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.

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[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.

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[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.

--- Later in debate ---

[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.)

Leasehold and Freehold Reform Bill (Fifth sitting)

Matthew Pennycook Excerpts

Committee stage
Tuesday 23rd January 2024 Public Bill Committees

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

It is a pleasure to serve under your chairmanship, Mr Efford. Today, we begin our line-by-line consideration. I first want to note and put on record my thanks to all the witnesses who gave evidence to the Committee last week. It was hugely useful to hear their insights, which will improve the Bill over the coming days and weeks ahead.

I am delighted to bring the Bill to Committee, and I look forward to the debate that will follow. Before we proceed, I quickly draw the Committee’s attention to a minor issue regarding the Bill’s explanatory notes. Paragraph 18 refers incorrectly to the right

“for an intermediate landlord to reduce (‘commute’) the rents that they pay”

following statutory lease extensions and ground rent buy-out claims. That is a drafting error as the clauses were not in the Bill when introduced. I have since tabled an amendment to introduce those clauses on intermediate leases, which we will debate shortly. I apologise for that minor drafting error and reassure the Committee that the explanatory notes will be updated to reflect the latest clauses before the Bill enters the other place.

I also want to make a small point in relation to legal language that I will use throughout the session. In existing legislation, leaseholders are referred to as “tenants”, which legally, they are. In everyday language, however, we often use the term “leaseholders” to differentiate long leaseholders from tenants holding shorter tenancies or those with less security of tenure. For simplicity, I will use the term “leaseholders”. Likewise, I will use the term “landlord” to mean both landlords and freeholders. In many cases, the landlord will be the freeholder, although that is not always the case. Where the provisions concern freeholders, I will use that term rather than “landlord”.

I now turn to part 1, which deals with leasehold enfranchisement and lease extension. When people buy a leasehold property, they will want to ensure that they have the long-term security and control they need to make it a home. They may have a short lease and wish to extend it, or they may have concerns about their landlord and wish to buy them out to have full ownership and control of that home.

The current requirement, where a homebuyer has to wait for two years before they can extend their lease or buy their freehold, is an obstacle for leaseholders and results in higher costs, as the price for enfranchising increases year on year. Furthermore, many investors take advantage of a loophole to avoid that requirement, while ordinary homeowners, who may be less familiar with the process, can find themselves in difficulties. There are also inconsistencies in the current law where, in certain circumstances, people can rely on a previous owner’s period of ownership to satisfy the requirement whereas others are unable to do so.

Clause 1 seeks to remove that barrier to leaseholders who wish to exercise their enfranchisement rights. It removes the requirement to have owned the lease of a house for at least two years before qualifying to buy their freehold or extend their lease. It also removes the requirement to own the lease of a flat for two years before extending the lease. This gives leaseholders the flexibility to make a claim immediately upon buying a leasehold property, and it will reduce their costs. It also resolves inconsistencies in the current law. The measures will remove an unnecessary restriction for leaseholders. I commend the clause to the Committee.

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

I thank the Minister for his explanation of clause 1. I add the Opposition’s thanks to the witnesses who gave evidence to us last week. It was extremely useful. Before I begin, I would like to declare an interest. My wife is joint chief executive of the Law Commission, whose work we will be debating extensively in the days to come.

It is a pleasure to start line-by-line consideration with you in the Chair, Mr Efford. It is a genuine privilege to serve on a Public Bill Committee comprised of hon. Members who have not only a real interest in the subject matter, but real expertise. It is my sincere wish that we draw on all of it in the days ahead to improve this legislation and, as much as the Government Whip may discourage it, that hon. Members on the Government Benches, including the hon. Members for Walsall North and for Redditch, as former Housing Ministers, take the opportunity to participate actively in our deliberations.

Having not had a suitable chance to put it on the record, I would like to take this opportunity to formally welcome the hon. Member for North East Derbyshire back to his place. He and I disagree politically, often viscerally, when it comes to many, many issues, but he is a hard-working, diligent and thoughtful Minister. I look forward to the robust and, on the whole, constructive debates we will have over the coming sessions.

Before I turn to the detail of clause 1, I want to put some brief general remarks on the record to frame what is to follow. As we made clear on Second Reading, we are fully in support of the principle of the Bill and the intent behind its provisions. The range of measures that the Committee will consider will, without question, provide a degree of relief to leasehold and freehold homeowners in England and Wales, by giving them greater rights, powers and protections over their homes. That is obviously to be welcomed. However, during Second Reading we also expressed our deep regret about the Bill’s lack of ambition and bemoaned the implications for leaseholders, who are being routinely gouged by freeholders under the present flawed system.

I want to be as clear as I possibly can with leaseholders who may be following our proceedings as to the Opposition’s approach to the Committee stage. While we welcome in principle the provisions contained in the Bill, we do have concerns about the efficacy of several of them, including clause 1. As such, we will seek to probe and rectify their various defects and deficiencies so as to ensure that they truly deliver for leaseholders. We will also engage constructively with the Government in relation to any significant new measures introduced into the Bill, not least the glaring omission of provisions designed to ban the sale of new build leasehold houses. We will introduce a number of specific targeted measures designed to give leaseholders a little more control over their future and strengthen the foundations on which future, bolder reform will be enacted.

What we do not intend to do is attempt to persuade the Government of the benefits of using this Bill to enact all, or even significantly more, of the hundreds of Law Commission recommendations on enfranchisement, right to manage and commonhold, which the Government have chosen not to include in this Bill. The Government had the opportunity to bring forward ambitious legislation and enact all the Law Commission’s recommendations from its three reports in 2020, thereby delivering on the promises that successive Ministers have made to leaseholders over the past years. They have made the political choice not to do so. Attempting to radically overhaul this piece of legislation by means of hundreds of amendments required to implement all those recommendations would not only be an onerous, perhaps impossible, undertaking, given its limited nature, but would delay the Bill’s passage and, with a general election in the months ahead still a distinct possibility, put it at risk entirely.

We want leaseholders to benefit from the measures in the Bill as soon as possible. We therefore wish to see it, albeit suitably strengthened, out of Committee as quickly as possible to maximise its chances of receiving Royal Assent. Make no mistake, Labour is committed to bringing the current iniquitous leasehold system to an end, 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. Leaseholders across the country therefore have our firm commitment to finish the job in due course.

Turning to clause 1 and the rest of part 1, one of the reasons that the Bill can reasonably expect a speedy passage out of Committee is that parts 1 and 2, together with related schedules, implement a subset of Law Commission recommendations that are almost entirely uncontentious. Part 1 of the Bill, as the Minister has said, concerns leasehold enfranchisement and extension.

As I have said, the clauses in this part implement some but not all of the Law Commission’s recommendations designed to make it cheaper and easier for leaseholders in houses and flats to extend their lease or acquire their freehold. They include procedural changes as well as substantive ones that extend tenant rights and empower leaseholders by giving them greater control and value. There is in that respect, and as we touched on during the evidence sessions last week, an explicit and very welcome redistributive intent that underpins the legislation.

As the Law Commission exhaustively detailed in its final 2020 report on leasehold enfranchisement, the case for reforming the present enfranchisement regime is incontrovertible. It is not only incredibly complex but inconsistent. As a result, leaseholders face unnecessary litigation, uncertainty and costs when attempting to exercise their rights under it. The law in this area needs to be overhauled and we therefore welcome the objective that underpins each of the provisions in this part.

We wish to probe the Government further on various issues relating to the precise drafting of those provisions, as well as seeking to address the flaws of a limited number. As the Minister made clear, clause 1 removes the two-year qualifying period before enfranchisement and extension claims can proceed in respect of both houses and flats by amending the relevant sections of the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993, which I will hereafter refer to simply as the 1967 and 1993 Acts.

Clause 1 implements recommendation 29 from the Law Commission’s final 2020 report on leasehold enfranchisement. We welcome the clause. A core objective of the Bill is to increase access to enfranchisement by rendering more leaseholders eligible for such rights. By liberalising this and other qualifying criteria, we are confident it will achieve that objective.

As the Committee is no doubt aware, the current two-year ownership requirement was designed primarily to prevent investors benefiting from enfranchisement rights intended for residential leaseholders. Yet it is patently not achieving that objective given the relatively simple workarounds that sophisticated commercial investors can and do take advantage of. Indeed, the requirement can fairly be said to have created a market designed explicitly to facilitate their doing so—a development entirely at odds with the rationale for the two-year ownership requirement. At the same time, that requirement presents a significant barrier to ordinary leaseholders exercising enfranchisement rights and, importantly, leads to rising premiums for many of them as a result of waiting for two years in which capital values may have increased or lease lengths reduced.

Abolishing the requirement for leaseholders to have owned premises for two years prior to exercising enfranchisement rights, so that they have the right to carry out an enfranchisement claim as soon as they acquire their lease, is an entirely sensible reform. It would also resolve the current inconsistency between the position of trustees in bankruptcy and of personal representatives, and avoid the technical, costly and error-prone workarounds that have been created involving the assignment of a benefit of notice.

Although the clause is entirely uncontentious from our perspective, I do have one question for the Minister: why have the Government chosen to include subsection (2)(c) and, consequential on that reform, subsection (3) in this clause? Subsection (3A) of section 39 of the 1993 Act concerning what happens in the event of the death of a qualifying tenant clearly needs to be overhauled to account for the removal of the two-year qualifying period, but surely the Government wish to ensure that the right of a tenant’s personal representative to exercise enfranchisement rights on their behalf in the event of their death is sustained? Will the Minister confirm whether I am right in believing that that is the Government’s wish?

If so, given that the right would not appear to be sustained as a result of the drafting of clause 1, is it maintained by means of other provisions in the Bill? If not, surely the Government must accept that the decision to simply omit the relevant subsection (3A) needs to be reconsidered to ensure that the right is maintained in future? The omission may affect only a small number of leaseholders going forward, but it is important that we ensure their personal representatives are conferred the rights that they would have enjoyed had they lived. I look forward to the Minister’s response.

[Lee Rowley]

First, let me echo the remarks of the hon. Member for Greenwich and Woolwich. He said some kind words about me and I would like to say the same about him. He has always been extremely constructive and helpful. We share the aim of trying to improve the legislation and I am grateful to be working with him. I hope we can work in many areas and agree more than we disagree. He was right when he said that this is incredibly complicated. Having tried for the past two months to get into all the details, there may still be areas where I am unable to answer all the questions from hon. and right hon. Members today. I will do my best, but I will write to them if I am unable to answer anything.

I am grateful to the hon. Gentleman for confirming that Labour will support this clause. On his specific point around where leaseholders have sadly passed away and there is a requirement for a personal representative or equivalent, it is not our intention to make that process any more difficult or to change the fundamental ability of people to make decisions about how to dispose or deal with properties that are left in the event of a death. Having spoken to officials and those involved in the drafting of this, my understanding is that the exemptions referred to in subsections (2)(c) and (3) become effectively moot. The removal of the two-year rule preventing a representative from taking action means that at the point they inherit the property—or whatever legal approach is taken to transfer it the estate to a new owner or representative—the problem goes away.

If, for some reason, we have missed something, I would be very happy to take anything from the hon. Member for Greenwich and Woolwich or others, either now or in writing, which I can go away and look at. Our understanding is that this does not need to continue, hence why we have chosen to remove it within the clause.

[Matthew Pennycook]

I welcome that clarification from the Minister and his indication that it is the Government’s firm intent to ensure that personal representatives can exercise enfranchisement rights on behalf of a leaseholder who has died, because of the removal of the two-year rule. I urge the Minister or his officials to look at the precise wording of this clause, because we are worried that—his comments notwithstanding—it may not do this in practice, and there may be some ambiguity. I do, however, welcome the assurance he has given. On that basis, we will not oppose this clause standing part of the Bill.

[Lee Rowley]

To confirm, I am happy to double-check this, but I hope what I have just indicated stands.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Removal of restrictions on repeated enfranchisement and extension claims

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

[Lee Rowley]

Currently, the restrictions placed on leaseholders to make a claim to buy their freehold or extend their lease can be seen as excessively punitive. Leaseholders are prevented from making a claim to buy their freehold or extend their lease for 12 months, when a previous claim has failed even on a minor point. In addition, a claim for a lease extension on a house can be obtained only once, and we seek to remove those unnecessary barriers for leaseholders, which frustrate their ability to buy their freehold or extend their lease.

Clause 2 seeks to address this problem by removing the requirement to wait 12 months to submit a new claim if the previous one has failed. It will also remove the restriction on bringing a further claim where a lease extension has already been obtained for a house. This means that leaseholders will be able to put in a further claim to enfranchise or extend their lease as soon as they have resolved the issues with their failed claim. Leaseholders of houses will not be prevented from making a claim for a lease extension if one has already been obtained, preventing the landlord from being able to regain possession of the property from a leaseholder when the lease eventually comes to an end.

Clause 2 will also remove provisions that give courts powers to prevent new enfranchisement or lease extension claims for five years where a claim has failed, and the leaseholder did not act in good faith or attempted to misrepresent or conceal material facts. These powers are old and surplus to requirements, coming from the 1967 Act, which has been overtaken by developments in the law around civil restraint orders since then. These restraint orders are more flexible, better developed, subject to more rigorous checks, and may be fairer than the existing power. Therefore, the existing law and the Bill can still deal with meritless of abusive enfranchisement claims. The tribunal already has powers to award costs for such unreasonable behaviour. The removal of these should not change that; it is simply a tidying-up exercise, and a recognition that other parts of the law do this better. These measures will remove barriers to leaseholders being able to take up their right to enfranchise or extend their lease without unnecessary delays.

[Matthew Pennycook]

I welcome that explanation of the clause, which, as the Minister says, removes various restrictions on repeated enfranchisement and extension claims. It is our understanding that they include the provisions in the 1967 Act and the 1993 Act that prevent tenants from starting new enfranchisement or lease-extension claims within 12 months of an earlier claim failing to complete; the provisions of the 1967 Act that give courts the power to order compensation and prevent new enfranchisement or lease extension claims for five years after a claim has failed; and the provisions of the 1967 Act that prevent tenants from bringing a further lease extension claim where a lease extension has already been obtained under the Act.

--- Later in debate ---

[Lee Rowley]

I am grateful to the hon. Gentleman for his comments and, again, for indicating his support for the intent of clause 2. On his question with regard to subsections (1)(c) and (d), I will write to him, given that it is a technical question about the specific description in the legislation. Hopefully, I will be able to provide the comfort he seeks.

As he indicated later in his remarks, we believe there is the ability for vexatious claimants, in whatever sense, to be accommodated by the existing legislation elsewhere, so there is no need to replicate that or to retain something that is very rarely used. That is the reason for removing it.

Finally, on his point about orders from a tribunal and the Law Commission’s recommendation, it goes back to the fact that we believe the process that is in place is already mature and very capable of responding to the legitimate points he highlights. Therefore, there is no need to create an additional process in the Bill, but I will write to him to absolutely clarify that point and make sure that we have everything we need.

[Matthew Pennycook]

I welcome that clarification from the Minister and look forward to any further detail that he might provide to the Committee via written correspondence.

[Rachel Maclean (Redditch) (Con)]

May I ask the Minister to confirm that clause 2(2) refers to schedule 7 to the Bill? In our evidence sessions last week, we heard from certain leaseholders who were concerned that they would not benefit from the provisions if their lease was less than a certain number of years. Paragraph 2(2)(a) of schedule 7 states that a lease will not qualify if

“the unexpired term of the lease is less than 150 years”.

There was some debate about that length. Will the Minister address those leaseholders’ concern that the period is too long and that there should not be that restriction? Or will he write to me later to address what considerations went into that provision? If we are excluding people from these welcome provisions, perhaps we should seek to otherwise widen the group of people who can benefit from having their leases converted to a peppercorn lease.

[Lee Rowley]

We will probably talk in detail about the 150-year decision—the Law Commission proposed 250 years—in relation to quite a number of areas later this morning, so I do not want to pre-empt that now. As I will explain later, the Government’s intention was that, if a lease is coming up in a reasonably short period of time, it is advantageous to align everything together, as opposed to doing just one thing, because there will be the potential for double costs and the like. I am happy to talk about that more when we get further into line-by-line consideration.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3

Change of non-residential limit on collective enfranchisement claims

[Matthew Pennycook]

I beg to move amendment 1, in clause 3, page 2, line 19, at end insert—

“(2) After section 4(5) of the LRHUDA 1993, insert—

‘(6) The Secretary of State or the Welsh Ministers may by regulations amend this section to provide for a different description of premises falling within section 3(1) to which this Chapter does not apply.

(7) Regulations may not be made under subsection (6) unless a draft of the regulations has been laid before, and approved by resolution of—

(a) in the case of regulations made by the Secretary of State, both Houses of Parliament;

(b) in the case of regulations made by the Welsh Ministers, Senedd Cymru.’

(3) In section 100 of the LRHUDA 1993—

(a) in subsection (2), after ‘making’, insert ‘provision under section 4(6) or’;

(b) in subsection (3), after ‘making’, insert ‘provision under section 4(6) or’.”

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 collective enfranchisement rights. Such a change would be subject to the affirmative resolution procedure.

[The Chair]

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

[Matthew Pennycook]

Clause 3 makes changes to the non-residential limit for collective enfranchisement claims. At present, section 4(1) of the 1993 Act excludes from the right to enfranchise buildings in which 25% or more of the internal floor area, excluding common parts, can be occupied or are intended to be occupied for non-residential use. The clause increases the non-residential use percentage to 50%.

We welcome the change, which enacts recommendation 38 of the Law Commission’s final report on leasehold enfranchisement and was suggested by, among others, the National Leasehold Campaign. The purpose of the non-residential limit is to confine enfranchisement to predominantly residential blocks, but as the Law Commission determined, the existing 25% limit

“does not achieve that purpose.”

There is a significant amount of evidence that it instead regularly prevents leaseholders from undertaking collective freehold acquisitions because a sizeable proportion of buildings fall slightly above it. As the Law Commission’s final report puts it,

“the 25% limit provides a significant bar to the ability of leaseholders to undertake a collective freehold acquisition”.

The Law Commission further argued that

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

Deciding where to draw the line in respect of the level of non-residential use permitted in a building before collective enfranchisement rights cease to be available is inherently difficult. There will always be outlying cases that approach or go beyond an increased limit. However, given that one of the explicit purposes of the Bill is to bring as many leaseholders as possible within the enfranchisement regime and, in respect of the non-residential limit, specifically to prevent developers building around it in order to exclude blocks of flats from enfranchisement rights, an incremental increase to 30%, 35% or even 40% does not, instinctively, feel sufficient.

The issue is inherently subjective, and the Law Commission recognised as much, but if enfranchisement rights should be enjoyed by buildings that are primarily residential in nature, a 50% threshold feels appropriate and fair, because it would ensure that the predominant form of ownership in such buildings remains residential. A 50% non-residential limit is likely to mean that the number of genuine cases that are excluded by it will be small, and it will inevitably reduce gaming by developers, because to exceed the 50% limit a building will have to be genuinely commercial in nature. At least, that is the hope.

We very much hope the clause serves to significantly boost enfranchisement rates and in due course to assist more leaseholders of mixed-use buildings to convert to commonhold. However, our reservation about the clause as drafted is that it provides no flexibility to further amend the non-residential limit. We believe it would be sensible to build in a degree of flexibility so that any future changes to the limit for collective enfranchisement rights do not require primary legislation but can instead be enacted through regulations.

One can imagine a number of scenarios that might lead to the effectiveness or reasonableness of the Government’s proposed 50% limit, which the Law Commission accepts is inescapably arbitrary, coming into question. For example, we might find in the years following its implementation that it does not manage to encompass a small but still unacceptable number of leaseholders in buildings that fall slightly above it, and we may wish to quickly take steps to allow them to exercise collective enfranchisement rights. Alternatively, a future Government may decide that they wish to use a criterion other than internal floor area to determine eligibility for such rights—for example, the percentage of the service charge paid by leaseholders. It is our understanding that, in both scenarios, new primary legislation would be required to make changes to the non-residential limit, either to increase the percentage of the internal floor area that can be occupied, or which is intended to be occupied, for non-residential use, or to entirely change the criteria upon which the limit is based. We therefore believe it would be preferable to give the Secretary of State the power, by means of regulations subject to the affirmative procedure, to vary the limit to account for changing circumstances. Amendment 1 would do so.

The amendment would amend clause 3, which itself amends section 4 of the 1993 Act by inserting new subsections into it. It would allow the Secretary of State to amend the whole of section 4 of the 1993 Act in any way they see fit to create a different description of a non-qualifying property. In short, it would hardwire flexibility in respect of the non-residential limit for collective enfranchisement claims into the Bill. We believe it is a sensible and reasonable amendment, and I hope the Minister agrees and makes it clear that the Government are happy to accept it. One lives in hope—I have done more of these Committees than I care to admit, so I know that even if I am right the Minister will not accept the amendment and will bring back a proposal at a later stage, but I hope he accepts the principle.

Before I conclude, I want to raise a separate but related matter to the non-residential limit that this clause makes changes to: how we define a building for the purposes of freehold acquisitions and right to manage claims, which we will debate in due course, and specifically whether buildings need to be structurally detached, with parts vertically divided, in order to be eligible for such rights. As hon. Members will recall, concerns about structural detachment and shared services were raised by several witnesses who gave evidence to the Committee last week. The fear that they highlighted was that the existing rules around structural dependency, particularly for buildings with extensive levels of overhang, such as those that arise when multiple blocks of flats are built over a shared car park, would frustrate many legitimate enfranchisement claims otherwise made possible by clause 3 and other provisions in the Bill that liberalise qualifying criteria and remove obstacles to enfranchisement.

The counter argument would be that rules around structural detachment and their applicability to the non-residential limit are necessary to avoid the creation of so-called flying freeholds and the block management problems that arise in such cases, and that such buildings are eligible for enfranchisement by a single claim if the tenants of the various blocks proceed together. The Law Commission appear to have agreed. It recommended retaining the existing test but making a small tweak that would allow minor deviations from the strict vertical division otherwise required for a part of a building to be separately enfranchisable. Notwithstanding the Law Commission’s reasoning, we believe it is important to properly consider whether the structural detachment rules will limit the opportunities for leaseholders to enfranchise using the liberalised qualifying criteria that clause 3 provides for.

Our amendment does not directly probe that issue because it is concerned with providing future flexibility in respect of legal title rather than physical building exclusions, but it is important that this Committee considers the impact of structural detachment rules as they currently operate, and the extent to which they may frustrate the Bill’s objective to expand access to enfranchisement. I would therefore be grateful if the Minister can tell us whether the Government have considered whether the rules on structural detachment may indeed frustrate leaseholders in that respect and whether they consider that a problem. If not, and they are convinced that there is good reason for the existing tests to remain in place, will the Minister tell us why they chose not to implement recommendation 33 of the Law Commission’s final report on leasehold enfranchisement, which would have provided for a relaxation of the currently strict approach to the 1993 Act’s vertical division condition? I look forward to the Minister’s response.

--- Later in debate ---

[Rachel Maclean]

May I throw the general issue of collective enfranchisement into the mix? The Minister may wish to come back on it at a later point if it suits him better. Many people in this situation have raised with me the sheer practicalities and difficulties of doing a collective enfranchisement. When people live in a huge block of flats with vast numbers of flats, they do not necessarily know who the other people are and certainly do not have their contact details. That, in and of itself, presents a barrier and an obstacle for some of these claims. We have heard evidence from groups affected by this situation—most notably the Free Leaseholders group, but there are many others—who have made this point repeatedly.

[Matthew Pennycook]

The hon. Member raises a very pertinent issue. Is she minded to support our new clauses 30 and 31, which deal precisely with it?

[Rachel Maclean]

The hon. Gentleman is a very persuasive orator in this Committee, as he is in many other fora, and I will definitely listen to those arguments when they are made. We all work in the spirit of improving this Bill. I very much hope that the Government will provide the explanations I have asked for, and specifically on this issue at this point.

--- Later in debate ---

[Matthew Pennycook]

First, on the Minister’s response, I am slightly reassured but not wholly convinced. I would like the opportunity to go away, look carefully at his remarks and consider whether we need to come back to this, and I reserve that right, Mr Efford.

On amendment 1, I am frankly not convinced by the arguments made by the Minister and the hon. Member for Walsall North. We well understand the concerns that they have both drawn attention to. As I have said, it is an inherently subjective decision as to where that threshold is drawn. We also accept that, when it comes to existing buildings, the number of leaseholders who are potentially excluded will be small in number. But we want to avoid a situation where our constituents are coming to us in buildings with a 51% or 52% rate and saying, “We can’t collectively enfranchise as you intended. We are frustrated by the powers in the Bill.” On the basis of the Minister’s argument, we will have to say to them, “You have to wait a good few years for another leasehold Bill—maybe many years based on the history of leasehold reform—for such a change to come forward.” It is a continuum; this a substantial change, and we are trying to build some flexibility into that change.

[Barry Gardiner]

Does my hon. Friend agree that this will probably affect the little people a lot more than the big, because of the likelihood of achieving 50% commercial within a leasehold block? Many of our town and city centres have buildings with commercial below and very few flats above. Therefore, it is much more likely that it will be a group of people—yes, a small group—living in that situation, rather than in the Shard, coming to us complaining.

[Matthew Pennycook]

My hon. Friend makes a good point: it is not just the number but the type of leaseholder who we are potentially excluding. All we are saying, as I argued in great detail, is that Ministers should have flexibility to change, if there is sufficient evidence to suggest that large numbers are being excluded or—I refer to the gaming point—we see developers building with a 51% area just to escape the threshold. We do not propose that the 50% change; we think it is an appropriate and fair starting point, but surely the Government need some flexibility in this area.

I must say to the Minister that this is the first time I have heard a Government Minister say no to Henry VIII powers, but I am afraid that his argument for saying no to them was, from my point of view, entirely expedient and not particularly well justified. I urge the Government to think again. I am minded, purely because of the way in which the Minister has responded, to push the amendment to a vote. If the Government are flatly refusing to look at the issue, we must make clear that we feel strongly about it.

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[Lee Rowley]

Clause 4 introduces schedule 1, which repeals rights that enable landlords to block a lease extension or freehold acquisition claim for a house or flat where the landlord intends to redevelop or reoccupy the property. Where the blockers are used, compensation is only paid to leaseholders in houses, not those in flats. The blockers apply to a minority of leases that have not been extended and are very near to ending.

Although that means that, in practice, rights are rarely used, enfranchising leaseholders should have the opportunity to make their decisions about the need and scope of redevelopment once they own the freehold. Leaseholders with few years remaining on their lease should have the option of extending and securing their tenure. Where a lease is extended, landlords will continue to have statutory break rights that can terminate leases for redevelopment. We will consider break rights in schedule 6 and cover further details about the blockers when we come to consider schedule 1. I commend the clause to the Committee.

[Matthew Pennycook]

As the Minister has made clear, clause 4 concerns eligibility for enfranchisement and extension in specific cases. It gives effect to schedule 1, which repeals specific limitations on those rights under the 1967 and 1993 Acts. As the Minister has detailed, they include: the right of a landlord to defend a lease extension or collective enfranchisement claim on grounds of redevelopment; the right to defeat a freehold acquisition or lease extension claim for the purposes of retaking possession of the property for personal use; and the limitations that prevent a sublessee from claiming a lease extension if their sub-lease was granted by an intermediate leaseholder out of a lease that had been extended under the relevant Act.

We welcome the clause, which implements, although is not confined to, recommendation 98 of the Law Commission’s final report on leasehold enfranchisement. When considering the case for reform in this area, the Law Commission made clear that its proposal could reduce the value of the leaseholder’s lease as a result of the transfer of some enfranchisement rights from a leaseholder who has previously extended his or her lease pursuant to the legislation to the leaseholder to whom they had subsequently granted a sub-lease. However, the Law Commission ultimately determined that any such loss of value was overstated. Its reasoning was—assuming that I have understood the relevant technical arguments correctly—that there would be no difference in value between the sum that the intermediate leaseholders could expect to obtain if their lease was acquired in a collective freehold acquisition under the present law and the value of the intermediate leaseholder’s interest in the light of its proposal.

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[Lee Rowley]

I am grateful to the hon. Gentleman for his contribution. As he indicates, this is—I think by common consent—a rare issue in the first place, not that that diminishes the importance of ensuring that we get it right. It is very complicated, as he has indicated; different leases will have different elements within them and it is impossible to comment on every single case or every single instance, as has been indicated, because of the complexity. I am not aware that there is an indication that there is a general reduction in the value of leases for the very small number that this will cover. I will write to the Committee if what I have just said is incorrect or needs clarification in any way. I hope that, on that basis, we can make progress.

[Matthew Pennycook]

I welcome that clarification from the Minister and the offer to provide us with further details should they be needed.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Schedule 1

ELIGIBILITY FOR ENFRANCHISEMENT AND EXTENSION: SPECIFIC CASES

[Lee Rowley]

I beg to move amendment 57, in schedule 1, page 82, line 16, at end insert—

“Exception to enfranchisement for certified community housing providers

3A (1) The LRA 1967 is amended as follows.

(2) In section 1 (tenants eligible for enfranchisement and extension), after subsection (1B) insert—

‘(1C) This Part of this Act does not confer on a tenant a right to acquire the freehold of a house and premises if the landlord under the existing tenancy is a certified community housing provider (see section 4B).’

(3) After section 4A insert—

‘4B Meaning of “certified community housing provider’

(1) For the purposes of this Part of this Act, a person is a “certified community housing provider” if the appropriate tribunal has issued a community housing certificate in respect of the person.

(2) A community housing certificate is a certificate that the tribunal has determined that the person—

(a) is a community land trust within the meaning of section 2(7A) of the Leasehold Reform (Ground Rent) Act 2022, or

(b) is of a description, or satisfies conditions, specified for this purpose in regulations made by the Secretary of State.

(3) The tribunal may issue a community housing certificate only in respect of a person that has made an application to the tribunal for the certificate.

(4) The tribunal may cancel a community housing certificate—

(a) on the application of the person in respect of which the certificate is issued, or

(b) on the application of a tenant affected by the certificate, if the tribunal considers that—

(i) the person in respect of which the certificate is issued does not fall within subsection (2)(a) or (b), or

(ii) the certificate was obtained by deception or fraud.

For this purpose a tenant is “affected by” a certificate if, by virtue of section 1(1C), the tenant does not have the right to acquire the freehold because the certificate is issued in respect of their landlord.

(5) The effect of the tribunal cancelling the certificate is that the person is not a certified community housing provider unless the tribunal issues a new community housing certificate.

(6) The Secretary of State may by regulations provide for—

(a) the procedure to be followed in connection with an application for a community housing certificate;

(b) the procedure to be followed for the cancellation of a community housing certificate (including in connection with an application for the cancellation);

(c) any matters to which the tribunal must have regard in deciding whether to issue or cancel a community housing certificate.

(7) The Secretary of State may by regulations make provision about the application of this Part in circumstances where—

(a) a landlord’s application for a community housing certificate has not been concluded when a tenant gives notice of their desire to have the freehold of a house and premises under this Part, or

(b) a tenant’s claim to have the freehold of a house and premises under this Part has not been concluded when a landlord’s application for a community housing certificate is made.

(8) Regulations under subsection (7) may in particular provide for—

(a) the claim for the freehold to be paused or to have no effect;

(b) a time period for the purposes of this Part to be extended in connection with the application;

(c) the landlord to compensate a tenant or reversioner in respect of reasonable costs incurred in connection with a claim to acquire the freehold—

(i) if the tenant ceases to have the right to acquire the freehold because of the issue of a certificate under this section, or

(ii) if the costs are incurred as a result of the claim being suspended because of an application for a certificate under this section;

(d) enforcement by the appropriate tribunal of any of the requirements of the regulations;

(e) the appropriate tribunal to make orders that are supplementary to the issue of a community housing certificate.

(9) Regulations under this section—

(a) may make different provision for different purposes;

(b) are to be made by statutory instrument.

(10) A statutory instrument containing regulations under this section (whether alone or with other provision) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.’

3B (1) The LRHUDA 1993 is amended as follows.

