Committee (2nd Day)
Clause 9: Financial penalties
14: Clause 9, page 7, line 9, leave out “£500” and insert “£5,000”
Member’s explanatory statement
This amendment would raise the minimum financial penalty under the Bill from £500 to £5,000.
My Lords, this group of amendments is an attempt to ensure that enforcement bodies have sufficient financial long-term sustainability. It also ensures that there are appropriate deterrents in the Bill to incentivise freehold landlords to understand just how serious a breach will be and the impact it will have on their current portfolio of properties. The additional aim is to create an incentive for local authorities to pursue financial penalties.
Today, of course, is the fourth anniversary of the Grenfell Tower fire where 72 people lost their lives, and I am sure that we are all thinking of those bereaved families, survivors and residents as they remember their loved ones. That tragedy underlines just how important it is that homes are safe and secure, and one of the first lines of defence is the enforcement authorities.
In addition to moving Amendment 14, I will speak to Amendment 15. While we appreciate that the Minister stressed at Second Reading that the fines would be for each individual lease, the danger remains that an enforcement authority will receive only £5,000. Indeed, Clause 9(3) states:
“Where the same landlord has committed more than one breach of section 3(1) in relation to the same lease, only one financial penalty may be imposed on the landlord in respect of all of those breaches committed in the period”.
Several noble Lords at Second Reading raised the issue of enforcement and resources to enforce. Local authorities’ trading standards departments have experienced staff cuts of at least 50% since 2010. It is not unusual for skilled and experienced—and therefore more expensive—staff to have been replaced with less skilled and lower-salaried staff. Sometimes trading standards has been contracted out to third parties completely. Local authority trading standards departments need greater sustainable long-term resource and that means generating greater levels of income.
Therefore, there should be a wider range for the fines and a higher start point for the penalty. The amount should be consistent with the Tenant Fees Act 2019 where landlords breach Sections 1 and 2 of the Act on more than one occasion. If you are a leaseholder, you are not a home owner, and therefore the levels of potential fines should surely be similar to those for rogue landlords in the Tenant Fees Act. The Bill relies on local weights and measures authorities—namely, trading standards departments—to oversee this new law. The Government will already be well aware of the sluggish approach to fining and banning rogue landlords under the Tenant Fees Act 2019. When originally launched, the Government predicted that there were 10,500 rogue landlords; so far, only 43 have been registered. Speak to many local authorities and they will report that an operation of this nature requires early up-front investment, but other priorities such as social care with chronic records of poor funding will inevitably come first. As Liam Spender, a trustee of the Leaseholder Knowledge Partnership, points out:
“It is likely most local authorities will decline to get involved, as they do in most private sector housing disputes now, on the grounds that leaseholders have civil claims they can use to recover any prohibited ground rent.”
Waiting for the next local government settlement is a short-term solution and, frankly, unlikely to solve this problem given other competing demands on local authorities. Now the Government are adding another task with too limited financial reward: as the fines currently stand in the Bill, the incentive to take the necessary action to fine a freeholder will not be worth the effort.
Amendments 14 and 15 would raise the minimum financial penalty from £500 to £5,000 and the maximum financial penalty from £5,000 to £30,000. The potential of greater fines would give local authorities an opportunity to invest in this operation, charge rogue landlords and freeholders and therefore sustain a longer-term, fully budgeted operation. If the Government are opposed to this increase, perhaps the Minister could share what level of financial penalty would make it worth while for a local authority to pursue a freeholder. If the argument is that this will have an impact if it is a penalty on a developer across several leases, what level of fine do the Government anticipate?
On Amendment 16, in my name and that of my noble friend Lord Stunell, the arguments are similar. It contains a new clause that would be inserted after Clause 12 that would extend the banning order regime under the Housing and Planning Act 2016, with an exception for rent recovery orders. It would ban landlords who received three or more penalties in any six-year period from collecting some or all of the monetary ground rents arising under pre-commencement leases. That should be a clear signal to persistent offenders that, under Clause 9 of the Bill, if the maximum penalty has been charged three or more times against the same landlord or a person acting on their behalf, there will be restrictions and penalties.
We recognise how significant the failure is of this part of the Housing and Planning Act 2016. On 9 January 2018 the then MHCLG Minister, Jake Berry MP, said the Government’s estimate was that
“about 600 banning orders per year will be made”.—[Official Report, Commons, Fifth Delegated Legislation Committee , 9/1/18; col. 12.]
In April, the Housing Minister, Christopher Pincher MP, confirmed that just seven landlords had so far been issued with a banning order. As the National Residential Landlords Association says of this failure:
“The Government needs to work with local authorities to understand the true extent of the pressures faced by environmental health departments responsible for enforcing many regulations”
affecting this sector.
“Too often, government has introduced initiatives to crackdown on”,
“criminal landlords without properly understanding whether councils have the resources and staff to properly enforce them. In short, regulations and laws to protect tenants”—
and to protect leaseholders from bad practice—
“mean nothing without them being properly enforced.”
When we look at the level of these fines, we must remember that this industry is vast. The MHCLG’s own estimate is that, of the 4.5 million leasehold properties in the UK, approximately 2.5 million are owner-occupied. All these people are likely to be paying some level of ground rent. The companies behind the freehold interests receiving these ground rents are huge undertakings. They are more than a match for any local authority seeking a £5,000 fine. For example, Proxima GR, a key company in the Vincent Tchenguiz freehold portfolio, reports in its most recent accounts that it expects to receive £2.4 billion in ground rent between 2019 and 2080. It is believed to control a portfolio consisting of freehold interests over hundreds of thousands of leasehold properties. The same accounts report cash income of £24 million in the same year. A fine of £500 or £5,000 for multiple breaches is no disincentive to any organisation of that scale. Information on other ground rent investors is hard to come by but, from the limited information available, there are many other substantial operators out there. For example, in 2016, leasehold properties worth £64.8 billion were sold. Of these, new-build properties were worth £13.7 billion, leasehold house numbers doubled, and developers made £300 million to £500 million a year from ground rent sales. Looked at from that perspective, £5,000 seems a very small sum to put as a maximum. Has the Minister considered an industry-funded redress scheme to support enforcement?
To conclude, there should be greater detail in the Bill about how to resource penalties and sanctions to sustain longer-term planning and funding. These are large industries with significant levels of income and profit: they need to be aware that their days of exploiting leaseholders are over and failure to recognise that will cost them dearly. I beg to move.
My Lords, I am delighted to support the noble Baroness on Amendments 14 and 15. I was just reflecting on how important this issue is: hundreds of thousands, maybe millions, of families are affected. The problem probably goes back over half a century. It is to the great credit of my noble friend on the Front Bench that the Bill is before the Committee now, and I say to him “Well done.” In 1968—I see my noble friend Lord Young sitting opposite me—I had the privilege of being elected, somewhat against the odds, as the potential leader of the London Borough of Islington. We won 57 out of 60 seats; we did a deal with the other three, because they were a local community group. I was then elected to be leader and chairman of the housing committee. Sitting here this afternoon, I still remember working really closely with the officers of that authority, from the town clerk down. It was not entirely to do with leaseholds, but it was to do with property and rogue landlords. Two in particular come to mind: a local one called De Lusignan and the one whom we all remember, Rachman. Those rogues and their successors have not gone away—the noble Baroness is absolutely right; they may well have multiplied for all I know. They were a huge problem even in those days.
There is another element, which I can talk about, though some noble Lords might have more difficulty. I have lived and worked in Pakistan, India and Sri Lanka. I have the greatest respect for those countries. I would go as far as to say that I love them dearly; I know them extremely well. As far as I can see, there is a rogue element, particularly in the poorer parts of our country, which exploits vulnerable migrants. That is wrong, and we know that it is wrong, but some local authorities appear to be slow, resistant, unwilling or too conscious of the social situation. In my view, as someone who has taken a deep interest in housing all my political life, that rogue element has to be addressed—it does not matter who they are.
The noble Baroness is right about the figures that are in the Bill. In today’s world, £500 is absolutely no deterrent to anybody: you only have to see what is happening out there in the market. She is right that £5,000 is the beginning of a reasonable deterrent. Personally, I would do a multiplier by five, because £25,000 somehow—perhaps it is the advertising man in me—sings out as even stronger than £30,000. I do not know why that is, but I thought about this when I was working on it over the weekend. I agree with the noble Baroness that £5,000 is the beginning of a proper deterrent, and I think that £25,000 should be the maximum.
Of course, it is for my noble friend on the Front Bench to decide what Her Majesty’s Government believe is appropriate, but all I say to him is that this area needs dealing with, and here is an opportunity to do it. I again congratulate my noble friend and his colleagues on bringing this Bill forward. Let us make a really good job of it.
I congratulate the noble Baroness, Lady Grender, on her clear exposition of her very sensible amendments. It is obvious to everybody that rogue landlords have an easy ride in this country. It is far too easy for such unscrupulous landlords to get away with far too much, and that extends to freeholders abusing leaseholders with exploitative ground rents. In shorthold tenancies, a lot of wrongdoing occurs unintentionally by uninformed or incompetent landlords, but that is not the case in freeholder-leaseholder relationships, where the freeholder is usually a big corporate entity that is professionally managed and legally advised. For that reason, any breach of this Bill is likely to be wilful, intentionally exploitative and involve large sums of money.
