introduced by the schedule.

Even assuming one believes it is the role of Government to set a long-lease threshold, it is not entirely clear to us why the Government have alighted on 150 years given that there could be all sorts of reasons why someone with a lease shorter than such a term might want to only buy out their rent, including simply that they are unable to afford the premium required to secure a 990-year lease. As such, we would like the Minister to justify in some detail, if he could, why the Government alighted on a 150-year threshold as opposed to either the Law Commission’s proposal of 250 years or a lower threshold that would give many more leaseholders the right to extinguish their ground rent. We would like to ask him to consider whether, as we believe on balance, there is a strong case for simply deleting the 150-year threshold entirely, given that the “remaining years” test that applies is inherently arbitrary. I hope the Minister will give amendment 6 serious consideration, and I look forward to his thoughts on it.

While we are considering this schedule, I also want to probe the Minister again on the Government’s intentions in respect of the recently closed consultation on restricting ground rent for all existing leases, and specifically how any proposals arising from that consultation will interact with this schedule given that it provides a right to peppercorn ground rents in existing leases. As I made clear when we briefly considered this matter in relation to clauses 7 and 8, I am obviously not asking the Minister to provide this Committee with an advanced indication of what the Government’s formal response to that consultation will be. However, we remain of the view that this Committee needs to know, if the Government ultimately do choose to enact any of the five options for intervention that were consulted upon, what the implications are for the provisions that are currently in the Bill that we are being asked to approve today.

On Second Reading, the Secretary of State was quite clear that at the conclusion of the consultation, the Government would

“legislate on the basis of that set of responses in order to ensure that ground rents are reduced, and can only be levied in a justifiable way.”—[Official Report, 11 December 2023; Vol. 742, c. 659.]

As members of the Committee will know, he was also open with the Levelling Up, Housing and Communities Committee prior to Second Reading about the fact that his favoured approach would be a peppercorn rent—in other words, option 1 from the consultation. I am conscious that many people across the country who bear leaseholders no ill will whatever have invested, almost uniformly on advice and in good faith, in freehold funds. I have constituents who have invested, for example, in time investments and other such funds that have invested in freehold properties. However, I personally share the Secretary of State’s preference not least because, while ground rents exist even at relatively low levels, they will be a major impediment to the widespread adoption of commonhold.

There is a more fundamental issue with ground rents that we need to grapple with. As we have discussed already, over the past two decades, the consequence of the kind of investment we have seen is a system increasingly focused on generating assets by gouging leaseholders through ground rents that are, in historical terms, high to start with and that escalate over the terms of the lease. Leaseholders who worked hard to purchase their own homes and did so in good faith are being asked to pay ever more money for no clear service in return and many are experiencing considerable financial distress and difficulties selling their property, all to sustain the income streams of third-party investors.

Unregulated ground rents of this nature in existing leases cannot be justified. Although we do not discount the risks involved in any of the five options outlined in the consultation, Labour is clear that the Government must act to protect leaseholders from ground rent exploitation and that they should be courageous in determining which of the consultation proposals should be enacted.

All that said, we obviously cannot pre-empt the consultation in question. What is important for the purposes of considering schedule 7, and clause 21, is that we get a clear answer from the Minister as to what the potential implications of any response would be for leaseholders. Specifically, will the schedule have to be revisited should the Government ultimately choose to enact one of the five options in the consultation? Are we correct in assuming that clause 21 and the schedule will have to be overhauled, if not removed from the Bill entirely, in that scenario? If not, how will the Government ensure that the various measures are aligned? It is a hypothetical question, as I am sure the Minister will indicate, but it is entirely reasonable, given that we are being asked to approve the inclusion of the schedule in the Bill. On our reading of the ground rent consultation, the schedule could entirely change the implications; indeed, it may well have to be removed entirely to ensure that the Bill is consistent. On that basis, I hope the Minister will give us a bit more detail. He gave us some on Tuesday, but we need a little more detail on that point.

[The Minister for Housing, Planning and Building Safety (Lee Rowley)]

I am grateful for the comments from the hon. Member for Greenwich and Woolwich, and for his amendment. I will say a few words in general before turning to some of his specific questions.