(2) In section 5 (qualifying tenants for enfranchisement), after subsection (2)(a) insert—

‘(aa) the immediate landlord under the lease is a certified community housing provider (see section 8B); or’

(3) Before section 9 insert—

‘8B Meaning of “certified community housing provider’

(1) For the purposes of this Chapter, a person is a “certified community housing provider” if the appropriate tribunal has issued a community housing certificate in respect of the person.

(2) A community housing certificate is a certificate that the tribunal has determined that the person—

(a) is a community land trust within the meaning of section 2(7A) of the Leasehold Reform (Ground Rent) Act 2022, or

(b) is of a description, or satisfies conditions, specified for this purpose in regulations made by the Secretary of State.

(3) The tribunal may issue a community housing certificate only in respect of a person that has made an application to the tribunal for the certificate.

(4) The tribunal may cancel a community housing certificate—

(a) on the application of the person in respect of which the certificate is issued, or

(b) on the application of a leaseholder affected by the certificate, if the tribunal considers that—

(i) the person in respect of which the certificate is issued does not fall within subsection (2)(a) or (b), or

(ii) the certificate was obtained by deception or fraud.

For this purpose a leaseholder is “affected by” a certificate if, by virtue of section 5(2)(aa), the leaseholder is not a qualifying tenant because the certificate is issued in respect of their immediate landlord.

(5) The effect of the tribunal cancelling the certificate is that the person is not a certified community housing provider unless the tribunal issues a new community housing certificate.

(6) The Secretary of State may by regulations provide for—

(a) the procedure to be followed in connection with an application for a community housing certificate;

(b) the procedure to be followed for the cancellation of a community housing certificate (including in connection with an application for the cancellation);

(c) any matters to which the tribunal must have regard in deciding whether to issue or cancel a community housing certificate.

(7) The Secretary of State may by regulations make provision about the application of this Chapter in circumstances where—

(a) a landlord’s application for a community housing certificate has not been concluded when a nominee purchaser gives notice under section 13 of a claim to exercise the right to collective enfranchisement, or

(b) a claim to exercise the right to collective enfranchisement has not been concluded when a landlord’s application for a community housing certificate is made.

(8) Regulations under subsection (7) may in particular provide for—

(a) the claim for the freehold to be paused or to have no effect;

(b) a time period for the purposes of this Chapter to be extended in connection with the application;

(c) the landlord to compensate the nominee purchaser, a tenant or a reversioner in respect of reasonable costs incurred in connection with a claim to exercise the right to collective enfranchisement—

(i) if a person ceases to be a participating tenant because of the issue of a certificate under this section (and in this case the compensation may relate to reasonable costs for which the person is liable that are incurred after the person ceases to be a participating tenant),

(ii) if the participating tenants cease to have the right to collective enfranchisement because of the issue of a certificate under this section, or

(iii) if the costs are incurred as a result of the claim being suspended because of an application for a certificate under this section;

(d) enforcement by the appropriate tribunal of any of the requirements of the regulations;

(e) the appropriate tribunal to make orders that are supplementary to the issue of a community housing certificate.’

(4) In section 39(3)(a) (qualifying tenants for extension), before ‘(5)’ insert ‘(2)(aa), ’.

(5) In section 100 (orders and regulations), after subsection (2) insert—

‘(2A) But a statutory instrument containing regulations under section 8B (whether alone or with other provision) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.’”

This amendment would provide for an exception to enfranchisement (but not extension) for tenants of certified community housing providers (persons certified as managing land for the benefit of local communities).

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[Lee Rowley]

My apologies, Mr Efford. I thought that we were debating these as a group. I will come to amendment 58 when we get to that group.

[Matthew Pennycook]

I rise briefly to speak to these four Government amendments and to make a wider comment on them and the other 116 amendments that have been tabled in the Minister’s name over recent days.

Having scrutinised these amendments as carefully as we could in the time available, we are as confident as we can be that none is problematic. Indeed, we very much welcomed the exemption provided for community-led housing.

As confirmed to the Committee by Professor Nick Hopkins, 18 of the 120 Government amendments tabled in Committee implement Law Commission policy that was not in the Bill as introduced and on which Law Commission staff have been involved in instructing parliamentary counsel. The vast majority of the other 102 amendments are merely technical in nature. Providing that the Minister sets out clearly their effect and rationale, as he just has in relation to this group of amendments, we do not intend to detain the Committee over the coming sessions by exploring the finer points of each.

However, I feel I must put on record our intense frustration at the fact that so many detailed Government amendments were tabled just days before commencement of line-by-line scrutiny began. The practice of significantly amending Bills as they progress through the House has become common practice for this Government and in our view it is not acceptable. Other Governments have done it, but it has become the norm under this Government. It impedes hon. Members in effectively scrutinising legislation and increases the likelihood that Acts of Parliament contain errors that subsequently need to be remedied, as happened with the Building Safety Act 2022; as the Minister will know, we have had to pass a number of regulations making technical corrections to that Act.

When it comes to this Bill, the Government have had the Law Commission’s recommendations for almost four years and access to Law Commission staff to aid parliamentary counsel with drafting. There really is no excuse for eleventh-hour amendments introducing Law Commission policy or technical amendments designed to clarify, correct mistakes, or ensure consistency across provisions.

[Barry Gardiner]

Is my hon. Friend as surprised as I was to find that a 133-page Bill has a 102-page amendment paper? As he says, this came late. It is not just Opposition Members who mind; it is hon. Members of all parties who want to adequately scrutinise the Bill. It makes life very difficult to go through detailed amendments, often amending previous legislation—therefore, we have to get that legislation and see what the impact of the changes is—and it impedes the work of Parliament in that respect. The Minister should explain why many of these amendments were tabled so late in the day.

[Matthew Pennycook]

I completely agree with my hon. Friend. I think I am justified in saying that it is frankly laughable that this has happened. We have an amendment paper that is almost—and may be, in due course—larger than the Bill itself. It reeks of a Government in disarray. Though I know that the Minister has picked up this Bill part-way through its development, I urge him not only to do what he can to ensure that when the Government publish any Bill it is broadly in the format they wish it to proceed in and see passed, but also to table any further amendments to this Bill in good time so that we can give them the level of scrutiny that leaseholders across the country rightfully expect.

[Rachel Maclean]

I will not detain the Committee for long. In response to those comments from the Opposition, I observe only that when they were last in government— in 2002, if I am correct—they had the opportunity to address the system and rectify the failures that we are now dealing with. It is now left to this Government to do it. On that note, I want to say to my hon. Friend the Minister how important it is that the community-led housing sector is excluded. I would not normally say that about any form of housing, but we have recently strengthened the national planning policy framework to encourage more of that type of housing. We know it is popular and often commands local support, while other types of housing sadly do not, and we need to see more of it built. The sector has had extensive discussions. This is a sensible amendment, which I support.

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[Matthew Pennycook]

Clause 5 is extremely technical. It concerns the treatment of intermediate leases during a collective enfranchisement. I beg the Committee’s forgiveness for the level of complexity I am about to throw at the Minister; nevertheless, it is important to the leaseholders who stand to be affected. As the Minister said, the clause replaces section 2 of the 1993 Act on to the acquisition of leasehold interest, with a new schedule, A1, that will henceforth govern the acquisition of intermediate interests during a collective enfranchisement process.

New schedule A1 enacts part or all of five recommendations made by the Law Commission in chapter 13 of its 2020 report, and is uncontentious. However, when considering the treatment of intermediate leases and other leasehold interests in that chapter, the Law Commission recommended that a duty be imposed on the landlord dealing with the enfranchisement claim

“to act in good faith and with reasonable skill and care”

toward other landlords involved. Any such landlord should be able to apply for directions from the tribunal about the conduct of the response to the claim. It also recommended corresponding requirements for landlords who are not dealing with the claim to provide all necessary information and assistance to the landlord who is, and to contribute to the non-litigation costs of that landlord.

My reading of schedule A1 is that its effect will be that any settlement reached between a leaseholder and the landlord who is dealing with a claim, and any determination of that claim by the tribunal, will be binding on all other landlords. Assuming that I have interpreted the schedule correctly, can the Minister make clear why it does not appear to implement the duties and requirements that the Law Commission recommended should apply to landlords who are dealing with the claim and landlords who are not, respectively?

Finally, while I appreciate that we will consider the issue of valuation in more detail when we come to consider clauses 9, 10 and 11, I would be grateful if the Minister could also provide some clarification on how the Bill proposes to calculate enfranchisement premiums in instances where there are intermediate leases. Am I right in believing that schedule 2 treats intermediate leases as merged for the purposes of valuation?

On a related matter, the Minister will also be aware that the Law Commission set out the option of generally disregarding the existence of an intermediate lease when determining the premium payable on enfranchisement on the grounds that it would simplify the calculation and create greater fairness between leaseholders and between landlords, as premiums would not differ solely because of the existence or otherwise of one or more intermediate leases. It also recommended that on any individual lease extension claim, the rent payable by an intermediate landlord should be commuted on a pro rata basis.

If I have understood the relevant provisions correctly, neither proposal was incorporated into the Bill as first published. The second of those recommendations appears to be addressed by Government amendments 73 and 95. I would be grateful if the Minister could confirm whether my reading of those amendments is correct in that regard—via correspondence, if he needs to, as I appreciate that these are extremely technical questions. Broadly, we would like the Minister to expand on his remarks and provide some clarity about the treatment of intermediate leases during collective enfranchisement and the extent to which this part of the Bill as a whole reflects the Law Commission’s proposals. I look forward to hearing the Minister’s response.

[Lee Rowley]

My response is short. I will happily write to the hon. Gentleman and to the Committee in due course on the technicalities to ensure that is correct.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clause 6

Right to require leaseback by freeholder after collective enfranchisement

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[Matthew Pennycook]

My hon. Friend raises an interesting point, which has value. However, if he will forgive me, I would like some more time to consider any unintended consequences before I determine whether we could support it. Perhaps we could come back to it at a later stage, but if he is determined to push it I will come up with a position from the Front-Bench team.

Clause 6 inserts into the 1993 Act a new leaseback right for tenants participating in a collective enfranchisement claim, enabling them to require their landlord to take a leaseback of particular flats or units in the building, other than flats let to a participating tenant. We welcome the clause, as my hon. Friend made clear, which implements recommendation 21 of the Law Commission’s final report on leasehold enfranchisement.

At present, leasebacks are mandatory in certain circumstances. A landlord can also require leaseholders to grant them a leaseback of any unit not let to a qualifying tenant, or any flat or unit occupied by them and of which they are the qualifying tenant. However, leaseholders do not enjoy the right to require their landlord to take a leaseback with the effect that, in instances where the landlord refuses a request for a leaseback, perhaps because they are deliberately seeking to frustrate the process entirely, the premium payable in an enfranchisement claim includes the value of that interest.

The new leaseback right introduced by the clause will ensure that premiums that leaseholders would otherwise have to pay will be reduced. Collective freehold acquisition will become a possibility for larger numbers of them because a key funding constraint—namely having to pay for the reversionary value of those flats and units as part of their claim—will have been removed, and in many cases, collective freehold acquisition claims will be made considerably more affordable as a result. It will also increase certainty by ensuring that leaseholders have a far more accurate estimate of the costs of a claim at the outset. Finally, it is essential to ensuring that the increase in the non-residential limit from 25% to 50%, which we debated earlier, is of practical benefit to leaseholders. Without a new leaseback right, many leaseholders who would otherwise be interested in collectively enfranchising would be deterred because the cost of purchasing the whole of a building containing up to 50% commercial space would be prohibitive.

I have two questions for the Minister. The first concerns intermediate leases, which we have just considered under the previous clause. As I believe may have been highlighted by some respondents to the Law Commission consultation, there will be circumstances in which a leaseback of some units to the landlord would not reduce the premium by any significant amount, because the majority of the value in the units in question will be held not by the landlord but by an intermediate interest. This obviously raises again the issue of how the Bill treats the calculation of enfranchisement premiums in instances in which there is an intermediate lease. I would be grateful if the Minister could clarify whether the Bill seeks in any way to address the impact that intermediate leases might have on the benefits that leaseholders could otherwise expect to secure as a result of the new leaseback right.

My second question concerns the terms of the leaseback required under the new right. My understanding is that these will be for a term of 999 years at a peppercorn ground rent, as under the current law, but I would be grateful if the Minister could confirm that that is the case and perhaps provide the Committee with any other important detail about leaseback terms that will apply to them.

[Lee Rowley]

I will turn first to the amendment from the hon. Member for Brent North. I appreciate the point that he has made, and he articulated it very well. He is rightly concerned that all those who have an interest in a building should need to pay for it. The amendment’s intent is to require any leases granted to include a requirement to make contributions to service charges, as he articulated. Our understanding—I have checked, following the introduction of his amendment—is that the existing law should sufficiently cover this and it should be unlikely that intermediate landlords will not ensure that their sub-lessees contribute to the service charges of a property. But I recognise that the hon. Gentleman has a lot of experience, knowledge and background in this area over many years, so if he wants to write to me separately, with examples of where we potentially have not understood the detail of the point that he is making, I will be happy to look at that in more detail.

[Matthew Pennycook]

I intervene just briefly so that I can put this on the record. One of my slight concerns about the amendment from my hon. Friend the Member for Brent North is that it could complicate pro rata charges for leaseholders. I just wonder whether the Government have given that any thought. In many ways, the amendment is entirely unproblematic, and we support the intention, but there are a couple of concerns, that being one. Is that part of the Government’s thinking on my hon. Friend’s amendment?

[Lee Rowley]

I am grateful to the hon. Gentleman for pointing that out. As indicated, this all needs to be considered in the round. Very few things come without trade-offs and without consideration of other implications. One reason why we are not able to support this amendment today is that we do not think that it is necessary. As a result, I hope that the hon. Member for Brent North will not push it to a vote but will withdraw it. If we have missed something, I will be happy to look at that separately. As the hon. Member for Greenwich and Woolwich suggested, this is something that we do not think is necessary in the wider scheme of things, but if there is a thing that we have missed, I will happily take further information on it.

I will now turn to clause 6, which has been discussed already to some extent. The Government want to broaden access to collective enfranchisement, so that more leaseholders can buy their freehold. However, we recognise that increased access will remain theoretical if many leaseholders are unable to afford to buy their freehold. Therefore, this enfranchisement must be cheaper if leaseholders are to gain the benefits of the ownership that is being sought.

Clause 6 introduces a leaseback right for leaseholders that, if they elect to use it as part of a claim, will in some cases significantly reduce the up-front price that they must pay. “Leaseback”, as has been indicated, is the term commonly used to refer to an intermediate lease over part of a building that is granted to the outgoing freeholder as part of an enfranchisement claim. This leaseback covers the value of the unit, which is therefore retained by the outgoing freeholder and reduces the cost for leaseholders of buying the freehold. Currently, the outgoing freeholder can require the leaseholders taking forward a collective enfranchisement to grant the freeholder a leaseback of any non-qualifying units in a building. Clause 6 gives leaseholders an equivalent right to require the outgoing freeholder to take a 999-year leaseback, at a peppercorn rate, of any non-participating units in the building as part of the claim.

In mixed-use buildings, the question of affordability is even more acute, as leaseholders must pay for the freehold interest in non-residential parts of the building, which they have no existing financial interest in, as well as their flats, which they already partly own.

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[Lee Rowley]

Currently, leaseholders of houses can claim a lease extension of 50 years, and leaseholders of flats can claim an extension of 90 years. Leaseholders of houses can only ever make one lease extension claim; leaseholders of flats will need to claim repeated extensions both within and between generations, with associated costs. Leaseholders often have to worry about the value of their lease falling as the term runs down.

Clause 7 will amend the lease extension term for houses in the 1967 Act, from 50 to 990 years, and for flats in the 1993 Act, from 90 to 990 years. There is no restriction on the number of claims that can be made, although with a 990-year extended term it is envisaged that only one extension will be necessary; 990 years is as long an extension as can be reasonably given while facilitating multiple periods of 90 years to allow for consistency with existing leases and redevelopment breaks.

Increasing to 990 years the term of the statutory lease extension right maximises the benefit to leaseholders and gives leaseholders much greater security in their homes. This is particularly important where leaseholders do not qualify or are not in a position to buy their freehold.

The increase in the extension term will mean that leaseholders do not have to claim repeated extensions, pay associated repeated transaction costs or worry about the value of their property falling as the lease runs down. Leaseholders of flats and houses will be able to obtain a lease extension of 990 years at a peppercorn ground rent, in exchange for a premium determined by the amended valuation scheme set out in clauses 9 to 11.

I turn to clause 8. Currently, a lease extension for a house under the 1967 Act is made without payment of a premium, but in return for a modern ground rent during the period of the extension, where that rent is similar to a market rent. Because we are increasing the extension term to 990 years at a peppercorn rent, landlords will need to be compensated by payment of a premium, as is the case for flats. The clause makes amendments to the 1967 Act to ensure that landlords will be sufficiently compensated when a 990-year lease extension at a peppercorn is granted for a house. A qualifying leaseholder can obtain an extension of 990 years at a peppercorn ground rent in exchange for a premium determined by the amended valuation scheme set out in clauses 9 to 11.

[Matthew Pennycook]

I will spend some time on the clauses, because they are important.

As the Minister set out, clause 7 changes the lease extension rights given to tenants of houses and tenants of flats by the 1967 and 1993 Acts, respectively, to provide for a 990-year lease extension rather than, as is currently the case, a 50-year extension under the 1967 Act and a 90-year extension under the 1993 Act. Clause 8 works in conjunction with clause 7 to that end, by making consequential amendments to the 1967 Act that are required to set ground rents under such extensions at a peppercorn and ensure that the premium payable is based on the amended valuation scheme set out in clauses 9 to 11, as the Minister made clear.

Taken together, the clauses not only provide for the standard lease extension term to increase to 990 years at a peppercorn rent, but ensure that the rights available to tenants under each of the Acts are made equivalent. This reform, which draws on recommendations 1 and 2 of the Law Commission’s final report on leasehold enfranchisement, is long overdue. The right to extend one’s lease is important for leaseholders who do not qualify for a right of freehold acquisition or who do enjoy such a right but, for whatever reason, either cannot or do not wish to purchase the freehold. It is particularly important for leaseholders who live in blocks of flats, as the vast majority do in constituencies such as mine, because it is the only enfranchisement right they can exercise when acting alone. However, both the 50-year lease extension available to leaseholders of houses under the 1967 Act and the 90-year extension available to leaseholders of flats under the 1993 Act are too short to provide adequate security of tenure.

The principle of a right to an extension of a considerably longer time is therefore the right one. As the Minister argued, it will particularly help to protect those leaseholders with short remaining lease terms at the point at which the extension is secured, and will avoid the need for a second extension to be sought and secured in short order. We also feel that the choice of a standard 990-year lease is the right one. Once the principle of a very long lease extension has been accepted, the case for taking the additional period as close to 999 years is watertight. A more modest extension, which the Law Commission did consider, would provide only temporary relief and would require many leaseholders to make a second claim in relatively quick succession. The proposed 990-year lease extension right will avoid the need for further lease extension claims in the future, will provide leaseholders with a substantially enhanced interest in their homes and will bring leaseholders extremely close to outright freehold ownership.

It is also right that we legislate to introduce a uniform right applicable and available to both leaseholders of houses and leaseholders of flats, so we support the alignment of the lease extension rights for which the clause provides. There is no justification for maintaining the discrepancy in the law as it stands, where the right to a lease extension for a house is considerably less favourable than the equivalent right to a lease extension for a flat. In sum, we fully support leaseholders who qualify for a lease extension under the 1967 or 1993 Act being given the right, on payment of an appropriate premium, to extend their lease and in so doing to secure a peppercorn rent.

I have five questions for the Minister about these important clauses. The first relates to redevelopment. In recommending that an additional period of 990 years should be added to the remaining term of the existing lease in the cases of both houses and flats, the Law Commission also proposed that redevelopment break rights should be maintained. These are rights accorded to a landlord to terminate a lease that has been extended and to regain possession of the property in order to carry out redevelopment work. The Law Commission recommended that they should be maintained during the last 12 months of the term of the original lease or the last five years of each period of 90 years after the commencement of the extended term.

We fully appreciate that many leaseholders will find the very notion of such break rights problematic, and the Law Commission recognises that maintaining rolling break rights, as under the 1967 Act, would create unnecessary uncertainty. However, difficulties relating to the lifespan of buildings are an issue we have to grapple with, not least because they will become more pressing over time when lease extensions become significantly longer by default. As the Law Commission’s recommendation on development break rights has not made it into the Bill, I would be grateful if the Minister explained the Government’s determination to omit it. Some would argue that there is a strong case, in a world in which 990-year lease extensions are the default, for the sensible provision of development break rights.

My second question concerns when the rights provided by clauses 7 and 8 will come into effect. The clauses present leaseholders who have recently obtained a lease extension, or who will be compelled to obtain one—for the purposes of moving home or mortgaging, say—before the commencement date, with a real dilemma, because the only way they will benefit from a 990-year extension and a peppercorn ground rent in instances where that is not already the case is by making a further extension claim in short order. The fact that any such leaseholders will have recently extended their lease with, in all likelihood, a peppercorn ground rent will mean that the premium payable will be low, but there will still be a cost.

I would be grateful if the Minister made it clear whether the Government have given any consideration to how to ensure that the premium in such cases is as low as possible, to avoid some leaseholders facing costs that others will not face, simply as a result of the sharp transition from one set of arrangements to another. Better still, could he outline precisely how commencement will operate in respect of the clauses? Will he tell us whether the Government might consider amending the Bill to ensure that the new rights come into force on, or very soon after, Royal Assent, so that they can be enjoyed by leaseholders confronting the need for an extension as quickly as possible?

My third question relates to ground rents. We will explore the issue in considerable detail when we consider clause 21, but I would be grateful if the Minister told us, in relation specifically to lease extensions, how clauses 7 and 8 will operate if the Government’s response to the consultation “Modern leasehold: restricting ground rent for existing leases”, which closed last week, is, as per the Secretary of State’s declared preference, to table amendments to enact option 1, namely capping ground rent at a peppercorn for all existing leases from a given date.

All we want to know is whether the ground rent provisions in clause 8 would be rendered irrelevant. In other words, are they unnecessary? If so, will the Government have to make further amendments to the clause to ensure that, in conjunction with clause 7, it provides only for a 990-year lease extension and does not make changes to ground rent provisions in any way? Presumably they will need to be abolished by further Government amendments that will potentially abolish ground rents for all existing leases.

 My fourth question concerns the technical matter of who the competent landlord is for the purpose of lease extensions under the 1993 Act. The provisions within clauses 7 and 8 will mean that even in circumstances where there is a head lease of 999 years at a peppercorn rent, which is a fairly common occurrence, the owner will be entitled to all of the premium. Nevertheless, it is the freeholder, not the head lessee, who will have to handle the claim. That raises the obvious question of why a freeholder should engage with the process at all, given that it will leave them out of pocket.

Schedule 1 to the 1967 Act includes provisions designed to overcome the problem by providing that a long head lessee is the reversioner. Will the Minister tell us why a similar set of provisions is not being introduced to the 1993 Act to provide that a very long head lessee in a block of flats is to be regarded as the competent landlord, not the freeholder? If there is no justification for that omission, might the Government go away and consider whether it is necessary to overcome that problem?

My fifth and final question concerns the Government’s commitment to use the Bill to legislate for a ban on new leasehold houses. The Government amendments providing for such a ban have still not been tabled, so we cannot engage with the detail. However, given that it is the Government’s stated intention effectively to do away with leasehold houses, I would like to probe the Minister on the reasoning behind providing, by means of clauses 7 and 8, leaseholders in houses with a right to a 990-year lease extension at a peppercorn rent, for which the premium will be the same as if it were a freehold enfranchisement. Is this—I am being generous to the Minister—an example of muddled thinking on the Government’s part that might require review? I look forward to hearing the Minister’s response.

--- Later in debate ---

[Lee Rowley]

The hon. Gentleman is articulating his argument with passion, as he did last week on a similar point in some of the witness sessions. I reconfirm to the Committee that we seek to process the outcome of that consultation as quickly as we are able, and to provide hon. Members and the public with clarity at the earliest opportunity. None the less, while recognising the important interaction of clauses 7 and 8 with the consultation, I hope that underneath there is general consent for clauses 7 and 8. I hope I have covered most of the questions asked. I will write to the Committee in response to the question from the hon. Member for Greenwich and Woolwich about redevelopment, because I need to obtain clarity on that.

[Matthew Pennycook]

I welcome the Minister’s response. He did not address—perhaps he will find time on another occasion—the Government’s potential inconsistency in, on the one hand, extending lease extension terms at peppercorn for houses, under the 1967 Act, and, on the other, seeking to ban leasehold houses in their entirety. The Government might want to explore that, to ensure the package as whole is consistent and working as intended. He is welcome to write to me on that point, as well as on redevelopment rights.

I take the Minister’s point on the competent landlord. My point was not whether the Bill is fine as drafted; it is the fact that we need to change the 1993Act to account for the set of circumstances I outlined. There is provision in the 1967 Act to cover that problem. As far as we can tell, this Bill does not amend the 1993 Act to account for it. I encourage him to look at that.

On the two substantive issues, there is inherent uncertainty about commencement. Of course, we want the Bill to progress and apply to as many leaseholders as possible. I was trying to stress to the Minister the need to look at the point at which the Bill kicks in. In some Bills, certain provisions come into force at First Reading. We are worried, as the Bill goes through Parliament, about a set of leaseholders being left out of these rights unfairly, given the time we have spent progressing the Law Commission’s recommendations. I encourage him to give some thought to that.

On ground rents, I understand entirely that the matter is commercially sensitive. I am not asking for an opinion from the Minister on the consultation, although we do need an indication of the Government’s thinking as soon as possible. We also need to understand, as I will come to when we debate clause 21, whether the Government intend to enact any recommendations from that consultation, via this Bill.

What I am looking for is clarity, which he should be able to give us at this stage, on this hypothetical point. If any proposals from that consultation are enacted, clauses 7, 8 and 21 are potentially redundant. We simply need to know whether the Government will further overhaul those clauses, if they take forward any of those recommendations. That is hypothetical, but the Minister should be able to answer. The Government have presumably thought, “Yes: if that scenario occurs and we take forward one of the five options, we will or will not have to revise the Bill.” That is the answer that I am simply looking for from the Minister. If he wants to take this opportunity to clarify that, I would welcome it.

[Lee Rowley]

The hon. Gentleman tempts me to go into hypotheticals. Let me at least dip my toe into that for a moment. Let us take some of the potential outcomes of the consultation discussed today, for example, and the question of whether they potentially will make redundant some of the clauses. In one of the instances, where there is a fear, concern or question, it would still be the case that potentially amendments to clause 8 would need to be introduced, for example, on ground rents, so depending on the scenario it would not make that entirely redundant. I will not go into hypotheticals to their logical and total extent, but I hope that that gives some assurance that consultation has been held and we will bring forward what is appropriate in due course.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Clause 8 ordered to stand part of the Bill.

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

Leasehold and Freehold Reform Bill (Fourth sitting)

Matthew Pennycook Excerpts

Committee stage
Thursday 18th January 2024 Public Bill Committees

[The Chair]

Thank you.

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

Q281 Chair, may I just declare, for reasons of completeness, that my wife is the joint chief executive of the Law Commission, whose work we continue to cite on a regular basis?

Gentlemen, thank you for coming in to give evidence to us. I have two questions. First, in the 2020 update report on leasehold housing that the CMA published, you recommended reforms to

“the system of redress for leaseholders, to make it simpler and less costly for them to contest permission fees and service charges they think are unreasonable or excessive”.

What are your views on whether you think the Bill achieves that? If not, what needs to be incorporated to ensure that it does?

My second question is on the recommendations you also made on measures to address the assured tenancy trap, whereby leaseholders who pay ground rents in excess of £1,000 in London and £250 across the rest of the country

“risk having their home repossessed for non-payment”.

Again, does the Bill address that? If not, how specifically should we seek to improve it in that respect?

Simon Jones: I will deal with the second one first. Yes, we think that the proposals in the Bill at the moment will make a big difference. We thought that there were a number of ways to go about helping people: you could have created a duration threshold for leases, as in the current proposal—that works. You could have raised the threshold for rent. That, too, would work, although we would have been less in favour of it, because over time it would be less effective. Or you could have completely removed the provisions from the Housing Act. The approach that the Department has taken seems sensible.

[Matthew Pennycook]

Q Is that both recommendations, or just the second?

Simon Jones: That is on the second point. There are a number of ways to do it, but the problem was that there was no minimum length of lease that was not subject to the assured tenancy provisions. That just looked like an oversight, frankly, but that is going to be fixed. That seems like a positive step forward to us.

On redress, the problem that everybody told us about is that you can give leaseholders all the rights that you can, but that does not really help them if they cannot exercise them quickly, cheaply and efficiently. One of the problems—as you know, a big complaint people had—was that leases often had provisions that enabled landlords to recover the costs of litigation from the tenant, regardless of whether the landlord won or lost. That was a big problem, but that has been fixed.

[Matthew Pennycook]

Q May I press you on that? I asked a different witness about that this morning. The Government are saying that with low-value claims, the cost can be passed on, but that leaseholders would have to pay either that or a prescribed sum. I wondered, because we are talking about redress, given the challenges of going to the tribunal, will those leaseholders just end up paying the minimum prescribed amount for enfranchisement?

Simon Jones: I think that the proposal in the Bill is a positive change, but is it really all the change that could be made? This is quite difficult. The tribunal system exists to help leaseholders, but it is still complicated and expensive, and it is not local. Many of the disputes that we have are about costs.

For example, let us say you are a tenant and you have a service charge, but you think it is expensive. You will incur time and expense in trying to challenge it. What you want is probably something that is local, where the panel understands the costs in that area—for painting a stairwell or changing lights, that kind of thing. What we had in mind when we wrote the report was perhaps finding a way to use more local courts to provide more summary-type justice for people, through people who probably know more about what it costs in the local area to do something.

The other problem for consumers is that they do not understand what evidence is required to bring a challenge. I think that came through quite strongly for us. You cannot fix that with legislation, but it is another important point to bear in mind when thinking about how to help consumers help themselves.

[Matthew Pennycook]

Q Is it fair to say that with this legislation, we should look, where possible, to remove instances of where a leaseholder has to go to tribunal at all? In other words, if we said, “No leaseholder should be liable for a non-litigation cost in any circumstances”, on that particular point none of them would have to go to tribunal. Should we look to reduce the scope for tribunal use generally?

Simon Jones: If the purpose of all this is that the incentive for managing agents or landlords—whoever is responsible—is not to overcharge, then cost rules that encourage them to be more careful with the charges that they make ought to be advantageous.

[The Chair]

I remind the Committee that we have only another 10 minutes or so left on this session.

--- Later in debate ---

[The Chair]

Thank you. I remind the Committee that we have until 3.10 pm for this session.

[Matthew Pennycook]

Q Gentlemen, in our evidence sessions so far, we have had very wide-ranging discussions —let me put it that way—not just about the principle of the Bill but about property rights, the functioning of market capitalism and liberal democracy, and everything but. As the shadow Minister for the Bill, I would like to use your expertise to focus on what is actually in the Bill and how we might improve it, so my first question is a very specific one on clause 12. I think I put it more to Mr Freedman than to Mr Rainey because of that Law Society briefing. It relates to valuation, which is one of the more complex matters that the Bill deals with.

The Law Society has expressed concern that the provisions in clause 12 designed to protect most but not all leaseholders from non-litigation costs that landlords may incur when responding to an enfranchisement or lease extension claim may cause issues, because under the proposed new valuation method, the price payable may be below full open market value. Could you clarify why you believe that to be the case? The standard valuation method in schedule 5 provides for a market value element. Why does the Law Society believe that it does not represent full open market values?

