Leasehold and Freehold Reform Bill - Second Reading

– in the House of Lords am 12:11 pm ar 27 Mawrth 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Baroness Scott of Bybrook:

Moved by Baroness Scott of Bybrook

That the Bill be now read a second time.

Relevant document: 16th Report from the Delegated Powers and Regulatory Reform Committee. Welsh legislative consent sought.

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

My Lords, I thank those Peers who have already engaged with the Bill and, indeed, those who have championed reforming the leasehold market for many years. I also thank colleagues from the Law Commission, without whom much of this vital legislation may not have been possible.

The Bill delivers long-awaited reforms to improve home ownership for millions of leaseholders across England and Wales. Reforming the leasehold system is a long-standing ambition of this Government. The comprehensive package of reforms before us will bring greater fairness, security, transparency and competition to the leasehold housing market. At present, leasehold home owners are too often at the whim of their freeholder, disempowered by the fundamentally unfair system. The Bill will address this power imbalance and give people the security of home ownership for their future and their families’ futures.

I will now move to the specific content of the Bill and outline the ways in which, when taken together, this package of reforms will transform the leaseholder housing market and the lives of millions of leaseholders across England and Wales. The core enfranchisement reforms of the Bill will give both families and individuals the security of an automatic 990-year lease extension, with ground rent reduced to a peppercorn on payment of a premium. This ensures that leaseholders can enjoy secure ground rent-free ownership of their properties for years to come without the hassle, distress and expense of repeated lease extensions. Removing the requirement to pay marriage value, capping the treatment of ground rents at 0.1% of the freehold value in the calculation, and prescribing the rates for those calculations will bring significant tangible financial benefits to leaseholders if they choose to extend their lease.

The Bill will also give more leaseholders the right to manage their own building, enabling them to appoint a managing agent that delivers good-quality work at reasonable prices and replace one that does not. As well as empowering leaseholders to make these important decisions themselves, this Government believe that making managing agents more accountable to the leaseholders who pay for their services will encourage these companies to up their standards.

Allied to this, we have also focused measures on cracking down on the poor, unresponsive practices blighting the daily lives of leaseholders, whether a managing agent is involved or not. This will give them true transparency over service charges, so that they can better understand the costs they are being charged and are better equipped to challenge them if they are unreasonable. Following the excellent work of the FCA, we will end the practice of leaseholders being charged exorbitant, opaque commissions on top of their building insurance premiums. We will also extend access to redress schemes for leaseholders to challenge poor practice. The Bill makes it a requirement for freeholders who manage their property to belong to a redress scheme, so that leaseholders can challenge them if needed. This will again empower leaseholders to challenge bad practice and bad management. This Government do not believe it is right that somebody can mistreat a leaseholder and their private property, while said leaseholder has no means to seek redress or compensation for that mistreatment.

Through these reforms, we will also scrap the presumption that leaseholders must pay their freeholders’ legal costs even when they win tribunal cases, levelling the playing field and correcting an historic power imbalance. There must be equality before the law. This Government believe firmly that leaseholders should not pay for a freeholder’s legal costs when said freeholder is found guilty of mismanagement or abuse.

I know that many across the House will be pleased to note that we are also granting further rights to home owners on private and mixed-tenure estates, which many here today have campaigned for. The Bill will give home owners the power to apply to the appropriate tribunal to challenge the reasonableness of charges they face or to replace a failing manager, access to support via a redress scheme, and measures to make buying or selling a property on such estates quicker and easier by setting a maximum time and fee for the provision of information required to make a sale. This measure encapsulates what the Bill is trying to do, which is to bring fairness and equality to the housing market. It is not right to force someone who has bought a freehold property to deal with only one managing company, which is not required to give them any information or charge them reasonable fees. It is also not right that someone who has bought a property on these estates has no effective way to hold the management company to account for the services they provide. These reforms will address that.

The Bill also clarifies and extends the protection in some specific areas of the Building Safety Act 2022, building on the legislation previously brought forward. These specific changes will further prevent freeholders and developers from escaping their liabilities to fund building remediation work, ultimately protecting leaseholders.

The package of reforms in the Bill before us is substantial and far-reaching for existing leasehold properties, but the Government wish to reform the future leasehold housing market too. The Bill therefore now explicitly bans the creation of future leasehold houses, with all new houses needing to be sold on a freehold basis, other than in exceptional circumstances.