As he indicated, the ground rent buy-out right enables leaseholders with very long leases to buy out their ground rent on payment of a premium, without having to extend their lease. A leaseholder with a very long lease who does not need an extension may want to buy out the ground rent without extending the lease, but others may wish to do it in a different way.

I appreciate the hon. Member’s points about the amendment, and I understand why he is seeking to extend the right to vary one’s lease to as many leaseholders as possible, so I will try to answer some of his questions. Inevitably, as he indicated, there is essentially an arbitrary decision to take on any number, because moving it up or down would change the provision slightly and incrementally each time, so there is an element of having to put a finger on the scale. As he said, the right is an implementation of the Law Commission’s recommendation 3(2), which suggested that it should be available for leaseholders with 250 years remaining, but the Government have indicated that they want to set the term at 150 years. The reason given by the Law Commission for making this right available only to those with very long leases, which the Government support, is to limit it to leaseholders who are unlikely to be interested in, or do not need, a lease extension.

Making the right available to all leaseholders, irrespective of their term remaining, would mean that leaseholders who will need a lease extension at some point might opt first to buy out only the ground rent, but would need to extend their lease in due course. That would potentially disadvantage leaseholders in two ways. First, as the term on the lease runs down, the price on the lease extension accelerates. Secondly, a leaseholder who buys out their ground rent first and later extends the lease will pay two sets of transaction costs. It is entirely legitimate to say, “That is the choice of individuals,” and I have some sympathy with that argument. On balance, however, the Government recognise that there is a series of things within leasehold law that are permissible but not necessarily advantageous for some groups and sectors. By moving further in this regard, we might inadvertently create another one, which future iterations of Ministers and shadow Ministers might debate removing.

I should make it clear—the hon. Member knows this—that it is not the case that leaseholders with fewer than 150 years remaining do not have the right to buy out their ground rent: they buy out their ground rent when they extend their lease or buy the freehold, and that buy-out will also be subject to the cap. However, the right to buy out the ground rent without extending the lease is for leaseholders with 150 years or more remaining, for the reasons I have given.

Turning to some of the hon. Member’s specific points, the ultimate number is a matter of judgment, and we determined that setting the term at 150 years would offer the right to an incrementally larger group of people. We think that is a reasonable place to be. I accept that others may choose a different number, but that is the number we are proposing in the substantive part of the Bill. I also appreciate his point about the outcome of the consultation being the missing piece of the jigsaw puzzle at the moment.

I will not go through my multiple previous caveats around that, because he acknowledged at least one of them. Recognising that I will not be able to answer all of this, it may be that—subject to the outcome of the consultation—changes are needed. I cannot, however, pre-empt that, and we will have to cross that bridge when we came to it. I realise that is not the ideal place to be, but given that we all share the aim of trying to move this as quickly as possible, I hope it is an acceptable position to move forward from. We can return to it in due course should we need to.

--- Later in debate ---

[Matthew Pennycook]

I thank the Minister for his response. Let me just deal initially with the three Government amendments, with which we take no issue. On the ground rent consultation, I will not labour the point, because I get the sense we will not get any further information out of the Minister. It is always easier to say this from the Opposition side of the Committee, but it would have been logical to have had the ground rent consultation well in advance of the Bill, as then we could have had a Bill with all the elements properly integrated. It is not like the Government did not have enough time. I think that the previous Secretary of State, the right hon. Member for Newark (Robert Jenrick), announced the second part of the two-part seminal legislation back in 2019, so the Government have had time—but that is where we are. By the sound of what the Minister is saying, we will have to significantly overhaul many clauses in the Bill if the Government do decide to enact one of the five proposals.

On amendment 6, I do not find the Minister’s argument convincing. The Law Commission recommended a 250-year threshold. The Government have clearly determined that they need not follow that recommendation to the letter, although they have implemented the principle of it. They have chosen to put their finger on the scale, as the Minister said, at a different threshold. I think trying to put one’s finger on the scale on this particular issue is likely to cause more problems than it solves. I hope the Government might think again about cutting the Gordian knot entirely.