It is obvious, then, that the penalties currently contained in the Bill are paltry and unsuitable to deter or to punish the criminal behaviour. As a proportion of these massive landowners’ revenues and profits, a minimum penalty of £500 is irrelevant. I would much rather see financial sanctions on companies being similar to those under the data protection laws, which specify penalties as a percentage of a company’s global turnover. That is how you get companies to sit up and pay attention. At the very least, these penalties should be much higher than they are in the Bill. I am sure that the Government know that, so I have no idea why they chose this figure of £500, which is absolutely ludicrous.
My Lords, as my noble friend Lady Grender has clearly set out, the current provisions in the Bill to enforce compliance by those who are determined to do wrong will not work, and that view has been strongly supported by the noble Lord, Lord Naseby, and by the noble Baroness, Lady Jones of Moulsecoomb. The three reasons for that are quite clear: the penalties themselves are trivial; the enforcement system will be ineffective; and rogue landlords will prosper.
First, the penalties themselves are trivial. The noble Lord, Lord Naseby, has made the point perhaps better than I can, but in many cases £500 will be less than the current annual leaseholder charge. Indeed, with escalation clauses in place, over the lifetime of the lease £500 might be seen as very small change indeed. The case for making these penalties bite is overwhelming, simply because the unscrupulous who carry on as though the law has not changed will readily write off these penalties as essentially meaningless. I shall not engage in a bidding war with the noble Lord as to how high we should go, but each of us in our different ways would make the point that £500 is nowhere near enough to be effective as a deterrent.
It is not just nowhere near enough to be effective as a deterrent; it is not anywhere near enough to pay for a sound enforcement policy. The enforcement system will be ineffective. It is supposed to be paid for by the pitifully small fines, which will be paid not by all those who offend but all those who are successfully prosecuted—only those fines will contribute to the funding of the trading standards department. It will therefore be the case that the trading standards department exercises passive power only, exercised, if at all, only when a big fuss is made about a particular case, perhaps by a local councillor or an MP.
It is extremely doubtful that any responsible financial officer of a local authority, when building a budget for the next year, would authorise the recruitment of staff to enforce legislation on the basis that it would be funded by £500 for each case that is won. Of course, it would need recruitment of staff because, as my noble friend Lady Grender pointed out, there has been a 50% reduction in staff in trading standards over the past decade and a loss of skills to go along with that. This new burden, to be dealt with effectively, would have to have additional resources. I am sure that the Minister is not content simply to put in place a deliberate paper tiger of enforcement—unless that does in fact suit the Government’s purpose: something that looks okay in the Bill but about which their landlord friends can be told, “Don’t worry, just keep your head down and carry on.”
That brings me to Amendment 16, to which I have added my name. We have to stop rogue landlords prospering. Of course, they already do prosper, and that is what the Bill is all about: stopping abuses or restricting behaviour which, though lawful, ought not to be. Those with a great deal of power in a contractual relationship, the landlords, are imposing oppressive terms on those with very little power, the leaseholders. And those who impose the most care the least. Rogue landlords will weigh up the risks and rewards and reach a commercial judgment. They can easily afford to treat the penalty system as a small marginal cost as it stands; they know it will not even cost them £500 per breach but only £500 per breach which leads to a successful prosecution—that is quite a different thing.
That successful prosecution will be rare without Amendments 14 and 15, which seek to generate the money for there to be a team of people who can enforce it. That is where the importance of Amendment 16 lies, in introducing an effective banning order regime. Only with a clear process for banning repeat offenders, driving them out of the market, can the stakes be raised sufficiently high to deter rogue landlords and, in the most egregious cases, drive them out of business.
I want to hear the Minister say to your Lordships that he genuinely wants this Bill to deliver an effective regime of penalties and punishments that will safeguard the good intentions of this legislation against the small minority of unscrupulous landlords who seek to bypass it and who continue to exploit leaseholders regardless. One way the Minister can do that is by accepting these three amendments. The Bill as drafted certainly does not give us those assurances. If he does not accept the amendments, he surely has a duty to your Lordships, and to leaseholders themselves, to explain what alternative mechanisms he proposes to put in their place instead.
My Lords, Amendments 14 and 15 refer to the penalties contained in the Bill, whereas Amendment 16, as we have heard, refers to the banning orders regime. I am pleased that the noble Baroness, Lady Grender, has introduced these, so that the Committee can consider whether these current penalties are appropriate and whether the banning orders should be extended.
First, on the issue of financial penalties, as we have heard, the amendments would increase the minimum financial penalty from £500 to £5,000, and increase the maximum penalty from £5,000 to £30,000. Given the sums of money which are involved in leasehold arrangements and the costs associated with ground rent, the current penalties seem lower than would be expected. If the Minister is not able to accept the noble Baroness’s amendment, I hope he will explain and justify how the Government arrived at those figures.
On the banning order regime, the noble Baroness brings forward the question of whether the provisions of the Housing and Planning Act should be strengthened. The amendment proposes the banning of landlords from collecting ground rents if they receive multiple penalties. On the same issue, I would be grateful if the Minister could explain whether consideration has been given to banning landlords from renting properties at all when they receive financial multiple penalties. Tenants must be protected from rogue landlords who break legislation over and over again. I hope that the Government will detail what steps they are taking to hold these repeat offenders to account.
My Lords, I also join the noble Baroness, Lady Grender, in recognising that today marks the fourth anniversary of the Grenfell Tower tragedy, which was the largest loss of life seen in a residential fire since the Second World War. My thoughts are with the survivors and the bereaved.
I thank noble Lords present and those participating virtually for all their time and effort in scrutinising the Bill so far. We have had very good discussions in this Committee and through our engagement meetings. I am grateful for the commitment from all noble Lords to improve the Bill and to reform leasehold more generally.
I have listened to the concerns raised by noble Lords that the penalties set out in the Bill are not high enough and that there should be more significant consequences for those who breach the provisions of the Bill multiple times. It is vital that the Bill contains enforcement measures that offer a strong deterrent to any freeholders and their managing agents who try to get around its provisions, and in so doing protects leaseholders. Amendments 14 and 15 in the name of the noble Baroness, Lady Grender, would raise the penalties that can be imposed per breach from a minimum of £500 and a maximum of £5,000 to a minimum of £5,000 and a maximum of £30,000 pounds —and my noble friend Lord Naseby would seek to quintuple it to a maximum of £25,000 pounds.
In response to the noble Lord, Lord Lennie, penalties in the Bill have been set with reference to the typical ground rent collected currently by landlords. I believe that the penalties have been set at an appropriate level to act as an effective deterrent without resulting in a disproportionate enforcement regime. I point out that £500 is a minimum only and that freeholders could easily be liable for multiple fines for the same building; a flat containing 40 leases could leave a freeholder exposed to a maximum fine of £200,000, which is a significant penalty. I ask noble Lords to also note that, through the Bill, we are introducing a minimum penalty amount. I believe this is the first time that this has happened in leasehold law—we have not seen this in other leasehold legislation. This will act as a strong deterrent to any landlord who considers breaching the provisions of the Bill. In addition, the penalty applies per lease, so freeholders of multiple properties could receive higher penalties if they breach the legislation multiple times.
In addition to any financial penalties, enforcement authorities and the tribunal can order the freeholder or their agent to refund any prohibited rent within 28 days, including interest. As I said, the enforcement regime in the Bill is the first time that a penalty regime has been applied to ground rent. This landmark change will ensure a strong deterrent in the protection of leaseholders.
Amendment 16 from the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, seeks to allow a housing authority in England to apply a banning order under the Housing and Planning Act 2016 against landlords who receive three or more maximum penalties from an enforcement authority under the Bill. Banning orders under the Housing and Planning Act 2016 are intended for the most serious rogue private sector landlords and are not intended for leasehold housing. I note again that the penalties in the Bill apply per lease, so enforcement authorities can impose multiple penalties on freeholders who commit multiple breaches. Enforcement authorities and the tribunal can also order a refund of any prohibited rent.
The noble Baroness, Lady Grender, asked what incentives there are for local authorities to carry out enforcement penalties set at this level. They retain proceeds and, as I have pointed out, multiple breaches incur multiple penalties. There is also a point of principle here: that local authorities should not consider the potential financial windfall when deciding to take enforcement action; they should seek to set fines relating to the breach, and therefore they should be proportionate.
The noble Baroness raised the issue of redress funded by landlords, which is an interesting suggestion. The enforcement regime in this Bill is the first time that a penalty regime has been applied to ground rent. We believe that the regime in this Bill is sufficient as a strong deterrent and protects leaseholders.
Amendment 16 proposed by the noble Baroness, Lady Grender, and the noble Lord, Lord Stunell, would have the detrimental effect, which I am sure was not intended, of making it impossible to make rent repayment orders against anyone subject to a banning order for receiving any monetary ground rent. For these reasons, I ask the noble Baroness to withdraw her amendment.
I thank the Minister for his response. I am very interested in his response about redress schemes—that is something that we could possibly explore at Report. Just to put things in perspective, the Government have recently published a draft online safety Bill which would enable a new online regulator to fine companies up to £18 million or 10% of their annual global turnover, whichever is higher. We are looking at those kinds of equivalents here.
The point about local authorities contemplating a possible windfall is the very opposite of the current scenario, where a local authority will look at a potential freeholder and ask whether, if it goes down the route of attempting to fine for breach of lease, three days’ work alone by somebody with no legal skills will use up the £500 that it would get from the fine. While I appreciate that, as I said in my opening remarks, fines would be across all leases, there is a problem when, if there are multiple breaches for one lease, that is not recognised in the legislation as drafted.