Philip Freedman: This started with the Law Society’s recommendation to the Law Commission that one thing that might save costs for leaseholders was if they did not have to pay the landlord’s costs on a collective enfranchisement or lease extension. We put forward the view that if the enfranchisement price is market value, then each side should bear its own costs. If you were to buy a house, you would not pay the seller’s costs; each party would pay their own costs. That is what happens in the market. We said that in the context of enfranchisement being at market value. The Law Commission took that on board, and its report very clearly says that its recommendation that each side should pay some costs and tenants should not have to pay the landlord’s costs—

[Matthew Pennycook]

Q My question is: why do you not think that the valuation method in here is full market value?

Philip Freedman: Because the suggested notional capping of ground rent at 0.1%, in many cases, where it applies, will reduce the purchase price below what it is in the open market at the moment. At the moment, in the open market, the ground rent stated in the lease is payable. We are aware that there are proposals for retrospective legislation, as one might call it, to interfere with existing leases and to say that the ground rent should be capped at a certain amount, but at the moment those rents are lawful, and those rents are therefore reflected in the price that someone would pay to buy the flow of ground rent. Therefore, if you assessed the purchase price for the enfranchisement as if the ground rent were capped and would not be as much as it actually would, then you would be reducing the purchase price to below the market price.

[Matthew Pennycook]

Q That is very clear and very useful.

I have a second question, relating to clause 59, which concerns regulation of remedies for arrears of rentcharges. Do you agree with my view that the Government are trying to fix a historical law that is essentially beyond repair? Should we be looking to abolish section 121 of the Law of Property Act 1925?

Philip Freedman: I think yes. I had to draft some rentcharge provisions many years ago, when we were acting for clients who were selling some industrial buildings on a new estate. They wanted to sell them freehold. There was no commonhold at that time and the issue of enforcing positive covenants was difficult. We came up with the suggestion that the rentcharges legislation should be used to allow an estate company to collect service charges, maintain drainage systems and so forth. It was agreed that the Law of Property Act gave excessive remedies to landlords for non-payment. I am all in favour of limiting the remedies so that, if someone does not pay for something, they can be sued for it, just as with the amendment in relation to forfeiture. It seems to me—this is my personal view—that limiting forfeiture, as you have proposed doing through your amendment, is the right thing to do, although I do have three points to make on that.

[Matthew Pennycook]

Q I will quickly come to that, but do have anything to add in relation to clause 59, Mr Rainey?

Philip Rainey: I agree that forfeiture for non-payment of a rentcharge on an estate, which is usually a relatively small sum of money, is a sledgehammer to crack a nut. I would be in favour of replacing section 121 rather than repealing it, so that there is a coherent and measured set of remedies for rentcharges. That is bearing in mind, as Philip just said, that a lot of the estate rentcharges covered by that legislation have nothing to do with residential; they are quite common on industrial estates. That is one of the unintended consequences that might occur if you were simply to repeal section 121.

[Matthew Pennycook]

Q That is extremely useful. I wish that we had you both for more than half an hour.

I have one quick final question on the abolition of forfeiture. Would you agree that we should do away with forfeiture entirely—it sounds like you do—on the grounds that it is a wholly disproportionate response to the breach of a lease? If so, what should we replace it with? Is suing for a debt—as happens with any other debt—and an injunction if the breach relates to conduct a sufficient response or, if we abolish forfeiture, should we be looking to replace it with some other system of recompense?

Philip Freedman: My view is that there are three aspects of the proposed abolition of forfeiture for leasehold dwellings that we should look at. One is that it should apply to individual leases of single dwellings, rather like the ground rent abolition; it should not apply to leases of multiple dwellings, such as a lease of 50 flats to some lettings company, which is a commercial enterprise, effectively. It should apply to leases of individual dwellings granted at a premium.

The other thing is that the threat of forfeiture is over the top in relation to financial debt—arrears of rent, service charges or whatever. You can sue for those. There may be refinements in relation to suing, but basically you can sue for them. But if a tenant has knocked down walls that they should not have, caused a nuisance or annoyance to other tenants in the building, or used the property for some unlawful purpose, then the remedy would be to threaten an injunction, as you have indicated. An injunction is a difficult remedy to enforce: it is very costly and it is at the discretion of the court—there are all sort of hurdles about injunctions. If, in the residential sector, the first-tier tribunal was given the power and jurisdiction to order parties to a lease to comply with the terms of the lease, free from the constraints of existing law in relation to injunctions, then one could avoid the need for forfeiture. Removing forfeiture for financial payments and damages is fine, but for other breaches it presents a problem.

The only other point is that we need to look at section 153 of the 1925 Act, which is the right for tenants, if they have a very long lease, do not pay any ground rent—it is a peppercorn—and are not susceptible to forfeiture, to enlarge into the freehold. That is a whole area of unclear law. It is not clear what the effect would be if you had one tenant in a block who declares that he now owns the freehold; it would be very unclear whether the management of the block would be affected. I think these things need to be addressed if one is going along that line with regard to forfeiture.

Philip Rainey: Because I appreciate that we have limited time to answer, the only thing I would add is that forfeiture is arguably, again, a sledgehammer to crack a nut, but so can be an injunction: the remedy for breach of an injunction is essentially committal to prison. The prospect of not being able to forfeit and instead there being rafts of committal applications to fill up the jails with people who are, for whatever reason, refusing to comply with some kind of covenant—that is very annoying, but ultimately they should not be in prison—is also unattractive.

Ultimately, there needs to be some sort of measured method of removing a problem tenant from a block. We very much concentrate on the position of landlords against tenants, but one very difficult tenant in a block can ruin life for everybody else. The Law Commission proposed a replacement scheme, and I suggest that that should be dusted off and looked at. A lot of the objections to it come from the commercial sector, so bring it into force for residential leasehold first.

[Matthew Pennycook]

That is all extremely helpful. Thank you very much.

[Richard Fuller]

Q Our previous witness, Mr Vitali, talked about potential concerns about the effect of regulation on people’s understanding of property rights. Do you have any significant concerns about how the Bill affects property rights? If you do, what should we do about them?

Philip Rainey: In a sense, that is a conceptual question.

--- Later in debate ---

[The Chair]

We will now hear oral evidence from our seventh panel. Jack Spearman is chair of leasehold reform at the Residential Freehold Association. For this session, we have until 3.30 pm. Could the witness please introduce himself for the record?

Jack Spearman: Good afternoon. My name is Jack Spearman. I am from the Residential Freehold Association. We are a representative organisation for the UK’s largest professional freeholders. Our members represent, or have management over, about 1 million leasehold properties in England and Wales. I chair the British Property Federation’s committee on leasehold reform. I am also a director at Long Harbour, which is a regulated investment manager, and we have invested in residential freeholds.

[Matthew Pennycook]

Q Mr Spearman, thank you for coming to give evidence to us. The Government’s 2017 consultation on tackling unfair practices in the leasehold market, which I think attracted more than 6,000 responses, found that freeholders regularly price-gouge leaseholders on service charges, ground rents, lease extensions and freehold acquisitions, as well as making arbitrary and unjust rules about what leaseholders can and cannot do with their homes. Is it not the case that many, if not all, of your members routinely engage in rent-seeking behaviour by gouging leaseholders as a matter of course and that the concerns of the RFA about the Bill are almost entirely related in various ways to how it might frustrate them or prohibit them from doing so?

Jack Spearman: Each lease will set out the terms of what can and cannot happen under that lease, so when people talk about changing terms, you have to be quite careful about what you are actually saying. The rent is set as a rent and a review is set as a review, so you cannot just change rent arbitrarily—the same as for service charge and many other things. I think what you are talking about is some of the aspects that are frustrating, whether it enfranchisement or lease extensions. It will probably surprise a number of you that our members do support a large number of the measures in the Bill, including a number of the amendments that you have put forward in Committee.

[Matthew Pennycook]

Q Okay. I may come back to some other specific issues if we have time, but specifically on insurance, the Financial Conduct Authority’s report of September last year on insurance for multi-occupancy buildings found evidence of high commission rates and poor practice, which were

“not consistent with driving fair value to the customer”.

It also found that the mean absolute value of commissions more than doubled between 2016 and 2021 for managing agents and freeholders of buildings with fire safety defects. Is it not fair to say that, again, many, if not all, of your members have benefited hugely from soaring buildings insurance premiums over recent years, so do you think the Government are entirely justified in seeking by means of clause 31 to limit their ability to charge insurance costs?

Jack Spearman: In terms of insurance premiums, they have generally all risen, for a number of reasons that you will be aware of, whether that is cost inflation, inflation generally or insurance premium tax. Let us not forget that the Government benefit from a lot of these things, and they are all rising at the same time.

What I would say is that there is merit in making sure that people who are actually providing services to administer the insurance work have some form of compensation for what they are doing. If the insurance premium was to double because there is an issue with cladding, why should someone take the benefit of that? The same could be said for remediation projects, for example, where VAT is paid. But, yes, I agree that a measured form of that would be helpful. The problem with the Bill currently is that it leaves all of that to secondary legislation, as you know. It would be helpful to see the primary legislation set out how that might work, and that is one of our recommendations.

Clearly, our members do a lot of work on insurance, whether that is administering claims, dealing with inquiries or sending out invoices to collect the insurance premium over hundreds of people—it is a job that someone has to do. It could be risk management, so telling the insurer what is on the building. You would be amazed to see how many insurers that our members deal with offer to insure a building without knowing what is on it. When we tell them what is on it and what is in it, a very different type of cover can be offered. So there is value, contrary to what people will say, although I do accept, clearly, that, like in any system, there are bad practices.

[Matthew Pennycook]

Q Just briefly while we are on that, have you got any sense of whether your members are complying, or are prepared to comply, with the new FCA rules that are coming into force at the end of this month with regard to the right to request to see the insurance?

Jack Spearman: Again, our members have always been of the view that the insurance is for the benefit of leaseholders. They provide the cover, and they provide the certificates; it is something that we have all been doing for a large number of years. So, yes, we do, and those that do not will obviously have to anyway under the FCA regulations.

[Andy Carter]

Q Thank you very much for your written submission to us. You say in there: “The RFA has serious concerns that the Government’s proposals to cap ground rent will lead to significant cost to the UK taxpayer…and have…negative consequences for leaseholders” What are the costs for UK taxpayers of this piece of legislation?

Jack Spearman: One of the key and largest impacts of this Bill has not even been considered yet, because it has not been introduced. Some form of restriction on ground rent is going to be introduced at some point as an amendment. You are being asked to scrutinise a piece of primary legislation that does not have a number of impacts in it—for example, setting capitalisation rates, deferment rates and dealing with ground itself. So you are scrutinising something that is incomplete, and the impact of which none of us here know.

Going to the taxpayer point, the Government say that no compensation will be paid, but unfortunately they also know that that is probably not going to be compliant with the European convention on human rights. Compensation is going to have to be paid, and it is either paid by the taxpayer or the leaseholder. That is what we mean by that.

--- Later in debate ---

[Andy Carter]

Q That is very helpful. Thank you very much. Do you have any views on the requirements for regulation of building managers?

Giles Grover: I have a lot of views on that area. Part of the issue was that under the Building Safety Act there were building safety managers in place with certain duties. At the last minute, that legislation was moved away from, but those duties still exist. A lot of the high-rise buildings that have registered with the Building Safety Regulator are facing enormous costs of compliance, and there are real fears about the work that will need to be done. We are seeing bills land on our doorstep all over again. I got one—thankfully, I am a residential management company director and can challenge it more—with an estimate of £500 a year extra per leaseholder to comply with the Building Safety Regulator if we had not moved away from some of the strange costs that were in there.

I have seen that for other buildings: leaseholders who have just got the freehold have suddenly got a demand saying, “You are also going to have to pay for compliance with building safety.” It is very worrying and strange that the innocent leaseholders we are meant to be protecting are now going to have to pay, but just in a slightly different way, to ensure the safety of the buildings that should have been made safe and should be maintained. Fire doors are another example that I could really get into, but I only have 20 minutes so I will hand back to you.

[Matthew Pennycook]

Q Giles, thank you for giving up your time to come and speak to us. I want to follow up on Mike’s and Andy’s questions. You may have said everything you can say about what you would like the legislation to do, but if you have some more detail it would be useful.

Mike and I tabled new clauses 27 and 28 to address some of the “in principle” issues we have been pushing for a long time on—qualifying and non-qualifying leaseholders and building height. Specifically, in terms of what the Government might feasibly bring forward, what is your experience from cases across the country of the operational elements of the Building Safety Act that are not working effectively? I am just trying to get from you a more realistic sense of what you might expect the Government to bring forward, in terms of extending this Bill to ensure the Building Safety Act operates as intended. What tweaks to the Building Safety Act are required, in as much detail as you can in the time you have?

Giles Grover: One of the major tweaks is on an issue we were first made aware of in November 2022 due to the residents of a building in Greater Manchester being forced to pay for interim measures. The council is now paying for those interim measures but it has been told that it cannot recover them through the Building Safety Act because the legislation is not in place. That is a simple one that could help.

You could ensure that resident management companies and right to manage companies can raise the legal costs where they might be needed in respect of building safety and relevant defects. There are some wider elements that are already in the Bill, in terms of stopping freeholders re-charging their legal fees. Our concern is whether that will protect non-qualifying leaseholders who are still being forced to pay fees.

This is where I can get into the specifics. I am no lawyer as such—you have had a lot of very intelligent people on before me—but I say this from the campaigning aspect of it. We need to see a fair bit more detail about exactly what happens when a freeholder is avoiding their liabilities and not giving a landlord certificate within the stated time period. The Government may tell us, “Oh, don’t worry. That means they can’t pass the costs on,” but theoretically I cannot sell my flat without that certificate because the conveyancer is asking for it, so why not have an express duty for them to provide it? To be completely frank, the whole landlord certificate/leaseholder certificate process is an absolute quagmire and a nightmare on the ground. I would personally prefer it if the Government did away with that.

There are lots of issues like that. There are points about court-appointed managers, which cannot be the accountable person, which seems quite strange to me. We have been told that there is another route through the Building Safety Regulator, but that would require the special measures manager legislation to be enforced. There are issues with shared owners in complex tenures where you have a housing association as the head leaseholder. Will they be protected from all costs? Will they have the same rights as all leaseholders?

Philosophically, the simplistic approach should be that you have the full protection. New clauses 27 and 28 would be a massive relief. It is then a case of whether legislation is needed or whether you can use the current measures. With the developer scheme, where it is for over 11-metre buildings—could that be extended to under 11-metre buildings? The cladding safety scheme is now for mid-rise buildings; could that be extended for low-rise buildings? Could the cladding safety scheme be extended to become a building safety scheme?

For a lot of this the pushback will be, “There is not enough money,” but there is money out there. There is money that can be got from industry. There are further parties, such as construction product manufacturers and providers, and the Secretary of State said they would make them pay two years ago; they have not paid yet. There are a lot more parties that could be brought into the pool. So operationally there is more they could do by saying, “We’ve got seven different funding schemes;” —or however many it is—“where is the oversight of all of them? Who is talking to each other? Are these regulators? How does DLUHC talk to the recovery strategy unit? Are they talking to the Building Safety Regulator? Is Homes England involved? The local regulators now have new money to take action; are they taking action?”

So, arguably, a lot of it is already in place; but what is needed is the comprehensive oversight and the proper grip to say, “Right: all these buildings—10,000 of them—are going to get fixed. This is how—this is where the money is coming from. Cladding costs are here. Non-cladding costs will come from there.” What you really need to do is put the money up front, recover it. The Government say that their leaseholder protections mean that the majority of leaseholders won’t have to pay. If they have got the confidence in their legislation then they can take over the burden from leaseholders.

[Barry Gardiner]

Q First, may I declare an interest? I am not sure whether it is necessary, but our witness Mr Grover participated in a documentary that I am making about leaseholds, so we have a knowledge of each other. First, Mr Grover, thank you for all the campaigning that you and your colleagues in End Our Cladding Scandal have done; it has been magnificent over the past few years.

You raised the issue, in response to Matthew Pennycook’s questions, of section 24 of the Landlord and Tenant Act 1987 and applying for an officer of the court to be installed to do the works and turn around a building. Clearly, it would be something much to be wished, for many people who found themselves involved a building safety issue, if they were able to do that. Related to that, I know you are aware of the Building Safety Act 2022 ban on section 24 managers being the accountable person.

This is a matter we have discussed with a number of witnesses such as yourself. Are you aware that at one development, the management control regarding safety and remediation was given back to a freeholder who was the one who took, the tribunal found, £1.6 million in insurance commissions unreasonably? They will now be handed £20 million because of that BSA anomaly, by the Government. So the very people who could not be trusted with money are now being given £20 million to remedy the defects that they were responsible for in that building.

Giles Grover: I am very aware of it. I have watched some of the sessions, and I was made aware of it last year by one of the leaseholders at that building. I have looked into this. I have had various conversations with various lawyers. It still just seems bizarre that the manager who has been appointed by the court cannot be the accountable person. I am just a simple man: I do not understand why that cannot happen—why the Government, or the judge, based upon the legislation that is out there, think it is a reasonable or positive outcome for that money to go back to that rogue landlord, shall we say. I do not get it, to be honest.

Leasehold and Freehold Reform Bill (Third sitting)

Matthew Pennycook Excerpts

Committee stage
Thursday 18th January 2024 Public Bill Committees

[The Chair]

Before we start hearing from the witnesses, do any Members wish to make declarations of interest in connection with this Bill?

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

My wife is the joint chief executive of the Law Commission, whose work on leasehold reform we have regularly touched upon.

[Mike Amesbury (Weaver Vale) (Lab)]

I am a member of the all-party parliamentary group on leasehold and commonhold reform.

--- Later in debate ---

[The Chair]

Thank you for coming here and helping us with our deliberations.

[Matthew Pennycook]

Q Thank you all for coming in this morning to give evidence. I will perhaps return to Ms Higgins and Mr Smytherman if we have time in the session, but could I start with two questions to you, Ms Phillips, on shared ownership?

First, the Bill makes provision for the treatment of intermediate leases in a number of areas, but it does not contain, as far as I can read, any measures to directly resolve many of the challenges that shared owners face. Could you give us your general views on the Bill from a shared-ownership perspective? What is missing? What might we look to include if we could?

Secondly, the Government tabled more than 80 pages of complex amendments to their own Bill yesterday. Among those were amendments that would exclude certain shared-ownership leases from enfranchisement and make the new valuation method for calculating the premium payable for shared owners non-mandatory. If you have had a chance to look at those—you may not have—could you give us your views on those specific amendments? We know that enfranchisement for shared owners is expensive—it is challenging—but, none the less, is it a regret, from your point of view, that these amendments have been tabled?

Sue Phillips: I will start with yesterday’s amendments. I have had a look at them and I have called around legal experts, and, of course, it is far too short notice for a legal expert to comment, let alone a lay person like me. Therefore, I will concentrate in my evidence on what I would like to see in the Bill; I cannot comment on the degree to which those amendments will achieve those things, so I just want to make it clear that I cannot comment specifically on the amendments.

In terms of the Bill generally, obviously it is aimed at leaseholders. Shared owners are a very specific subset of leaseholders. They generally face additional problems over and above the problems faced by leaseholders. They have fewer rights and protections under law. They face additional burdens. They also have fewer protections under consumer protection, including new build codes. Therefore, they are generally disadvantaged. As it stands, the Bill does not represent a better deal for shared owners. That is partly because of the issue you referenced. Shared owners are sometimes, not always, in very complex ownership arrangements. There are problems for leaseholders generally, but there you have the additional party of a housing association in the mix. I could talk for half an hour on this; I will try to be very concise.

I will just pick out one example, which relates to the fact that shared owners do not have a statutory right to lease extension. If they did, they would have a right to a 90-year extension. In the absence of that right, some shared owners are in complex arrangements where their landlord is a sub-lessee with only a short interest in the lease themselves, so is actually incapable of offering the equivalent to the benefit that a leaseholder would get under the statutory route. That is unless you go through a process of extending all the leases, and all those costs are passed on to the shared owner. There is a real problem there that is not addressed in the Bill as it stands, in my understanding.

[Matthew Pennycook]

Q Have you explored any quick fixes for what we might look to persuade the Government to incorporate?

Sue Phillips: The problem with looking for quick fixes is that shared ownership is so complex, you run a risk of creating unanticipated consequences. Those particular questions are better directed at a lawyer or a legal expert, which I hope you will do this afternoon, when you have legal experts presenting their views on this Bill.

[The Chair]

Does anyone have anything to add? Do not feel that you have to; I am not putting you on the spot.

Ms Paula Higgins: There is one thing I would add. I am so pleased that Sue is here; she has done amazing work on shared ownership. I am not a legal expert, but I wonder whether you will be hearing from people from the retirement housing sector as well. That is a very complicated form of tenure, with exit fees and whatnot. Can they actually have the same rights to challenge fees and things like that? I am not sure if that is covered in some of your evidence sessions, but retirement housing is notoriously known for quite scandalous fees and charges.

Bob Smytherman: Certainly, we have seen a massive increase in shared ownership memberships coming to us for membership of residents’ associations. Obviously, we are helping them through that. In terms of quick wins, I really hope the Government will finally implement an independent statutory regulator for property managers. That would be a really quick win to help leaseholders. It is very disappointing that we have not got there yet, so I really hope there will be an independent regulator for these management companies that hold large amounts of leaseholders’ money.

--- Later in debate ---

[The Chair]

If anyone has not asked a question and wants to come in, please just indicate. Matt, Barry and Andy want to come back, so I come to you, Matt.

[Matthew Pennycook]

Q Two quick questions while I have got you here—on slightly different subjects. The first relates to the purchasing of a lease initially. In its 2018 consultation on implementing reforms to the leasehold system, the Government committed to requiring freeholders and managing agents to provide leasehold information at the point of sale within a defined time limit and a maximum cost. That is not in the Bill; would you welcome that being incorporated?

My second question is on the service charge provisions—clauses 26 to 30. In principle they might work very well; there is lots of detail to come through regulations. However, are there any specific ways in which you would like to see those service charge clauses tightened?

Ms Paula Higgins: We really welcome standardisation and having standard forms. That is what we, as the HomeOwners Alliance, when we get more than 4 million people coming to our website, can present and say, “These are the questions you can ask.” I really welcome that and having everything aligned so that it is similar. I am sure that we will go on to estate charges and people on freehold estates. Sorry—what was the first question?

[Matthew Pennycook]

Q Just on whether we should require freeholders to have standardised information at the point of purchase.

Ms Paula Higgins: Even though estate agents are supposed to provide basic up-front information, when we did our report on leasehold, half of the estate agents on things we were looking at were not even providing the information that the property was leasehold or freehold. We know that work is going on, and that estate agents are supposed to provide up-front information—we understand that there is the BASPI form—but the reality is that it is not happening. They are not regulated; they don’t know what their obligations are.

This is the other piece, particularly with managing agents, as you mentioned before. We need to have better regulation of managing agents, developers, and of housing associations that are promoting shared ownership, to ensure that they are giving the right up-front information and to ensure that in blocks—as you said you did, Bob—you do the LP form right away. We know that there is lots of delay there. That is one of the reasons why buying and selling leasehold properties takes so much longer. So we really welcomed having that up-front information. That is through the BASPI form, and it is probably through the regulation and management—having regulation of estate agents and managing agents, which is another piece of the pie that I think would be really welcomed in the Bill. I would welcome it if it were put in the Bill.

[Matthew Pennycook]

Q Do you want to say anything on service charges?

Ms Paula Higgins: On service charges, I think it is about being transparent. Some of the provisions in the Bill are about having proper annual accounts, so a lot of it is about trying to get that information. I have not looked at the detail of all the clauses there, but it is about people being able to get that information. That is why you need to have regulation of managing agents—to be able to provide that information properly.

[The Chair]

Q Sue Phillips, I think you wanted to say something.

Sue Phillips: Yes, on information at the point of sale. That is a little bit more complicated for shared owners. They are often directed towards the lease, but the lease is of course silent on the issue of 100% liability for service charges, so there is an issue there. They are often directed towards the key information document. I welcome the changes to the key information document in recent times, but I think they really do not go far enough. I would direct you to a report that I wrote last year about the 2016 to 2021 key information document, which goes into detail on improvements that I think should be made.

It is important to flag up that we need to look at not just content, but understandability in format. I have previously suggested that I think it would be useful to benchmark with other sectors, such as the pensions sector, on the understandability of issues relating to risk as well as benefit, and how to ensure that that content is communicated in a way that people do actually understand.

I will make a final point: a lot of shared ownership marketing presents itself as education about the model, which I think can be problematic, particularly because housing associations and their marketing teams are very up front about the idea that their marketing promotes the benefits. But it is important that people understand the risks and hazards as well as the benefits. So we need to look very closely at exactly where shared owners get their information at the point of sale, and where improvements could be made across all those areas.

Bob Smytherman: I think we would certainly welcome improvements in the conveyancing process. One of the things that our members certainly see is that they can get the information from a very specialist leasehold lawyer, which is obviously really helpful, but as in all sectors there are conveyancers out there where people google “conveyance” and think, “Oh, that is just a standard lease.” Of course, we all know that there is no such thing as a standard lease—their contracts are all very different. I know that about four or five years ago the Leasehold Advisory Service did some work around standardisation of information, so anything that we can do to prescribe that would be really helpful.

On the issue of service charges, there is absolutely one word, isn’t there—“transparency”? All the disputes that we see around service charges are where managing agents hide things because there is no statutory regulator, or where landlords kick accounts into the long grass because they don’t have to produce them. Having a prescribed way to be completely transparent about service charges is really important.

--- Later in debate ---

[The Chair]

We can see you, so if you want to come in on any question, gesticulate and you will hopefully catch my eye. That goes for both of you.

[Matthew Pennycook]

Q Thank you for your time, gentlemen. We have half an hour, but I would love to get in three specific questions, so I encourage you to be as brief as you can while answering.

The first question is on commonhold. Professor Steven, you have published extensively on the Scottish experience of commonhold legislation; Professor Hodges, I believe that you are a member of the Commonhold Council. On Tuesday, we heard from Professor Hopkins of the Law Commission that there are risks associated with a partial implementation of the Law Commission’s recommendations on commonhold. Do you agree with that, and if you do, are there any sensible steps we might take via amendments to the Bill to pave the way for commonhold in the future—for example, share of freehold in flats?

Professor Hodges: I think that was for Professor Steven.

Professor Steven: I am reluctant to answer that in any detail, because I am really not an expert on English land law. May I say something briefly about the Scottish perspective? The difference goes all the way back to 1290, when Edward I, in England, said, “You cannot have feudal grants of property.” Leasehold therefore had to be used, particularly for flats, because of the desire to impose obligations in relation to maintenance and contributions to maintenance. In Scotland, feudal grants were not banned until 2004, which means that flats and other properties were sold that way. We do not have leasehold in the way that you do. Existing feudal holdings were converted into outright ownership in 2004. We also had legislation on long leases that took effect in 2015, which also converted into ownership. The context is quite different.

[Matthew Pennycook]

Q In that case, I will move over to Professor Hodges, in the interests of time, if that is okay.

Professor Steven: Absolutely, and I can see you now.

Professor Hodges: I am very supportive of all the work that the Law Commission has done on commonhold, and we discussed it two or three years ago. I would do it, and this is part of a wider discussion that I expect we will get on to shortly. It is about change management. At the moment, it is rather like the point mentioned by the three previous witnesses. Property law moves terribly slowly—for heaven’s sake, just get on with it. We have the agents, the tenants and the landlords. What we are doing is saying, “Well, do this. Then do that. Then do that. Then do that.” We know where we need to get to, and that would be a very good system if we can get there. They need to train and do all sorts of things. You want to take out repetition or unnecessary cost in doing several things at once. It really is a change management point. We know where we want to get to—just do it basically.

[Matthew Pennycook]

Q Unless they confound us, the Government have been very clear that they are not going to do a commonhold package. Would share of freehold be a good interim step?

Professor Hodges: It is the obvious thing to do, isn’t it? But I would go further.

[Matthew Pennycook]

Q That is all I was looking for. My second question relates to non-litigation costs. The Government, when they published the Bill, claimed that it protected all leaseholders from non-litigation costs. However, clause 12 allows those costs to be passed on, either as they are or at a prescribed rate, in cases of low-value claims. That was because the Law Commission said that the shorter the expired term, the greater the risk for leaseholders in not extending but buying out their lease. This is a point about litigation in some senses, but do you think that, because of the difficulties of challenging a claim to that prescribed sum, leaseholders will be deterred from initiating the process of extending their lease or acquiring their freehold, if they still face, even at a prescribed rate, essentially non-litigation costs as part of claims?

Professor Hodges: Quite possibly, and this is a generic point about access to justice and simplifying dispute resolution. I think the answer to that is to move towards an integrated system, which actually the tribunal and several of the ombudsmen have been working on in the past year in relation to service charges. There are too many places where disputes can go. If we simplify that to an integrated system that supports decision making—part of the answer is clarity and transparency in regulation—but if you support that, things move much more quickly. It has always been the case that, for example, courts are slow. They are a very careful process and therefore you need experts and lawyers, and it takes money—it costs. Whereas, with tribunals and improvement, ombudsmen are free and they move quickly. Getting a modernisation of that system is the answer to this basically. That is not there yet, but it is absolutely within sight and achievable.

[Matthew Pennycook]

If you do not have anything to add Professor Stephen, I will move on to my third question.

Professor Steven: Please move on.

[Matthew Pennycook]

Q My last question relates to ground rents. Clause 21 gives effect to schedule 7, which provides leaseholders with a right to permanently replace their ground rent with a peppercorn, without extending their lease. However, the Government are proposing to apply it only to those with very long leases, so 150 years left or more. The rationale is, as per the Law Commission, that the shorter the unexpired term, the greater the likelihood of disadvantage. Do you have any thoughts on why the Government have chosen that 150-year limit? The Law Commission said 250 years. Do you think it is right, in principle, that someone with a 120-year lease, who may wish to extinguish their ground rent but not extend, is prohibited from doing so on the basis of the Bill, as it stands?

Professor Hodges: I think that it is outside my competence to know the background. My answer would be: just move to commonhold.

--- Later in debate ---

[The Chair]

Professor Steven, do you have anything to add to that?

Professor Steven: I do not.

[Matthew Pennycook]

Q I am trying to adjust my questions to your areas of expertise, but I am trying to focus on the Bill rather than abstract discussions about regulatory systems and what we might want. I have a specific question that follows on from Mr Amesbury’s question. Part 4 of the Bill provides for a new regulatory regime for private and mixed-use estates. Do you think that that is a good idea in principle? We in the House—particularly Mr Fuller and a specific set of Members in whose constituencies this is a very real issue—have been talking for years about a separate management regime. Do you think it is a good idea in principle to establish a completely separate stand-alone regulatory regime for estate management, or should we look instead to incorporate it in the existing system? Essentially, these people are all paying into the same pot, so should they not be covered by the same regulatory system?

Professor Hodges: I think there is an enormous missed opportunity for simplifying across social housing, private and so on. In particular, I would introduce the regulation of property agents working group reforms immediately. Almost everyone wants them, as far as I can see, and it would be easy to do, because you would just cut and paste the relevant regulatory bits from the recently enacted Building Safety Act 2022 and put them in for private managing agents.

As I said in the paper that I sent to you—I gather that Andrew Bulmer was talking about this two days ago here—there are three very good reasons why you need the regulation of property agents, each of which stands up on its own. There are obvious risks if you do not put that building block in place, because things are going to go wrong and there will be detriment to tenants and landlords.

[Matthew Pennycook]

Q To be clear, I agree with you on managing agents; I am talking about the regulation of private estates. The Bill provides for a new regulatory regime for private estates, which are not currently regulated. It is separate from the service charge regime. I am just wondering whether your simplification point works in this case too.

Professor Hodges: Everyone should be in and under the same regime—absolutely everyone in the system.

Professor Steven: I do not have a strong view on this.

[Barry Gardiner]

Q Professor Hodges, my colleague Richard Fuller sought to make a point about caveat emptor to you. Is it your experience that the inequity of power and information between developers or freeholders and the potential purchaser—the leaseholder—is so great that caveat emptor is inappropriate and that you need the power of regulation to sort out that inequity? I think it was the Law Commission that concluded that

“any financial gain for the landlord”—

or freeholder—

“will be at the expense of the leaseholder…Their interests are diametrically opposed, and consensus will be impossible to achieve.”