The most common forms of lease are 90, 99 and 125 years. Leaseholders with the most common forms of lease will not be able to enjoy this right. The Government are in effect saying to them, “You must buy out under clauses 7 and 8—your lease extension and your ground rent at the same time.” From what the Minister said, it sounds like the Government think that is right because some leaseholders might disadvantage themselves by trying to exercise only the right in schedule 7. There is a case for giving those leaseholders the freedom to exercise their own judgment on that point—I am surprised the Minister has not agreed with it. A lot of leaseholders will be watching our proceedings who have leases of, say, 120 years and simply do not have the funds available to exercise their right to extend the lease and buy up the ground rent under clauses 7 and 8. This will therefore completely lock leaseholders with shorter leases out of extinguishing their ground rent provisions. We think that is inherently unfair.

[Barry Gardiner (Brent North) (Lab)]

Does my hon. Friend share my view that the Minister is a reasonable gentleman? [Laughter.] I know it may be specific to us and not widely shared. My hon. Friend having made such an eloquent case, the Minister may go away, reconsider this, speak to his officials, and perhaps, once the consultation has concluded, be able to come back with a different answer.

[Matthew Pennycook]

I thank my hon. Friend for that intervention, which tempts me to give a number of responses. As I am feeling generous this morning, I will say that I do think the Minister is a reasonable individual —far more reasonable in Committee than he is in the main Chamber—and I suspect that he agrees with me about the 150-year threshold. To encourage him to go away and think further, I think we will press amendment 6 to a vote.

[Richard Fuller (North East Bedfordshire) (Con)]

I want to take up the point the hon. Gentleman made about the timing of the ground rent review and the implications for subsequent change in the Bill. Has the Opposition looked at what the potential legal liability might be if we move forward with this Bill without clarity on what happens on ground rent, particularly as this is retrospective legislation, and whether there is a potential liability for the taxpayer if that co-ordination does not work effectively?

[Matthew Pennycook]

We have had access to the advice and opinion of a number of organisations and individuals, which have probably been sent to the whole Committee. We have also sought to engage the opinions of many relevant experts in this area. The honest answer is that we do not know. I think the Minister himself would say openly that there is a sliding scale of risk with each of those options. I fully expect any of those options, if they are introduced, to result in litigation against the Government that seeks to take the matter to Strasbourg under the relevant rules. That has to be factored in. The Secretary of State and the Minister will be getting the relevant advice. That is why I encourage the Minister to be courageous in the option they ultimately choose. We want to strike the right balance by addressing the problem as it exists for leaseholders—that is very clear—but ensuring that whatever option comes forward can stick and is defensible. That is a conversation we will have over the coming weeks and months, because this issue is going to rumble on for some time to come.

Question put, That the amendment be made.

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[Barry Gardiner]

I am grateful to the Minister for his response; he is courteous, as ever. I just point out that the all-party group on leasehold and commonhold reform, co-chaired by the Father of the House, the hon. Member for Worthing West (Sir Peter Bottomley), also made the recommendation that the Government look again at this issue. I am prepared to throw my weight behind amendments 26 and 27, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn .

[Matthew Pennycook]

I beg to move amendment 26, in clause 22, page 38, line 21, at end insert—

“(b) after paragraph 1(4) insert—

‘(5) The Secretary of State or the Welsh Ministers may by regulations amend this paragraph to provide for a different description of premises falling within section 72(1) to which this Chapter does not apply.’”

This amendment would enable the Secretary of State or (in the case of Wales) the Welsh Ministers to change the description of premises which are excluded from the right to manage. By virtue of Amendment 27, such a change would be subject to the affirmative resolution procedure.

[The Chair]

With this it will be convenient to discuss amendment 27, in clause 22, page 38, line 21, at end insert—

“(2) In section 178 of the CLRA 2002—

(a) in subsection (4), after ‘171’, insert ‘, paragraph 1(5) of Schedule 6’;

(b) after subsection (5), insert—

‘(6) Regulations shall not be made by the Welsh Ministers under paragraph 1(5) of Schedule 6 unless a draft of the instrument has been laid before and approved by resolution of Senedd Cymru.’”