In addition to the measures I have outlined today, I want to assure your Lordships that I understand the strength of feeling in the House to make even more changes to the Bill, in particular on the issue of forfeiture. We recognise that this is a real and significant problem and that there is huge inequity at stake here. We are working through the detail of this and will report back to the House shortly with more details as we consider the matter further.

I reassure noble Lords that the Government remain committed to commonhold reform and see it as a long-term replacement for leasehold. The Law Commission did fantastic work to review the commonhold framework and set out 121 separate and detailed recommendations on how to modernise it. These are not trivial changes; implementing them requires detailed consideration to make sure that we get it right, so that commonhold works for everybody.

The Government are also committed to reviewing the leasehold market and considering ways to improve its fairness. As such, we have launched a consultation on the capping of existing ground rents, which we are still carefully considering. The results will be published in due course.

In conclusion, this Bill will give leaseholders and their families greater security of ownership over their own private property for generations to come, and improve the lives of millions of home owners who have been forced to enter into a system that is unfair and outdated. I know that many in this House have campaigned to see these reforms, and I look forward to hearing the contributions of noble Lords during the debate on this important Bill. I beg to move.

Photo of Baroness Taylor of Stevenage Baroness Taylor of Stevenage Opposition Whip (Lords), Shadow Spokesperson (Levelling Up, Housing, Communities and Local Government) 12:20, 27 Mawrth 2024

My Lords, I thank the Minister for her thorough introduction to the Bill and, as always, for the way she has worked with opposition parties and Cross-Benchers in the weeks prior to the Bill coming to us, so that she could understand our concerns and issues. I thank the many organisations that have sent us briefings, and particularly the Law Commission for all the work it has done. I thank the individuals who have sent us their personal accounts of the impact of leaseholds. I also thank all the individuals and organisations that have campaigned so effectively and for so long on leasehold, including, of course, my noble friend Lord Kennedy.

The Bill is certainly not the leasehold Bill that the Labour Party would have wanted. Most importantly, it is not the Bill that the beleaguered legions of leaseholders wanted. To be candid, I do not think it is even the Bill that the Secretary of State wanted. He set out the original vision last year, stating:

“I don’t believe leasehold is fair in any way. It is an outdated feudal system that needs to go. And we need to move to a better system and to liberate people from it”.

The Secretary of State also made his views on ground rent quite clear in his speech on the Second Reading of this Bill, when he said:

“I was asked by the Select Committee last week what my favoured approach would be, and I believe that it should be a peppercorn”.—[Official Report, Commons, 11/12/23; col. 659.]

The Secretary of State clearly wanted to see a scrapping of the feudal leasehold system and a capping of ground rent to peppercorn rents. From this original vision for the Bill, what we have before us today is a virtually eviscerated shell of a Bill, with little to give comfort to the people and families who had hoped to realise their dream of home ownership and have found instead that being a leaseholder simply does not offer the security and control of their lives that their dream promised.

I have been receiving many letters from leaseholders since the Bill was listed in your Lordships’ House. A particularly heartbreaking one yesterday was from an older couple, who said that they have been waiting patiently for this Bill for years to relieve the misery of their experience of leasehold, but feel now that it will not do what they wanted it to. They went on to say:

“We have an apartment where the freeholders changed last year and our service charges quickly increased and now amount to £8,602 per annum. But additional to this our already high Ground Rent charge of £4,000 per annum is currently being reviewed by our Freeholders who estimate this shall increase to £28,000 plus VAT per annum. If they win this review they shall then look to backdate this increase over 6 years”.

The impact of this type of sharp practice, whether on older people on fixed incomes or younger people who are juggling enough with the cost of living crisis, can be catastrophic. This couple face losing their home. It can taint the dream of home ownership, with a raft of excessive conditions, fees and charges. For many leaseholders these charges do not bring anything in return, and the charging regimes are complex and opaque.

I have received many representations from young people whose dreams of home ownership have been shattered, when they finally save their deposit and buy a home, only to find that the terms of their lease leave them, at best, shackled to a regime of unreasonable cost increases and, at worst, unable to sell their home because the lease conditions are too onerous. To quote again the Secretary of State,

“freeholds have become utterly torn away from the warp and weft of the capitalist system as we understand it in this country, and have become tradeable commodities that foreign entities are using to exploit our people who have worked hard and saved to get their own home”.—[Official Report, Commons, 11/12/23; col. 660.]