Professor Hodges: In any consumer or property—certainly social housing—dispute system, there is an obvious imbalance of power. People do not have the money to do things. I have chaired the Post Office Horizon compensation board advising Ministers in the past few weeks. The whole reason why Parliament needs to step in is to correct a massive imbalance of power. Private litigation did not work, or it only half worked. There have been many stories about people being traumatised, and not just unable to enforce their rights. That is why we have invented things like legal aid, Citizens Advice and an ombudsman, and we are still moving—we are still improving that one—because of the ongoing imbalance of power between the little people and larger organisations.

--- Later in debate ---

[The Chair]

Q We will now hear oral evidence from Paul Broadhead, the head of mortgage policy at the Building Societies Association. We have until 1 pm for this session. Could the witness introduce himself for the record, please?

Paul Broadhead: Good afternoon. I am Paul Broadhead, the head of mortgages and housing at the Building Societies Association, which represents all UK building societies and seven of the larger credit unions.

[Matthew Pennycook]

Q Thank you, Mr Broadhead, for coming to give us evidence. I have a very specific question about something that was briefly raised on Tuesday but that has not been explored in real depth. I have seen, as other Members may have, a noticeable rise in RPI-linked ground rent provisions in the wake of the implementation of the Leasehold Reform (Ground Rent) Act 2022—although they may not be connected. You will be aware that such terms could be considered onerous in certain circumstances. They would appear to be the result of specific mortgage lender policies, and somewhat at odds with the UK Finance position. What is your view on that trend and its causes and consequences? Specifically, how will the ground rent provisions in the Bill, namely the peppercorn 990-year lease extensions under clauses 7 and 8, the peppercorn variation under clause 21 and, potentially, complete abolition of ground rents on existing leases, impact on that trend? Will they mean that RPI-linked ground rent provisions are a thing of the past if this Bill is implemented?

Paul Broadhead: Yes, on the RPI, we have seen an increasing trend. I think that started when mortgage lenders changed their policies in terms of the escalating of ground rents—the doubling every five, 10 or 20 years, or whatever it might be. Mortgage lenders have started looking much more closely at the trends in ground rents to make sure that you can predict the affordability and fairness of those rents. You are absolutely right: the RPI change has followed on from many mortgage lenders moving to prevent the doubling of ground rents. We need to make sure we keep an eye on that and to make sure that they are fair and just.

[Matthew Pennycook]

They can be far more punitive.

Paul Broadhead: They can be, absolutely, with where RPI is. It is really difficult to predict. Some ground rents can grow very rapidly, which puts people in financial difficulty. From the lenders’ perspective, when underwriting a mortgage, they need to consider whether the mortgage is affordable on the face of it not only today, but in the future, and to take account of any foreseeable increases in expenditure. That is one of the areas they will take into account.

In terms of the peppercorn ground rent, yes, I do believe that that will resolve this going forward. The important thing to consider is that there is still a separate consultation, which just closed yesterday, on capping ground rent for existing leaseholders. It is really important that that is brought forward to prevent this two-tier system from developing.

[Barry Gardiner]

Q Mr Broadhead, I do not know how long you have been working in your present capacity, but I suspect it is since 1984. In 1984, your organisation’s report “Leaseholds—Time for a change?” said that the “leasehold system is incompatible with home ownership” and that an Englishman’s leasehold home “is his landlord’s castle”. I thought that was a very elegant way of expressing what many of us think. Is that still your organisation’s view?

Paul Broadhead: You are absolutely right. We have been advocating for the reform of leasehold since 1984. As you kindly point out, it was not me that made that comment at the time.

Long-term Plan for Housing

Matthew Pennycook Excerpts

Tuesday 19th December 2023 Commons Chamber

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

I thank the Minister for advance sight of his statement. Nothing screams long-term housing plan quite like a statement from the 16th Housing Minister since 2010 outlining the fourth set of changes to the national planning policy framework in as many years. As ever with this Government, the reality in no way matches the rhetoric, as we see with the headline announcements made to the press—not this House—over the past 24 hours. Not only are they seemingly at odds with the Government’s stated wish to give local communities more of a say about the placement of new developments; the truth is that the ink will barely be dry on outline plans for the proposed expansion of Cambridge by the time the general election is called. The punitive and nakedly political interventions that Ministers are working up for London ahead of the mayoral election will, likewise, do nothing in practice to resolve the constraints that they themselves have imposed on house building in the capital, not least by leaving industry completely in the dark when it comes to second staircase regulations for tall buildings, at a cost of thousands of new homes.

When it comes to meaningful support for small and medium-sized house builders, the Government have been talking, literally for years, about the various ways in which they need greater support while presiding over their continued decline. Far from unlocking a new generation of home building, as the Secretary of State has claimed, the detailed changes being made to the NPPF today will almost certainly further suppress collapsing house building rates. Let us be clear: although there have been minor tweaks, the changes being made are those that the Government, in their weakness, promised the so-called “Planning Concern Group” of Tory Back Benchers they would enact back in December last year in order to stave off a rebellion on the Levelling-up and Regeneration Bill. That is precisely why the members of that group are so pleased with the ”compromise” they have secured today.

I have a number of detailed questions for the Minister, starting with the impact of these changes on overall housing supply. Whether it is the softening of land supply requirements or the listing of various local characteristics that would justify a deviation from the now only advisory standard method, can he confirm that the changes made to the NPPF, taken together, will give those local authorities that wish to take advantage of it the freedom to plan for less housing than their nominal local targets imply? If he disputes that that will be their effect, what technical evidence can he provide to demonstrate that these changes can be reconciled with a boost to housing delivery?

I turn to the Government’s 300,000 annual housing target, which the Secretary of State recommitted himself to today. How on earth does the Minister imagine that the changes that have been made to the rules around plan making will help the Government finally meet that target, particularly given that the arbitrary 35% urban uplift has been retained but the requirement for local planning authorities to try to meet it out of area in co-operation with their neighbours if they cannot do so alone has been removed? Can the Minister finally provide a convincing explanation of how and when the Government’s 300,000 homes a year target will be met? Or is it the case that it remains alive in name only, abandoned in practice even if not formally abolished?

Let me turn to local plan coverage. In many ways, the revised NPPF speaks to a planning framework that does not actually exist, because under this Government we have a local plan-led system in which only a minority of local authorities have up-to-date plans. According to the most recent figures, just 33% have local plans that have been adopted or reviewed within the past five years and only 10 new plans have been submitted for examination this year—in part, this is because of the chilling effect of the Government’s December 2022 concession. Yet only now, in the dying days of this Government, are Ministers seemingly getting a bit more serious about intervening to drive up coverage.

In The Times today, the Secretary of State announced a new three-month deadline for up-to-date local plans to be submitted. Will the Minister outline the thinking behind that timeframe and tell us what happens if multiple local authorities fail to meet the new March deadline? In his Times interview, the Secretary of State suggested that local authorities that miss that deadline will have development forced on them and their powers to delay applications removed. Can the Minister tell us precisely how that would be achieved? The Secretary of State also suggested that recalcitrant councils will be stripped of their planning responsibilities. Can the Minister tell us who will take them on, given that the Planning Inspectorate clearly does not have the capacity to do so?

Finally, although it is the Government’s contention that the changes made today will boost local plan coverage, surely the Minister recognises that even if that is ultimately their effect, it will be at the cost of overall housing supply because it will entail the enactment of numerous plans that will not meet the needs of local communities in full. In short, isn’t the truth of the matter that today’s changes entail a deliberate shift from a plan-led system focused on making at least some attempt to meet housing need, to one geared toward providing only what the politics of any given area allow, with all the implications that entails for the housing crisis and economic growth?

[Lee Rowley]

I thank the Opposition spokesperson for his comments, which I will address in turn. He started by saying that this is the fourth time we have updated the guidance in the last few years. If his criticism is that we are willing to listen, be flexible and adaptable, and recognise the differences between his constituency of Greenwich and Woolwich and the constituencies of Government Back Benchers, then he is correct. We are willing to be flexible and adaptable, but we also recognise that we need to build more homes; we just want to ensure that they are built in the right places, which is exactly what today’s update seeks to do.

The difference between my party and that of the Opposition spokesperson is that we recognise the nuance in the discussion. Within the NPPF, we are trying to accommodate the fact that different areas and parts of the country have to be approached in different ways. While the policies of the hon. Gentleman’s party move backwards and forwards on different days of the week, we will continue to ensure that we build more homes—in the right place, with the right infrastructure and with the support of the community. In the long run, that will ensure that we make progress on housing in general.

The hon. Gentleman asked a question about freedom to plan. The housing needs assessment will be made by all councils, but councils can make a case if there is an exceptional circumstance that applies in their local area. If that were not possible, there would be no exceptions for any council, local authority or community anywhere, which would be completely unnuanced. However, on a macro level it remains the case that we will seek to build more houses. When councils have plans in place, they tend to deliver more houses than when such plans are not in place, so if we can get more plans in place, we will have the opportunity to build more homes that have the consent and support of the community in which they will be built.

The hon. Gentleman asked about urban uplift and the removal of co-operation with neighbours. We uplifted the targets and expectations on the basis that those houses would go into cities and would not be exported into the countryside near cities, because the whole point was to acknowledge the infrastructure in those cities. There are schools in London that are closing because insufficient numbers of children are using them. We do not want to export housing elsewhere; we want to use that infrastructure—including transport links and educational establishments—as was intended when it was built.

This is not about whether we believe in a plan-led system or not—we clearly do. It is about the fact that this Government are getting on with the hard job of striking a balance, recognising the nuance and ensuring that more progress is being made, versus the Opposition stating that they want to build houses, but then voting against that happening in relation to nutrient neutrality. If they put their money where their mouth was and did what they say they will do, they would have the ability to stand up and make such arguments consistently. They do not and, as a result, I will not listen to them.

Leasehold and Freehold Reform Bill

Matthew Pennycook Excerpts

2nd reading
Monday 11th December 2023 Commons Chamber

[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 I intend to cite in my remarks.

It is a pleasure to close this Second Reading debate for the Opposition, and I thank all right hon. and hon. Members who have participated in it. I echo what so many others have said and add my own tribute to all the individuals and organisations who have campaigned for so long for reform in this area.

As a number of contributors to the debate have pointed out, we have waited a long time for this Bill. It was just under six years ago that the then Secretary of State, the right hon. Member for Bromsgrove (Sajid Javid), announced that the Government intended to introduce a series of measures to end unfair and abusive practices within the leasehold system, including—I quote here from a Government press release in December 2017—

“legislating to prevent the sale of new build leasehold houses”.

That 2017 announcement was developed three years later, during the tenure of the right hon. Member for Newark (Robert Jenrick) as Secretary of State. In a written ministerial statement dated 11 January 2021, he announced

“seminal two-part legislation to implement leasehold and commonhold reforms in this Parliament”.

The first part of that two-part legislative agenda duly followed, in the form of the Leasehold Reform (Ground Rent) Act 2022. Although we—and in particular the shadow Minister for homelessness and building safety, my hon. Friend the Member for Weaver Vale (Mike Amesbury)—pressed Ministers to use that Act to implement further reform, we nonetheless supported the Government in passing it. In the 17 months since the Act came into force, successive Ministers have made all manner of extravagant promises about what the second part of the “seminal two-part legislation” would entail. Indeed, the current Secretary of State, in an interview with The Sunday Times in January this year, even went so far as to declare, without qualification, that he intended to abolish the leasehold system in its entirety.

Leaseholders across the country, whose daily lives are often made miserable by the unjust and discriminatory practices that our archaic leasehold system facilitates, took Tory Ministers at their word. They expected the second part of the promised two-part legislative agenda to live up to the weighty promises made by the Government. They have been badly let down. Having waited so long and had their expectations raised so high, they are understandably disappointed at the limited Bill that we are considering today. And it is a limited Bill, and no amount of bravado from the Secretary of State can alter that fact. They are also perplexed, as we are, that legislation that the Government claimed would end leaseholds on newly built houses in England and Wales does not actually contain any provision to end such leaseholds.

When the Minister responds to the debate, he will no doubt attempt to brush that criticism aside, as he did in oral questions last week, on the grounds that it is entirely normal for key provisions of a Bill to be added in Committee. Sadly, as my right hon. Friend the Member for Ashton-under-Lyne (Angela Rayner) mentioned in opening the debate, it is common practice for this Government, and this Secretary of State in particular, to significantly expand the size and scope of Bills by incorporating swathes of Government amendments in Committee and on Report in a way that limits the ability of hon. Members to ensure that full scrutiny takes place. However, the Minister is fooling no one in attempting to suggest that the omission from the legislation of key provisions was always the Government’s intent.

I remind the House, as my hon. Friend the Member for City of Chester (Samantha Dixon) did, that the right hon. Member for Bromsgrove committed the Government to legislating to prevent the sale of new build leasehold houses nearly six years ago. The Government have no excuse whatsoever for failing to include in the Bill the provisions necessary to enact that commitment in order for the House to consider them properly today. That they failed to do so no doubt owes more to hurried drafting, and to the wrangling between the Department and No. 10 that has taken place over recent months in respect of this Bill, than to any considered design. However, for all the confusion that surrounded it, the legislation before us has answered one important question: how ambitious do the Government wish to be when it comes to leasehold reform? Because this unambitious piece of legislation makes it clear that proponents of caution and restraint have won out over those who want to lay claim to a legacy of bold reform in this area.

That criticism cannot simply be brushed aside as carping on the part of the Opposition. The Government’s poverty of ambition has real implications for leaseholders being routinely gouged by freeholders under the present system. Take flats, which are the overwhelming majority of new leasehold properties being created and the source of most of the leasehold-related complaints that I receive from constituents. The Government’s stated solution for them, as made clear by Baroness Penn in the other place just last week, is reinvigorating commonhold, yet the Minister of State made it clear on Monday that the Government do not intend to incorporate into this Bill any provisions whatsoever relating to commonhold, despite the clear commitment they made in 2021. Instead, it remains part of their “long-term approach”. In other words, the Government’s offer to swathes of leaseholders across the country is jam tomorrow.

The hon. Member for Redditch (Rachel Maclean), known affectionately as No. 15 on these Benches, gave the game away. She said that all the work has already been done on commonhold, so it is not a matter of complexity; it is a political choice on the Government’s part not to introduce commonhold provisions in this legislation. What is so galling about the position that Ministers have adopted is that there is clearly widespread support across the House for the more ambitious leasehold reform that could have been incorporated into the Bill, and this debate has demonstrated it. However, in the dying days of this Government, we are where we are.

While we deeply regret the Bill’s lack of ambition, we have no intention of voting against Second Reading this evening. We support the intent of the provisions in the legislation before us and the principle of the Bill as a whole. The measures it contains will give homeowners in England and Wales some greater rights, powers and protections over their homes. That is not to say that we do not have concerns about the efficacy of some of them; we do, and we will seek to strengthen the Bill in a number of ways in Committee. For example, we believe that clauses 12 and 13, which are intended to protect leaseholders from covering the legal and valuation costs associated with lease extensions, require tightening if we are to prevent, in practice, freeholders recovering litigation and non-litigation costs. To take another example, we believe that clause 23, which seeks to replace the existing costs regime for right to manage claims, is flawed and needs overhauling if it is to protect, in practice, RTM companies from cost claims by landlords.

We also believe that this limited Bill can be improved in ways that will give future leaseholders more control over their future. For example, we think there is an iron-strong case for adding to the Bill provisions that would abolish forfeiture for leases entirely and replace it with a more equitable means for freeholders to recover costs in a dispute that does not involve a windfall. I was pleased by the signal that the Secretary of State gave on that front in opening the debate. To take another example, we think there is merit in adding to the Bill provisions that would ensure that leases on new flats include a requirement to establish and operate a residents’ management company responsible for all service charge matters and associated works, with each leaseholder given a share.

We will seek to convince the Government of the merits of those and other measures when we go into Committee in the new year, and we will engage constructively with the Government if they decide to introduce other bold measures into the Bill at that stage—for example, if Ministers are minded to implement the Law Commission’s proposals on the right to manage, covering both flats and houses.

However, we recognise that there is only so much that we can do with the legislation before us. Given the paucity of the Bill’s ambition and the fact that it does not contain so many of the commitments that successive Secretaries of State have made, not least in relation to the promised widespread introduction of the commonhold tenure, it is clear that it will now fall to a Labour Government to fundamentally and comprehensively reform the leasehold system, including the reinvigoration of commonhold to such an extent that it will become the default and ultimately render leasehold obsolete.

We are pleased that the Bill will progress today. It will provide some limited relief to leaseholders. We will seek to improve it with a view to extracting from the Government any extra measures that further empower leaseholders and disturb the historical iniquity on which the present system rests. Leaseholders across the country who remain at the mercy of arcane and discriminatory practices, to their detriment and to the benefit of freeholders, rightly expect nothing less. But leaseholders across the country expected so much more from the Government. We are clear that, in due course, Labour will have to finish the job and enact all the Law Commission’s recommendations on enfranchisement, right to manage and commonhold in full. We are determined to do so.

--- Later in debate ---

[Matthew Pennycook]

The Minister touched on building safety. In the briefing notes on the Bill that accompanied the King’s Speech, under the heading “Improving leaseholders’ consumer rights”, reference was made to:

“Building on the legislation brought forward by the Building Safety Act 2022”.

Is it the Government’s intention to incorporate building safety measures in the Bill?

[Lee Rowley]

We are looking at what may be possible. We recognise that, while the Secretary of State for Levelling Up, Housing and Communities has brought forward a very solid prospectus, tweaks can always be made. We see real momentum in this area. I know that that is not good enough for buildings that have not yet had their remediation or for leaseholders who are hugely frustrated by the inability or unwillingness of freeholders to make progress, but we have made significant changes and steps forward in the last year or so, and we are committed to doing more in the coming months.

I am grateful to the hon. Member for North Shropshire for meeting me earlier to talk about specific points about assets. We will look at those points and come back to her.

I can confirm to my right hon. Friend the Member for Aldridge-Brownhills that we intend to tackle ground rents. I am grateful to her for highlighting exceptions in leasehold houses. We intend that to be a very narrow element. She sought an example. One example I can give is that of National Trust land where freeholds cannot be sold and a small number of leasehold homes may therefore be required.

The hon. Member for Liverpool, West Derby talked about his disappointment with, I believe, the consultation on ground rents. We must consult on that because we must ensure that we are listening and that we take a decision based on the broad range of evidence in front of us, to ensure that it is legally sound when the decision is made. He encourages me to speak to the Law Commission. I can tell him that I have spoken to the Law Commission probably more regularly than any other external organisation outside the Department in the past three or four weeks.

The hon. Members for Walthamstow, for Battersea and for Brentford and Isleworth are seeking to push a narrative—if I may say that very gently to them, with the best of intentions—that this is not a significant intervention with regard to flats. I gently encourage them to continue to engage with the Bill. They will see long and cheap extensions, easier enfranchisement, service charge transparency, easier redress, lease extensions, standard forms, annual reports and many, many other significant measures that will have salience for those living in flats.

Before I conclude, I would like to thank the hon. Member for Greenwich and Woolwich (Matthew Pennycook) for his constructive comments. I look forward to meeting him in Committee to talk about them more. While I may disappoint the right hon. Member for East Ham, I would like to turn to some of the comments made from the Opposition Front Bench.

The right hon. Member for Ashton-under-Lyne (Angela Rayner), despite acknowledging that the Government have brought forward important legislation, despite confirming that Labour would not be opposing it and despite advancing the most enthusiastic compliment I have ever heard her give a Conservative—that the Secretary of State has reached the lofty heights of being a “functional cog”; heavy praise indeed!—showed that, as ever, she deals in rhetoric rather than reality, and in politics rather than policy. She called the Bill “empty”. This is a Bill with 65 clauses, eight schedules and 133 pages, and there are 67 pages of explanatory notes. Given its comprehensive reform of enfranchisement and extensions, its comprehensive reform of redress, and its comprehensive reform of service charges, estate management and valuation, that is a funny definition of “empty”.

Oral Answers to Questions

Matthew Pennycook Excerpts

Monday 4th December 2023 Commons Chamber

[Madam Deputy Speaker (Dame Eleanor Laing)]

I call the shadow Minister.

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

As you will no doubt be aware, Madam Deputy Speaker, the Government’s Leasehold and Freehold Reform Bill, designed to ban the sale of new leasehold houses, does not actually contain any provisions to ban the sale of new leasehold houses, because the Department apparently did not have time to draft them before publication. If and when the Government rectify their mistake and add the necessary provisions, will they incorporate measures to reinvigorate commonhold by making it accessible and available to both prospective homebuyers and existing leaseholders? If not, why not?

[Lee Rowley]

As has been outlined, we intend to bring forward further changes to the Bill during the process, as Opposition Members know is normal, because they have sat in the same Committees that we have. We are not proposing to change leasehold to commonhold under the Bill, but that remains part of our long-term approach and we would like to see further reforms as soon as we are able to.

Renters (Reform) Bill (Tenth sitting)

Matthew Pennycook Excerpts

Committee stage
Tuesday 28th November 2023 Public Bill Committees

[The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Jacob Young)]

It is a pleasure to see you in the Chair, Ms Fovargue.

Everyone deserves to live in a safe and decent home. It is completely unacceptable in this day and age that people are forced to live in homes that do not meet basic standards of decency. There is already a decent homes standard for social housing that has been successful in improving housing conditions. Since the standard was last updated in 2006, the level of non-decency in social housing has fallen from 29% to 10%, but there is no equivalent standard for the private rented sector, and homes in that sector are more likely to be non-decent.

Of the 4.6 million households that rent privately, 23% live in properties that would fail the decent homes standard that currently applies to social housing. That is around 1 million homes. That is why we committed in the levelling-up White Paper to halving the number of non-decent rented homes by 2030 and, in the “Fairer Private Rented Sector” White Paper, to introducing a legally binding decent homes standard in the private rented sector for the first time. It is also why we have tabled the Government amendments, which will allow Ministers to set a new standard to apply the private rented sector and for it to be enforced.

It is imperative that we get the content of the new standard right and that we ensure that it is both proportionate and fair. We are working closely with a range of stakeholders to co-design the standard and make sure the balance is right for landlords and tenants. For most PRS properties, our expectation is that the landlord will not need to do any additional work to meet the decent homes standard beyond what is needed to meet existing requirements and keep their properties in a good state of repair. We will provide further details on our proposals for the standard in due course.

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

It is a pleasure to continue our deliberations with you in the Chair, Ms Fovargue.

Clause 63 is a short and straightforward clause that would require the Secretary of State to prepare a report that sets out the Government’s policy on safety and quality standards in relation to supported housing and temporary accommodation and to publish it within one year of the day on which the measure comes into force. The group of Government amendments we are considering with the clause, which are intended to replace it entirely, will extend part 1 of the Housing Act 2004, which relates to housing conditions, to cover temporary accommodation, and provide for regulations to specify new requirements that will form part of a decent homes standard that applies to temporary accommodation, supported exempt accommodation and rented property more generally. We welcome both the intent and the design of the amendments.

The private rented sector is manifestly failing to provide safe and secure homes for all those who live in it. We fully accept that the absolute number and proportion of poor-quality private rented homes continues to fall—albeit steadily rather than drastically—as part of a half-century, if not longer, of improvement in housing standards. However, it remains the case that some of the worst standards in housing are to be found in the private rented sector. It should be a source of real shame for the Government that after they have been in office for 13 years, an estimated one in four homes in the private rented sector—the Minister made it clear that that equates to around a million properties—do not meet the decent homes standard, and one in 10 has a category 1 hazard that poses a risk of serious harm.

For the considerable number of private tenants who are forced to live in substandard properties—those who wake up every day to mould, vermin or dangerous hazards—what should be a place of refuge and comfort is instead a source of, at best, daily unease and, at worst, torment and misery. More must be done to bear down decisively on this problem. Measures designed to drive up standards in the sector should be enacted as a matter of urgency.

As I made clear during the debate on clause 52, the Government deserve appropriate credit for seeking to introduce a decent homes standard that covers the private rented sector through this Bill rather than through separate future legislation. We believe that Government new clause 20, new schedule 1 and the related amendments are well drafted and that they have the potential to tackle the blight of poor-quality homes in local communities and ensure that renters have safer and better homes to live in; however, I would like to take this opportunity to put to the Minister several questions about those provisions.

My first question concerns enforcement. A decent homes standard that covers the social rented sector has been in place since 2001, yet we know that far too many social tenants still live in damp, cold and mouldy properties that harm their health and their life chances. Indeed, that was one of the chief reasons why the Government felt it necessary to enact the Social Housing (Regulation) Act 2023. That demonstrates that over the 22 years of the decent homes standard’s existence, although it has led to some improvements it has not been enforceable in the social rented sector. That experience suggests that introducing a decent homes standard covering the private rented sector will not achieve its objectives unless it is properly enforced.

Given that the Government intend, by means of new schedule 1, which amends part 1 of the Housing Act 2004, for enforcement of the new standard in the PRS to be undertaken using the same powers as the regime for the housing health and safety rating system, it should be a relatively straightforward matter for local authorities. However, local authorities’ ability to do so successfully depends in practice on their capacity and capabilities. As we debated just prior to the break, in relation to clauses 58 to 61, a great many authorities are struggling when it comes to resources and skills. Will the Minister provide more detail on what steps, if any, the Government intend to take, in addition to the various proposals in the Bill, to ensure that local authorities can appropriately enforce the application of the decent homes standard to the private rented sector where it is not already being met?

My second issue concerns the nature of the standard itself. The Government consulted on the introduction and enforcement of a decent homes standard in the private rented sector in England late last year, and the responses to that consultation obviously fed into the Government amendments we are considering. However, the Government have also committed themselves to a more fundamental review of the standard at some unspecified point in the future. Will the Minister confirm whether that commitment remains in place? If so, will he give us some idea of when that more fundamental review, presumably across both the social rented and private rented sectors, might begin?

The third issue relates to the current enforcement regime for the housing health and safety rating system. The regime is primary means by which local authorities can tackle poor property conditions and compel prompt action from landlords who do not fulfil their responsibilities to provide homes free from dangerously hazardous conditions. We take it from the Government amendments that while the new decent homes standard for the private rented sector will be located in part 1 of the Housing Act 2004, it will not necessarily be the same thing as the HHSRS, which is also in part 1 of that Act. We will presumably need to wait for secondary legislation to work out how, if at all, the decent homes standard and the HHSRS differ, but their workings will need to complement each other.

In answer to a written question that I tabled on 2 May, the then Housing Minister confirmed that a review of the HHSRS, including the statutory operating and enforcement guidance, was under way. Given the obvious implications of that answer for the functioning of the new decent homes standard introduced by this group of Government amendments, will the Minister tell us whether that review has concluded, as the decent homes consultation suggested? If it has, when did it conclude, when will the results be published, and does it remain the Government’s view that any changes will require further legislation? The status and outcome of the review of the HHSRS and its associated statutory, operating and enforcement guidance are important because that guidance is applied when local authorities consider using their statutory powers to remedy defective housing conditions, including and especially damp and mould.

That brings me to our new clause 60. When the Social Housing (Regulation) Act 2023 was on Report, the Government tabled and passed, with our support, amendments designed to force social landlords to investigate and fix damp and mould-related health hazards within specified timeframes, with the threat of legal challenge if they do not, owing to the insertion of an implied covenant into tenancy agreements. The provisions were termed Awaab’s law because they were a direct response to the untimely death of two-year-old Awaab Ishak from respiratory arrest, as a result of prolonged exposure to mould in the rented Rochdale Boroughwide Housing property in which he and his family lived. Although enactment of the new requirements is dependent on secondary legislation, with the consultation having closed last week we are hopeful that the necessary statutory instrument will soon be forthcoming. We look forward to its enactment so that social landlords who continue to drag their feet over dangerous damp and mould will face the full force of the law.

New clause 60 would simply extend Awaab’s law to the private rented sector by amending the relevant section of the Landlord and Tenant Act 1985, and the reasoning behind that is straightforward. The Government were right to introduce Awaab’s law in the social housing sector, but the problem of debilitating damp and mould, and landlords who fail to investigate such hazards and make necessary repairs, is not confined to social rented homes.

A Citizens Advice report published in February made it clear that the private rented sector has widespread problems with damp, mould and cold, driven by the poor energy efficiency of privately rented homes—an issue that we are minded to raise later in the Bill’s proceedings. The report went on to evidence the fact that 1.6 million children in England currently live in cold, damp or mouldy privately rented homes. In the face of such a pervasive problem, we can think of no justification whatsoever for restricting Awaab’s law purely to the social housing sector. We hope that the Government will agree and accept new clause 60, because we can think of no reason whatsoever why they would resist doing so.

Before I conclude, I want to touch briefly on a final issue in relation to this group of amendments. We welcome the inclusion of supported exempt accommodation in a decent homes standard and part 1 of the Housing Act 2004. We believe that will resolve an issue of concern that we flagged in the Social Housing (Regulation) Bill Committee—namely, the loophole that exists, and is being exploited by unscrupulous providers, as a result of non-profit-making providers of supported exempt accommodation being able to let properties at market rents that are eligible for housing benefit support, on the basis that “more than minimal” care, support or supervision is being provided, without those properties coming within the scope of consumer regulation.

The inclusion of temporary accommodation is also welcome, but it is slightly more problematic, because local authorities are responsible both for enforcing part 1 of the Housing Act 2004 and for procuring sufficient temporary accommodation to meet their duty to prevent and relieve homelessness. As such, while there may not be a legal conflict of interest, there is certainly a potential practical conflict of interest, as local authorities will be forced to weigh the case for any potential enforcement action, outside the scope of the contract in question, against the need to retain private landlords as an ongoing source of desperately needed temporary accommodation. It is for precisely that reason that we tried to convince the Government, in the Social Housing (Regulation) Bill Committee, to have temporary accommodation regulated by a third party, such as the Regulator of Social Housing.

The Government amendments will undoubtedly help to improve the quality of some temporary accommodation, and the inclusion of temporary accommodation in a decent homes standard and part 1 of the Housing Act 2004 is to be welcomed for that reason. However, we encourage the Government to consider whether they might go further. For example—here, I again commend my hon. Friend the Member for Westminster North for her Homes (Fitness for Human Habitation) Act 2018—could the Government extend section 9A of the Landlord and Tenant Act 1985 to also cover properties occupied under licences as homelessness temporary accommodation? I would welcome the Minister’s thoughts on that, and I look forward to his response to new clause 60 and all the other issues that I have raised regarding this group of amendments.

[Jacob Young]

Let me address the hon. Gentleman’s point about local authorities and their ability to enforce. We will establish a new duty on landlords to ensure that their properties meet the decent homes standard. For landlords who fail to take reasonably practicable steps to keep their properties free of serious hazard, local councils will be able to issue fines of up to £5,000. That will encourage those landlords who do not already do so to proactively manage their properties, which will allow local councils to target their enforcement more effectively on a small minority of irresponsible and criminal landlords.

We will also explore requiring landlords to register compliance with the decent homes standard on the property portal. That will support local councils in identifying non-decent properties to target through their enforcement activity. As I have already said in response to different parts of the Bill, we will also do a full new burdens assessment for local authorities, and where there is a new burden, they will be resourced to fund that.

On the hon. Gentleman’s questions about the HHSRS review, the simple answer is that we will publish that in due course. Secondary legislation obviously needs to coincide with that, so I do not have anything further to add at this point. However, I am happy to write to him in further detail on that. Similarly, I will commit to writing to him on on the DHS review too.

--- Later in debate ---

[Matthew Pennycook]

I welcome that response from the Minister. With regard to Government amendments, I thank him for what he said about the HHSRS and the more fundamental review of the decent homes standard across both tenures. If he has any further detail on that, I would welcome it. I particularly welcome the implied suggestion that the registration of a decent homes standard, when it is forthcoming, will form part of what is required for landlords to submit on the portal. That is a very good idea, and in that way we could help to drive up standards by making it part of the general information that needs to be submitted as part of registration with the database. That is very welcome.