See explanatory statement to Amendment 26.

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[Matthew Pennycook]

I rise to speak to the amendments in my name and that of my hon. Friend the Member for Weaver Vale. I do so making almost entirely the same argument as that made by my hon. Friend the Member for Brent North. [Interruption.] No, I am hoping for a very different response from the Minister to it.

As was made clear in a previous debate, this clause operates in precisely the way that clause 3 does in relation to collective enfranchisement claims: by making changes to the non-residential limit to the right to manage—and we welcome it. The clause will enact recommendation 7 of the Law Commission’s final report on exercising that right.

Although I take the point made by my hon. Friend the Member for Brent North about the use of extreme outlier cases to undermine an argument, we accept the Law Commission’s broad argument that abolishing the non-residential limit entirely could cause problems in a number of cases for certain landlords and commercial tenants. But as the Law Commission very clearly concluded, the current limit is

“an unwarranted impediment to the RTM, given that it can prevent premises which are mostly residential from qualifying.”

We think it is right that the Bill seeks to increase that limit, and we hope that doing so will bring a greater number and variety—that is important—of premises into the right to manage and therefore help to boost the number of leaseholders who decide to take over the management function of their buildings.

As with the non-residential limit for collective enfran-chisement claims, the threshold is inherently arbitrary, but we feel—here my hon. Friend is absolutely right—that we need to address the fact that 50% will leave large numbers of leaseholders shut out from the right to manage. He made the case for a 75% threshold, and I think that has a lot of merit. We sought to be slightly less prescriptive; instead, much in the way that we argued for powers to be put in the Bill for Ministers to further amend the non-residential limit for collective enfranchisement, we propose to give a degree of flexibility to the non-residential limit on right to manage claims, so that any future changes to increase it—and only to increase it—do not require primary legislation.

We want to be slightly more flexible, or less prescriptive, than my hon. Friend for the following reasons. First, we can imagine a range of scenarios in which we would need to look at the 50% threshold in terms of internal floor space. We also think, as with collective enfran-chisement claims, that a future Government may wish to look at the entire criteria afresh—I am thinking of cases of the right to manage, for example, where we might consider whether there are better metrics for determining the residential nature of a building. It is notable that, although the Law Commission ultimately recommended retaining the use of floor space as the metric, it explored in great detail a comparison between the values of the residential and non-residential parts as a way into this. A future Government may therefore wish to look at the criteria afresh, so we sought to give the Secretary of State that power.

We think that that is entirely sensible, as we did when we argued for earlier amendments. It would be by regulation subject to the affirmative procedure, to give this House the chance to give any change due scrutiny, but we think it is a sensible principle to build some flexibility into the Bill.

I expect the Minister will resist the amendment, for the reasons that he previously resisted a similar amendment on collective enfranchisement. I will therefore probably not press the amendment to a vote. However, I think we will have to come back to the issue later, because on both collective enfranchisement and right to manage, the Government are being somewhat stubborn in saying that the 50% sticks and that future primary legislation, which could be many years away, is the only way to look at it afresh. I hope that the Minister will give the amendment serious thought.

[Lee Rowley]

I am grateful for the comments and questions from the hon. Members for Greenwich and Woolwich and for Brent North. As they anticipated —I may be becoming too conventional—I will resist the amendment. Again, this is about where primary legislation stops and secondary legislation begins, and the Opposition are right to test us on that. It is perfectly legitimate for people to take different views on where that starts and stops, and we know that our colleagues in the other place caution us, where we can be cautioned, not to take too many Henry VIII powers. We are undertaking a self-denying ordinance to not take an additional Henry VIII power today, on the basis that this is of sufficient magnitude, albeit recognising the challenges that have been outlined, that it should be in the Bill and be clear, and that any appropriate changes should come through similar processes. For that reason, although I understand the rationale for it, and I am always happy to listen to the underlying points, the Government will not support the amendment.