The most important issue is that we need to understand that the penalties and punishments will actually work. We know that there are significant challenges for local authorities to enforce the current systems and that these new systems will seriously struggle and be seriously challenged.
I thank all noble Lords who have expressed their support for these arguments and amendments. Obviously, we will want to revisit this. We will look at the Official Report and see what can be done to continue to pursue this issue, which is all-important because, without enforcement, the Bill is simply not going to work. I beg leave to withdraw the amendment.
Amendment 14 withdrawn.
Amendment 15 not moved.
Clause 9 agreed.
Clauses 10 to 12 agreed.
Amendment 16 not moved.
Clauses 13 and 14 agreed.
Amendment 17 not moved.
Clauses 15 to 18 agreed.
Amendment 18 not moved.
19: After Clause 18, insert the following new Clause—
“Assessment of financial impact for tenants in long leases of dwellings
(1) Within 30 days of the day on which section 3 comes into force (for any kind of lease), the Secretary of State must publish an assessment of the financial impact of this Act for tenants in long leases of dwellings.(2) The assessment must consider whether further legislation is necessary to address the financial consequences of this Act for tenants in long leases of dwellings, including but not limited to in relation to—(a) lease forfeiture;(b) transfer fees;(c) redress schemes;(d) enfranchisement.(3) The Secretary of State must lay the assessment before Parliament.”Member’s explanatory statement
This amendment would ensure that the Government must publish an assessment considering the financial impact of this Act for leaseholders, and whether further legislation is required.
My Lords, this Bill has the support of these Benches because it begins to address the myriad problems facing leaseholders across the UK, but unfortunately it barely scratches the surface. That is why Amendment 19 would require the Government to
“consider whether further legislation is necessary”
in four areas: lease forfeiture, transfer fees, redress schemes and enfranchisement.
On lease forfeiture—the concept of a freeholder taking possession of a property over a debt of a few thousand pounds—there is a clear need for reform. The Law Commission has already consulted on this. Transfer fees—where freeholders place a charge on the sale of a property, often of around 0.25% of the sale price—are preventing home owners selling their homes. There seems no justification for the continued existence of these fees. Meanwhile, the potential for redress schemes should be evaluated to consider the most serious of leasehold abuses. On enfranchisement—the process of extending a leasehold or purchasing a share of the freehold—the Government must look at some of the obstacles currently in place. All in all, as I said earlier, the Bill barely scratches the surface of the issues facing leaseholders. Further legislation in this area is clearly required.
I am pleased that the noble Baroness, Lady Pinnock, has tabled Amendment 20, which raises the question of
“whether a further extension of the ground rents ban could benefit existing leaseholders, especially those facing bills for fire remediation work.”
The issue of remedial costs was brought up in my earlier Amendment 9, and I hope that, this time, the Minister will give a cast-iron date for when the Government will bring forward legislation to properly protect leaseholders.
In Amendment 21A, the noble Lord, Lord Berkeley, probes the application of ground rents charged by the Crown, including the Duchy of Cornwall. The noble Lord is right to probe the issue and to draw attention to the Law Commission’s work in this area. I look forward to clarification from the Minister. I would be interested to hear whether the Minister can confirm how many Crown properties this relates to and whether the Government intend to engage the residents of these homes.
My Lords, I will speak to Amendment 20 in my name and that of my noble friend Lady Grender. I draw the Grand Committee’s attention to my relevant interests, recorded in the register, as a member of Kirklees Council and a vice-president of the Local Government Association.
Today marks four years since the Grenfell tragedy, which cost the lives of 72 people. It took away from many others their homes and their livelihoods. Those who survived will for ever have the dreadful memory of that night, leaving a dark mark on the rest of their lives. That tragedy has rightly cast a long shadow over the construction industry. Questions asked immediately following Grenfell are still failing to be adequately answered.
The Government know that the Grenfell fire was accelerated by the use of flammable cladding. They know that hundreds of other buildings have the same or similar cladding, with the same fire risk. They also know that post-Grenfell investigations of these self-same buildings have uncovered further fire safety defects, such as the lack of building regulation-required fire breaks. The Government’s response to this life-threatening catalogue of errors is half-hearted at best. Leaseholders are being forced by the Government to carry the financial and emotional burden of the total inadequacy of the Government’s response.
The reform of leaseholders’ obligations is of course a central purpose of this Bill. I understand that the Bill seeks to prevent future unwarranted financial burdens being placed on leaseholders through ground rent demands. The purpose of Amendment 20, in my name and that of my noble friend Lady Grender, is for the Government to assess the financial impact on leaseholders of this Bill after six months. It is a perfectly reasonable and sensible amendment that I hope the Government will be minded to accept.
The cladding scandal has revealed the enormous financial impact on leaseholders. In a housing association block of flats in the Manchester area, leaseholders have been sent bills for £95,000, when those very flats were built to enable people on lower incomes to buy their own homes. Given that the value of their asset is now zero, paying any bill of that size is simply impossible for the leaseholders.
Those leaseholders who have, often unknowingly, signed up to escalating ground rent penalties are also omitted from the Government’s thinking. For instance, one leaseholder found that his annual ground rent for a one-bed flat in London was to double every five years on a flat that was purchased for £170,000 in 2018. In 20 years’ time, the ground rent will have risen from an affordable £1,050 per annum to a completely unaffordable £16,800 per annum. As with the innocent victims of the cladding scandal, these leaseholders need help from the Government, hence subsection (2) of my amendment.
There is an accumulation of evidence that leaseholders are not getting fair treatment as malpractices are uncovered. Those leaseholders facing massive bills for putting right fire safety defects have done everything right and nothing wrong. Those leaseholders who face increasingly large bills, having unwittingly signed up to ground rent clauses, are also victims of a housing scandal.
Amendment 20 is the opportunity for the Government to turn their attention to righting failures in the housing system for leaseholders, current and past. On the day when we remember Grenfell, let this also be the day when the Government finally agree to find financial solutions for leaseholders who have been left to pay the enormous price of the wrongs of the housing industry. I look forward to the Minister’s response.
My Lords, my Amendment 21A is grouped with Amendments 19 and 20, spoken to by the noble Lord, Lord Lennie, and the noble Baroness, Lady Pinnock. They have one thing in common, in seeking further information and reports from the Government to clarify and provide more information to help us debate not only this Bill but subsequent ones. I will confine my remarks to the Crown issues listed in Clause 23(2), which comprise the Crown Estate, the Duchy of Lancaster, the Duchy of Cornwall and government departments in summary, and in particular the definitions and scope of excepted areas.
It is interesting to refer to paragraphs 7.149 and following in the Law Commission’s report. These basically suggest that the Crown, in its totality, is happy to comply with whatever legislation the Government put forward on these issues, except in relation to what are called “excepted areas”, which are listed in paragraph 7.151. To summarise, those are:
“(1) where the relevant property stands on land which is held inalienably; (2) where particular security considerations apply”—
which is fair enough—
“(3) where the property is in”
or closely connected to
“historic Royal Parks and Palaces; and … (4) where the property … has a long historic or particular association with the Crown”.
When it comes to the Duchy of Cornwall, which of course claims to be part of the Crown, the report goes on to say that the Duchy of Cornwall estates
“are specifically stated to fall within the fourth category”.
I would challenge that; I think that it is specifically stated by the Duchy, and I will come on to why.
After the Law Commission published its really good report, I wrote to the Crown Estate, the Duchy of Lancaster and the Duchy of Cornwall on 19 January this year to ask whether they were going to comply with what is in the Law Commission’s report and, if not, for what reason. I got some helpful responses from the Duchy of Lancaster, which basically said of the scope that there were few properties which would comply with categories (3) or (4), and that it would comply with whatever legislation the Government put forward. I thought that was extremely helpful. The Crown Estate commissioners also responded and said that the only exceptions it could see would be something such as Carlton House Terrace or 1 to 4 Carlton Gardens. Those are very different to the types of buildings that the Duchy of Cornwall is thinking about in its exceptions, which I shall come on to.
Five months later, I have heard nothing from the Duchy of Cornwall, in spite of two reminders. That is rather sad, because it has not been able to say which properties outside London it owns which might come into categories (3) or (4). I am in a bit of a quandary as to what to do here. We need the Government’s help to try to get the Duchy of Cornwall to respond to the Government, even if it will not respond to me. What is the meaning of categories (3) or (4) and what properties might be excluded? The definitions are, in sub-paragraph (3), property which is not
“intimately connected with, the curtilage of … Royal Parks”
and, in sub-paragraph (4), properties which have
“long historic or particular association with the Crown.”
The Duchy of Cornwall has claimed that the special conditions reflect the location. We do not know where that is but, leaving aside whether the Duchy has the right at all to own the Isles of Scilly, which is where I live, and its claim to have long association, the biggest property there which affects the Duchy is something called the Garrison. It was built by the predecessors of the MoD—the British Army, probably—to protect Scilly. I think it all started during the Civil War. Why does the Duchy think it has had long associations with that? I suppose that royalty has associations with the military, quite rightly. But I know several people who want to buy the freehold of their houses there, which are mostly from the 1960s; I think they would suggest that these houses had little architectural merit. For the Duchy to compare them with Carlton House Terrace seems to be stretching credibility somewhat. The Isles of Scilly does not generally need Duchy protection; the council is very good, there are lots of environmental protections and so on.