On Awaab’s law and new clause 60, I have to say to the Minister that he gave a particularly unconvincing answer. I entirely understand that when it comes to standards, the Government’s focus is on the measures in the Bill. We all want to see local authorities able to enforce properly, and we all want to see the ombudsman provide a mechanism for redress. However, I still fail to understand—I do not think the Minister responded to this point—why the Government believe that Awaab’s law is appropriate for the social rented sector, but not for the private rented sector.

[Jacob Young]

rose—

[Matthew Pennycook]

I will just make this point. The Minister said that the Government do not think it is of interest to tenants; I would be very interested to know what surveys the Government have done of tenants to find out their views on this matter, because I am certainly not aware of any such evidence. I think it would be of real interest to tenants if their landlords could be forced to respond within specific timeframes to sufficiently serious cases of damp and mould, as Awaab’s law provides for the social rented sector, with the threat of legal challenge as a stock response. I am happy to give way, but I find the Minister’s arguments on this point quite unconvincing. If these measures are appropriate for the social rented sector, with all the other measures in place in that sector, they should be appropriate for the private rented sector.

[Jacob Young]

I simply say to the hon. Gentleman that there is an obvious difference between a large social housing sector landlord, which has maintenance teams that can quickly act to address an issue, and an individual landlord, who may have only one or two properties, and may not have a wealth of skill behind them to address such issues in the timeframes that we hope to set out for social landlords. As I said, local authorities can request timely changes to properties.

[Matthew Pennycook]

I thank the Minister for that answer. I fully accept that there is a difference between a large registered social landlord, and a mum-and-dad landlord, who might own only one or two buy-to-let properties. However, we should not therefore say that it is acceptable for the kinds of cases that Awaab’s law would cover, if extended to the private sector, to go on unchallenged. I am not satisfied that there are existing powers to challenge those cases. If there were such powers in the social rented sector, the Government would not have needed to bring forward Awaab’s law. Actually, if the Government were properly resourcing local authorities to enforce, Awaab’s law might not be necessary, but the Government deemed it necessary in the social rented sector.

As the Bill demonstrates, the difference between the private rented sector and the social sector will break down to some extent, whether as a result of the ombudsman, who will cover both sectors, or other measures. We think the law should cover both sectors, and I find the Minister’s response unconvincing. I will press new clause 60 to a Division.

[Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)]

It is worth pointing out that the Minister himself said that the condition of the housing stock in the private rented sector was now considered to be worse than the condition of the housing stock in the social rented sector. Surely the Minister should therefore argue that we need tougher regulation, because regulation is failing more badly in the private sector than in the social sector, but he seems not to have followed through on his argument.

[Matthew Pennycook]

My hon. Friend is right. We know that standards in the social rented sector are inadequate; that is why the Government brought forward their recent legislation, which we supported. Things are worse in the private rented sector. I quoted the Citizens Advice statistic: 1.6 million children are in damp, mouldy or cold homes. If anything, there is a stronger case for Awaab’s law applying to the private rented sector than to the social, but the Minister is trying to have it both ways, for the obvious reason that the Government do not want to accept our new clause. I encourage them to go away and think. We will press the new clause to a vote. If the measures are good enough for the social rented sector, surely they are good enough for tenants in the private rented sector; I have seen no evidence that those tenants are not interested in the tougher powers that Awaab’s law would provide.

Finally, I would welcome any further detail from the Minister on whether there is a need to go further on licensed temporary accommodation properties.

Question put and negatived.

Clause 63 accordingly disagreed to.

Clause 54

Crown application

Amendments made: 97, in clause 54, page 55, line 15, leave out “(4), this Part” and insert “(4D), this Act”.

This amendment provides for a default rule which will have the effect that, subject to any specific provision about them, the new clauses which make freestanding provision in the Bill will bind the Crown. This is intended to mean that the Crown will be bound by the new clauses containing prohibitions on discriminatory practices in relation to tenancies and (subject to exceptions in Amendment 98 for powers of entry) the new investigatory powers.

Amendment 98, in clause 54, page 55, line 30, at end insert—

“(4A) Sections (Business premises: entry without warrant), (Requirements where occupiers are on business premises entered without warrant), (Business premises: warrant authorising entry), (Business premises: entry under warrant), (Power to require production of documents following entry), (Power to seize documents following entry), (Access to seized documents), (Appeal against detention of documents), (Suspected residential tenancy: entry without warrant), (Requirements where occupiers are on residential premises entered without warrant), (Suspected residential tenancy: warrant authorising entry), (Suspected residential tenancy: entry under warrant) and (Powers of accompanying persons) do not bind the Crown.

(4B) Nothing in section (Offences) makes the Crown criminally liable.

(4C) The High Court may declare unlawful any act or omission for which the Crown would be criminally liable under section (Offences) but for subsection (4B).

(4D) An amendment or repeal made by this Act binds the Crown to the extent that the provision amended or repealed binds the Crown (but in the case of an amendment of the 1988 Act, this is subject to the amendments made by section 13).”

This amendment provides that the new clauses conferring powers of entry do not bind the Crown. It also provides that the offences applying in relation to the new clauses about requiring information do not make the Crown criminally liable (but can lead to a declaration of unlawfulness) and deals with Crown application of amendments made by the Bill to other legislation.

Amendment 99, in clause 54, page 55, line 31, leave out

“Subsection (2) does not affect”

and insert

“Nothing in this section affects”.—(Jacob Young.)

This amendment is consequential on Amendment 98.

Clause 54, as amended, ordered to stand part of the Bill.

Ordered,

That clause 54 be transferred to the end of line 30 on page 61. —(Jacob Young.)

This amendment is consequential on Amendment 97. It moves clause 54 into Part 5 of the Bill (general provisions). This is necessary because once clause 54 deals with the application to the Crown of new provisions added to the Bill, it will no longer relate only to Part 2, and therefore needs to be moved out of that Part.

Clause 55

Application to Parliament

Amendments made: 100, in clause 55, page 55, line 36, leave out “this Part” and insert

“Part 2 (and Part 3 so far as relating to Part 2)”.

This amendment is consequential on the motion to transfer clause 55. It also makes it clear that the general provisions about enforcement action in Part 3 of the Bill apply in relation to any tenancies and licences referred to in clause 55.

Amendment 101, in clause 55, page 56, line 16, at end insert—

“(2) The following provisions do not apply in relation to premises that are occupied for the purposes of either House of Parliament—

(a) Chapter 2A of Part 1;

(b) sections (Power of local housing authority to require information from relevant person), (Business premises: entry without warrant), (Requirements where occupiers are on business premises entered without warrant), (Business premises: warrant authorising entry), (Business premises: entry under warrant), (Power to require production of documents following entry), (Power to seize documents following entry), (Access to seized documents), (Appeal against detention of documents), (Suspected residential tenancy: entry without warrant), (Requirements where occupiers are on residential premises entered without warrant), (Suspected residential tenancy: warrant authorising entry), (Suspected residential tenancy: entry under warrant) and (Powers of accompanying persons).

(3) Nothing in section (Offences) makes the Corporate Officer of the House of Commons or the Corporate Officer of the House of Lords criminally liable.

(4) The High Court may declare unlawful any act or omission for which the Corporate Officer of the House of Commons or the Corporate Officer of the House of Lords would be criminally liable under section (Offences) but for subsection (3).

(5) Nothing in this section affects the criminal liability of relevant members of the House of Lords staff or of the House of Commons staff (as defined by sections 194 and 195 of the Employment Rights Act 1996).”—(Jacob Young.)

This amendment provides that the new Chapter containing prohibitions on discriminatory practices in relation to tenancies and the new clauses on investigatory powers (except the power to require information from any person) do not apply in relation to premises occupied for the purposes of Parliament. It also provides that nothing in NC41 makes the Corporate Officers of the Houses criminally liable (though there can be a declaration of unlawfulness).

Clause 55, as amended, ordered to stand part of the Bill.

Ordered,

That clause 55 be transferred to the end of line 30 on page 61. —(Jacob Young.)

This amendment is consequential on Amendment 101. It moves clause 55 into Part 5 of the Bill (general provisions). This is necessary because once clause 55 deals with the application to Parliament of the new clauses relating to discriminatory practices and to investigatory powers, it will no longer relate only to Part 2 of the Bill.

Clause 56

Regulations

Amendments made: 102, in clause 56, page 56, line 18, leave out “Part” and insert “Act”.

This amendment provides for the provisions about regulations in clause 56(1) to apply in relation to regulations under the new clauses expected to be added to the Bill.

Amendment 103, in clause 56, page 56, line 28, leave out “Part” and insert “Act”.

This amendment provides for the provision for regulations to be made by statutory instrument to cover all the regulations under the Bill.

Amendment 104, in clause 56, page 56, line 29, after “section” insert

“(Power of the Secretary of State to amend Chapter 2A to protect persons of other descriptions),”.

This amendment provides for regulations under the new clause inserted by NC15 to be subject to affirmative procedure in Parliament.

Amendment 105, in clause 56, page 56, line 33, leave out “Part” and insert

“Act made by the Secretary of State”.

This amendment provides for a default rule that all regulations made by the Secretary of State under the Bill are to be subject to negative procedure in Parliament. The reference to the Secretary of State is included because under other amendments there are regulation-making powers for the Welsh Ministers which are to be subject to procedure in Senedd Cymru rather than Parliament.

Amendment 106, in clause 56, page 56, line 35, at end insert—

“(6) This section does not apply to regulations under section (Power of Welsh Ministers to make consequential provision) or this Part.”—(Jacob Young.)

This amendment is consequential on the motion to transfer clause 56. It ensures that, once clause 56 is moved into Part 5 of the Bill by that amendment, the clause will apply only to the substantive regulation-making powers under the Bill and not to any regulations made under the general powers in Part 5 (Part 5 already contains specific provision about procedure etc in relation to the general powers).

Clause 56, as amended, ordered to stand part of the Bill.

Ordered,

That clause 56 be transferred to the end of line 30 on page 61. —(Jacob Young.)

This amendment is consequential on Amendments 102, 103, 104 and 105. It moves clause 56 into Part 5 of the Bill (general provisions). This is necessary because once clause 56 deals with regulations under provisions outside of Part 2 of the Bill, it will no longer relate only to that Part.

Clause 64

Meaning of “the 1988 Act”

Amendment made: 107, in clause 64, page 61, line 30, after first “Act” insert—

“‘local housing authority’ means a district council, a county council in England for an area for which there is no district council, a London borough council, the Common Council of the City of London or the Council of the Isles of Scilly;”.—(Jacob Young.)

This amendment inserts a definition of “local housing authority” for the purposes of the Bill as a whole.

Clause 64, as amended, ordered to stand part of the Bill.

Clause 65

Power to make consequential provision

Amendments made: 108, in clause 65, page 62, line 1, at end insert—

“(2A) The power to make regulations under this section includes power to make—

(a) supplementary, incidental, transitional or saving provision;

(b) different provision for different purposes.”

This amendment allows regulations made by the Secretary of State containing provision that is consequential on the Bill to include supplementary or incidental provision and to make different provision for different purposes.

Amendment 109, in clause 65, page 62, line 2, leave out from “power”, in the first place, to “for” in line 3 and insert—

“under subsection (2A)(a) to make transitional provision includes power to provide”.—(Jacob Young.)

This amendment is consequential on Amendment 108.

Clause 65, as amended, ordered to stand part of the Bill.

Clause 66 ordered to stand part of the Bill.

Clause 67

Commencement and application

[Matthew Pennycook]

I beg to move amendment 169, in clause 67, page 62, line 21, at end insert—

“, save that section 2(b) comes into force on the day on which this Act is passed only to the extent that it repeals section 21 of the Housing Act 1988; such repeal will not affect the validity of any notices served under that provision on or before the day on which this Act is passed and the provisions of that section will continue to apply to any claims issued in respect of such a notice”.

This amendment would ensure that the abolition of section 21 evictions would come into force on Royal Assent, with saving provisions for any notices served before that date.

In opening the Committee’s fifth sitting for the Opposition, I set out in exhaustive detail our concerns about the huge uncertainty that surrounds the implementation of chapter 1 of part 1 of the Bill as a result of the Government’s recent decision to tie the implementation of the new tenancy system directly to ill-defined court improvements. As I argued, because of the Government’s last-minute change of approach, private tenants have no idea when the new tenancy system will come into force. They do not even know what constitutes the requisite progress on court reform that Ministers deem necessary before the new system comes into force.

At that point in our proceedings, I put three questions to the Minister. First, do the Government believe that the county court system for resolving most disputes between landlords and tenants is performing so badly that reform is a necessary precondition of bringing chapter 1 of part 1 into force? Secondly, if the Government’s view is that reform of the court system is absolutely necessary prior to chapter 1 coming into force, what is the precise nature of the improvements that are deemed to be required? Thirdly, what is the Government’s implementation timeline for those court improvements? The Minister’s terse response to the clause 1 stand part debate provided no convincing answers whatsoever to those questions; indeed, he failed to respond to almost all the detailed and cogent points of concern raised by Opposition Members in that debate. I hope that he will take the opportunity to respond to them in debate on this amendment, and thus provide the Committee with the assurances that were sought, but not secured, earlier in our proceedings.

Toward the end of the debate on clause 1 stand part, I put a question to the Minister about clause 67. I asked why the two-stage transition process that the clause provides for, with precise starting dates for new and existing tenancies to be determined by the Secretary of State, does not afford the Government enough time to make the necessary improvements to the courts. The Minister’s reply was:

“We will come on to that point when we discuss clause 67.”––[Official Report, Renters (Reform) Public Bill Committee, 21 November 2023; c. 159.]

Well, here we are, Minister, and we would still like to know not only why the Government believe that court reform is a necessary precondition of enacting chapter 1 of part 1, what improvements they believe are necessary, and the timeline for their implementation, but why the two-stage transition process that this clause facilitates is not sufficient to get the job done. We really do deserve some answers from the Government today.

I remind the Committee that clause 67 would give the Government an incredible amount of leeway on when the new system comes into force. It allows Ministers to determine an initial implementation date at any point after Royal Assent, after which all new tenancies will be periodic and governed by the new rules, and also to determine a second implementation date, which must be at least 12 months after the first, after which all existing tenancies will transition to the new rules. Although we want firm assurances that the two-stage process will not be postponed indefinitely pending unspecified court improvements, we take the view that the proposed two-stage process is the right approach. It would clearly not be sensible to enact the whole of chapter 1 of part 1 immediately on Royal Assent. Additional time will be required for, for example, new prescribed forms for the new grounds for possession.

However, landlords and tenants need certainty about precisely when the Government’s manifesto commitment to abolish section 21 no-fault evictions will be enacted. Amendment 169 seeks to provide that certainty. It would ensure that section 21 of the Housing Act 1988 was repealed on the day that the Bill received Royal Assent, with saving provisions for any notices served before that date, so that they remain valid and of lawful effect. By ensuring that section 21 is repealed on the day the Act is formally approved, we would prevent a significant amount of hardship, and the risk of private tenants being made homeless. We urge the Government to accept the amendment.

I want to press the Minister on a final point that I raised about clause 67 during our clause 2 stand part debate. As is clearly specified in guidance published by the Government, they propose a minimum period of 12 months between the first and second implementation dates, but there is no maximum period, so the Bill would allow for all new tenancies to become periodic, but then there could be an extensive period—perhaps even an indefinite one—before existing tenancies transitioned to the new rules.

We believe that the Bill should specify a maximum, as well as a minimum, amount of time between the first and second implementation dates. The Minister agreed to write to me on that issue, but unless I have missed some correspondence, that has not been directly addressed in any of the letters I have received thus far. I would be grateful if he could give me a commitment today that the Government will revisit this issue before Report. Otherwise, we will be minded to return to it then.

[Jacob Young]

On the hon. Gentleman’s final point, I fully accept his desire for a maximum period. The reason we have not set a maximum is to give us as much flexibility as possible. There is no real incentive for a landlord today to try to get around the system. Were a landlord to introduce a new three-year fixed-term tenancy agreement to try to game the system and avoid the six or 12-month time limit, that would simply block the landlord, and they would not be able to use the powers that section 21 affords them currently. That would be restrictive to that landlord as well as to the tenant, so we do not see a situation where a landlord would try to subvert the rule.

[Matthew Pennycook]

That is an interesting point. Let me probe the Minister on it. There is no maximum period for the implementation of the second date—in other words, there is no period by which the Government have to have brought forward the date when all existing tenancies are converted. Is he saying that between the first implementation date and the second, when all existing tenancies remain as is, other measures in the Bill will apply to them? That is the logic of his argument about landlords not gaming the system. I do not think we are talking about landlords gaming the system; we are talking about the Government having too much leeway to postpone the conversion of existing tenancies to the new system.

[Jacob Young]

The vast majority of fixed-term tenancies will be a 12-month agreement, so they would naturally roll on to being a periodic tenancy at the end of that fixed-term agreement. It is unrealistic to expect there to be tenancy agreements that are longer than three years, so they would all naturally convert to this new system anyway. We want to create a gradual process for all tenancies to join the new system; otherwise, it would cause confusion and perhaps overload the portal. If that does not satisfy the hon. Gentleman, I am happy to write to him setting that out further.

On amendment 169, I understand that the hon. Gentleman’s intention is to gain more clarity on the timeline for implementation of our reforms. However, the amendment would mean that on the day of Royal Assent, section 21 would be removed immediately. There would be no transition period; no time, once the final detail of the legislation was known, to make sure the courts were ready for the changes; and no time for the sector to prepare.

As we have said a number of times in Committee, these are the most significant reforms of the private rented sector in 30 years, and it is critical that we get them right. I am as wedded to ensuring that section 21 is abolished at the earliest opportunity as the hon. Member is, in order to provide vital security for tenants, but we have to ensure that the system is ready.

It might be helpful for me to explain how we are improving the courts, and what needs to happen to prepare the courts for the new tenancy system. Court rules and systems need updating to reflect the new law; there is no way that this can be avoided. Furthermore, we have already fully committed to a digital system that will make the court process more efficient and fit for the modern age. Let me reassure the Committee that we are doing as much as possible before the legislative process concludes. The design phase of our possession process digitisation project is under way, and has more than £1 million of funding. That will pave the way for the development and build of a new digital service.

We are also working to tackle concerns about bailiff delays, including by providing for automated payments for debtors. That will reduce the need for doorstep visits, so that bailiffs can prioritise possession enforcement. We are going further with the Ministry of Justice and His Majesty’s Courts and Tribunals Service in exploring improvements to bailiff recruitment and retention policies; we touched on that. It would simply be a waste of taxpayers’ money to spend millions of pounds building a new system when we do not have certainty on the legislation underpinning it. That is why we will set out more details and implementation dates in due course.

Let me be clear that this is not a delaying tactic. There are 2.4 million landlords. Urban and rural landlords, their representatives and business tell us that they have concerns about delays in the courts. We cannot simply ignore that. We have always been clear that implementation would be phased, so that the sector has time to adjust, and we committed to giving notice of the implementation dates in the White Paper last year.

[Jacob Young]

Of course it is, and I entirely accept the hon. Gentleman’s point. However, every one of the 11 million renters in this country has a landlord. We have had representations from all the organisations representing the 2.4 million landlords in this country saying that they are concerned about the courts. Trying to introduce a new system and overriding the concerns of landlords would be unwise.

[Matthew Pennycook]

The Minister says that this is not a delaying tactic. I take him at his word. Will he therefore explain why the two-stage transition process provided for by the clause does not provide the Government with enough time to make the necessary improvements? He said that the improvements are already under way, and that huge progress is being made in a number of areas. Why is that not enough time for him to say, “By the second implementation date, we will have got the courts to where they need to be, and we can give tenants the assurance that the new system will be in place at that point”?

[Jacob Young]

As I have outlined, we need to give time for the courts to improve. We need to give them the space to do that. I do not think that the measures in the Bill mentioned by the hon. Gentleman are adequate to do that. However, if there is another mechanism for us to ensure that the courts are prepared before the implementation of the Bill, I am happy to discuss that with him further. I remind all hon. Members that this is the biggest change to the sector in a generation; it is important that we take the time to get it right. The Government are ensuring that we have a smooth transition to the new system, and I therefore ask the hon. Gentleman to withdraw his amendment.

[Matthew Pennycook]

I thank the Minister for that response. That is probably the most detail we have had on what the Government see as the necessary court improvements, but, to be frank, it is not enough detail. There are no metrics in there by which we can measure the reform that he talked about.

The Minister mentioned that the Government want the reforms introduced at the earliest possible opportunity. We have heard that they are targeting bailiff delays, processes and the new digital system. I take it from his response that the implementation of an entirely new digital system relating to possession grounds is a prerequisite to enacting part 1 of chapter 1. However, there is still too much uncertainty about what constitutes a necessary reform, and we are not convinced that the two-stage transition process provided for by the Bill does not afford the Government enough time to get the courts to a point at which we can introduce the new system. Indeed, in the evidence sessions, we heard different points of view on whether we had not better introduce the measures in the Bill and then see how the courts respond to the new system before phasing it in, so we remain unconvinced.

There is a fundamental point of difference between us on the abolition of section 21. We are deeply concerned about the number of people put at risk of homelessness while the Government have delayed bringing the legislation forward. We are deeply concerned about the additional people who will be at risk of homelessness, and who will be made homeless, while the Government get on with court improvements that, frankly, should already have been delivered, so that the Bill could be ready to go. We very much feel that tenants and landlords need certainty about precisely when section 21 will be abolished, so I will press the amendment to a vote.

Question put, That the amendment be made.

--- 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 was going to apologise to the Committee for the slightly obscure nature of my new clause, but after all that, I think it is the Minister who should be apologising for tabling so many Government new clauses to the Government’s own Bill. Perhaps he will do so when he stands up.

New clause 53 is very consciously a probing amendment, in so far as it seeks to ascertain whether there are any safeguards against what we believe might constitute a potential loophole in Bill that could be exploited by unscrupulous landlords.

Clause 14 sets out rules about the period of notice that a tenant can be required to provide when they wish to end an assured tenancy. Specifically, it provides that a tenant’s notice to quit relating to an assured tenancy must be given not less than two months before the date on which the notice is to take effect. That two-month period is intended, rightly, to provide landlords with sufficient time to re-let the property as required. However, the two-month default period of notice can be set aside where both parties agree as much in writing, whether in the tenancy agreement or in a separate document.

There may be entirely legitimate reasons for individual landlords and tenants to agree a shorter notice period. However, we are concerned that some tenants might find themselves informally pressured to agree a shorter notice period in writing as a precondition of being granted a tenancy. For many landlords, there will be absolutely no incentive to agree a shorter notice period than the two-month default; after all, they are likely to need much of that time, if not all, to re-let their property. However, it is entirely conceivable that unscrupulous landlords, particularly in hot rental markets, would have every incentive to get a sitting tenant out as quickly as possible after the point at which that tenant had given a notice to quit, because they will have no trouble in rapidly re-letting their property, probably at a far higher rent level.

We are therefore worried that the freedom for landlords and tenants to agree notice periods shorter than two months in writing could be used to the detriment of tenants—particularly vulnerable tenants, who in all likelihood will not be aware that two months is the default period and who might come under considerable pressure from their landlord to agree to a shorter period. New clause 53 seeks to protect such tenants by simply requiring the court to authorise any agreement in writing that provides for a notice period shorter than the two-month default. I look forward to the Minister’s response.

[Jacob Young]

I apologise to members of the Committee for how long it took to get through all those new clauses. However, I do not apologise for the new clauses themselves, because they strengthen the Bill and give additional rights to tenants and landlords under it. I am very proud that we have been able to add them.

I thank the hon. Gentleman for moving new clause 53, which would prevent landlords and tenants from agreeing contract clauses that override statutory provisions protecting tenants’ rights unless a court has preauthorised it.

Subsection (1) is an unnecessary provision. It is already the case that contractual clauses cannot affect statutory rights unless legislation expressly so allows. This is a long-standing principle of our legal system.

Subsection (2) would give the courts the power to authorise the waiver of tenants’ statutory rights under the Bill. That could have unintended consequences. More importantly, subsection (2) would weaken tenants’ rights. It would allow a judge to authorise the waiver of the rights that the Bill grants them. We do not think that this is appropriate or required.

[Matthew Pennycook]

I note the Minister’s criticism of the new clause as drafted, but does he recognise the point it seeks to raise: the concern that vulnerable tenants might come under pressure from a landlord to agree in writing to a shorter notice period that they may not necessarily want but that comes as a precondition of the tenancy? Notwithstanding his concerns about our new clause, will the Government give some more thought to whether it is a potential weakness of the Bill and how that might be addressed?

[Jacob Young]

I am happy to give the matter more thought in conversation with the Opposition. We intend to give tenants as much information as possible about their rights. That has been discussed at numerous points during the Committee’s consideration. I hope he will consider that assurance sufficient to withdraw his new clause.

[Matthew Pennycook]

I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 56

Extending discretion of court in possession claims

“(1) The Housing Act 1988 is amended as follows.

(2) In Section 9 subsection (6)(a), after ‘Schedule 2 to this Act’ insert ‘, except for grounds 6A, 8 and 8A,’”.—(Matthew Pennycook.)

This new clause would extend the discretion of the court to adjourn proceedings, and stay, suspend or postpone any orders made, to cases where possession is sought under grounds 6, 8, and 8A.

Brought up, and read the First time.

[Matthew Pennycook]

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

In considering the replacement possession regime that the Bill will introduce, we have been at pains to convince the Government that the courts should be given a greater measure of discretion than the Bill currently provides for. Whether it is through allowing for a very limited amount of discretion in relation to mandatory grounds 1, 1A and 6A so that judges could consider whether the tenant would suffer greater hardship as a result of the possession order being granted, or through seeking to make new ground 8A entirely discretionary rather than mandatory, we believe in principle that we should be putting more trust in the judgment of the court to determine whether to make an award, taking into account all the circumstances that are pertinent in any given case.

In the Committee’s proceedings, we have deliberately not made the case for every possession ground to be discretionary. We take the view that there are some limited circumstances in which it is appropriate for landlords to have the certainty of a mandatory ground to regain possession of their property. However, as things stand, we do not believe that the Government have the balance right when it comes to the amount of discretion that the courts have been afforded in relation to the new possession regime.

New clause 56 is a final attempt to convince the Government to incorporate an additional element of discretion into the new system. It would extend the discretion of the court to adjourn proceedings and to stay, suspend or postpone any orders made to cases where possession is sought under grounds 6, 8 and 8A. In so doing, it would give the courts appropriate flexibility to cater for the circumstances where the ground is already made out, but either it is right to give the tenant more time or there is a way to resolve the dispute that does not involve the tenant losing his or her home.

Currently, for all mandatory grounds for possession, once the ground is made out, the court has no choice but to make an order, and it takes effect 14 days after the date on which it is made. Judges have a limited ability to postpone an order, but only up to six weeks from the date made and only where there would otherwise be exceptional hardship as a result. In short, the court has extremely limited flexibility.

Yet there might be extremely compelling circumstances in relation to individual ground 6 possession proceedings, where a judge might want to make an order that takes effect at a date later than six weeks thence. Take, for example, circumstances in which a landlord could not start to develop until two or three months after the hearing. A judge with the discretion provided for by new clause 56 could postpone the order until around the time at which the development could begin, giving the tenant more time to find a new home and providing the landlord with additional rent or income.

Similarly, in individual ground 8 and 8A possession proceedings, the courts currently have no flexibility to make an order suspended. Providing them with that discretion, as new clause 56 would, would allow judges to suspend an order upon terms that might allow for the outstanding arrears to be repaid under an agreed realistic payment plan, and within a timely manner.

The court could not make such a suspended order on a whim or with the mere hope of repayment without any evidence to provide reasonable reassurance that the rent would be repaid, as Liz Davies KC made plain in her evidence to the Committee on 16 November. By providing the courts with the discretion to suspend an order made in those circumstances, we would be helping both tenant and landlord: the tenant because they get to remain in their home rather than be evicted with four weeks’ notice, and the landlord because the arrears owed would have been paid off. If the tenant were to break the terms, then the landlord would still have the right to arrange for bailiffs to start the eviction process.

New clause 56 would simply give the courts the opportunity to exercise a measure of discretion in circumstances in which they were convinced that that was the right course of action, rather than constraining them, as the Bill currently proposes, in relation to mandatory possession grounds. As James Prestwich of the Chartered Institute of Housing said in evidence to the Committee two weeks ago:

“It is important that we are able to trust judges to make informed decisions based on the evidence of the case”.––[Official Report, Renters (Reform) Public Bill Committee, 14 November 2023; c. 74.]

That is all that this new clause seeks, in relation to a discrete number of mandatory grounds for possession. I do not hold out much hope, but I hope that the Minister will consider accepting it.

[Jacob Young]

I thank the hon. Member for moving new clause 56, which would allow the courts to adjourn a possession claim, stay or suspend enforcement of a possession order, or delay the enforcement of an order made under ground 6A, 8 or 8A.

Ground 6A covers situations in which evicting the tenants is the only way for the landlord to comply with enforcement measures such as banning orders; we have already discussed that issue at length earlier in our debates. Delaying enforcement action will therefore mean that the tenant continues to live in an unsafe or overcrowded property, or that the landlord fails to comply with the law. That is not an acceptable situation for either party.

Nor is it fair to ask landlords to bear significant arrears for longer, as applying the new clause to grounds 8 or 8A might. These mandatory grounds already set a high bar for eviction. Asking landlords to bear the cost of significant arrears for longer puts them under unsustainable financial pressure. The Government believe that the new clause strikes an unfair balance that will ultimately hurt tenants. I therefore ask the hon. Member to withdraw the motion.

[Matthew Pennycook]

I thank the Minister for his response. I do not intend to labour the point at any length, as we have discussed the matter on a number of occasions. I think that there is a clear difference of principle as to the amount of discretion that the courts are afforded regarding mandatory possession grounds. We think that they require a bit more flexibility to be able to exercise their judgment when there are compelling circumstances. The Government clearly do not, but I think we may return to the issue at a later stage. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 57

Extension of rent repayment orders

“(1) In Section 40(3) of the Housing and Planning Act 2016, at end of table insert—

--- Later in debate ---

[Jacob Young]

Ms Fovargue, I would like to put on record my thanks to you and the other Chairs of this Bill Committee; to all the Clerks and parliamentary staff; and to the many other people who have worked hard on this Bill, including all my officials and my private office, who have had to get up to date with this Bill in a matter of weeks.

I thank all members of the Committee, including Opposition Members, for their constructive dialogue. We have had some robust debate on several measures, but I hope we can all agree that these are important reforms—the first in a generation—for landlords and tenants. I look forward to further engagement with all hon. Members as the Bill progresses through its remaining stages.

[Matthew Pennycook]

Ms Fovargue, may I take the opportunity to put on record our thanks to you and your colleagues in the Chair for overseeing our proceedings? I also thank our exemplary Clerks for all their assistance; the Doorkeepers and Hansard reporters for facilitating the Committee’s work; and officials in the Department and our own staff for the support that they have provided. Finally, I thank the Minister—as well as the occasional Government Back Bencher who has defied the orders of the hon. Member for South West Hertfordshire and contributed to our debate. [Laughter.] There has been the odd robust exchange, but none has been uncivil, and we appreciate the spirit in which consideration of the Bill has taken place.

Question put and agreed to. 

Bill, as amended, accordingly to be reported.

Renters (Reform) Bill (Ninth sitting)

Matthew Pennycook Excerpts

Committee stage
Tuesday 28th November 2023 Public Bill Committees

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

I beg to move amendment 170, in clause 19, page 24, line 29, after “only if” insert

“both at the date of the service of the notice and the date of the hearing”.

This amendment would ensure that landlords must protect deposits with an authorised scheme and provide prescribed information in connection with it before a notice for possession is served rather than doing so, or repaying a deposit, at any time up to a court making an order for possession.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 171, in clause 19, page 24, line 33, after “only if” insert

“both at the date of the service of the notice and the date of the hearing”.

This amendment would ensure that landlords must protect deposits with an authorised scheme and provide prescribed information in connection with it before a notice for possession is served rather than doing so, or repaying a deposit, at any time up to a court making an order for possession.