[Matthew Pennycook]

I will not labour the point, but I put on record that I look forward to the Minister standing up at some future point in what remains of his tenure and arguing for the absolute necessity of a Henry VIII power in one or other respect. It will come, but obviously not on this occasion. As I said, we will have to come back to this matter, but we will reflect on how best to do so. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 22 ordered to stand part of the Bill.

Clause 23

Costs of right to manage claims

Amendment made: 45, in clause 23, page 39, line 30, at end insert—

“(8) See also sections 20CA and 20J of the Landlord and Tenant Act 1985, which prevent costs in connection with a claim under this Chapter being recovered by way of a variable service charge (within the meaning of section 18 of that Act).”.—(Lee Rowley.)

This amendment is consequential on NC7 .

[Matthew Pennycook]

I beg to move amendment 7, in clause 23, page 39, leave out from line 31 to line 32 on page 40.

This amendment would leave out the proposed new section 87B of the Commonhold and Leasehold Reform Act 2002 and so ensure that RTM companies cannot incur costs in instances where claims cease.

[The Chair]

With this it will be convenient to discuss clause stand part.

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[Matthew Pennycook]

Clause 23 replaces the existing costs regimes for RTM claims under the Commonhold and Leasehold Reform Act 2002. The new regime is established in proposed new sections 87A and 87B.

Proposed new section 87A sets out the general rule that RTM companies and RTM company members are not liable for the costs incurred by another person because of an RTM claim. Proposed new section 87B allows the tribunal to order an RTM company to pay the reasonable costs of specified people that arise from an RTM claim notice being withdrawn or ceasing to have effect and the RTM company has acted unreasonably.

We welcome the intent behind new section 87A. At present, the RTM company is liable for the reasonable non-litigation costs that are incurred by a landlord in consequence of an RTM claim notice. Safe in the knowledge that the cost of the process is always recoverable from the RTM company, landlords are at present incentivised to conduct an overscrupulous analysis of the claim with a view to finding minor and inconsequential defects, in an attempt to disrupt the claim. That happens on far too many occasions.

If a claim is disputed and the tribunal decides that the RTM company is not entitled to acquire the RTM, the RTM company is liable to pay the landlord’s reasonable costs, but the same rule does not apply if the landlord unsuccessfully challenges the claim. Landlords can therefore dispute claims safe in the knowledge that doing so is a one-way bet.

In instances where a landlord is obliged to pay litigation costs following a successful claim, they can and do frequently recover the moneys from leaseholders either through the service charge or as an administration charge under the leases. It is not that common, but in such shortfall scenarios the leaseholders end up paying, even if they are successful in the tribunal.

Given that RTM companies are almost always undercapitalised, have no assets and cannot collect service charges before the RTM is acquired, these costs, which cannot be limited or predicted and can have significant implications for large or complex developments, are often met by individual leaseholders, with any challenges to their reasonableness entailing all the burden and risk of going to the tribunal. By entailing unknown and potentially significant costs liability for which they are jointly and severally liable, the present costs regimes clearly act as a deterrent to leaseholders pursuing the RTM and participating in an RTM claim.

In our view, landlords can bear these costs, and by providing for a general rule that they do so, the clause will make the RTM procedure simpler, more accessible and less foreboding. It is for that reason that the Law Commission recommended significant changes to the allocation of costs incurred during acquisition of the right to manage, and in relation to disputes. The clause draws upon five of its proposals.

The Law Commission did recommend, however, that an exception ought to be made where an RTM claim has been withdrawn or otherwise ceased early and the RTM company has acted unreasonably in bringing the RTM claim. In such cases, it recommends that the landlord should be able to apply to the tribunal for any reasonable costs that it has incurred in consequence of the RTM claim, down to the time that the claim ceased. They did so

“to address the risk of landlords potentially having to bear the cost of responding to unreasonable or vexatious claims issued by leaseholders which are subsequently withdrawn.”

Proposed new section 87B enacts that proposal. While the Law Commission made clear that it expected that the tribunal would apply the test in question narrowly, we are concerned about its inclusion for two reasons. First, there is a principled argument that leaseholders should not be put at risk of having to pay costs simply for exercising statutory rights—in this case, the right to seek to acquire and exercise rights in relation to the management of premises in which one has a leasehold interest.