So my question is: will the Minister try in the next six months to get some definition from the Duchy and the other Crown bodies? First, I hope the report that I put in this amendment would treat all Crown bodies the same; secondly, if the ground rents are exempt from the enfranchisement process then there must be a common definition of why they should be exempt; and, thirdly, there should be a much clearer definition of the exceptions under categories (3) and (4). I hope the Minister will agree to that; provided that he can get the Duchy to respond to his letters, it should not be too difficult.
I will throw in one last suggestion. As the Duchy claims to be in the private sector, perhaps its name should be removed from Clause 23(2)(c) and it should be treated, at least for the purposes of leasehold reform, in exactly the same manner as every other private landlord in the country.
My Lords, I support Amendment 19, in the names of the noble Lords, Lord Kennedy of Southwark and Lord Lennie, and Amendment 20, in the name of the noble Baroness, Lady Pinnock.
Like other noble Lords, I pay tribute to the 72 people who lost their lives in the Grenfell tragedy some four years ago. There have been many lessons from that tragedy for housing management purposes, and I hope that the Government and housing organisations learn much from them.
As it currently stands, this legislation will undoubtedly have a potential long-term financial impact for existing long-term leaseholders, as they will be excluded from it. I agree with the noble Lord, Lord Lennie, who said that, while the legislation is welcome—I definitely welcome it, and the Northern Ireland devolved authorities introduced similar legislation—it barely scratches the surface. There is no doubt that existing leaseholders will have to pay onerous ground rents with no sense of freehold. Amendment 18, which the noble Lord did not move, referred specifically to the need to remove ground rent for all leaseholders.
This legislation is quite limited and the Government have promised other legislation. When will that be brought forward? Can the Minister give us a revised timeframe with exact dates therein? The delay in bringing forward this limited legislation and the need for other aspects in relation to enfranchisement were raised at Second Reading and again today. I welcome the Bill’s proposals, but I feel that enacting the amendments would ensure that the Government could bring forward legislation at a later stage and provide the important financial assessment on the holders of long leases that is urgently required.
To introduce fairness and equity into the property market, the new clause introduced by Amendment 19 should be accepted by the Government to ensure that an assessment takes place of the financial impact for tenants in long leases of dwellings that examines lease forfeiture, transfer fees, redress schemes and enfranchisement. The Law Commission report made recommendations in respect of enfranchisement following promises by Theresa May’s Government in 2017 to tackle unfair and unreasonable abuses of leasehold, particularly the sale of new leasehold houses and onerous ground rents. With the legislation applying only to new leases, why are the Government allowing developers to exploit home owners through exorbitant ground rents? Why the piecemeal approach to this legislation? Why did the Government not bring forward more comprehensive legislation?
I believe the Government should accept Amendment 19. If enacted, it would enable the Government to have an assessment of the current housing situation to indicate whether further legislation to ameliorate the situation is required. I fully agree with Amendment 20, in the name of the noble Baroness, Lady Pinnock, which tries to help those facing fire remediation work. Again, I think of the whole area of Grenfell.
There is also a view in some quarters, particularly in the management of the property sector, that the government impact assessment accompanying this Bill demonstrates the negative impact of this legislation on the housing market: increasing house prices and creating more barriers to entry for consumers trying to get on to the property ladder. It has been suggested that, without proper and careful consideration of the detail and, in particular, the effects of these changes on apartment buildings, this legislation could have far-reaching implications across a range of issues, including building management, accountability and, crucially, the safety of apartment buildings. This is on top of the immediate impacts on the price of flats and the ability of prospective owners to buy new builds, which have been revealed in the impact assessment. Would it be possible for the Minister to comment on these observations in relation to the management of the property sector? Do the Government have any solutions in mind?
I look forward to the Minister’s answers to all these questions. I support the amendments in the names of my noble friends Lord Lennie and Lord Kennedy of Southwark, and of the noble Baroness, Lady Pinnock.
My Lords, I regret to say that I found the Minister’s rejection of the previous group of amendments extremely thin. I have always been puzzled why, when we have so many experts in your Lordships’ House—I do not include myself in that number—the Government would not listen to common sense and accept amendments that would have an impact and massively improve the legislation. I very much hope that we will bring these amendments back on Report and win a majority of the House round, so that the Government have to listen and improve the legislation, which is extremely thin.
When I was on the London Assembly, I was chair of the housing committee at one time. Just a few years before Grenfell we had a very similar incident in the area I lived in. Because it was so close to me, I was able to visit the block and see the problems. The housing committee wrote a short report and, although very short, the things we found wrong with the building—Lakanal, down in Camberwell—were almost exactly the same things that went wrong at Grenfell. We could have learned from Lakanal; we could learn from Grenfell and the awful death toll experienced there. We have to say that we cannot let people get away with making the same mistakes again and again.
It is welcome that the Bill bans exploitative ground rents in new leases, but it offers absolutely nothing to the thousands of leaseholders already trapped in exploitative ground rent arrangements. I think in particular of the dreadful time that the thousands of residents in hundreds of flammable apartment blocks are currently experiencing. Again, I do not live in such a block and do not have a vested interest. There is sheer chaos and uncertainty, particularly in blocks recently deemed safe but which have since been re-categorised as dangerous and needing expensive remedial work. Many of these blocks now need waking watches to patrol 24 hours a day—a little bit like in your Lordships’ House—and ensure that the building is evacuated in the event of fire. Fire systems that were previously deemed state of the art are now considered woefully inadequate and have to be totally replaced, so that every single apartment unit is individually alarmed.
Then there is that nagging question in residents’ minds: what if? What if they had obeyed the “stay put” guidance if there had been a fire in what we now know is a dangerously flammable building that must be totally evacuated? The Government promised “never again”: that another Grenfell must never happen. But when the Government say such things, they have to then do something about it to ensure that it never happens again. It seems to have been left to freeholders and leaseholders to try to work out what to do and who will cover the cost, all while hoping disaster does not strike in the meantime.
After the very disappointing outcome of the G7 meeting, and following so many broken government promises, can the Minister please give us some hope that the Government are listening and will improve this Bill?
My Lords, I think most legislators would agree that there should always be a review of legislation. Unfortunately, that has not always happened in the past, and I have put down a number of amendments to certain Bills to say that there should be a review. But quite frankly, to have a review within 30 days is totally unrealistic; it is far too fast. Given that we have Christmas holidays, Easter holidays and bank holidays—and even the occasional pandemic, with people working at home—I am sorry to say that proposed subsection (1) in Amendment 19 is not the least bit viable.
However, when we move on to Amendment 20, we come to a more realistic basis: that within six months of the Act being passed a review of its financial impact on leaseholders must be carried out. That is eminently sensible and a reasonable length of time. The Minister may have a different view, but looking at it from the outside—again, I speak as someone who has been involved in housing matters—I would have thought that it was a reasonable length of time.
Whether proposed subsection (2) in Amendment 20 is correct, I am not sure. It says:
“The review must make a recommendation”.
I do not think it is the point of a review that it “must” do something. The whole point of a review is that it should look at all aspects of whatever it is reviewing and then make recommendations. That is a technicality, but it seems a more sensitive way of doing it.
I make one further point on the fire remediation work. I think Her Majesty’s Government, and this Government in particular, have tried very hard to get a grip on this very difficult area. One sees daily the outbreak of fire because of cladding, and each one seems to be different. I do not have the experience or the wisdom to know whether Her Majesty’s Government are doing enough in this area. I would appreciate from my noble friend, as would Parliament, a regular update on exactly what is happening on cladding. There is a great deal of confusion out there and clarity would help us all.
I was fascinated by Amendment 21A from my colleague the noble Lord, Lord Berkeley. I am conscious of having visited the model village that was formed in the Duchy of Cornwall—I cannot remember its name but I think it is in Dorset.
Yes, thank you so much.
I declare an interest in that I happen to own 40 acres around my home. Somebody suggested the other week that maybe a small bit of this—say five acres—might be a help to the housing market. I certainly would not think of having it on a leasehold basis. If I am going to build houses in the interests of the community in Bedfordshire, they will be sold, because if something is sold the family involved have real ownership. When they own their home it is not a disincentive but an incentive to do something good for their home; it is in their interests. I suspect that it is a disincentive to do so for most leaseholders.
I think the noble Lord is right to ask the question. I think he said that he sent three letters to the Duchy. The least that the Duchy should do is come back to the questions he asked. I hope that will go on the record. I say to my noble friend on the Front Bench that none of these are black and white, other than the fact that there should be a review within the six-month period.
My Lords, this has been a very interesting debate. Everybody has spoken with a sense of understanding and concern, remembering that today is four years since the Grenfell tragedy. It should be a matter of particular regret in the kind of debate that we are having that, four years on, so few of the deep issues that have been revealed subsequent to that fire have yet been fully dealt with or accounted for. It is a matter of regret to me that the building safety Bill is still somewhat on the distant horizon, and that we have not yet solved at all the question of who will pay for the costs of this tragedy, since it affects households right across the country.
Noble Lords would expect me to focus particularly on Amendment 20 in the rest of my remarks. Before I do, I will comment briefly on Amendment 19 from the noble Lords, Lord Kennedy and Lord Lennie, which calls for a review. I will skip the number of days and focus on the four issues that they have said need urgent reform and which every speaker in this debate and anybody who has considered the issue would agree on: lease forfeiture, transfer fees, redress schemes and enfranchisement. The Bill does not deal with those four issues. It is time that the Government face up to that and present to Parliament—preferably in the form of legislation, but if not a published report—precisely what their view is on those issues.