In addition, the Competition and Markets Authority has already stated that it continues to consider that statutory intervention may be necessary to protect consumers associated with excessive ground rents. The CMA concluded that ground rent is

“neither legally nor commercially necessary”,

stating that it saw

“no persuasive evidence that consumers receive anything in return”.

With all that in mind, you might expect a Bill that gets rid of leasehold once and for all. But this Bill, although dating back to the Conservative manifesto in 2017 and the subsequent White Paper, is a very long way from what leaseholders have been waiting and hoping for: an end to the injustice in the anachronistic leasehold system. It does not ban the sale of new leasehold flats. It does not even properly ban the sale of new leasehold houses. The Government know that the leasehold model and market is broken; they have known that at least since 2017. This Bill was the opportunity to address that, so why is that not being done more comprehensively?

We could have had a Bill that fundamentally reformed the leasehold system, making leasehold obsolete by making commonhold the default tenure for all new properties and enacting the Law Commission’s recommendations in full. There seems to be a determination on the Government’s part to miss the open goal they are presented with here—one that my team, Stevenage FC, would certainly never miss.

What we have in the Bill are baby steps toward leasehold reform. We could not oppose those, because they will at least ease a little of the pain currently experienced by leaseholders. We will therefore not oppose the Bill’s progress, even if we have to finish the job later on. Your Lordships’ House can rest assured that we will attempt to use this House’s stages of its passage to make some more of the improvements that leaseholders desperately need.

I turn to the detail of what is in the Bill, before I go into more detail about what is not. Extension to lease terms is welcome, although the devil will be in the detail of how this operates. We welcome the steps towards right to manage, although they do not go the whole way towards commonhold. We believe that the changes to the calculation of lease extension premiums and the collective buying of freeholds will make it easier and cheaper for leaseholders to buy their homes and maintain long-term housing security. These are welcome, as are the 990-year leaseholds, which will offer the same security, taking away the hassle and expense of future lease extensions.

The further provisions on building safety—for example, replacing the regime for dealing with insolvent developers and orphaned buildings—are welcome. However, it could have afforded a lot less heartache to affected leaseholders if these were included in the Building Safety Act in 2022—but better now than never.

The end of marriage value will right the injustice where leaseholders had to pay the freeholder when extending their lease or purchasing the freehold, so that is also welcome. Additional rights for freeholders on private and mixed-tenure estates will be beneficial. However, I think we still have some way to go to ease the misery for freeholders of what is known as fleecehold.

The provisions relating to ground rent, while welcome as far as they go, are still subject to the outcome of a consultation that we do not yet have. Will the Minister be offering government amendments in this respect later in the progress of the Bill? We will certainly be trying to clarify the situation on ground rent for all leaseholders, including those who currently have lower ground rents, as the Bill progresses.

We welcome the change to the inclusion of leaseholders in the management of their homes, but there remain concerns about this and how it will operate. I know my noble friend Lord Kennedy will want to question the complexity of enabling the participation and enfranchisement of leaseholders as we go through today’s debate.

We will be looking at more fundamental improvements to the Bill in Committee and on Report. I will start with the disproportionate and draconian legacy of Victorian property law that is forfeiture. This mechanism allows landlords to ensure compliance with a lease agreement by using forfeiture of the lease as a threat, even for minor breaches of leasehold or relatively small amounts of arrears. Its continued use, and the chilling effect that results from its mere existence, continues to put landlords in a nearly unassailable position of strength in disputes with leaseholders. It is routinely used by landlords as a first resort when seeking to recover alleged arrears of payments from leaseholders. Worse still, the threat is often invoked to deter leaseholders from disputing any unreasonable costs and defending claims.

With the pledges to reform leasehold stretching back over so many years, the Government have had plenty of time to consider how they would deal with forfeiture in this Bill and yet in the other place Members were told as recently as February this year that the Government were:

“working through the detail of the issue”.—[Official Report, Commons, 27/2/24; col. 197.]

I ask the Minister to set out how long this is going to take and say whether we will have a solution before we reach Third Reading. Too many of the Bills that come before this House now are subject to further work as the Bill progresses.

We will be seeking to remove deferment rates from the discretion of the Secretary of State. We believe that without having something on the face of the Bill which will deal with this issue, in future vested interests may still be able to attempt to introduce rates which are punitive to leaseholders, and that is not acceptable.