Amendment 172, in clause 19, page 24, line 40, after “only if” insert

“both at the date of the service of the notice and the date of the hearing”.

This amendment would ensure that landlords must protect deposits with an authorised scheme and provide prescribed information in connection with it before a notice for possession is served rather than doing so, or repaying a deposit, at any time up to a court making an order for possession.

Clause stand part.

[Matthew Pennycook]

It is a pleasure to continue our proceedings with you in the Chair, Mr Gray.

Clause 19 makes a number of amendments to chapter 4 of part 6 of the Housing Act 2004, the effect of which is to ensure that the requirement for landlords and letting agents to place deposits in a Government-approved tenancy deposit protection scheme is maintained in relation to new assured tenancies and tenancies that were assured shorthold tenancies immediately before the extended application date. Currently, any section 21 notice served on a tenant may be invalid if the deposit requirements are not adhered to, but the clause will ensure that, if landlords take a deposit and do not fulfil the relevant statutory requirements, they cannot be awarded a possession order on any of the grounds set out in the amended schedule 2 to the Housing Act 1988.

On the surface, the clause appears simply to apply the existing tenancy deposit requirements to the new tenancy system that will apply whenever chapter 1 of part 1 of the Bill comes into force. However, there is an important difference between the requirements, which speaks to our wider concern about future landlord compliance with the regulatory obligations that have developed around section 21 notices over the course of the 35 years in which the present tenancy system has been in place. We will explore those wider concerns in more detail when we debate our amendment 176 to clause 34.

With regard to tenancy deposit requirements, the main difference between how the relevant protection rules apply to the existing system and how the Government propose that they will apply to the new one is that, under the Bill, they must be adhered to before a court will award possession, rather than, as now, when a notice is served. Put simply, instead of the landlord having to protect a deposit within 30 days of receipt and provide the prescribed information about how that will be achieved before the notice is served, the Bill will allow them to do either of those, or return the deposit, at any time up to the court hearing date.

From a tenant’s perspective, that situation strikes us as a less stringent application of the requirements than we currently have in relation to assured shorthold tenancies. Taken together, amendments 170 to 172 would ensure that landlords must protect deposits with an authorised scheme and provide prescribed information in connection with it before a notice for possession is served rather than doing so, or repaying a deposit, at any time up to a court making an order for possession. I hope that the Minister will consider accepting the amendments.

[The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Jacob Young)]

It is a pleasure to see you in the Chair again, Mr Gray. I thank the hon. Gentleman for tabling amendments 170 to 172, which seek to change the requirement that landlords must comply with the deposit protection rules before a court can order possession. The amendments would require landlords to comply with the deposit protection rules both before serving a tenant with notice and at the time of the possession hearing. If those conditions are not met, courts could not make a possession order.

The Bill already protects tenants from landlords who are not complying with existing tenancy deposit rules, because clause 19 requires landlords to comply with deposit protection rules before a court may make an order for possession. That will impact only on those landlords who are not complying with existing tenancy deposit rules. If the landlord has stored the deposit correctly in one of the prescribed schemes and has complied with all the applicable rules, the measures in the clause will not hinder or delay the possession process. Landlords will also be able to rectify the problem before the case reaches the court, ensuring that those provisions will not trip them up if they have made an honest mistake. Because we recognise that some possession cases are too critical to delay, that will not apply to the grounds relating to antisocial behaviour.

The aim of our measures in clause 19 is therefore not to prevent or frustrate possession, but to ensure that tenancy deposits are protected for the benefit of the tenant. The hon. Member’s amendments would simply act as another administrative trap that good-faith landlords could fall into. The Bill already ensures that deposits will be protected, while giving landlords sufficient time to comply with the rules before the case reaches the court. I therefore ask the hon. Member to withdraw his amendment.

--- Later in debate ---

[Matthew Pennycook]

I welcome the Minister’s response. What I remain unclear about—if he wishes to clarify this, I will happily allow him to intervene—is whether, in the Government’s view, the change is a less stringent application of the requirements that currently apply to assured shorthold tenancies. That is all we are seeking to probe, and if the Minister can reassure me on that point I will withdraw the amendment.

[Jacob Young]

The existing possession restrictions have made the possession process more complex for all parties, and we do not feel that they are an effective way to ensure that tenants are living in safe and decent homes during a tenancy. That is part of the reason for the changes.

[Matthew Pennycook]

I do not know about other members of the Committee, but from the reasons that the Minister stated, I take it that the change is a less stringent application. I will not press the amendment to a vote at this point, but we may return to this issue, and we will discuss another amendment that we have relating to preconditions and requirements of the Bill around section 21 notices. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 19 ordered to stand part of the Bill.

Clause 20 ordered to stand part of the Bill.

Schedule 2

Consequential amendments relating to Chapter 1 of Part 1

Amendment made: 60, in schedule 2, page 77, line 13, at end insert—

“7A In section 39 (statutory tenants: succession) omit subsection (7).

7B In section 45 (interpretation of Part 1), in subsection (2) omit ‘Subject to paragraph 11 of Schedule 2 to this Act,’.

7C In Schedule 2 (grounds for possession), omit Part 4.

7D In Schedule 4 (statutory tenants: succession), in Part 3, omit paragraph 15.”—(Jacob Young.)

This amendment makes changes to the 1988 Act which are consequential on the changes to the regime for prior notice for some grounds for possession.

Schedule 2, as amended, agreed to.

Clause 21 ordered to stand part of the Bill.

Clause 22

Penalties for unlawful eviction or harassment of occupier

Amendment made: 61, in clause 22, page 28, line 4, at end insert—

“(10) In this section and Schedule A1, ‘local housing authority’ means a district council, a county council in England for an area for which there is no district council, a London borough council, the Common Council of the City of London or the Council of the Isles of Scilly.”—(Jacob Young.)

This amendment defines “local housing authority” for the purposes of section 1A of, and Schedule A1 to, the Protection from Eviction Act 1977.

Clause 22, as amended, ordered to stand part of the Bill.

Clause 23

Meaning of “residential landlord”

[Matthew Pennycook]

I beg to move amendment 173, in clause 23, page 31, line 29, at end insert—

“(c) an agreement to which the Mobile Homes Act 1983 applies; or

(d) any licence of a dwelling”.

This amendment would extend the definition of residential landlord to include park home operators, private providers of purpose-built student accommodation, and property guardian companies.

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 62 to 64.

Clause stand part.

Government amendment 70.

[Matthew Pennycook]

Part 2 of the Bill concerns landlord redress schemes and the private rented sector database. We welcome part 2 and the Government’s intention to use its clauses to bring the private rented sector within the purview of an ombudsman and to establish a new property portal, including a database of residential landlords and privately rented properties in England. As the Committee will know, two letting agent redress schemes already exist, but the case for bringing all private landlords within the scope of one, irrespective of whether they use an agent to provide management services on their behalf, is compelling and has existed for some time.

The Government first announced their intention to explore options for improving redress in the housing market in late 2017, and in 2019 committed themselves to extending mandatory membership of a redress scheme to all private landlords through primary legislation. Much like the abolition of section 21, a statutory single private rental ombudsman has been a long time in the making. There are myriad issues with the ombudsman that lie outside the scope of the Bill, not least how the Government will address its role within what is already a complicated landscape of redress and dispute resolution; there are already multiple redress schemes and tenants already have recourse to local authorities, the first-tier tribunal, a deposit protection scheme and ultimately to the courts.

However, we support the principle of bringing the private rented sector within the scope of a single ombudsman. If the ombudsman covering the private rented sector, whoever it ultimately is, makes full use of the powers available to it and is well-resourced, and if the potential for confusion and perverse incentives that might result from multiple schemes is addressed, that should ensure that tenants’ complaints can be properly investigated and disputes can be resolved in a timely, more informal manner. That would help to ease the pressure on local authorities and the courts.

In contrast to the proposal for an ombudsman covering the private rented sector, the commitment to introduce a new digital property portal was made only last year in the White Paper. Nevertheless, we strongly support it. Indeed, I would go so far as to say—I have done so on previous occasions—that we believe a well-designed, resourced and properly enforced portal has the potential to utterly transform the private rented sector and the experience of tenants within it. 

We want the Bill to deliver a property portal that makes it easier for landlords to understand and demonstrate compliance with their existing obligations and evolving regulations; which empowers tenants by rendering transparent the rental history of landlords; and which enables landlords to be held to account by those they are renting to. We also want the property portal to help local authorities with enforcement against non-compliant landlords and to monitor and crack down on the minority of rogues in the sector.

We are concerned that chapter 2 of part 2 of the Bill, which deals with landlord redress schemes, is arguably too prescriptive, and that chapter 3 of part 2, which deals with the private rented sector database, are not nearly prescriptive enough. Fundamental to the operation of both measures is the question of which tenancies fall within their scope. As a means to probe the Minister on this issue, we tabled amendment 173, which would extend the definition of residential landlord to include park home operators, private providers of purpose-built student accommodation and property guardian companies. Each of those was explicitly referenced in the White Paper with regard to the schemes. I will make some brief comments on each to explore how the Government might define the scope of the private rented sector database and landlord redress scheme provisions via regulations in due course.

When it comes to residential park home operators, the Government’s October 2018 review of the legislation in this area found that some site operators

“continue to take unfair advantage of residents, most of whom are elderly and on low incomes.”

Furthermore, the Government said in their 2019 report, “Strengthening Consumer Redress in the Housing Market”:

“Currently, if a site operator fails to meet their contractual obligations a resident has little recourse except via the First-tier Tribunal, and those who rent directly from the site operator also lack access to redress. We are satisfied that there is a gap in redress services for park home residents and are committed to extending mandatory membership of a redress scheme to all residential park home site operators.”

When it comes to purpose-built student accommodation, the 2019 report also stated:

“Responses highlighted a gap in redress provision amongst students living in purpose-built student accommodation run by private companies.”

While the majority of such private companies have signed up to a code of practice administered by Unipol, the Government nevertheless made clear that private providers of purpose-built student accommodation, as opposed to educational establishments that provide student accommodation, should come within the scope of a redress scheme. When it comes to property guardians, recent reports in the press have highlighted rising instances of misconduct on the part of some property guardian companies that operate through licences to occupy rather than tenancies, which provide significantly fewer protections.

Research conducted by Sheffield Hallam University, commissioned by the Department and published last year, found that most property guardians

“reported very poor conditions, with properties frequently described as deteriorating and susceptible to adverse weather conditions. Local authorities also reported poor conditions in properties they had inspected. Persistent issues with damp and mould were very commonly reported, including damp from flooding, faulty plumbing and leaking roofs.”

That research also found that local authority enforcement teams are not routinely reviewing, inspecting or enforcing standards in guardian properties. There would therefore appear prima facie to be a strong case for including property guardians as well as park home sites and purpose-built student accommodation within the scope of the ombudsman and property portal as a means of increasing enforcement action and driving up standards.

It may well be the case that the Government fully intend to include each of those within the scope of the ombudsman and the private rented sector database in chapters 2 and 3 of part 2 when they introduce the relevant regulations and to provide access to redress for residents living in each type of accommodation, but we would appreciate a degree of clarity from the Government so that we can understand how extensive the operation of both schemes should be. I look forward to the Minister’s response.

[Jacob Young]

I thank the hon. Member for moving amendment 173, which proposes to expand the scope of the mandatory landlord redress scheme, which I will now refer to as the ombudsman, and the database, which I will now refer to as the portal. Specifically, the amendment would expand the ombudsman and portal to include park homes and dwellings occupied under licence, such as private purpose-built student accommodation and buildings occupied under property guardianship schemes.

Clause 23 sets out the tenancies that will fall within the scope of the ombudsman and the portal. It currently provides that they will capture assured and regulated tenancies, which make up the great majority of residential tenancy agreements in England, so under the clause the majority of landlords of private tenancies in England will initially need to be registered with the ombudsman and the portal.

We want to ensure that the introduction of the ombudsman and the portal is as smooth as possible, so tenants and landlords will need to have clarity over their rights and responsibilities. The issues that affect students, property guardians and park home owners can often be quite different from those faced by the majority of those in the private rented sector. Given those differences, it is reasonable to first apply the ombudsman membership requirements to the majority of private landlords. That will mean that all initial landlord members will be subject to the same expectations. We can then consider expanding the remit of the ombudsman to more specialised accommodation.

The clause also gives the Secretary of State the power to make regulations to amend the definitions and change the letting arrangements that would be captured by the requirements. We intend to use the regulations to potentially include different types of letting arrangements in future. I assure the hon. Member that we will continue to engage with the sector, and that we have the flexibility to determine the best course of action following such engagement. I therefore ask him to withdraw the amendment.

I turn to Government amendments 62 to 64. The current definition of “dwelling” would potentially preclude shared accommodation from being brought into scope. The amendments change the definition of “dwelling” that could be used in future so that shared accommodation may be included. In addition, clause 23 provides clarity on the meanings of private “residential landlord”, “relevant tenancy” and “dwelling” for the purposes of determining which tenancies are within the ambit of the private landlord ombudsman and the portal. Ministers will be able to make regulations to allow for divergence between the scope of the ombudsman and the portal. That will ensure that each scheme can retain full autonomy and operate independently in the future.

[Matthew Pennycook]

That was a very helpful clarification from the Minister. I take it from his answer that, although the Government are quite rightly focused on bringing assured and regulated tenancies within the scope of the ombudsman and the portal to cover the majority of private landlords, they are open to considering how their remit and scope may expand in the future to cover important other types of tenancy, as I have described. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 62, in clause 23, page 32, line 5, leave out from second “building” to “it” in line 6.

This amendment removes words that are no longer needed as a result of Amendment 64.

Amendment 63, in clause 23, page 32, line 7, leave out

“so occupied or intended to be so occupied”.

This amendment removes words that are no longer needed as a result of Amendment 64.

Amendment 64, in clause 23, page 32, line 8, at end insert—

“(ia) so that it includes a building or part of a building, and anything for the time being included in the meaning of “dwelling” by virtue of sub-paragraph (i), which is occupied or intended to be occupied as a dwelling that is not a separate dwelling,”.—(Jacob Young.)

This amendment allows the power to amend the definition of "dwelling" that applies for the purposes of Part 2 of the Bill to be used so as to add to that definition places that are not occupied as a separate dwelling. This will enable the power to be exercised to bring shared living accommodation within the definition of "dwelling".

Clause 23, as amended, ordered to stand part of the Bill.

Clause 24

Landlord redress schemes

[Matthew Pennycook]

I beg to move amendment 174, in clause 24, page 32, line 27, leave out “may” and insert “must”.

This amendment would impose a duty on the government to require residential landlords as defined in clause 23 to join a landlord redress scheme.

[The Chair]

With this it will be convenient to discuss the following:

Clause stand part.

Amendment 196, in clause 25, page 34, line 17, at end insert—

“(ba) providing that complaints about deposits held in tenancy deposit schemes under Chapter 4 of Part 6 of the Housing Act 2004 (tenancy deposit schemes) may be made under the scheme,”.

This amendment would ensure that where there is a dispute regarding deposits this can be submitted to the ombudsperson for redress rather than just to the private schemes themselves.

Clause 25 stand part.

[Matthew Pennycook]

Amendment 24 is a simple and straightforward measure that is designed purely to ensure that the Bill guarantees that the private rented sector will be brought within the purview of an ombudsman. The Opposition are slightly concerned by the deliberate choice of the phrase “may make regulations” rather than “must make regulations” in subsection (1) of the clause, not least because it has been four years since the Government committed to extending mandatory membership of a redress scheme to all private landlords through primary legislation. We would be content to withdraw the amendment if we receive firm assurances that the Government will, at the earliest possible opportunity, bring the private rented sector within the remit of an ombudsman and if the Minister provides further detail about the Government’s intentions in that regard.

Turning to clause 25, the Minister will know that all other ombudsman-level redress schemes that have been set up in recent decades, including the new homes ombudsman, the legal ombudsman, the housing ombudsman and the pensions ombudsman, have all been clearly defined in statute as the only bodies responsible for ombudsman-level redress operating within the relevant sector. That is because the Government think it important to avoid having multiple redress schemes in individual industry sectors. As the relevant Cabinet Office guidance sets out, multiple redress schemes should be avoided because they may

“confuse consumers and may introduce uneven practices in investigation and redress”.

The Government have made it clear since the publication of the White Paper that they intend to introduce a new single ombudsman that all private landlords must join, yet clause 25 and others in this chapter deliberately refer to “redress schemes”, rather than a single ombudsman. Clause 25(6)(a) specifically makes clear that the regulations that the Secretary of State may introduce under clause 24 can provide for a number of redress schemes to be approved or designated.

--- Later in debate ---

[Jacob Young]

Amendment 174 would legally oblige the Government to make regulations requiring residential landlords to be members of a landlord redress scheme, rather than giving the Government the discretion to do so. The Government are committed to requiring private landlords to be members of an ombudsman, and a binding obligation is not required on the face of the Bill. We have taken powers in the Bill to allow the Government to ensure that the ombudsman is introduced in the most effective way, and with the appropriate sequencing.

Amendment 196 would require the ombudsman to handle complaints about tenancy deposits. It would be unwise to list in the Bill specific issues that the ombudsman can or cannot look at. The ombudsman would need the flexibility to consider any complaint duly made, but also to direct a tenant elsewhere if more appropriate. As tenancy deposit schemes already provide free alternative dispute resolution, the ombudsman may decide that the case is better handled elsewhere, but it will ultimately depend on the circumstances of each case. The ombudsman will have the final say on jurisdiction, subject to any agreement with other bodies.

We have made provision under clause 25 to enable the ombudsman to publish a Secretary of State-approved code of practice, which would clarify what the ombudsman expects of its landlord members. The ombudsman scheme will also provide more clarity about the circumstances in which a complaint will or will not be considered. I therefore ask the hon. Member for Brighton, Kemptown not to press his amendment.

As discussed, clause 24 provides the Secretary of State with powers to set up a mandatory redress scheme, which all private residential landlords of a relevant tenancy in England will need to join. We intend for the scheme to be an ombudsman service, and will look to require former landlords, as well as current and prospective landlords, to remain members after their relevant tenancies have ended, for a time specified in secondary regulations.

Members have asked for clarity about who the new PRS landlord ombudsman will be. No new ombudsman can be selected until after regulations have been laid following Royal Assent, but we can show the direction of travel. We have listened to the debates and the evidence given to this Committee, and our preferred approach at this time is for the existing housing ombudsman service to administer redress for both private and social tenants. As an established public body already delivering redress for social tenants, the housing ombudsman is uniquely positioned to deliver the private sector landlord redress scheme. Having one provider for all social and private renting tenants would provide streamlined and simple-to-use redress services for complainants.

To be clear, we are not ruling out the possibility of delivering through a different provider; we are still in the early stages of designing this new service. We now intend to explore how best to deliver on our ambition for a high-quality, streamlined and cross-tenure redress service.

To address the point that the hon. Member for Greenwich and Woolwich made about multiple redress schemes, the intention is to approve a single ombudsman scheme that all private landlords will be required to join. However, allowing for multiple schemes in legislation offers the Government flexibility, should the demand for redress prove too much for a single provider to handle effectively. I hope, on that basis, that the hon. Member will withdraw his amendment.

[Matthew Pennycook]

That is useful clarification from the Minister. Based on the assurances he has given, I do not intend to press amendment 174 to a Division. I understand fully, with the caveats that he has just given, what he is saying about a single ombudsman. We would welcome the Government’s preferred approach—for the housing ombudsman to take on responsibility for the private rented sector. The Landlord and Tenant Act 1985 does not distinguish between tenures, and we think that the ombudsman is probably best placed to provide that service and to do so quickly.

I would push back slightly against what the Minister said about how the clause is drafted, purely because, in a sense, it diverges from precedent. Most other Bills that we have looked at are very clear about establishing a single body and not being too prescriptive about how it operates. The Government have taken a different approach here. The Minister has given as one reason for doing so that the ombudsman might be overwhelmed by demand. Our response would be that we should ensure that the ombudsman that is given responsibility is properly resourced and adequately supported to do its job, rather than contemplate setting up additional redress schemes. However, it has been useful to hear the Government’s response, so we will not push the issue any further at this stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 24 ordered to stand part of the Bill.

Clause 25 ordered to stand part of the Bill.

Clause 26

Financial penalties

[Matthew Pennycook]

I beg to move amendment 165, in clause 26, page 36, line 21, leave out “£5,000” and insert “£30,000”.

This amendment would increase the maximum financial penalty that local authorities could impose on a person if it is satisfied beyond reasonable doubt that they have breached the requirement in Clause 24 to be a member of an approved or designated redress scheme or in instances where a property has been marketed where the landlord is not yet a member of a landlord redress scheme.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 166, in clause 26, page 36, line 22, leave out “£30,000” and insert “£60,000”.

This amendment would increase the maximum financial penalty that a local housing authority may impose on a person as an alternative to prosecution, if it is satisfied beyond reasonable doubt that an offence under clause 27 has been committed.

Clause stand part.

--- Later in debate ---

[Matthew Pennycook]

In precisely the same way that amendments 163 and 164, which we debated previously, sought to raise the maximum financial penalty that local authorities could levy where the provisions in clauses 9 or 10 were contravened or an offence committed, amendments 165 and 166 seek to raise the maximum financial penalty in respect of breaches relating to the requirements in clause 24 to be a member of an approved or designated redress scheme—that is, the ombudsman.

If the ombudsman is to cover all private landlords who rent out property in England, as I think every member of the Committee would wish, the penalty for not complying with mandatory membership must be sufficiently severe to act as a deterrent. We have tabled these amendments because we remain unconvinced that a £5,000 fine for a breach and a £30,000 fine as an alternative to prosecution will deter the minority of unscrupulous landlords who wish to evade regulation from failing to join. We urge the Government once again to reconsider.

[Jacob Young]

As the hon. Gentleman has mentioned, we discussed related points in earlier debates. His amendments 165 and 166 relate to the requirement for landlords to be members of the Government-approved redress scheme, which we intend to run as an ombudsman service, and a ban on marketing a property where a landlord is not registered with such a scheme. Our proposed fine regime is fair and proportionate. A £5,000 fine will be enough to deter non-compliance for most, yet fines of up to £30,000 are also possible if non-compliance continues. The legislation allows for fines to be imposed repeatedly every 28 days after a penalty notice has been issued. For repeat breaches, local housing authorities can also pursue prosecution through the court, which carries an unlimited fine. This escalating procedure gives our new ombudsman the necessary teeth for maximum compliance without making the fines unnecessarily excessive. I therefore ask the hon. Member to withdraw his amendment.

[Matthew Pennycook]

I will withdraw the amendment, as I made clear, but there is a point of difference here. We do not believe these fines will be enough. I take on board, as I have previously, the Minister’s point that repeat fines can be levied. For us, these fines are important because of their deterrent effect in cautioning landlords away from ever contemplating a breach or repeat offences. The maximum fine level also has implications for enforcement more generally, which we will debate in due course. In this instance we are probing the Government on the maximum levels, so I do not intend to push the amendment to a Division.

[The Chair]

On a slight technicality, the Member is seeking the leave of the Committee to withdraw the amendment. Other members of the Committee may press it to a Division if they wish to, although in this case they do not.

Amendment, by leave, withdrawn.

Clause 26 ordered to stand part of the Bill.

Clause 27

Offences

--- Later in debate ---

[Matthew Pennycook]

I will speak to new clause 57. I will state up front that we welcome the Government amendments to clause 27 and in this area to toughen the sanctions on landlords who display the types of behaviour the Minister has just set out. As I indicated last week when we debated amendments 163 and 164 and the financial penalties that local authorities could levy for breaches and offences under clauses 9 and 10, we believe that rent repayment orders should be a more significant feature of the Bill as a means to aid enforcement of the new tenancy system; to ensure compliance with the requirements to be a member of the ombudsman and maintain an active landlord database entry; and to fairly compensate tenants for losses incurred due to a failure on the part of landlords to comply with the duties and obligations provided for in the Bill.

As the Committee will know, rent repayment orders were introduced by the Housing Act 2004, and were hugely expanded via section 40 of the Housing and Planning Act 2016. They allow the occupier of a property—usually a tenant—and local authorities to apply to the first-tier tribunal for an order that a landlord or his or her agent should repay rent of up to a maximum of 12 months—although the Minister has just made it clear that, in certain circumstances, the Government propose to lengthen that period to 24 months. Rent repayment orders are an accessible, informal and relatively straightforward means by which tenants can obtain redress in the form of financial compensation without having to rely on another body in instances where a landlord or his or her agent has committed, beyond reasonable doubt, an offence that relates to the occupation or letting of a property.

As Simon Mullings, the co-chair of the Housing Law Practitioners Association, argued in the evidence he gave to the Committee on 16 November:

“Rent repayment orders create, as I have said before to officials in DLUHC, an army of motivated enforcers, because you have tenants who are motivated to enforce housing standards to do with houses in multiple occupancy, conditions and all sorts of things.”––[Official Report, Renters (Reform) Public Bill Committee, 16 November 2023; c. 114, Q146.]

We know that rent repayment orders are already being utilised on a scale the dwarfs the use of other enforcement tools. In London, for example, the available data suggests that more properties were subject to a rent repayment order in the years 2020, 2021 and 2022 than civil penalties and criminal convictions relating to licensing in the same period.

The Bill as originally drafted allowed for rent repayment orders to be made only where a landlord had committed an offence under clause 27(9) relating to continuing or repeat breaches after a penalty had been imposed. As the Minister has made clear, Government new clause 19 adds a series of offences under clause 48 concerning the provision of false or misleading information to the private rented sector database and continuing or repeat breaches. We welcome that.

Separately, Government new clause 21 provides that a rent repayment order can be made against a superior landlord, thereby overriding the judgment made in the recent case of Rakusen v. Jepsen and others, which was heard by the Supreme Court. We welcome its incorporation into the Bill. We take the Government’s decision to table it as a clear indication that they view rent repayment orders as a practical and accessible means of enforcement by tenants or occupiers.

However, we want the Government to go further and extend the tribunal’s ability to make rent repayment orders for the following: first, a breach of new sections 16D and 16E of the Housing Act 1988, relating to the duty on landlords and contractors to give a statement of terms and other information, and the no-let prohibition in respect of grounds 1 and 1A; secondly, a failure to register with the ombudsman, as required by clause 24 of the Bill; and thirdly, a failure to keep an entry on the database up to date and to comply with all the relevant requirements of clause 39.

[Lloyd Russell-Moyle]

Despite my reservations about having three different deposit schemes, one of the reasons that the deposit scheme compliance is so high is because it comes with an element of rent repayment orders. The likelihood of local authorities being able to chase that up is next to zero. The likelihood of tenants being able to do that is extremely high.

[Matthew Pennycook]

My hon. Friend makes a very good point, which pre-empts one that I am about to make. We think that rent repayment orders can and do provide an incentive for landlords in these areas.

We believe, specifically when it comes to new clause 57, that allowing the tribunal to make rent repayment orders for these additional specific breaches would provide an additional incentive for landlords to comply with the relevant duties, requirements and prohibitions, and enable wronged tenants to be compensated for any losses incurred. Extending rent repayment orders to the relevant requirements of clause 39, for example, would be a powerful stimulus for landlord portal registration, because it would become the norm for tenants to check whether their landlord or prospective landlord was compliant.

Conversely, if the entitlement to apply for a rent repayment order were to apply to the relevant requirements of clause 39, it would provide tenants with a compelling reason to visit the portal, to learn about their rights and access information and resources they might not otherwise come across until the point they had a serious complaint or were engaged in a dispute with a landlord. This example also illustrates how an extension of rent repayment orders could alleviate some of the burdens that would otherwise fall on local authorities as the only mechanism to enforce, by means of financial penalties and criminal offences, a number of the breaches in the Bill to which they currently do not apply.

In the scenario I have outlined, tenants incentivised by the potential to apply an RRO to a landlord who was not compliant would act as an intelligence-gathering mechanism for local authorities, helping them to identify unregistered properties that they might otherwise struggle to locate and register. Put simply, as Dr Henry Dawson said to the Committee in the evidence session on 14 November:

“Using rent repayment orders incentivises tenants to keep an eye on landlords.”––[Official Report, Renters (Reform) Public Bill Committee, 14 November 2023; c. 60, Q74.]

The Minister may assure me that the regulations to come may provide for rent repayment orders in relation to clauses 24 and 39(3). If that is the case, we would welcome it, but I would much prefer him to accept the new clause and expand the use of rent repayment orders in the Bill to encourage compliance and give tenants the means to secure, for themselves, redress for poorly behaving landlords. I look forward to the Minister’s response.

[Jacob Young]

The purpose of rent repayment orders is to provide an effective means through which tenants can hold criminal landlords to account and receive due remedy. Extending rent repayment orders to cover non-criminal civil breaches would mean landlords could be ordered to pay up to two years’ worth of rent for a relatively minor non-compliance. We think that this would be disproportionate. We think that scarce court time should be focused on dealing with serious offences rather than more minor breaches. For first and minor non-compliance, with provisions in the Bill there will be several means of redress and enforcement, including the ombudsman and civil penalties of up to £5,000, but I am happy to continue this conversation with the hon. Member for Greenwich and Woolwich further.

[Matthew Pennycook]

I welcome the Minister’s response. There may be a difference of principle here, in that we feel quite strongly, actually, that rent repayment orders should be extended to non-criminal civil breaches of requirements set out in the Bill. I take the Minister’s point about this being an excessive response to landlord non-compliance for first or minor breaches. I say to him that perhaps the Government could explore a grace period as the schemes are being introduced, where landlords are not caught within an extended rent repayment order scheme, or some sort of get-out from first or minor offences.

We are trying to address a way, once the scheme is bedded in and landlords—without committing a criminal offence—are regularly not complying with mandatory membership of the ombudsman or registering with a portal, for landlords to be further incentivised, so that tenants are aware of their rights and hold their landlords to account. This may be an issue that we will come back to, but I very much welcome the Minister’s assurance that we will continue the dialogue on this point.

Amendment 65 agreed to.

Clause 27, as amended, ordered to stand part of the Bill.

Clause 28 ordered to stand part of the Bill.

Clause 29

Guidance for scheme administrator and local housing authority

Amendment made: 66, in clause 29, page 39, line 4, leave out “in England”.—(Jacob Young.)

This amendment leaves out words which have no legal effect because a “local housing authority” as defined by clause 57(1) could not be situated outside of England.

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

[Jacob Young]

Clause 29 allows the Secretary of State to issue or approve guidance on effective working between local councils and the ombudsman, who will run the only approved or designated landlord redress scheme. Both must have regard to any guidance published under provisions in this clause. We have designed the guidance alongside local councils and the ombudsman. Local councils and the ombudsman will have different but complementary roles and responsibilities in the private rented sector. We intend for the guidance to provide clarity on a range of situations where communication and co-operation between councils and the ombudsman would be advantageous or necessary. We also want it to set out roles and responsibilities for when a tenant complains about a problem that both the ombudsman and local councils can help to resolve.

[Matthew Pennycook]

We agree that the new or expanded ombudsman, with responsibility for dealing with complaints from tenants in the private rented sector, will have to work effectively with local authorities given the latter’s enforcement role. When the new ombudsman has been established, a complaint from a tenant concerning the breach of a regulatory threshold will be able to be made either directly to the ombudsman or to the local authority that would have the power to take enforcement action to bring the landlord in question into compliance with the said regulations, and if they fail to do so, to sanction them. There is therefore a clear risk not only that the role of the ombudsman vis-à-vis local authorities is not clearly delineated, but that tenants themselves will be confused about which body it is appropriate to approach in any given circumstance.

This issue was raised during the progress of the Social Housing (Regulation) Act 2023 because there is a general issue about how the ombudsman relates to local authorities. Given the Minister’s indication that the Government’s preferred approach is to have that ombudsman take on a responsibility for the private rented sector, I think—if anything—this point becomes more pertinent. The Government acknowledge, as is clearly stated in the explanatory notes accompanying the Bill, that the new ombudsman and local authorities must have “complementary but separate roles.” I put this point to the housing ombudsman, Richard Blakeway, in one of our evidence sessions two weeks ago. He replied that

“that is a really important point, because there is a risk of duplication between the role of a council and the role of an ombudsman. Again, there is a lack of clarity for residents—tenants—about which route to take. An ombudsman does not operate in isolation—it will not operate in a bubble—so the relationship between the ombudsman and the courts will be critical, as well as the ombudsman discharging its own functions.”––[Official Report, Renters (Reform) Public Bill Committee, 14 November 2023; c. 28, Q28.]