The move of the noble Lord, Lord Berkeley, to clarify where Crown exemptions come into play for leaseholders raises an issue that he has brought to your Lordships on a number of occasions. I would be very interested indeed to hear whether the Minister is brave enough to accept his challenge to write to the Duchy of Cornwall and get it to answer the noble Lord’s letter. Your Lordships certainly deserve to hear from the Duchy precisely how it intends to proceed. If the legislation needs change and reform to take account of that, we need to hear the Minister say that he is ready to do that and to make sure that Crown exemptions are used with appropriate discretion and not in any way at all to put residential leaseholders of Crown land in a more disadvantageous place than those holding leases where the freeholder is a private body.
On Amendment 20, my noble friend Lady Pinnock set out, as she has done many times before to your Lordships, the grievous burdens placed on leaseholders across the country as a consequence of the remediation made necessary following property inspections post Grenfell. Before I go on, I remind noble Lords that I served as a Minister in the Department for Communities and Local Government, as it then was, with responsibilities for building regulations between 2010 and 2012.
The Grenfell inquiry has been hearing evidence of failures at many levels: building owners, building managers, designers, materials suppliers, on-site contractors, inspection teams and enforcement bodies. No one has escaped damning evidence of their failures. What there has not been is any evidence at all of failure by residents or leaseholders. On the contrary, it was the residents of Grenfell Tower who repeatedly warned of the dangers that other people chose to ignore. That led to the terrible tragedy, the deaths and the unmeasurable impact on so many lives of families in and around Grenfell Tower who survived that night.
It also led to the discovery that this was not an isolated case of many unfortunate things coming together in a sequence of horrible coincidences to make a one-off dangerous, combustible building. We now know that more than 400 other residential blocks have been found to have similar dangerous cladding, and the enforced inspection of those blocks has brought to light many other fire safety defects, costing billions of pounds in total. Many of those blocks are occupied by blameless leaseholders who find that they now live in a dangerous and unsaleable home and are being presented with enormous bills for remediation under the terms of their leases.
The Minister will say that this is not the place to insert a proper compensation scheme—nor does Amendment 20 do that—but he needs literally to take stock. That is what Amendment 20 tabled by my noble friend Lady Pinnock does. It asks for a taking stock of the impact of this Bill on leaseholders who live in those defective properties.
Time after time your Lordships have pressed the Government to come forward with a proper scheme of compensation for leaseholders all over the country who have been unwittingly caught up in the Grenfell scandal. Every time your Lordships have pressed Ministers—this Minister in particular—we are told, “Not here and not now”. Meanwhile, as my noble friend Lady Pinnock spelt out, leaseholders are being sent five-figure bills with 28 days to settle or face the forfeiture of their lease. They cannot raise finance on their now-worthless properties, and the Government still have not issued the vital information on how they can even access the loan scheme the Government announced months ago.
Will the Minister tell your Lordships today when those missing loan scheme criteria will be published and what the distribution system of those loans will be? Please can he assure us that it will not be administered via an outsourcing company such as that in Virginia, USA, which earlier this year was the nemesis of the green homes grant fiasco? Let this piece of work be started soon, carried out efficiently and delivered to the benefit of leaseholders as quickly as possible.
Secondly, will he urgently bring forward a proper compensation scheme and lift the threat of forfeiture and bankruptcy from innocent leaseholders trapped in these blocks? Will he, as an earnest of good intent, accept my noble friend Lady Pinnock’s amendment today so as, at the very least, to commit to take stock of the impact that a ground rent ban could have on those affected leaseholders and tenants?
My Lords, I turn to Amendments 19 and 20 from the noble Lords, Lord Kennedy and Lord Lennie, and the noble Baronesses, Lady Pinnock and Lady Grender.
Under Amendment 19 the Government would be required to carry out a financial assessment of the Bill within 30 days of Clause 3 coming into force. The Government would also be required to consider whether further legislation would be necessary to address any financial consequences related to the Bill
“for tenants in long leases of dwellings, including but not limited to in relation to … lease forfeiture … transfer fees … redress schemes”
The effect of Amendment 20 would be to require the Secretary of State to complete a financial assessment of the impact of the Bill on leaseholders, specifically with regards to building remediation costs.
The purpose of the Bill is to restrict ground rent for future residential long leases. This naturally has a positive impact on leaseholders and, as noble Lords will know, is the first part of our major reform programme to make home ownership fairer and more transparent for leaseholders. I also direct the Committee’s attention to the fact that an impact assessment for the Bill has already been carried out, is published and is available to view alongside the Bill.
Noble Lords will know that the Government are bringing forward legislation to address building safety; that is the appropriate place to deal with the issue of building remediation costs mentioned in Amendment 20. I also point out, in response to my noble friend Lord Naseby, that my department publishes a monthly data release on the building safety programme, including all the latest statistics. We will be publishing the underpinning details on the financing scheme referred to by the noble Lord, Lord Stunell, shortly.
The time it would take to satisfy the requirements set out in Amendments 19 and 20 for further financial assessment would be disproportionate and risk a delay to our wider leasehold reform programme, which I know none of us want. We want to see the Bill made into law with speed. As such, the Government cannot accept these amendments. We will focus on responding to the concerns of the noble Lords, Lord Stunell and Lord Lennie, regarding forfeiture and enfranchisement as part of the Government’s response to the Law Commission’s recommendations.
Amendment 21A, in the name of the noble Lord, Lord Berkeley, relates to enfranchisement rights for leaseholders of the Crown Estate. The Crown is exempt from the existing legislation governing the right for leaseholders to buy their freehold or extend their lease. I will have to write to the noble Lord, Lord Lennie, on the number of properties that this relates to. However, the Crown Estate has given a parliamentary undertaking that it will act by analogy in these cases, meaning that such leaseholders can, in practice, exercise these rights as any other leaseholder can. As set out by the noble Lord, Lord Berkeley, there are some exceptions including, for example, properties on the Isles of Scilly and in parts of Dartmoor.
Noble Lords may well be aware that the Law Commission carefully considered the question of the Crown Estate in its report on enfranchisement. I note the concern raised by the noble Lord, Lord Berkeley, about certain Crown leaseholders who are exempt from the parliamentary undertaking and reassure him that we are considering our response to the Law Commission’s recommendations carefully in turn. I am happy to commit to writing to the Duchy of Cornwall about the enfranchisement provisions as part of the next Bill. I therefore ask the noble Lords to withdraw or not to press their amendments.
My Lords, I thank the Minister and all noble Lords who have spoken in this debate. The Minister’s response seemed to be that the amendments are unacceptable to the Government, either because they deal with future leaseholders or because they would delay the Bill being enacted. I find that quite astonishing. As a number of noble Lords have said, this is the fourth anniversary of Grenfell. The Minister’s suggestion that we are waiting for the building safety Bill—still to be proposed—to help deal with some of the issues of Grenfell is quite shocking. It will be even more shockingly felt by the families who suffered loss there. The Government were given the opportunity to build a better Bill, get a grip on the situation and give this rather timid legislation some proper teeth and real purpose, but that does not seem to be their will. We will wait for Report but, in the meantime, I beg leave to withdraw the amendment.
Amendment 19 withdrawn.
Amendment 20 not moved.
Clauses 19 to 21 agreed.
Clause 22: Interpretation
21: Clause 22, page 13, line 29, leave out from ““rent”” to end of line 29 and insert “means rent reserved as such including any part of the rent, whether or not expressed to be in consideration of services to be provided, which is fixed or which varies or may vary by reference to any one or any combination of a specific amount, a specific period of time or a specific measure, disregarding any part of the rent expressed to be payable in consideration of services to be provided which varies or may vary in accordance with the cost of the services provided, or of the variable cost of repairs, maintenance or insurance to be effected by the landlord and which varies or may vary in accordance with the cost of the repairs, maintenance or insurance in question, or to be payable in respect of the cost thereof to the landlord or a superior landlord;”
Member’s explanatory statement
This amendment probes whether the Government can improve the definition of “rent” for the purposes of the Bill. It is derived from definitions in the Leasehold Reform Act 1967 and the Landlord and Tenant Act 1985. It is extended to include fixed service charges and index-linked service charges akin to monetary ground rents.
My Lords, one of the themes in our debate on Second Reading was the need for a clear definition of what exactly a ground rent is. In addition to those who have taken part in Committee, I recall the contribution of my noble friend Lord Hammond of Runnymede, who drew on his experience in this area to outline some issues about definition. The helpful briefing that we have all had from the Law Society has as its first priority the need to amend the definition of rent in the Bill. It says:
“The main issue with the Bill at present is the failure to distinguish between different types of rent. Although the Government’s clear intention is to tackle ground rents alone, the Bill does not make this focus clear.”
During the proceedings this afternoon, I have had a further email from Mr Hugo Forshaw of the Law Society saying that he is supportive of the spirit of my amendment; he has offered support for a tweaked amendment on Report because, apparently, mine is not absolutely perfect, in his view.
Amendment 21 deals with this important issue. We need an effective and clear definition if the legislation is to work in practice. There is no current clear definition. Clause 22(2) says:
“‘rent’ includes anything in the nature of rent, whatever it is called”.
If I may say so, that is reminiscent of the controversy about self-identification and the context of gender identification—that if you say something is the case, then it is. The Government’s current approach will, I fear, result in litigation to determine the scope of what counts as ground rent. While such litigation is ongoing, leaseholders will have to continue to pay ground rents in all but name to avoid forfeiture. It is therefore essential that there is a workable definition from the day this legislation is commenced, without leaseholders needing to engage in litigation with landlords to establish that definition.