The first-tier tribunal already has the power under rule 13(1)(a) to punish unreasonable behaviour by making the parties’ legal or other representative pay to the other party any costs incurred as a result of improper, unreasonable or negligent acts or omissions. As such, we would ask why we need a new statutory provision to create yet further scenarios where leaseholders might have to pay.

Secondly, we are concerned that unscrupulous landlords will use the rights provided for by new section 87B as a means of recovering costs from RTM companies that act reasonably and in good faith, and by implication that it will discourage RTM companies from initiating a claim because of the financial risk it still entails for individual participating leaseholders. Put simply, we fear that new section 87B will incentivise scrupulous landlords to fight claims on the basis that they are defective in the hope of recovering costs by means of it. Amendment 7 leaves out proposed new section 87B of the 2002 Act, thereby ensuring that all leaseholders are protected from costs for RTM claims. I hope the Minister will consider accepting that.

--- Later in debate ---

[Alistair Strathern (Mid Bedfordshire) (Lab)]

I rise briefly to support the comments from my hon. Friend the Member for Greenwich and Woolwich. Although I welcome much of the Minister’s message about removing some of the deterrents to taking on the right to manage on estates, having spoken to a number of residents and campaigners in my constituency, I know that if the clause is not removed it will continue to be a real deterrent and to expose them to a risk of significant financial liability that they would be poorly placed to take on. I know the Minister has already set out that he is unwilling to support the amendment today, but I hope that the Government will reflect on whether they might be willing to come back to the point to ensure there is no unnecessary deterrent to leaseholders in obtaining the right to manage effectively.

[Matthew Pennycook]

I thank the Minister for his response. There are two differences of opinion, the first of which is on the principled point of whether it is right that leaseholders should be charged for exercising their statutory right. We lean quite strongly towards the argument that they should not be, in principle.

The more pertinent argument for me is the second point I made, which, in all fairness, I do not think the Minister addressed. Let us be clear: in many respects, the Bill forces the Government to judge the right balance to strike between the interests of leaseholders and landlords. In coming to that view, the Bill has to account for the possibility that it creates quite perverse incentives, and I do not think it does that here or in a number of other places. This is one example of where that might happen. If a landlord wants to frustrate, disrupt or stop an RTM claim, the way in which the Government have implemented the exception to the general rule will incentivise them to fight the claim on the basis that they can try and convince the adjudicating party that the claim is defective, in the hope of recovering costs. A leaseholder exploring whether to take forward a claim is then faced with the risk of significant liabilities, as mentioned by my hon. Friend the Member for Mid Bedfordshire.

That will deter a huge number of leaseholders from exercising the right. Landlords will know it and fight more claims because they know that the deterrent effect of the exception to the general rule will be quite powerful in a number of cases. We argue quite strongly that we should just end the process costs for leaseholders as a matter of principle. That will incentivise many more groups of leaseholders to seek to acquire the right to manage. For that reason, we are minded to press the amendment to a Division.

Question put, That the amendment be made.

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[Lee Rowley]

Clause 25 complements clause 24 by removing the risk that the change of jurisdiction for right to manage disputes to the tribunal will be circumvented through applications being brought in the High Court instead in the first instance. The clause prevents such applications being brought in the High Court. The tribunal already has exclusive jurisdiction over proceedings, and it is well placed to take over proceedings concerning the compliance with the right to manage provisions in the 2002 Act in the same way that they do for the acquisition of the right to manage. The clause does not prevent an appeal of the decision of the tribunal to the High Court or the jurisdiction of the High Court to consider judicial review claims. The measure will make the determination of disputes clearer, help to reduce costs and ensure that disputes are handled by judges with specialist knowledge. I commend the clause to the Committee.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Clause 26

Extension of regulation to fixed service charges

[Matthew Pennycook]

I beg to move amendment 10, in clause 26, page 42, leave out lines 12 and 13.

This amendment would ensure that the statutory test of reasonableness would apply to fixed service charges.