It is crucial that guidance on how local authorities and the ombudsman will work together to resolve complaints, including how they share information and how each signpost to the other where appropriate, is fit for purpose. The clause allows for such guidance to be published, and I would be grateful if the Minister, either now or in writing, could perhaps give us a little more insight into how the Government will ensure that the roles of the two are separate but complementary, as the Government have indicated they must be.

[Jacob Young]

Redress and enforcement achieve different but complementary outcomes. Local councils enforce regulatory standards. Ombudsman schemes are not enforcement or regulatory bodies but instead protect consumer rights by providing redress, in this case where a landlord has failed to adequately deal with a legitimate complaint. Where the complaint from a tenant concerns the breach of a regulatory threshold, local councils may take enforcement actions to bring the landlord or property into compliance with the regulations and use their discretion to sanction landlords. In such circumstances, tenants will be able to complain to both the council and the ombudsman. The local council will address the regulatory breach and the ombudsman will provide redress for the tenant. I hope that that reassures the hon. Gentleman.

Question put and agreed to.

Clause 29, as amended, accordingly ordered to stand part of the Bill.

Clause 30

Interpretation of Chapter 2

--- Later in debate ---

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

[Matthew Pennycook]

The clause removes the jurisdiction of the housing ombudsman service over private residential landlords and the private rented sector housing activities of social housing providers. I simply want to ask the Minister, given his announcement today about the housing ombudsman being the Government’s preferred provider of private rented sector redress, whether the provisions of this clause are still necessary, as the Government have made it clear that they intend the existing ombudsman to extend its remit to cover the private rented sector. Will the Government review the clause in the light of that announcement?

[Jacob Young]

Any social housing redress scheme approved under the Housing Act 1996 provides redress services for the private rented tenancies of social landlords. An approved social redress scheme can also provide redress to tenants of private landlords who choose to join voluntarily. Currently, only one approved social housing redress scheme is administered by the housing ombudsman service.

Once brought into force, the clause will remove the private rented sector activities from the general jurisdiction of any approved social housing scheme. The clause will also stop any social housing redress scheme accepting relevant private landlords as voluntary members in relation to their private sector interests. However, the clause allows a social housing redress scheme to retain some jurisdiction over private rented sector activities if agreed with the Secretary of State. It does not prevent one organisation, such as the housing ombudsman, from administering both social and private redress schemes through a single, joined-up service. The clause will ensure that tenants who complain under the joined-up service are treated in exactly the same way as others who rent in the same sector.

The Bill provides a mechanism to bring the clause into force, but only once the new private rented sector ombudsman scheme is established. That will prevent disruption to members of existing schemes and avoid gaps in redress for tenants. If the hon. Member for Greenwich and Woolwich has further questions, I am happy to write to him.

Question put and agreed to.

Clause 31 accordingly ordered to stand part of the Bill.

Clause 32

The database

[Matthew Pennycook]

I beg to move amendment 175, in clause 32, page 40, line 18, at end insert—

“(ba) details, which may include copies, of all notices seeking possession served by the residential landlord in respect of each dwelling of which he is the landlord, and”.

This amendment would require the database to record details of notices of possession served by a landlord in respect of each dwelling of which they are the landlord.

[The Chair]

With this it will be convenient to discuss the following:

Clause stand part.

Clause 33 stand part.

[Matthew Pennycook]

In the debate on our amendment 173 to clause 23, I remarked on the concern among Opposition members of the Committee that, in contrast to chapter 2 of part 2 concerning the ombudsman, chapter 3 of part 2 concerning the private rented sector database is not nearly prescriptive enough.

To be clear, when it comes to establishing a private rented sector database and developing the new digital property portal service that it will support, we do not wish to tie the Government’s hands too tightly. We believe it is right that much of the detail is put in regulation at a later date: how the database will be operated and overseen; how entries are verified, corrected and removed; what the registration fees are and how they will be collected; and how information on the database is shared with third parties. However, we also believe that certain requirements of the functioning of the portal should be placed on the face of the Bill.

In our view, such requirements should include one for landlords to submit key information on their history and for that information to be publicly available so that tenants may make informed decisions when entering into a tenancy agreement and hold their landlord to account. Key information might include details of past enforcement action taken against a landlord or an agent representing them; any rent repayment, banning or management orders made against them; rent levels for the property over time in the form of past section 13 notices; and details of notices of possession served to previous tenants.

Amendment 175 would add to the Bill a requirement for

“the database to record details of notices of possession”

—as one example—

“served by a landlord in respect of each”

of their dwellings let. As I said, we feel strongly that the Bill should be amended to guarantee a minimum set of expectations for the database and the new digital property portal service; the amendment would go some way to ensuring that is the case. I look forward to hearing the Minister’s thoughts on it.

[Jacob Young]

Clause 32 provides for the establishment and operation of the portal, as we have been discussing. With access to a comprehensive and standardised dataset on private rented sectors across England, local authorities will be best equipped to develop and implement their enforcement strategies. By requiring landlords to undertake a registration process, as provided by clause 34—which I will turn to in due course—the portal will help them to meet standards within the private rented sector by making them aware of their legal requirements.

With legislative backing and clear duties on users, a portal with entries for private landlords and dwellings will support a much richer understanding of the private rented sector and assist the Government in developing targeted policy. As such, the portal will be key to the successful implementation and enforcement of the wider reforms legislated for in the Bill.

Clause 33 sets out who can be the portal operator; a role required to create and maintain a working database of private landlords and their properties. The operator can appointed by the Secretary of State or a person arranged by the Secretary of State. The Government envisage the portal will be centrally co-ordinated by a single operator. Our legislation allows for the portal to be operated by the Department or to arrange for an alternative, such as a public body, to take on that responsibility.

I thank the hon. Gentleman for his Amendment 175. This would require landlords to record their use of possession grounds, under section 8 of the Housing Act 1988, on the property portal. To ensure the portal maintains the flexibility to meet the future needs of the sector, it is necessary that we use regulations to prescribe the information it collects, rather than including these in the Bill.

We intend for the portal to be a source of basic information about properties and their health and safety compliance. This legislation also allows for the ability to record tenancy-related issues, such as details of possession notices. We will consider the matter of recorded possession notices on the portal ahead of passing regulations, and carefully consider the balance of benefits and burden on landlords and local authorities when deciding what information to record. We will continue to work with stakeholders to assess the merits of information requirements, ahead of introducing any regulations. I therefore ask the hon. Gentleman to withdraw his amendment.

[Matthew Pennycook]

That is a helpful response. I took from it that the Government are considering including a history of past possession notices granted to a landlord. That is very welcome.

We tabled this amendment because it gets to the heart of how the new portal will operate. It could be a source of very basic information about a property, and whether it is strictly compliant with health and safety standards. We would hope the Government—the noises the Minister has made indicate they might—will take a more expansive view of how the property portal might work. Namely, that it will give tenants, as consumers, real power, because of the transparency and the amount of information recorded, to be able to know whether the tenancy agreement they are prospectively entering into is good for them, and whether the landlord is a good-faith landlord—as we know the majority are—or potentially an unscrupulous landlord. I welcome the indications the Minister has given, and look forward to debating—whether between us, or with other Ministers—the regulations in due course. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 32 ordered to stand part of the Bill.

Clause 33 ordered to stand part of the Bill.

Clause 34

Making entries in the database

[Lloyd Russell-Moyle]

I beg to move amendment 202, in clause 34, page 41, line 33, at end insert—

“(2A) The regulations must provide for information or documents to be provided relating to disputes and their resolution under deposit protection schemes under Chapter 4 of Part 6 of the Housing Act 2004 (tenancy deposit schemes).”

This amendment would require regulations made by the Secretary of State to require the provision of information relating to dispute resolution for deposit protection schemes.

Amendments 202 and 176 both seek to ensure that certain things are included in this property portal. We have just heard from the Minister that he intends to set out in regulations the lists of what needs to be included. I think it is important that we have confirmation that these are the things that the Minister is considering.

My amendment 202 proposes that disputes and outcomes of the deposit protection scheme be included in the property portal. It is so important that tenants know whether their landlord is routinely in dispute over the deposit. I am not talking about situations in which the tenant agrees that there was damage, and there is no dispute about the deposit deduction; I mean those in which a tenant disputes the damage. The tenant should be able to see whether there are regular disputes and whether the outcome is in the landlord’s favour—the landlord might actually be pretty good—or in the tenant’s. The recording of disputes would also allow us to start to develop case law on deposit disputes and their outcomes.

I also support amendment 176—

--- Later in debate ---

[Lloyd Russell-Moyle]

As I take it, the Minister has agreed that he will consider including disputes. That is a separate point from whether they are part of the ombudsperson; it is about whether their own processes and outcomes are being recorded properly. I will not push the amendment to a vote, but I do hope that the Minister will keep us in touch with his thinking as matters progress.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Matthew Pennycook]

I beg to move amendment 176, in clause 34, page 41, line 33, at end insert—

“(3A) The regulations must provide for the following information or documents to be provided to the database operator as part of the process of creating entries on the database—

(a) an address, telephone number and email address for the residential landlord;

(b) an address, telephone number and email address for all managing agents engaged by the residential landlord;

(c) details of every dwelling that is being let by the residential landlord;

(d) evidence that the residential landlord has supplied a copy of the ‘How To Rent’ booklet to each relevant tenant;

(e) the rent that is currently being charged in respect of every dwelling that is being let by the residential landlord;

(f) details of any enforcement action that a local housing authority in England has taken against the residential landlord;

(g) details of any banning orders that have been made against the residential landlord pursuant to Chapter 2 of Part 2 of the Housing and Planning Act 2016;

(h) in respect of every dwelling that is being let by the residential landlord, copies of the documents required by:

(i) Regulation 6(5) of the Energy Performance of Buildings (England and Wales) Regulations 2012;

(ii) Paragraph(s) 6 and/or 7 of Regulation 36 of the Gas Safety (Installation and Use) Regulations 1998;

(iii) Regulation 3 of the Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020;

(iv) Regulation 4 of the Smoke and Carbon Monoxide Alarm (England) Regulations 2015;

(i) details of whether the dwelling house is required to be licenced under Part 2 (Houses in Multiple Occupation) or Part 3 (Selective Licensing) of the Housing Act 2004”

This amendment would ensure that a number of the regulatory obligations that built up around section 21 notices are maintained by means of the database following the removal of section 21 of the Housing Act 1988.

We discussed, in relation to amendment 175, the fact that we believe that certain requirements relating to the functioning of the portal should be placed in the Bill. In speaking to amendments 170 to 172 to clause 19 in relation to deposit protection, I briefly touched on the fact that a number of regulatory obligations that have developed around section 21 notices over the 35 years for which the present system has been in place will fall away when it is abolished at the point at which chapter 1 of part 1 of the Bill comes into force.

The preconditions and requirements that have built up around section 21 notices, which presently prevent landlords from using the no-fault eviction process unless they can show compliance, include providing copies of gas safety certificates; providing copies of energy performance certificates; providing copies to each tenant of the ever-evolving how-to-rent booklet; and showing evidence of complying with the licensing requirements for houses in multiple occupation. There are no provisions in the Bill to ensure that landlords will have to continue to meet these and other regulatory obligations as a precondition of operating under the new tenancy system.

We fear that that will leave under-resourced local authorities—or tenants themselves, through the pursuit of civil claims—as the only means of enforcing these important statutory duties. We believe that compliance should instead be achieved by making it mandatory for landlords to submit the relevant information and proof of compliance to the database operator as part of the process of creating entries on the database. Amendment 176 would ensure that that is the case in respect of a wide range of existing regulatory obligations. We urge the Minister to accept it.

[Jacob Young]

I thank the hon. Member for moving amendment 176, which would require certain information to be recorded on the property portal. I very much agree with the sentiment of it; we already intend to record much of that information on the portal. Alongside basic personal and property details, we intend to require landlords to supply evidence that health and safety standards are being met within their rental property. This is likely to include the selected information that landlords are currently legally obliged to provide to tenants, such as gas safety certificates.

To ensure that the portal maintains the flexibility to meet the future needs of the sector, it is necessary that the information it collects be specified in regulations, rather than in the Bill. I therefore ask the hon. Member to withdraw his amendment.

[Matthew Pennycook]

I very much welcome the Minister’s response and his statement that “much of” that information will be included on the portal. However, I want to press home why we think this is important. These are not add-ons that we might seek to include in the portal; they are existing preconditions and regulatory obligations that have developed around section 21, and surely they cannot fall away under the new tenancy regime. I welcome what the Minister said, but I urge him to ensure that all the preconditions and obligations that exist around section 21 are a mandatory requirement as part of the portal process.

[Lloyd Russell-Moyle]

It is also important that everything be recorded in one place, not only for tenants but for landlords, who will not have to fill in a plethora of information in different places about the EPC, gas safety and so on. It will make it easier for everyone if the Government get it right. It is so important that they be clear early on, so that we are not in a rush at the last moment.

[Matthew Pennycook]

My hon. Friend’s point is well made. There is the potential—hopefully the Government recognise it—to reduce the burden on landlords by ensuring that there is a clear set of requirements associated with registration on the portal that do not exist around the serving of a notice, as they do currently. We hope that the Government will take our points on board and bring all these preconditions within the scope of the portal in due course. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 34 ordered to stand part of the Bill.

Clause 35

Requirement to keep active entries up-to-date

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

[The Chair]

With this it will be convenient to discuss clauses 36 to 38 stand part.

[Jacob Young]

I commend the clauses to the Committee. I am interested to hear the thoughts of the hon. Member for Greenwich and Woolwich.

[Matthew Pennycook]

I have two brief questions for the Minister in relation to this group of clauses. I am more than happy for him to write to me on these points, as they are quite niche.

First, the powers under clause 38 will be used to set fees in relation to registration on the database. Clause 38(5) allows for all or part of the amount received in fees to be paid to local housing authorities or into the Consolidated Fund. Is the implication of the inclusion of this provision in the Bill that the Government expect there to be a surplus from fees collected by the database? If so, why do the Government not believe, given that they are the relevant enforcement body, that any available funds should be allocated to local authorities alone rather than central Government?

Secondly, we take it from the nature of the charging regime that the Government hope the database will be financially self-sufficient. However, the work needed to maintain and verify entries on the database will be onerous, and the start-up costs could be significant. Can the Minister provide any detail at this stage as to what the Government expect the resourcing requirements of the database to be? Can he provide assurances as to how its implementation and running costs will be met?

[Jacob Young]

In answer to the hon. Member’s question about landlords having to pay to join the service, we intend to fund the service through fees charged to private landlords when they register on the portal. We will take steps to ensure that these costs remain reasonable, proportionate and sustainable. The new service will bring substantial benefits to landlords as well as tenants, providing a single source of information about their legal responsibilities and helping them to showcase their compliance. It will also support local councils to enforce against unscrupulous landlords, who undercut the responsible majority.

On resourcing for local authorities, the information recorded on the portal will save local authorities time when enforcing health and safety standards in the PRS. Our research has shown that locating landlords and properties takes up a significant proportion of local authorities’ resources. Additionally, we are undertaking a new burdens assessment and will ensure that additional burdens created by the new system are fully funded.

Question agreed to.

Clause 35 accordingly ordered to stand part of the Bill.

Clauses 36 to 42 ordered to stand part of the Bill.

Clause 43

Access to the database

--- Later in debate ---

[Lloyd Russell-Moyle]

It might be understandable if, for example, the landlord’s day of birth was redacted on Companies House but the month and year were shown. If we had no national insurance numbers, but we had a contactable address where that person could be found—not necessarily their home address, but a non-PO box address—that might, again, be acceptable.

The Government need to be clear in their intention that this is about privacy grounds only where necessary for the safety and functioning of a landlord, and not about withholding information that would be useful for the tenant in reaching out to the landlord. I will withdraw the amendment, but I expect the Minister to provide some more details in writing about what will be excluded.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 43 ordered to stand part of the Bill.

Clauses 44 to 46 ordered to stand part of the Bill.

Clause 47

Financial penalties

[Matthew Pennycook]

I beg to move amendment 167, in clause 47, page 50, line 36, leave out “£5,000” and insert “£30,000”.

This amendment would increase the maximum financial penalty that local authorities could impose on a person for breach of a requirement imposed by clause 39.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 168, in clause 47, page 51, line 1, leave out “£30,000” and insert “£60,000”.

This amendment would increase the maximum financial penalty that local authorities could impose on a person for committing an offence under section 48.

Clause stand part.

[Matthew Pennycook]

Amendments 167 and 168 would raise the maximum financial penalty that local authorities can levy when there has been a breach of a requirement imposed by clause 39 for private landlords to be registered on the database before they can market, advertise or let associated dwellings, or an offence has been committed under clause 48.

I intend to speak to the amendments only briefly, as we have already debated the issue of maximum financial penalties on two occasions. Suffice it to say that the Opposition remain of the view that the Government should reconsider the proposed maximum limits of £5,000 and £30,000 respectively, on the grounds that fines of up to those levels are unlikely to act as an effective deterrent. I come back to this point briefly because it has a direct bearing on the ability of local authorities to finance enforcement activity, an issue that we will debate shortly in relation to clauses 58 to 61. That is why the Local Government Association supports the amendments.

I remind the Minister that the amendments would bring the maximum financial penalties in line with others that can be issued by enforcement authorities against landlords who breach the legislation, for example in respect of the Leasehold Reform (Ground Rent) Act 2022.

I do not want to press the point, and I do not necessarily expect a response from the Minister, but we urge the Government to reconsider.

[Jacob Young]

I thank the hon. Gentleman for tabling the amendments. As he says, we have discussed these points a few times.

Our proposed fines regime is fair and proportionate. Fines of up to £30,000 are possible if non-compliance continues. The legislation allows fines to be imposed repeatedly every 28 days; and for repeat offences, local housing authorities can pursue prosecution through the courts, which carries an unlimited fine. This escalating procedure will give local authorities the ability to effectively enforce the requirements of the new property portal, without fines being excessive. The Department will issue guidance to local authorities to help them to make use of the new fine-setting powers. I therefore ask the hon. Gentleman to withdraw his amendment.

[Matthew Pennycook]

On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 47 ordered to stand part of the Bill.

Clause 48

Offences

--- Later in debate ---

[Jacob Young]

Blanket bans on letting to families with children or people who receive benefits have no place in our modern housing market. We agree that landlords and agents must not discriminate on that basis, and should fairly consider individual prospective tenants. Our package of amendments and new clauses prohibits landlords from discriminating against families with children or people who receive benefits in England and Wales. The blanket ban measures respond to calls for additional safeguards for some of the most vulnerable renters, while confirming that landlords can ensure that a tenancy is affordable, and that they retain the final say on whom they let to.

[Matthew Pennycook]

Clause 52 simply provides local authorities with the power to impose financial penalties on those who do not meet the requirements of the private rented sector database, as set out in clause 39, or an offence relating to it, as set out in clause 48.

The large group of Government amendments and new clauses that we are considering with this clause add proposed new chapter 2A to part 1 of the Bill. It includes several new clauses, commenced by regulations made by the Secretary of State, that seek to prohibit discriminatory practices associated with children and benefits status in relation to the grant of tenancies, as the Minister made clear. Incidentally, proposed new chapter 2B will provide for the same clauses to apply in Wales, pending commencement by order of Welsh Ministers.

Without question, we welcome the intent behind the amendments and new clauses. As I am sure the Minister can see, we have consistently expressed concern since the Bill’s publication that the commitment in the White Paper to ban so-called “No DSS” or “No kids” practices was not on the face of the Bill. The Government deserve credit, as they do for deciding to extend a decent homes standard to the private rented sector and for seeking to make these important changes through this Bill rather than separate future legislation.

The case for prohibiting “No DSS” and “No kids” practices is indisputable. All renters should be treated fairly in their search for a safe, secure, decent, and affordable place to call home, regardless of whether they are in receipt of benefits or their family circumstances. Yet in addition to the various informal barriers to renting privately that we know exist, some of which we debated when considering advanced rent payments in relation to clause 5, there is incontrovertible evidence that some landlords and agents acting on behalf of landlords actively discourage, or even prevent, people in receipt of benefits or with children from renting their properties.

We know that some landlords refuse to allow benefit claimants to even view an affordable property or to consider them as a potential tenant, and prospective renters across the country will be familiar with messages in property adverts such as “No DSS”, “No benefits”, “Working households preferred” or “Professional tenants only”. The scale of this discrimination is almost certainly significant. Successive YouGov surveys of private landlords in England have made clear not only that a comfortable majority of them prefer not to rent to people in receipt of benefits but that a significant minority operate an outright ban. Outright bans on renters with children may be less prevalent, but they are still extremely commonplace. The result is that hundreds of thousands of families have been unable to rent a home that they wanted and could afford, simply due to their benefit status or because they have children.

As we have touched on numerous times during the Committee’s proceedings, the number of such families in the PRS has increased markedly over recent decades, with woefully inadequate social housing supply and rising house prices making private renting the only option for many families, including working families with children. Of course, such discrimination does not affect all people equally. The reality, particularly in hot, competitive rental markets, is that women, disabled households and people of colour will be disproportionately affected by it. For example, we know that the overwhelming majority of single parents receiving housing benefit are female. I grew up in one of those households; the challenges they face daily are considerable enough without having to navigate discriminatory and potentially unlawful policies in the private letting industry.

Whether they are the result of landlords’ misperceptions, of frustrations with the workings of the benefit system or of ill-informed advice from letting agents, blanket bans of the kind in question are simply unacceptable. They are not only unacceptable but almost certainly already unlawful by virtue of the premises provisions in the Equality Act 2010, which provide for a prohibition against discrimination in letting, managing or disposing of premises. However, although a number of court rulings have confirmed that rejecting tenancy applications because of an applicant’s benefit status or family circumstances is a breach of the 2010 Act, proving discrimination is incredibly difficult. As a result, despite the growing body of case law, “No DSS” and “No kids” practices remain widespread.

The Government amendments in this group perfectly demonstrate the nature of the problem. They specify discriminatory practices that are already unlawful under part 4 of the Equality Act 2010. Indeed, Government new clauses 8 and 9 even mirror the language of the Equality Act—“provision, criterion or practice”—in relation to discriminatory practices, yet they do nothing to clarify that the various practices are henceforth always to be deemed discriminatory. As such, although we welcome the motivation behind the Government amendments in attempting to provide for a strict prohibition of such practices, we are concerned that they will not achieve that objective, because, although they will have the effect of removing terms discriminating against benefit claimants and families with children from contracts, they will not prevent the underlying discrimination from occurring in practice.

What we propose, by way of our new clause 61, is that the weaknesses of the various Government amendments in question are resolved by ensuring that the underlying conduct is clearly unlawful by making it a breach of the Equality Act 2010. Our new clause is aimed at prohibiting indirect discrimination and discrimination arising from disability, by giving the Secretary of State the power to define, by regulation, what behaviour is, for the purposes of part 4 of the 2010 Act, considered to be unlawful discrimination unless the person accused of discriminating can prove the contrary. It would remove, for example, the need for a female prospective private renter to prove that a “No DSS” blanket ban had a disproportionate impact on her as a woman. It would mean that, in any court proceedings, the first threshold stage would always be passed unless the landlord in question could convince the court that the ban had no discriminatory impact—which, of course, would never happen.

By forcing landlords to prove that some objective justification exists for refusing to rent to people in receipt of benefits or with children in order to advertise or market a property on the basis of a “No DSS” or “No kids” ban, our amendment would have the effect of ensuring that such discriminatory practices were finally banned in practice, because the number of privately rented properties where there could be such an objective justification is tiny.

I hope the Minister will respond to this amendment in the spirit in which it is intended—namely, as a constructive means of compelling the Government to consider whether their proposed new chapter 2A to part 1 of the Act may fall short in practice. I look forward to the Minister’s response.

[Jacob Young]

I am grateful to the hon. Member for tabling new clause 61. As I set out earlier, we agree that blanket bans against letting to families with children or to people who receive benefits have no place in our modern housing market. That is why our amendments to the Renters (Reform) Bill make express provisions to ensure that landlords and agents cannot discriminate on that basis.

Our measures take direct action to address blanket ban practices in the private rented sector, and our targeted approach tackles both overt and indirect practices. We have designed our enforcement approach with the tenants that are most vulnerable to this type of discriminatory practice in mind, and we understand that their priority is finding a safe and secure home in the private rented sector. Unlike the provisions in the Equality Act 2010, we are giving local councils investigatory and enforcement powers to tackle unlawful blanket ban practices. Tenants will not have to shoulder the burden of taking their complaint to court; local councils will be enabled to take swift and effective enforcement action. We think that it is right that prohibitions on blanket bans in the private rented sector are part of the Renters (Reform) Bill and that they are incorporated into the enforcement framework, rather than the Equality Act 2010.

I say to the hon. Gentleman that we are of one mind when trying to stop these blanket bans, so I am happy to have further conversations with him to that effect. I therefore ask him to withdraw his amendment.

[Matthew Pennycook]

I absolutely agree with the Minister that we are of one mind in wanting to ensure that these blanket bans are prohibited: he is right that they have no place in our modern housing market. However, we remain concerned—I do not think that the Minister addressed the specifics of our new clause—that the Government’s amendments will not achieve that objective. As I said, although they will have the effect of removing, from contracts, terms discriminating against benefits claimants and families with children, they will not, in practice, prevent that underlying discrimination from occurring.

We feel very strongly about this issue. If the Government do not get this right and these practices are not abandoned, we will have to return with a future piece of legislation to ensure that they are prohibited in practice. For that reason, we will seek to press the new clause to a Division at the appropriate time.

Amendment 71 agreed to.

Clause 52, as amended, ordered to stand part of the Bill.

Ordered,

That clause 52 be transferred to the end of line 30 on page 57.—(Jacob Young.)

This amendment is consequential on Amendment 71 which expands clause 52 so that it is no longer limited to penalties under Part 2 of the Bill. This amendment moves clause 52 into Part 3 of the Bill (enforcement authorities). Part 3 is expected to be added to so as to include other provision about enforcement generally. Clause 52 is expected to form its first Chapter.

Schedule 3

Financial Penalties

Amendments made: 72, in schedule 3, page 78, line 8, after “section” insert “(Financial penalties),”.

This amendment is consequential on Amendment 71.

Amendment 73, in schedule 3, page 80, line 20, after “section” insert “(Financial penalties),”.

This amendment is consequential on Amendment 71.

Amendment 74, in schedule 3, page 80, line 25, after “section” insert “(Financial penalties),”.

This amendment is consequential on Amendment 71.

Amendment 75, in schedule 3, page 80, line 33, at end insert—

“(ca) the activities of a superior landlord in relation to such a tenancy,”.—(Jacob Young.)

This amendment ensures that the proceeds of financial penalties imposed under clauses 26 and 47 can be applied towards meeting enforcement costs relating to superior landlords as well as immediate landlords.

Schedule 3, as amended, agreed to.

Clause 58

Enforcement by local housing authorities: general duty

[Jacob Young]

I beg to move amendment 76, in clause 58, page 57, line 35, after second “of” insert “, or an offence under,”.

This amendment ensures that the duty in clause 58(1) does not prevent a local housing authority from taking enforcement action in respect of an offence under the landlord legislation which occurs outside of its area.

[Jacob Young]

I am interested to hear the thoughts of the hon. Member for Greenwich and Woolwich.

[Matthew Pennycook]

Part 3 of the Bill concerns the enforcement authorities, and clause 58 is the key clause. It imposes a new duty on local authorities to enforce, by means of financial penalties or by instituting offence proceedings, prohibitions of the landlord legislation in their areas. Subsection (4) sets out the definition of “landlord legislation”, referring to sections 1 and 1A of the Protection from Eviction Act 1977 and chapter 1 of part 1 of the Housing Act 1988. Neither of those are new, obviously, but local authorities have never had a duty to enforce them before, and the 1977 Act will require a different approach from the police to unlawful evictions. It also refers to the whole of part 2 of the Bill—all the prohibitions relating to the ombudsman and the property portal. By any definition, that constitutes a significant array of new regulatory and enforcement responsibilities for local authorities to meet.

Various proposals in the Bill could, if they work well, make local authority enforcement of prohibitions of the landlord legislation in their areas easier. The new ombudsman has the potential, for example, to provide an alternative route for dispute resolution and a distinct and effective route to redress when it comes to breaches of prohibitions relating to the misuse of possession grounds and for not providing a written statement of terms, thus ensuring that local authorities are not the only enforcement body for such contraventions. Similarly, the new private rented sector database has the potential, for example, to allow local authorities to far more easily identify poor-quality and non-compliant properties and who owns them, thus addressing a key barrier for local authorities when it comes to enforcing standards.

--- Later in debate ---

[Ms Buck]

My hon. Friend is absolutely right to talk about the variation in performance between local authorities. Enforcement in some of them definitely reflects a variation in interest and concern. Does he also recognise that there is also a fundamental issue of resource capacity for enforcement in local government? As this largely discretionary service is being squeezed by the pressures on local authorities, requiring extra duties from local authorities without resources is a recipe for inaction.

[Matthew Pennycook]

My hon. Friend’s point is extremely well made. As I have commented already, there is an issue about which local authorities prioritise these services, but precisely because they are a discretionary service, there is an issue of resources and funding. That is the second of the points I wish to put to the Minister.

In assessing why the approach of so many local authorities to enforcement is inherently reactive, one cannot escape the issue of capacity and capabilities. Not only are councils across the country under huge financial pressure at present but many are struggling, and indeed have struggled for some time, to recruit experienced officers to carry out enforcement activity. Yet the White Paper was entirely silent on the challenge of local authority resourcing and staffing. The provisions in the Bill that enable local authorities to keep the proceeds of financial penalties to reinvest in enforcement activity are welcome. However, the funds that will raise—not least because the Government have chosen to cap financial penalties at £5,000 and £30,000 respectively—are unlikely to provide the initial funding required to implement the new system, and even in the medium to long term will almost certainly not cover the costs of all the new regulatory and enforcement responsibilities that clause 58 will require local authorities to meet.

The White Paper committed the Government to conducting a new burdens assessment into the reform proposals it set out, assessing their impact on local government, and, where necessary, fully funding the net additional cost of all new burdens placed on local councils. I would be grateful, therefore, if the Minister can give us today a clear commitment on resources. Specifically, can he tell us whether the commitment to a new burdens assessment will be honoured and, if so, when it will be published?

[Jacob Young]

It is under way now.

[Matthew Pennycook]

Can the Minister also give us a clearer view of the Government’s view of the future of selective licensing following the Bill’s enactment, given that such schemes are crucial sources of local authority funding in a number of areas? I look forward to the Minister’s response to those points.

[Jacob Young]

I am grateful to the hon. Member for Greenwich and Woolwich for speaking to his amendments, and to the hon. Member for Westminster North for her comments. We expect the vast majority of landlords to do the right thing and meet their new legal responsibilities but, as ever, a minority will fail to do so. The Government are committed to supporting local authorities and taking proactive enforcement against this minority of landlords.

Clause 58 will place a new duty on every local housing authority in England to enforce the new measures in their area. When considering enforcement, local authorities will be able to use a civil penalty as an alternative to a criminal prosecution for an offence, allowing them to decide the most effective method of enforcement in each case.

Government amendments 78, 81 and 82 will extend the power in clause 58, though not the duty, to enforce the landlord legislation to county councils in two-tier areas in England. While local housing authorities have a duty to enforce the landlord legislation in their areas under clause 58, there may be some instances where breaches and offences are better pursued by the authority responsible for trading standards. For example, in relation to advertising a property to rent, county councils also have this responsibility. In this Bill, we make a distinction between less serious breaches of the legislation and more serious offences. Government amendments 76, 83, 84 and 85 strengthen clause 58 to ensure that the ability of a local housing authority to take enforcement action outside its local area extends to offences as well as breaches.