I listened to my noble friend the Minister’s point at Second Reading that the drafting of “rent” had been left deliberately wide so as to avoid providing a target for landlords to work around, but I am not sure this is wise. The drafters of our tax legislation face similar challenges, for example, yet manage to achieve a greater degree of precision than has been achieved here. There is value in ensuring that future leaseholders and their advisers can determine with certainty what is and what is not ground rent. That way, they can at least seek amendments to a proposed lease to avoid ever agreeing to pay a disguised ground rent. This broad definition risks capturing sums often reserved in the lease as rent, and therefore called rent, which may be perfectly legitimate service charges or insurance contributions. As my noble friend Lord Hammond said at Second Reading, they risk capturing market rents granted under a long lease, which is not the Government’s intention.
Leading law firms have echoed the Law Society and my noble friend Lord Hammond in requesting a clear definition of ground rent, lest there be serious unintended consequences. For example, Herbert Smith Freehills says:
“As currently drafted, the form of the legislation does not differentiate between ground rent and any other kind of rent: in short, anything reserved as rent (eg service charge, insurance rent) would be cancelled and unenforceable. Similarly, there is no reference to the rent being of the nature of a ground rent, so if the lease exceeds 21 years, there would, as the Bill currently is drafted, be no way of granting a long residential lease without a premium and at a market rent. We expect these points are likely to be addressed as the Bill proceeds through Parliamentary readings.”
The definition I offer is based on that found in Section 4 of the Leasehold Reform Act 1967, which is also the definition recommended by the Law Society. But I have added to that definition words that relate to any fixed charge, or a charge which varies or may vary by reference to an amount of money, a fixed measure—for example, RPI inflation—or a period of time: for example, a charge which doubles every 10 years. The aim of this drafting is to include within the definition of ground rent any charge that does not vary in accordance with the cost of providing a service or an item. This is done using the well-known and well-understood definition of “relevant costs” in Section 18 of the Landlord and Tenant Act 1985, for which there is already much case law.
The wording of Amendment 21 is deliberately extended to include fixed service charges, for which currently leaseholders have no means of redress. At least one set of barristers’ chambers—Landmark Chambers—has already identified this as a potential weak point in the legislation, allowing ground rents to continue in a different guise. The aim of this drafting is to ensure that charges made in exchange for a tangible service, which may vary in accordance with the cost of a tangible service, are not within the definition of ground rent. That reflects the Government’s policy, as set out in the Explanatory Notes. This strikes a necessary balance between bona fide service charges reserved as rent and any attempt to circumvent the ban on monetary ground rents by adding fixed service charges or index-linked service charges, or escalating fixed service charges which function as ground rents but which are not given that label.
My noble friend may say that, as the Bill applies only to future leases, some of these uncertainties can be resolved by drafting new standard leases for future use. But if either this Bill is amended or a future Bill implements government policy to enable existing leaseholders to buy out their ground rents, this definition may well be used to cover existing leases, so the need for clarity is even greater.
Paradoxically, the existing definition may catch items that are not ground rents— the case mentioned by my noble friend Lord Hammond—but may not capture fixed service charges that should be caught. On that basis, I beg to move my amendment.
My Lords, the definition of rent is an area that requires detailed scrutiny when looking at loopholes during the passage of the Bill. As we heard from the noble Lord, Lord Young of Cookham, at present, as drafted in Clause 22(2),
“‘rent’ includes anything in the nature of rent, whatever it is called.”
This wide definition has set alarm bells ringing. We therefore strongly support this probing amendment by the noble Lord, Lord Young.
As I described in the debate on the first group of amendments today, this is a billion-pound industry which will not let its grip on the market go lightly. It relies heavily on borrowed money to acquire freeholds, all secured on the basis of future ground rents. With the potential of a “rent” unpaid and forfeiture as the pot at the end of the rainbow, we need to make sure that there is some very specific detail in the Bill as to what “rent” means.
The danger is clear, especially on forfeiture, as defining any service charge as “rent” means it must be paid to avoid that forfeiture before a leaseholder can even protest or start to take legal action against the amount charged. The Leasehold Knowledge Partnership has warned that “rent” or a contractual arrangement, as we heard from the noble Lord, Lord Young, could take the form of a fixed payment for arranging buildings insurance or for appointing and supervising the managing agent. Can the Minister say whether, for instance, it is possible to include in a future lease a payment of, say, £200 per year rising in line with CPI inflation as a payment for the landlord’s expenses in arranging buildings insurance if that exists as a fixed service charge rather than a prohibited ground rent caught by the new law? Does he accept or recognise that it would not be possible for leaseholders to challenge that payment as the law stands or is proposed in the Bill? What measures has the Minister’s department taken to ameliorate this all-important issue?
The Bill says that no rent under a lease other than a peppercorn is permitted unless the lease is one of the types of lease excepted from the Bill. But in the Explanatory Notes we are told that the Act is intended to capture any payment under a lease that does not impose an obligation on the landlord to provide a service. LKP trustee Liam Spender put it this way:
“In modern leases, and modern case law, ‘rent’ often has a broader meaning. Many modern leases will define ‘rent’ as including both ground rent and service charges. Some modern leases also specify separate ‘insurance rents’ to cover the costs of buildings insurance arranged by the landlord. It is uncertain if the bill intends to force future leases to be redrafted so that these provisions are no longer described as part of the ‘rent’, or if the bill is not intended to capture these provisions because they are payments for tangible services.”
I look forward to the Minister clarifying some of those points.
I recall, as I have said many times before, the debates around definitions of services in the Tenant Fees Act. For instance, we had a late amendment about permitting the replacement of keys to be included in the Bill as a cost, and at the time we debated the specifics of that to ensure that it did not broaden out to have an impact on tenants. We are in exactly the same position here with regard to the lack of a clear definition of rent. We should all be aware of any additional charges, and they must not be defined as rent. Indeed, the Building Societies Association suggests an industry-funded leasehold ombudsman scheme and far greater clarity on charges to resolve some of these issues. Welcome work has been done in this area by the CMA and National Trading Standards, particularly in providing important information on property listings, following on from the Consumer Protection from Unfair Trading Regulations 2008, but inconsistency in this whole area continues to exist.
Like the noble Lord, Lord Young of Cookham, I thank the Law Society for its very helpful briefing on this issue just before we sat down to meet today. It believes that rent needs greater definition because of the dangers that I have described. Indeed, it suggests using the definition of rent in Section 4(1)(b) of the Leasehold Reform Act 1967 as the model for any definition in this Bill. Section 4(1)(b) says that
“‘rent’ means rent reserved as such, and there shall be disregarded any part of the rent expressed to be payable in consideration of services to be provided, or of repairs, maintenance or insurance to be effected by the landlord, or to be payable in respect of the cost thereof to the landlord or a superior landlord”.
When the Minister responds, I would be grateful if he gave us some kind of sign of his thoughts on either the amendment by the noble Lord, Lord Young of Cookham, or the possibility of reflecting the Leasehold Reform Act 1967. It is fairly clear that a lot of organisations believe that this lack of a clear definition has the real potential for a multibillion-pound industry to find the next loophole in order to ensure that leaseholders, who continue to suffer and to pay, are the ones who will pay in future. With that in mind, we strongly support the amendment of the noble Lord, Lord Young of Cookham.
My Lords, we also strongly support Amendment 21. It rightly asks whether the Government can improve the definition of “rent”. Unfortunately—we heard much of this from the noble Baroness, Lady Grender—there is a litany of housing legislation that is in desperate need of modernisation. I hope the Minister will use today’s debate to explain what further legislation is planned to bring the provisions up to date.
On the specific issue raised by the noble Lord, Lord Young of Cookham, can the Minister confirm what engagement the Government have had with NGOs and representatives of tenants on the issue thus far? Can he confirm whether the Government have any plans, as suggested by the noble Baroness, Lady Grender, to update the definitions available in the Leasehold Reform Act 1967 and the Landlord and Tenant Act 1985?
My Lords, this amendment from my noble friend Lord Young seeks to capture within the definition of rent other charges, such as fixed service charges, if they are reserved as rent in leases. It also seeks to exclude from the definition of rent variable charges or insurance if they are reserved or form part of the rent. The comments on a proposal regarding the definition of rent received from my noble friend Lord Young and other noble Lords continue to be carefully considered. I am very grateful to all those who have given it such close examination and look forward to hearing the further deliberations from the Law Society.
This is an important point to discuss today, as the treatment of what is meant by a ground rent and a rent lies at the heart of what the Government wish to convey through the Bill. It sets the tone for leasehold reform legislation to follow. On the specific meaning of rent, I am not unsympathetic to my noble friend Lord Young’s intention in his amendment. Since the very outset, this Government have been alert to defining what is meant by a ground rent in such a way as to discourage avoidance activity by sectors of the property market which make a habit of such activity. I believe we are all agreed that preventing such activity is of the utmost importance.
To give noble Lords some more of the context behind our reasoning for this definition, we started from a similar position to many of the Committee when approaching this issue by seeking to define closely what is meant by a ground rent. It is a logical approach; tightly drawn definitions are often meat and drink to a strong legislating body such as this House. However, I ask your Lordships to reflect on the seeming ease with which some parts of the leasehold sector have found ways around generation after generation of leasehold legislation, drafted with the greatest care and scrutinised in both this House and the other place, as my noble friend Lord Young knows well.