In considering part 3 of the Bill, we move away from provisions that draw on recommendations made by the Law Commission across its leasehold enfranchisement and right to manage reports from 2020 and instead turn to other Government proposals on the regulation of leasehold. The first five clauses in this part concern service charges in residential leases. The Government’s stated objective in including the clauses in the Bill is to improve the consumer rights of leaseholders by requiring freeholders or managing agents acting on their behalf to issue service charge demands and annual reports in a standardised format and a more transparent manner so that leaseholders can more easily assess—and, in theory, challenge—any unreasonable or erroneous charges.

We very much welcome the intent of the clauses. While much of the detail will await the statutory instruments required to bring them into force, the clauses have the potential to improve tangibly what is without doubt one of the most contentious and, for leaseholders, injurious aspects of the feudal leasehold tenure. My office receives scores of complaints, literally on a weekly basis, from leaseholders in my constituency who believe that when it comes to the setting of their service charges, they have been subjected to unreasonable costs; costs artificially inflated as a result of outright error, such as the duplication of charges for the same service; large periodic increases that are rarely justified; or abusive practices, such as the deliberate misuse of funds. Even when leaseholders do not believe that there is a specific problem with their service charge amounts, my experience talking to many thousands of them over the years in Greenwich and Woolwich is that most nevertheless feel that they are not particularly aware of or informed about what their charges are spent on or what their future liabilities might be.

That may well be a trend that is particularly prevalent in constituencies such as my own that contain a significant number of new-build leasehold flats, but my team and I increasingly find—as I am sure other hon. Members find in their own caseloads—that a sizeable proportion of the work we do involves simply demanding from freeholders and managing agents, on behalf of leaseholders pushed to the financial brink, a detailed breakdown of service charge costs. We are then frequently required to assist individual leaseholders or informal groupings of them in probing the relevant freeholder or managing agent on the justification for individual charges, and more often than not we expose discrepancies or charges levied for services that are not provided as a result.

Given that a Member of Parliament is involved in those cases, most freeholders, head lessees or managing agents will, in such circumstances, ensure that the aggrieved leaseholders are reimbursed, thus avoiding the need for them—[Interruption.] My hon. Friend the Member for Brent North laughs, but we have had success on occasion, once the relevant error is exposed. In those circumstances, it avoids the need for the leaseholders in question to take the matter to tribunal, with the detrimental implications that the current cost regime entails. However, many —perhaps most—do not, instead relying on the barriers that leaseholders face in going to tribunal to ensure that the unjustified costs are still paid and not challenged. I would wager that, in the scenario that I just set out, I am not alone among Members of the House in dealing with service charge disputes of that kind on a regular basis. To my mind, that is a clear indication that the current service charge regime is woefully failing to adequately serve leaseholders or protect their interests. The Opposition take the view that there is a cast-iron case for making changes to the regime, with a view to ensuring that service charges are levied in a more appropriate, transparent and fair way.

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[Lee Rowley]

I, too, do not wish to challenge the patience of my colleague the Whip. There will be people who have existing fixed charges; that should not change. There will also be people who have choices about whether to enter into new fixed charges, whether absolute or indexed to some extent. For an inappropriate attempt to do something with variable service charges, there will be the ability to apply to tribunals. I hope that we are closing off all the options that would allow the kind of instances mentioned.

[Matthew Pennycook]

I will be brief, so as to dispose of the amendment.

I appreciate what the Minister said. He provided some useful clarity. In particular, he highlighted the practical challenges in addressing this matter, and the potential for landlords possibly moving away from fixed charges and into variable. I think that there is a corresponding risk the other way. I appreciate and take on board what he said about the certainty of the charge.

I think the Minister alluded to the point that I am trying to make, which is that residents should have value for money, and they do not always get it on each occasion. We have deliberately not sought to apply all the protections that apply to variable service charges, but focused on the test of reasonableness. With the help of two former Housing Ministers, I think I had an indication from the Minister that he will do this, but I would appreciate it if the Government went away to satisfy themselves that the protections are in place for that category of leaseholder. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Ordered, That further consideration be now adjourned. —(Mr Mohindra.)