Clause 59 will further support effective enforcement by ensuring that the local authorities are fully aware of the enforcement action in their areas that is going to be taken by a different authority, and of the final results of such action. This will facilitate local authorities to take cross-border enforcement action, and deliver greater efficiency and enable local authorities to provide the most complete case to the courts.

Clause 60 will allow the Secretary of State to appoint a lead enforcement authority for the purpose of provisions in the landlord legislation, which includes many of the provisions in this Bill. We plan to carefully consider whether having a lead enforcement authority for any of the provisions in the landlord legislation will be beneficial. We plan to engage with local authorities and other stakeholders to establish this.

Clause 61 sets out the various duties and powers of a lead enforcement authority. The principal duty is to oversee the operation and effective enforcement. This includes the duty to provide advice to local authorities about the operation of the legislation and may include information relevant to the enforcement of specific cases.

Government amendments 86 to 91 will ensure that a lead enforcement authority’s duties and powers provided in the Bill to help local housing authorities are extended to county councils in England that are not local housing authorities. Government amendments 92, 93 and 95 ensure that county councils in England that are not local housing authorities are required, when requested, to report to a lead enforcement authority, in the same way that a local housing authority is on the exercise of its functions. New clause 22 will ensure that enforcement action is not duplicated when those county councils that are not also local housing authorities take enforcement action in relation to landlord legislation. Government amendment 77 ensures that new provisions of the new clause 22 are referenced in clause 58, which is the clause that encloses the duty to enforce on local housing authorities.

Finally, new clause 23 will place a duty on local authorities to supply data to the Secretary of State in relation to the exercise of their functions—I believe that point was mentioned by the hon. Member for Greenwich and Woolwich—under part 2 of this Bill, and other relevant legislation as and when it is requested. In order to evaluate the impact of our reforms and understand the action that local authorities are taking against the minority of landlords who flout the rules, it is vital that the Secretary of State is able to seek regular and robust data from local authorities. My officials will work with local authorities to agree a data reporting framework that is rational, proportionate and helpful to both local and central Government, and in line with other similar data collections. With their input, we will undertake a new burdens assessment and fully fund any additional costs generated to fulfil this duty. I hope that addresses the points raised in Committee.

Amendment 76 agreed to.

Amendments made: 77, in clause 58, page 57, line 38, after first “authority)” insert—

“, (Enforcement by county councils which are not local housing authorities: duty to notify)(3) (enforcement by county council in England which is not a local housing authority)”.

This amendment is consequential on NC22.

Amendment 78, in clause 58, page 57, line 38, at end insert—

“(3A) A county council in England which is not a local housing authority may—

(a) enforce the landlord legislation;

(b) for that purpose, exercise any powers that a local housing authority may exercise for the purposes of enforcing that legislation.”

This amendment confers a power to enforce the landlord legislation on county councils in England which are not local housing authorities and for that purpose enables such councils to exercise powers equivalent to local housing authorities.

Amendment 79, in clause 58, page 58, leave out lines 1 to 3.

This amendment removes the definition of “local housing authority” for the purposes of Part 3 of the Bill. It is consequential on Amendment 107 which inserts a definition of “local housing authority” for the purposes of the Bill as a whole.

Amendment 80, in clause 58, page 58, line 4, at end insert—

“(za) Chapter 2A of Part 1 of this Act,”.

This amendment adds the new Chapter expected to be formed of new clauses relating to discriminatory practices in relation to the grant of tenancies to the definition of “the landlord legislation” in clause 58.

Amendment 81, in clause 58, page 58, line 9, leave out “a local housing authority”.

This amendment is consequential on Amendment 78.

Amendment 82, in clause 58, page 58, line 10, leave out “that authority”.—(Jacob Young.)

This amendment is consequential on Amendment 78.

Clause 58, as amended, ordered to stand part of the Bill. 

Clause 59

Enforcement by local housing authorities: duty to notify

Amendments made: 83, in clause 59, page 58, line 16, after second “of” insert “, or an offence under,”.

This amendment ensures that a local housing authority notifies another local housing authority if it proposes to take enforcement action in respect of an offence under the landlord legislation which occurs in the area of that other authority.

Amendment 84, in clause 59, page 58, line 23, after “breach” insert “or offence”.

This amendment is consequential on Amendment 83.

Amendment 85, in clause 59, page 58, line 27, after “breach” insert “or offence”.—(Jacob Young.)

This amendment clarifies that a financial penalty imposed under the landlord legislation may also relate to an offence under that legislation.

Clause 59, as amended, ordered to stand part of the Bill.

Clause 60 ordered to stand part of the Bill.

Clause 61

General duties and powers of lead enforcement authority

Amendments made: 86, in clause 61, page 59, line 30, leave out “local housing” and insert “relevant local”.

This amendment requires a lead enforcement authority to provide information and advice to county councils in England which are not local housing authorities.

Amendment 87, in clause 61, page 59, line 35, leave out “local housing” and insert “relevant local”.

This amendment provides for a lead enforcement authority to disclose information to county councils in England which are not local housing authorities for certain purposes.

Amendment 88, in clause 61, page 60, line 1, leave out “local housing” and insert “relevant local”.

This amendment provides for a lead enforcement authority to issue guidance to county councils in England which are not local housing authorities.

Amendment 89, in clause 61, page 60, line 4, leave out “Local housing” and insert “Relevant local”.

This amendment requires county councils in England which are not local housing authorities to have regard to guidance issued by a lead enforcement authority under subsection (4) of clause 61.

Amendment 90, in clause 61, page 60, line 14, leave out “local housing” and insert “relevant local”.

The amendment provides for a direction given under subsection (7) of clause 61 to relate to county councils in England which are not local housing authorities.

Amendment 91, in clause 61, page 60, line 16, at end insert—

“‘relevant local authority’ means—

(a) a local housing authority, or

(b) a county council in England which is not a local housing authority;”.—(Jacob Young.)

The amendment defines “relevant local authority” for the purposes of clause 61.

Clause 61, as amended, ordered to stand part of the Bill.

Clause 62

Enforcement by the lead enforcement authority

Amendments made: 92, in clause 62, page 61, line 1, leave out “local housing” and insert “relevant local”.

This amendment requires a county council in England which is not a local housing authority to report at the request of a lead enforcement authority on the exercise of the county council’s functions under the provisions for which the lead enforcement authority is responsible.

Amendment 93, in clause 62, page 61, line 3, leave out “local housing” and insert “relevant local”.

This amendment is consequential on Amendment 92.

Amendment 94, in clause 62, page 61, line 5, at end insert—

“(7) The powers of a local housing authority referred to in subsection (1)(b) include the power to authorise persons to exercise powers of officers under sections (Power of local housing authority to require information from relevant person) to (Investigatory powers: interpretation) (see section (Investigatory powers: interpretation)(2)).

(8) Section (Suspected residential tenancy: entry without warrant)(7) is to be read, in relation to an officer of a lead enforcement authority, as if—

(a) the reference to a deputy chief officer whose duties relate to a purpose within subsection (1)(b) of that section were a reference to—

(i) a person who is employed by, or acts on the instructions of, the body which is the lead enforcement authority and has overall responsibility for the exercise of the functions of that body in that capacity (‘the head of the lead enforcement authority’), or

(ii) a person who is employed by, or acts on the instructions of, the lead enforcement authority, and has been authorised by the head of the lead enforcement authority to give special authorisations within the meaning of section (Suspected residential tenancy: entry without warrant), and

(b) paragraph (b)(ii) were omitted.”

This amendment is consequential on other new clauses which provide for investigatory powers of local housing authorities. It deals with how the references to officers of a local housing authority are to apply in the case where the powers of a local housing authority are to be exercised by a lead enforcement authority.

Amendment 95, in clause 62, page 61, line 5, at end insert—

“(9) In this section ‘relevant local authority’ has the same meaning as in section 61.”—(Jacob Young.)

This amendment defines “relevant local authority” for the purposes of clause 62.

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

Renters (Reform) Bill (Seventh sitting)

Matthew Pennycook Excerpts

Committee stage
Thursday 23rd November 2023 Public Bill Committees

[The Chair]

I remind the Committee that with this we are discussing the following:

Amendment 153, in schedule 1, page 74, line 20, leave out paragraph 22.

This amendment would remove the new ground for possession for repeated rent arrears.

Amendment 154, in schedule 1, page 74, line 22, leave out “three” and insert “one”.

This amendment would limit the period to demonstrate repeated serious rent arrears to one year.

Amendment 155, in schedule 1, page 74, line 25, leave out “a day” and insert “two weeks”.

This amendment would extend the period during which at least two months’ rent was unpaid from a day to two weeks.

Amendment 156, in schedule 1, page 74, line 28, leave out “a day” and insert “two weeks”.

This amendment would extend the period during which at least two months’ rent was unpaid from a day to two weeks.

[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, Mr Paisley. As you said, we adjourned on Tuesday with the Minister having responded to amendments 180, 153, 154, 155 and 156. That response, which you did not have the pleasure of hearing, was deeply unsatisfactory. It amounted to little more, I have to say, than an unsubstantiated assertion of the Government’s position that new mandatory ground 8A is required to support landlords in all instances of a tenant falling into serious arrears, and to prevent tenants from repeatedly paying down a small amount of arrears to frustrate existing ground 8 possession proceedings.

In moving amendment 180 and speaking to the other amendments in the group, I advanced three arguments as to why the Government’s position is flawed. First, there are already robust mechanisms in place, namely discretionary grounds 10 and 11, to deal with the very small minority of problem tenants who attempt to game ground 8, and courts use them. Secondly, new ground 8A can be gamed in much the same way as the Government believe existing ground 8 is being gamed, and ground 8A will have the added flaw of actively discouraging tenants from paying off a third set of arrears because they know that they will inevitably lose their home. Thirdly, all the evidence suggests that the number of people seeking to game ground 8 is vanishingly small, if not non-existent.

The Minister did not provide a rebuttal to any of those arguments. There was no response from him to our argument that new ground 8A can be gamed in much the same way as ground 8, and that it will have an impact on landlords as a result of incentivising tenants to avoid paying their third set of arrears. There was no response to the point that all the evidence suggests that the number of tenants gaming ground 8 is vanishingly small. After we heard extensive expert testimony last week supporting our arguments, the Government essentially said on Tuesday, “We dismiss the evidence. We think we know better.” To say that their position is unconvincing would be a gross understatement. I say to the Minister that he is going to have to do better on some of these very controversial clauses on Report.

We are extremely concerned about the implications of leaving new ground 8A in the Bill. We believe that it will lead to a great many vulnerable tenants being evicted unfairly. These are tenants who, I remind the Committee, will be struggling financially. Many will be in crisis and will desperately require debt advice and support, but we know they will have been trying to do the right thing because they will have made previous attempts to pay off their arrears in full. As I argued in our last sitting, the idea that we are talking about a bunch of people familiar enough with ground 8 in schedule 2 of the Housing Act 1988 to sit down and work out how they can game it is frankly insulting.

This is a punitive and draconian measure that will cause great hardship without providing the additional certainty that the Minister claimed it would. It is not necessary to tackle the genuine instances of persistent arrears or the rare instance of a problem tenant seeking to deliberately avoid ground 8 action. On that basis, we intend to press to a vote both amendment 153, which seeks to remove new ground 8A from the Bill entirely, and, if that fails, amendment 180, which seeks to make the ground discretionary. We will certainly be returning to the issue at a later stage.

[The Chair]

Just to clarify, I will put the Question on amendment 180 first.

Question put, That the amendment be made.

--- Later in debate ---

[Helen Morgan]

It is a pleasure to see you in the Chair, Mr Paisley. I draw Members’ attention to my entry in the Register of Members’ Financial Interests.

I tabled these amendments to reflect my general concerns about the potential for abuse of ground 14, the discretionary ground for eviction on the basis of antisocial behaviour. We heard, both on Second Reading and in last week’s evidence sessions, about concerns that ground 14 could be used to evict a tenant who is a victim of domestic abuse or is suffering with mental ill health or a physical condition that could cause annoyance to surrounding neighbours.

We also heard last week from Liz Davies KC, in our fourth sitting, that the threshold is being lowered by a very small margin. She said that it was difficult to see circumstances in which behaviour would not meet the threshold of “likely to cause”, but would meet the threshold of “capable of causing”. She outlined that, in her experience, courts use the existing discretionary ground wisely, to rightly allow possession where there is a flagrant problem with antisocial behaviour. We have no reason to believe that courts will not continue to do so. I am therefore a bit perplexed as to why the Government have tried to slightly lower the bar for eviction. Further to our recent discussions of other amendments, I am concerned that it is to allow landlords to exploit the clause as a route to an easier eviction.

Amendment 130 would maintain the existing definition, which, as we heard last week, should be sufficient for landlords to evict where antisocial behaviour is a genuine problem. Unless the Minister can provide some reassurance that the changed terms will not lead to an increased number of evictions, I intend to press amendment 130 to a vote.

Amendment 131 reinforces that point. Literally interpreted, the legislation does not specify whether or not a visitor exhibiting antisocial behaviour is regularly attending the property. Clearly tenants should be protected from eviction where there has been a single or very intermittent problem. Indeed, a regular antisocial visitor may not be welcome at the property; they may be regularly attending to intimidate or cause distress to the tenant.

I have a piece of casework in which the tenants of a property, through no fault of their own, have been subjected to intimidation and verbal abuse by a member of the community who lives elsewhere. I do not doubt that that causes nuisance and annoyance for other residents, but it would be grossly unfair to evict those tenants. In all likelihood, it would not resolve the problem in the long term either; it would just shift it to a different place in the same town.

I will not press amendment 131 to a vote, because ground 14 is discretionary and we should trust the judgment of the court as to whether an eviction is appropriate in each individual case. However, as we have heard of instances where unreasonable evictions have taken place, I would welcome an assurance from the Government that there will be safeguards and guidance in place to prevent the innocent from being evicted by an unscrupulous landlord under ground 14.

[Matthew Pennycook]

I rise to speak to amendment 158 and new clause 55, which stand in my name and in the name of my hon. Friends.

It is a pleasure to follow the hon. Member for North Shropshire. Both her amendments to schedule 1, in relation to the proposed revision of existing ground 14, are welcome. Indeed, we tabled an identical amendment to her amendment 130, but it was not selected, on the basis that it was an exact duplicate—that is a lesson for the whole Committee on the importance of tabling amendments in a timely fashion. If the hon. Lady presses her amendment 130 to a vote, we will certainly support it.

As the hon. Lady set out, paragraph 23 of schedule 1 to the Bill will widen ground 14 of schedule 2 to the Housing Act 1988 to include behaviours

“capable of causing nuisance or annoyance”,

as opposed to the existing language, which merely refers to

“likely to cause nuisance or annoyance”.

We are pleased that the Government are not proposing to make existing ground 14 mandatory, as some had feared prior to the publication of the Bill earlier this year. The court will therefore still have discretion to judge whether it is reasonable and proportionate to evict a tenant for the behaviour in question.

--- Later in debate ---

[Matthew Pennycook]

The Minister must have been listening to a different balance of the totality of the evidence from what I heard. I heard significant criticism of this proposed change by the Government. He still has not given me an example of the types of behaviour that would not fall under the existing definition, but that would be covered by the expanded one. I think that is because the change is driven more by the politics of what is required to get the Bill through than by any empirical evidence that such a change is required to deal with instances in which landlords cannot recover their properties from tenants who cause antisocial behaviour.

[Helen Morgan]

We heard extensively from the representative of Grainger plc about antisocial behaviour. I felt that her evidence demonstrated clearly that the existing grounds were adequate for tenants to be evicted under such circumstances. Does the hon. Gentleman agree?

[Matthew Pennycook]

I think that is a worthwhile intervention. I heard the evidence from Grainger and others highlighting concerns about this ground, so the Government are just wrong if their position is that expert opinion out in the country is that there is no problem whatever with the proposed change to ground 14.

We agree with the hon. Member for North Shropshire that the Government should remove paragraph 23 of schedule 1 and leave ground 14 with the current “likely to cause” wording. However, if they resist doing so, we urge the Minister to at least consider clarifying, as I have asked him to, what kind of behaviour is and is not capable of causing nuisance or annoyance so that county courts can better exercise their discretion about whether eviction is reasonable and proportionate in any given circumstance once the Bill has come into force. Let us be clear: the Government’s eleventh-hour new clause 1 does not do that. Indeed, it is not clear what on earth they are trying to achieve with it. As with so much of what the Government have tabled fairly late, we suspect it is more a product of rushed thinking than anything else.

New clause 1 would make it a requirement for the court to consider, in particular, the effects of antisocial behaviour on other tenants of the same house in multiple occupation, but that is already the case. Judges already have to consider the impact of behaviours that could be categorised as antisocial on others, so why do the Government feel the need to specify that they are required to do so via this amendment, purely in relation to HMOs? I would be grateful if the Minister could provide us with a reason. Will he also explain why the Government do not believe this provision needs to cover, say, a house under part 3 of the Housing Act 2004 or a rented property that is not covered by parts 2 or 3 of that Act?

The new clause also provides for the court to take into account as a factor in its determination

“whether the person against whom the order is sought has co-operated with any attempt by the landlord to encourage the conduct to cease.”

Again, when considering antisocial behaviour, the courts can already consider, and frequently do, what efforts the tenant has made to co-operate—for example, what the tenant’s response has been when a landlord has tried to contact them to press them to bring the offending behaviour to an end.

Of course, that presumes that the landlord has tried to contact the tenant, but that highlights a more fundamental problem with the new clause. At present, there is no duty on landlords to prevent or take steps to stop antisocial behaviour on the part of their tenants. I am thinking of the extensive case law reviewed in the recent Poole Borough Council v. GN judgment. Is the new clause an attempt to impose such a requirement surreptitiously? If it is, I wonder what the National Residential Landlords Association and other landlord organisations will have to say about it. The problem is that it is not clear at all, and we fear that fact exposes the Government to the possibility of litigation.

If the new clause is not an attempt to impose a requirement for landlords to take steps to stop antisocial behaviour on the part of their tenants, should we instead take it to imply that landlords now have to at least reasonably co-operate with a tenant to limit antisocial behaviour? If it does not imply that, what is the point of it? If landlords do not have to do anything to encourage antisocial behaviour to cease or do anything about it, whether a tenant can “co-operate” is reliant on the whim of the landlord in question and whether they decide to ask the tenant to stop.

Put simply, we question whether the new clause will have any practical effect, and we would appreciate it if the Minister could explain the thinking behind it, particularly because, like the many other last-minute Government amendments to the Bill, there is no detail about it in the explanatory notes. Even if the Minister just reads his box notes into the record, I would welcome the clarification. That would at least give us a sense of the Government’s thinking.

Leaving aside the deficiencies of new clause 1, we remain of the view that if the Government are intent on widening ground 14 to cover behaviour likely to cause nuisance or annoyance, they must at least clarify what kind of behaviours they believe will be included in that definition. New clause 55 would place a duty on the Government to produce detailed guidance on precisely what constitutes antisocial behaviour for the purpose of assisting landlords and the courts to determine when ground 14 conditions have been fulfilled under the revised terms that the Government are proposing. Specifically, it requires the said guidance to define how antisocial behaviour differs from nuisance and annoyance caused by incidents of domestic violence, mental health crisis and behaviour resulting from adults or children with autism spectrum disorders or learning difficulties. Amendment 158 would, in turn, require landlords seeking possession on the basis of amended ground 14 to have regard to the guidance that the Government would be obliged to produce.

Taken together, we believe that new clause 55 and amendment 158 would at least provide the extremely vulnerable tenants we fear might fall foul of amended ground 14 with a further degree of protection beyond the discretion that the courts will still be able to apply. I look forward to the Minister’s response.

[Ms Karen Buck (Westminster North) (Lab)]

I want to press the Minister on his thinking and on the motivations for widening ground 14 in respect of antisocial behaviour. I support the hon. Member for North Shropshire and my hon. Friend the Member for Greenwich and Woolwich.

There is a continuing theme of the Government looking at this world as they want it to be, rather than at the rather messier reality. In respect of private tenancies, it is a world that they have quite deliberately created. No one likes being exposed to any form of antisocial behaviour or inconvenience. Some antisocial behaviour can literally ruin lives. Many of us will have dealt with casework relating to harassment; stalking; deliberate making of noise at antisocial hours; people running small businesses in flats, which can create noise; behaviour arising from the often illegal use of accommodation for short lets; people stealing post; and abuse, including homophobic and racist abuse. All those things can occur, and they can be extremely damaging to people’s lives.

One of the problems, which my hon. Friend addressed, is that these things are often not dealt with not because the threshold is too high for such cases, but because, in many instances, it is extremely difficult to gather the evidence. People are often extremely reluctant to act as witnesses and support evidence, and a lot of evidence is one-on-one and, to some extent, highly subjective.

Managing antisocial behaviour requires landlords to be part of the solution, and it is completely right that we are encouraging the consideration of that. Social landlords spend considerable time and resource trying to do that, with varying degrees of effectiveness, but in the private rented sector—with honourable exceptions—that often simply does not happen. The reduction in the threshold that the Government are proposing will make it even easier for landlords to choose to go down an eviction route or to hold the threat of eviction over the heads of households, in such a way that they themselves do not have to take a great deal of responsibility.

The Government must anticipate consequences from their change to the definition, or one would like to think that they would not have done it, but we need the Minister to spell those consequences out. Obviously, we must expect that more people will risk eviction for behaviour that is below the current threshold; that is a consequence almost by definition. In how many instances do the Government think that is likely to apply? Who might be affected by it, and under what circumstances not currently covered by legislation? What will happen to people who are at risk of eviction with a lower threshold?

--- Later in debate ---

The proposed change will affect people with children, as my hon. Friend the Member for Greenwich and Woolwich mentioned. A woman wrote to me recently saying, “My neighbours are complaining about the noise of the kids—too much noise, running around. I am in a block with no other children, so my neighbours are now complaining and the landlord is complaining, but what can I do about it? They are 20-month-old twins. I should not have to deal with complaints about children making noise.” Under the Minister’s proposals, just having little babies running around could be enough to trigger—

[Matthew Pennycook]

My hon. Friend makes a good point, which we have made in connection with other grounds for possession, and I think it is worth putting on the record again. Lots of these notices that will be given will not go to court. We cannot rely on the courts’ discretion in all these instances. The tenant that my hon. Friend mentioned could be served with a notice, might not know the recourse that she has and might feel she has to go. The threat of the expanded ground will be enough in most instances.

[Ms Buck]

I absolutely agree. The sword of Damocles is hanging over the heads of lots of people just living a fairly ordinary life. Families with special needs children are a particularly high-risk category. A woman and her representative came to me recently to say that her current property is unsuitable. She lives with her non-verbal autistic 19-year-old son, and they have occupied the property for over 20 years. As her son has grown older, he has displayed more challenging behaviours, in line with those often associated with autism. The family has been subject to several complaints from neighbours in relation to the noise being made, but the mum states that it is near-impossible to have full control over her son, due to his increasing support needs.

There is one other category the Minister needs to address, which is what we do about families who have already been evicted from social housing. Clearly, families cannot be on the street. Getting landlords to provide accommodation to households in those cases is essential, but already extremely difficult.

--- Later in debate ---

[Jacob Young]

With respect to the hon. Gentleman’s question, he mentioned whether a victim of domestic abuse would fall short of these grounds. I would say to him that that is exactly what a judge is there to determine—whether it is reasonable to grant possession to the landlord in those circumstances. I think that I have addressed that in my remarks. I hope that this provides some reassurance and that hon. Members will withdraw their amendments.

To further bolster landlords’ confidence in being able to regain their properties in cases of antisocial behaviour, Government new clause 1 expands the matters a judge must consider, as I outlined previously, when making a discretionary antisocial behaviour eviction. It ensures that the court must also consider specific issues that have been of concern to the sector. First, the new clause asks judges to give regard to whether the perpetrator has engaged with measures to resolve their antisocial behaviour, making it easier for landlords to evict non-compliant tenants.

[Matthew Pennycook]

I asked the Minister a very specific question about this new clause, to which I would be really grateful for an answer. Does new clause 1 in any way imply or direct landlords, by a new requirement, to proactively engage with their tenants to resolve the behaviour, rather than just putting the onus on tenants to do so, and therefore, in instances where the landlord will not engage, leave that tenant in an impossible situation, one might say?

[Jacob Young]

I do not believe that it does, but I will write to the hon. Gentleman to clarify. Turning back to what I was saying, it asks judges to give particular regard to the effect of antisocial behaviour on other tenants within houses of multiple occupation, which the hon. Gentleman had mentioned.

--- Later in debate ---

[Jacob Young]

We are not discussing 5A right now, but I will write to the hon. Gentleman to clarify that point.

As I was saying on houses in multiple occupation, this measure will make it easier to evict perpetrators who are having a severe impact on those living in close proximity with them day to day. I therefore commend Government new clause 1 to the Committee.

[Matthew Pennycook]

I will say two things to the Minister, because I think that was a helpful answer, although his officials are going to be doing a lot of writing over the coming days and weeks. It was helpful in two ways: it is welcome to hear an assurance that we expect guidance before these measures come into force, and that the working group has been set up to that end.

This is where the private rented sector is very different from the social rented sector, where registered providers operate. Registered providers often have trained antisocial behaviour teams who are equipped and trained with the tools—injunction powers and others—to remedy antisocial behaviour before eviction action has to take place. They are trained to distinguish between antisocial behaviour and things such as the domestic violence instances that we are worried about, and to take safeguarding action to protect tenants from either eviction or criminalisation. The private rented sector has none of that. I do very much think we need guidance in this area, so I welcome the Minister’s clarification in that regard. On that basis, I am happy to not to push new clause 55 to a vote.

However, what I am still concerned about, and why we will support the hon. Member for North Shropshire if she pushes her amendment to a vote, is that in some ways it does not matter what the guidance says if the definition of what constitutes antisocial behaviour is very broad and the change from “likely” to “capable” is made. That still concerns us a great deal. The Minister has not given me an example—I only want one—of a kind of behaviour that would be “capable of causing” antisocial behaviour without falling under the existing “likely to”. I do not think he has any such behaviour in mind; I do not think the officials have any idea, either.

I think the Minister gave the game away, intentionally or otherwise, that this power is to be used to make it easier for landlords to threaten tenants in the first instance, and most will not go to court, and then to be able to evict tenants. As he said, the behaviour in question does not have to have caused or be likely to have caused antisocial behaviour in any given instance. It will enable an argument on the basis that there is a pattern of behaviour that now meets the reduced threshold.

None of the evidence I listened to last week suggested that that was necessary. I remember—one good example—that Timothy Douglas from Propertymark could not understand the difference between “likely” to cause and “capable” of causing, and the need for the change in this instance. He did call for guidance—absolutely. However, none of the evidence I heard supported the change, apart from evidence from some landlords, who, of course, are going to say that they welcome a widened power. They do not have to deal with the consequences. It is local authorities and society that will have to do that.

I know this is not the Minister’s brief, but he really should know whether tenants, if evicted under these grounds, will be made intentionally homeless. I suggest that it is almost certain that they will be. We are talking about an easier way to make people homeless, and we will all pick up the costs in various ways. This will impact some incredibly vulnerable tenants. We therefore think that this measure needs to be removed from the Bill. Again, we will certainly return to the issue at a later stage.

[Helen Morgan]

I welcome the support from Opposition Members, who, I think, have summed up the issue very well. There is an increased threat of eviction even if these cases are not taken to court, because the threat of having notice served in the first place is very frightening for people who do not necessarily have the legal ability to follow that through and oppose it.

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Form of notice of proceedings for possession

[Matthew Pennycook]

I beg to move amendment 177, in clause 4, page 3, line 34, at the beginning insert—

“(1) In section 8 of the 1988 Act, after subsection (2) insert—

‘(2A) A notice under this section must include reference to the unique identifiers allocated to each person and dwelling-house with an entry on the database in accordance with section 41 of the Renters (Reform) Act 2023 (Allocation of unique identifiers).’”

This amendment would require landlords to be registered on the database to serve grounds for possession notices.

We will debate at some length the provisions in the Bill that will establish a private rented sector database when we consider chapter 3 of part 2 in detail, so I do not intend to dwell on our view of the Bill’s database provisions more generally, or how they might be improved. We will have sufficient time to do so in due course. Suffice it to say that we take it as given that the Government wish to see, as we do, as many existing and prospective residential landlords registering themselves and their properties on the property portal that the database will support.

We acknowledge that the Bill already contains provisions designed to ensure that registration rates are high. These include the financial penalties that local authorities can impose, assuming that they have the capacity and capability to do so, on people who, for example, do not meet the requirements in relation to marketing, advertising and letting set out in clause 39. However, we believe that the Government should seek to make it virtually impossible for a residential landlord to operate without registering themselves and their property on the database by ensuring that every single process that the Bill covers bites on them in that regard.

Amendment 177 seeks to contribute to that objective by inserting into section 8 of the Housing Act 1988 a new subsection that would compel landlords to be registered on the database in order to serve grounds for possession notices by requiring them to add to any possession notice served the unique identifier that they will be allocated on registering. Requiring landlords to append a unique identifier to a possession notice, and thus denying landlords not registered with the database the opportunity for a court to make an award of possession, would be an important means of ensuring maximum compliance with the proposed portal and properly regulating the new system to the benefit of both landlords and tenants. For those reasons, I hope the Minister will look favourably on the amendment.

[Jacob Young]

I thank the hon. Gentleman for moving amendment 177, which would require landlords to have registered on the property portal before serving a tenant with a valid notice for possession under section 8 of the Housing Act 1988. The property portal will play a crucial role in helping landlords to understand their legal obligations and will give tenants the information they need to make informed choices before starting a tenancy. Our view is that the enforcement mechanisms in the Bill, including the mandatory duty on landlords to be on the portal and the ability of local authorities to find those, will prevent abuse. However, I note the hon. Member’s concerns, and if there are further measures we can take to ensure that all landlords are on the portal, we will explore them further.

[Matthew Pennycook]

I welcome the Minister’s response and his commitment to look further at this matter. Although the mandatory duty is welcome, we have real concerns about the ability of local authorities to properly investigate and enforce. We will come back to those concerns, because they relate to a number of areas in the Bill. I therefore hope that the Minister goes away and thinks about every—

[Eddie Hughes (Walsall North) (Con)]

There is form in this area: a landlord cannot evict their tenants if the property does not have an energy performance certificate. It seems like an interesting proposal.

[Matthew Pennycook]

I very much welcome the hon. Gentleman’s intervention. I have covered all bases in our set of amendments. We will come to the preconditions and requirements that have developed around section 21 that fall away under the Bill; they are a concern. The hon. Gentleman is right: to serve a section 21 notice, a number of regulatory obligations must be met.

[Lloyd Russell-Moyle]

Another advantage of doing it through the property portal is that it helps to speed up the digitalisation process that the Government are so keen on with the courts. The portal would retain the information that the courts need.

[Matthew Pennycook]

Absolutely, and it is one of several ways that we think that, with some reasonable, common-sense amendments, we can strengthen the Bill so that every part of it works together. I hope that the Government will go away and think about the other ways in which we can ensure maximum landlord compliance with the portal. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 ordered to stand part of the Bill.

Clause 5

Statutory procedure for increases of rent

[Lloyd Russell-Moyle]

I beg to move amendment 200, in clause 5, page 5, line 17, at end insert—

“(4F) It shall be an implied term of every assured tenancy to which this section applies that percentage increase between the existing rent and any new rent specified in a notice given under subsection (2) shall not exceed whichever is the lesser of—

(a) the percentage increase in the rate of inflation (calculated by reference to the Consumer Prices Index) since the date on which the existing rent took effect; or

(b) the percentage increase in median wages in the local authority area in which the dwelling-house is situated, calculated over a three-year period ending on the date on which the notice was served.”

This amendment specifies that the annual increase in rent requested by a landlord may not exceed the lesser of either the Consumer Prices Index or wage growth in the relevant local authority area.