After very extensive consideration, we have concluded that we would need to take a different approach to the definition of rent for the leasehold sector. We therefore purposely defined rent widely to prevent landlords avoiding the restrictions in the Bill by including spurious periodic changes under any other name. As stated at Second Reading, the Bill intentionally uses a wide definition so that it includes anything in the nature of rent, whatever it is called. For example, we are mindful of not wanting to allow for a new garden rent or parking space rent replacing ground rent after the Bill is passed. That is why the meaning of rent in the Bill is drafted in such broad terms.
Any change faced by leaseholders that looks and sounds like a rent, whatever it is called, will therefore be open to challenge through trading standards and the First-tier Tribunal. Freeholders, landlords and even managing agents acting on behalf of a landlord will be able to refund this rental charge, whatever it is called, and may face a penalty fine. This imposes a potential liability on managing agents and ensures that they will scrutinise future contracts with great care.
We agree that it is not necessary for a lease to reserve charges, such as service charges and insurance, as rent. Under the Bill’s definition of rent, landlords will need to consider whether to itemise other charges separately in the lease. I point out that fixed service charges are a valid way for freeholders to charge for services where leaseholders and freeholders enter into a lease agreement. We are aware of criticism of the misuse of fixed service charges on occasion; these charges are generally in payment for a tangible service and differ from ground rent. Under the Bill, landlords will need to consider whether to itemise these in the lease agreement, and to be clear what the charge is and what a leaseholder receives in return.
I thank my noble friend Lord Young for raising the points made previously by my noble friend Lord Hammond of Runnymede. He raised two specific points, one on the definition of a ground rent for long leases over 21 years where a rack market rent is charged. I welcomed my noble friend Lord Hammond’s thoughts on this and am happy to undertake today that my officials and I will continue to engage with him and others as we look further into this matter. My noble friend Lord Hammond also raised a point on intermediate leases where there is a head lease or multiple properties. I point out that there are a number of potential options to address the complexities in this scenario. Once again, I am grateful to him for raising this issue and will continue to explore the matter further before Report.
Above all, I welcome the efforts of my noble friend Lord Young to achieve our shared objective of a clear definition of rent. However, I fear that my noble friend’s amendment would add complexity and provide opportunities for landlords to find workarounds to a Bill otherwise closed off by the simple definition it currently contains. I am interested to see what the Law Society comes up with and to see the revised drafting.
In response to the noble Lord, Lord Lennie, we have engaged with a number of NGOs and stakeholders in preparation for the Bill and I am happy to provide details of that in writing. While I appreciate the intention behind my noble friend’s amendment and I am happy to continue discussions with him, I ask him to withdraw his amendment.
My Lords, I am grateful to all those who have taken part, as this is a modest Back-Bench amendment which has generated three Front-Bench responses. The noble Baroness, Lady Grender, reminded us that there is a lot of money riding on the definition of ground rent; there are huge financial instruments at stake. We do not want a shaky foundation for that market.
I listened to the Minister’s reply. I will say only that he has so far failed to convince the Law Society or the lawyers I referred to, who do not believe that the broad definition adopted by his department is the right way to proceed. I am not sure that I was reassured by the Minister saying that, if there was any doubt, tenants could go to tribunals. The whole point of the amendment is to try to avoid doubt and grey areas and reduce the need for litigation.
At the beginning of his response, my noble friend said that his department continues to carefully consider the issue of the definition and that he was not unsympathetic to what I was trying to do. I am grateful for those responses. On the basis that discussions will continue between the noble Lord, Lord Hammond, and the department, the Law Society and the department, and indeed, those solicitors who have expressed serious doubts about the current definition, I am happy to withdraw the amendment.
Amendment 21 withdrawn.
Clause 22 agreed.
Clause 23: Crown application
Amendment 21A not moved.
Clauses 23 and 24 agreed.
Clause 25: Commencement
Amendments 22 and 23 not moved.
24: Clause 25, page 14, line 15, at end insert “or within 6 months of the day on which this Act is passed, whichever is earlier.”
Member’s explanatory statement
This amendment would ensure that the Bill comes into force within 6 months of the day on which it is passed, if regulations are not introduced by then.
My Lords, this final group of amendments is in relation to commencement. The Minister will be aware that different clauses of the Bill are intended to come into force on different dates and the Minister has the power to determine when certain parts are introduced. This is not a rare practice for primary legislation, but the Government should explain when they intend to reserve the power of commencement and whether there are any circumstances whereby the commencement could be postponed indefinitely.
Amendment 24 places a six-month limit, whereby the provisions will come into force if the Government have not already introduced them. I would be grateful if the Minister could confirm whether the Government intend for the provisions to come into force within six months and, if so, whether they would be minded to accept this amendment by way of a guarantee. As I have said during previous groupings, the provisions of the Bill are welcome, and I am sure that the whole Committee will want to see their introduction without delay. I am sure that the Government are determined to commence the provisions as soon as suitable but I am concerned that unforeseen events could lead to unnecessary postponement.
My Lords, I declare a personal interest as someone who pays ground rent on my London flat. I am coming at this from a slightly different angle from the noble Lord, Lord Lennie.
My noble friend the Minister is an honourable man, and I therefore believe him when he says that the Government want this Bill to come into force as soon as possible; he has urged us not to push any amendments which might delay its passage. I am therefore mystified at Clause 25 and the very bitty commencement dates. As the noble Lord, Lord Lennie, said, Bills often have different commencement dates, but the only things coming into effect on Royal Assent are the regulation-making powers and the usual consequentials at the end of the Bill, which we have just voted through on the nod. If the Bill is as urgent as the Government and we on this Committee say it is, why have we no date for the commencement of the only thing which really matters—the abolition of new ground rents and their replacement by the new peppercorn regime? Every week which goes by allows more iniquitous leases to be created.
I understand that the residential homes sector has been granted more time to adjust. I am sure that Messrs McCarthy and Stone and others will put that time to good use, adjusting their service charges to take account of any future ground rent losses. But as we consider what to do about the commencement dates at Report, we really need to know, very firmly on the record, when we will see the second and third legs of this three-legged stool. When will the Government introduce a fully-fledged leasehold reform and abolition Bill, and when will they introduce provisions like those advocated by my noble friend Lord Young of Cookham and my noble and learned friend Lord Mackay of Clashfern to have a proper ground rent buyout system?
I know that my noble friend the Minister will say that it is up to the usual channels and that he cannot make promises on when other Bills will be introduced, but we need to stress to him, and to the rest of the Government, that we will be very impatient unless we hear a firm commitment that this will be as soon as possible—ideally, in the next Session of Parliament and not sometime in this whole parliamentary period.
We have all said that this Bill is a good first start—a very good one leg of the stool—but we must see firm promises on the introduction of the next two legs or I, at any rate, will not be content to agree the commencement mishmash in Clause 25 when we come to Report.
My Lords, I address my remarks to Amendment 26, just spoken to by the noble Lord, Lord Blencathra. I strongly support what he said and the arguments that he put forward in support of his amendment.
One key risk of separating out the legislation for all new domestic leases from those of the 4.5 million existing domestic leases is that a gap will open up in the market between homes traded under existing leases and those traded under the new regime. As the noble Lord, Lord Blencathra, has just said, the existing leases are very disadvantageous compared to those that will be formed under the new Bill. In many respects, existing leaseholders will be under a double disadvantage. They will have a home that may be identical in every respect to one that is subject to the new Bill, with a lease signed a week after Royal Assent—or maybe in two years, when it is finally implemented. The existing leaseholder will be at a permanent long-term disadvantage up to the point when stage 2 of this reform comes into force.
This amendment would bring the Bill into force immediately. It would mean that the long tail behind the existing leaseholder system would be cut off. There would be no new leaseholders stuck with the old system, with a Bill that has had Royal Assent but not been brought into effect. It would, as quickly as possible, create a bigger market of those with new leases rather than old leases.
In its turn, that will throw up disparities between the two categories of leaseholder resident. Those who have an existing lease—particularly those with an informal lease extension, which might have huge escalating charges written into it—will find that the gap between them and their near neighbours under the new system widens and widens. Inevitably, that will lead to a two-tier market; perhaps at first only at the margins but, over time, as the number and proportion of new leases on the market increase in relation to the number of existing leases, that gap will widen. The disadvantage suffered by those holding existing leaseholders will also widen and will be twofold: first, they will find it harder to sell their leases on, because they will be less attractive to purchasers than those leases available under this Bill; and, secondly, in the meantime, they will be stuck with paying through the nose the exorbitant terms of their existing lease.
Amendment 26 from the noble Lord, Lord Blencathra, is a good step forward in the absence of any real commitment by the Government to bring much closer together this Bill, stage 1 of reform, and the next Bill, stage 2 of reform. The noble Lord is absolutely right to press the Government and to express his concern that that announcement has not yet been forthcoming. Indeed, Ministers have been very reluctant to make it. We need to know when stage 2 will be before your Lordships’ House. We need to know how soon it will be that the follies, injustices and oppressions of the current system will be stopped. We need to make sure that as few people as possible find themselves in the unenviable position of hearing, “Take it on these terms or take it on no terms.”
In an earlier debate we debated the four things that the noble Lord, Lord Kennedy, thought should be reviewed. The Government did not accept that. In our first day’s work we tried to make sure that there was some definite timetable for future reform. The Government were not willing to accept that. Today’s amendment from the noble Lord, Lord Blencathra, would, unfortunately, still not achieve it, but it might be a powerful lever to force the Government toward bringing these two stages of reform closer together, cutting off the tail of existing leases being signed as quickly as possible, and, as soon as possible, reforming the whole system.
My Lords, I do not want to be repetitive because much has been said by those who have taken a particular interest in the Bill—and indeed the market, which is why we are taking an interest in the Bill. I have little to add, but if I was sitting in my noble friend’s position, as the Minister responsible, I would see merit in the timeframe of six months from the noble Lord, Lord Kennedy. That would be the maximum break.
I declare an interest in that I share an office with my noble friend Lord Blencathra. He is very clear on his views in life and he is more often right than wrong. My noble friend on the Front Bench needs to reflect on this.
We know that this has been a very difficult area and I have sympathy with my noble friend on the Front Bench. But we cannot have a situation where phase 1 happens—I think we all have confidence that it will, whether immediately, as my noble friend Lord Blencathra says, or along the lines of the amendment from the noble Lord, Lord Kennedy—but the second half is to happen only sometime in the distant future. I again reflect on the period when I was chairman of the housing committee in Islington. You could not have had a situation where people in one section of society had their problems sorted out but those in another section—almost identical, except that they are a bit earlier in life—did not, and their problems were kicked into the long grass. My dear friend on the Front Bench has to come back, maybe not today but on subsequent sittings on this Bill, with a firm commitment that the second stage will happen and with a timeframe for it to happen.
My Lords, before I speak in strong support of Amendment 26, I raise an issue on commencement, which I think I raised at Second Reading—namely, whether it is possible to have different commencement dates in England and Wales. It is not entirely clear from Clause 25, as I read it, whether one could specify different dates and whether the possibility exists, for example, for the Welsh Assembly to come to the Minister and say, “We would very much like this Bill to be enacted in Wales way ahead of what you are minded to do in England.”
I turn to Amendment 26. During our first Sitting, my noble friend said:
“In order to move on to further legislative action on leasehold reform, we need to get this Bill through as speedily as possible.”—[Official Report, 9/6/21; col. GC 283.]
When he replied to Amendments 19 and 20 this afternoon he repeated that imperative for speed. This need for a swift passage has been behind the resistance to amendments even when, as we discovered last week, it was an amendment that delivered government policy.
As my noble friend Lord Blencathra said, the force of the Government’s argument is weakened if they will not give a firm date for implementation. All we know is that retirement homes will not be affected for another two years. It seems entirely reasonable for my noble friend Lord Blencathra to argue, as in Amendment 26, for a quid pro quo: swift passage in return for swift implementation.
The other leg of the Government’s argument has been, “Don’t worry if this Bill doesn’t do everything. Another one is right behind.” I expressed some scepticism about this last week; we are still waiting for stage 2 of Lords reform promised in 1997. I know my noble friend’s heart is in the right place but all he has been able to say is that stage 2 will be later in this Parliament, which is scheduled to last until December 2024. That legislation could then have a later enactment date, as this Bill does, so I think it fair to press the Government for clarity. Why not publish a draft Bill later in this Session and introduce it in the next one?
I end with a comment that adds weight to this need for clarity. This Bill was introduced in your Lordships’ House and has had a relatively easy ride, but the other place is full of MPs under pressure from leaseholders in their constituencies. Even the at times assertive language of my noble friend Lord Blencathra will pale in comparison with what Ministers will hear in the Commons, so I strongly urge my noble friend to develop what is known in the trade as a concession strategy on dates if the Government really do want to see the Bill proceed to the statute book without delay.
My Lords, I am really confused by the Government’s approach on this. It seems to be summarised as follows: “Give us this Bill as quickly as possible so that we can take as long as we can and as long as we like to implement it.” The problem is that there is a whole load of future leaseholders out there—and more importantly the marketplace, which believes that this lacks clarity.
Please do not take my word for it. I was reading a blog by Gary Murphy, an auctioneer on behalf of Allsop, which at the moment sells almost half of all London ground rents traded at auction. He notes the intention for this to change over a very long period of time, in the Landlord and Tenant Act 1987, the Leasehold Reform, Housing and Urban Development Act 1993 and the Commonhold and Leasehold Reform Act 2002. He goes on to say:
“Before freeholders panic, and new investors smell blood, we have to remember that reforms in this area have been on the cards since 2017. Recent announcements have amounted to little more than a press release. Whilst effective in courting headlines, they have changed nothing for the immediate future.”
The critical issue is that the marketplace, which needs to be convinced the most that this change is imminent and about to happen, is even less convinced than the noble Lords from whom the Committee has heard this afternoon. Until it is this market will continue, even if it is traded at slightly lower reserves.
The certainty of a date is, therefore, critical. That is why I was more than happy to put my name to the amendment, in the name of the noble Lord, Lord Blencathra, for it to come into effect as quickly as possible. It is funny that the noble Lord, Lord Young, and I took down exactly the same quote: we must make progress “as speedily as possible”. To do that, a clearly defined date is necessary, and not just for the leaseholders. The people in the marketplace neither trust nor believe that this is imminent and will happen. For that reason, I strongly support both amendments, particularly the one in the name of the noble Lord, Lord Blencathra.
My Lords, these amendments seek to set a fixed date or timescale for the commencement of the provisions of the Bill. I sympathise with that and thank noble Lords for raising this issue. The Government also wish to bring an end to the unjustified charging of ground rents as soon as it is feasible. Clause 25 provides that the Bill’s substantive provisions will come into force on a day appointed by the Secretary of State by regulations. Noble Lords can rest assured that we do not intend to have an unnecessary delay in implementation.
Although I am grateful to my noble friend Lord Blencathra for his enthusiasm to see the Government’s legislation come into force, commencing all the Bill’s clauses immediately on Royal Assent is simply not workable. This would leave no time for the laying of regulations and other important matters relating to the implementation process. While most of the delegated powers in the Bill are intended for later use should the need arise—such as to close a loophole—some will be beneficial when the rest of the clauses are commenced and will need to be prepared prior to this. For example, regulations under Clause 2, specifying the form and content of notices to be exchanged by landlords and leaseholders in respect of a business lease, will aid transparency and understanding of the obligations of both parties under this legislation—an outcome which I am sure noble Lords would welcome. I am sure that noble Lords will want the Government to get such regulations right. I am also sure that the noble Lord will appreciate that, with the unpredictability of the parliamentary timetable, I cannot give a guarantee that the Act can come into force on the day it is passed.
Amendment 24, in the name of the noble Lords, Lord Kennedy and Lord Lennie, and the noble Baroness, Lady Grender, recognises that time is needed before the Act can come into force. Again, I appreciate the sentiment of wanting to see the Act brought into force as quickly as it can be. However, it is not appropriate at this point to set a hard deadline for commencement, as proposed in the amendment. The Government are mindful of the necessity of ensuring careful implementation of this new legislation and to allow for a planned transition to a leasehold sector without financial ground rents. As noble Lords would expect, we will work closely with the sector, enforcement bodies and others to ensure that the Bill is implemented as smoothly and speedily as possible. I again assure noble Lords that the Government are fully committed to bringing the Bill’s provisions into force without delay.
My eagle-eyed noble friend Lord Young has spotted that the Bill applies to England and Wales and that, as currently drafted, there could be different commencement dates. Conversations with the Welsh Government continue to ensure that we meet the needs of leaseholders in England and Wales and address any commencement concerns.
I state again that I have listened carefully to noble Lords’ concerns and will look at whether we can be more specific about commencement dates as we move to Report. I look forward to further discussions with noble Lords on this issue. Once again, the intention is to get the second stage of leasehold reform through in this Parliament, ideally in the third Session. However, I cannot make any hard and fast commitment to that, so I ask the noble Lord to withdraw his amendment.
I thought I had a request from the noble Baroness, Lady Grender, to speak after the Minister. Does she now not want to do so?
I will take the opportunity, since I have created so much confusion. I thank the Minister for saying that he will go back and see whether it is at least possible to specify some kind of commencement date. I would very much like to say to him that I think all sides of this House will happily work with him and his department and take recommendations if it is at all possible to specify a date in order to counter the market scepticism that I described to him. If it is at all possible to put a date by the end of this process, we would be very grateful for that move.
Of course, as a Minister I would like to have stronger lines at this stage but it is important to recognise that we need to lay the regulations and ensure that the enforcement of this works, and there are communications challenges. However, taking that all into account, I am sure that we can reach a situation where we provide much greater clarity and we can be more specific around commencement dates. We can work towards that as the Bill moves through this House and on to the next stage.
My Lords, the Minister seems to be trying to take three positions at the same time in response to this amendment: no unnecessary delay; to get the regulation right; and either not to have a date or to have a date depending on whether he can go away and get the stronger line from the ministry. I wish him well with that, because we are all saying that either a date needs to be hard, fast and managed or stage two must be timetabled into the legislative process. We welcome the review that will take place between now and Report and we look forward to something concrete coming back from the Minister in advance of Report. However, in the meantime, I beg leave to withdraw the amendment.
Amendment 24 withdrawn.
Amendments 25 and 26 not moved.
Clause 25 agreed.
Clause 26 agreed.
That concludes the Committee’s proceedings on the Bill. I remind Members to sanitise their desks and chairs before leaving the Room.
Bill reported without amendment.
Committee adjourned at 4.38 pm.