Unless the Minister is able to introduce government amendments in relation to the outcome of the ground rent consultation that restore the balance more closely to the recommendations of the Law Commission and the Competition and Markets Authority, we will want to extend the right to peppercorn ground rent to the most common leases—those under 150 years.

I know that many noble Lords are disappointed that the Bill does not go further in relation to the regulation of property agents. While new statutory rights relating to estate management companies are welcome, it is—as my honourable friend in the other place, the shadow Housing Minister pointed out—incomprehensible that the Bill does not incorporate the proposals from the Regulation of Property Agents working group in July 2019. This group, chaired by the noble Lord, Lord Best, made recommendations that have widespread support in both Houses. I am sure he will want to say more about this himself, but it is hard to understand why the Government have not taken this opportunity to implement such a common-sense approach. It is a clear example of what I described earlier as missing an open goal.

Lastly, but probably most significantly, we hope to persuade the Government to rethink their decision not to extend the ban on leasehold to flats; 70% of leaseholders live in flats. To leave out new flats from the ban on leasehold justifies my description of an eviscerated Bill because it means that the Bill simply will not do what it set out to do. We will be proposing amendments to the exclusions the Government have included for the ban on new leasehold houses. We believe these are too wide and will almost certainly result in a way through for landlords who want to perpetuate the leasehold tenure for houses.

There is clearly a broad consensus in both Houses for a radical overhaul of leasehold, so the question is whether this Bill achieves that. Although it set out with worthy intentions and initiates some improvement, we do not believe it goes anything like as far as it should. With the parliamentary time left to us, and with the desperation of leaseholders to see at least some improvement in the catastrophic circumstances some of them face, it is not our intention to try to persuade Ministers to radically overhaul the Bill by means of the many hundreds of amendments that would be required to implement all the Law Commission’s recommendations on enfranchisement, right to manage and commonhold. However, it remains our position that this will need to be done.

Whether this Bill receives Royal Assent or not before this Parliament is dissolved, a Labour Government will have to finish the job of finally bringing the leasehold system to an end by overhauling it, to the lasting benefit of leaseholders, and reinvigorating commonhold to such an extent that it will ultimately become the default and render leasehold obsolete. I reassure leaseholders across the country that we are absolutely determined to do so.

Photo of Baroness Thornhill Baroness Thornhill Liberal Democrat Lords Spokesperson (Housing) 12:32, 27 Mawrth 2024

My Lords, it is an absolute pleasure to follow the noble Baroness, Lady Taylor of Stevenage, with her meticulous attention to detail. I too thank all those who have contributed to getting the Bill to where it is now. It is noticeable that MPs across all parties have worked tirelessly on this Bill— I will not name names because you always miss someone out—in the other place. That is a sure sign that there really is a consensus and a need to drive this forward.

To say that this Bill is needed and well overdue is an understatement. The Secretary of State himself said that the leasehold system was “outdated” and “feudal” and a lot more besides. Millions of property owners own their homes through leases in England and Wales, which along with Australia are the only places in the world where this system still exists. As there have been numerous parliamentary and independent reports from organisations ranging from the aforementioned Law Commission to the Competition and Markets Authority giving incredibly similar recommendations, you would think this Bill would be relatively straightforward—but not so. We are disappointed that there are no proposals to really reinvigorate, which is the word being used, commonhold nor a clear pathway to it becoming the main tenure.

Liberals have actually been campaigning against leasehold since—wait for it—Lloyd George’s People’s Budget—

Photo of Baroness Thornhill Baroness Thornhill Liberal Democrat Lords Spokesperson (Housing)

Of 1909—I am glad that my noble friend Lady Pinnock knows that.

This system is so engrained in our history that there is inevitably going to be a chasm between the Secretary of State’s theatrical rhetoric and harsh reality. There are also going to be winners and losers. Indeed, the Secretary of State pledged to

“squeeze every possible income stream”.—[Official Report, Commons, 11/12/23; col. 659.] that freeholders have under the unfair feudal leasehold system. But we do not feel that the Bill as it stands does this. As has already been said, the devil will be in the detail, and we will hope to work with some of that detail.

The Government are demonstrably vulnerable to extensive lobbying, and this has weakened both the Government and the Bill, most recently regarding ground rent, which we feel should eventually be abolished. There is no hiding our disappointment that promises to abolish leasehold have been watered down, particularly the fact that flats are exempt; we would seek to include them, the more so because they make up 70% of leasehold properties. Retirement homes are also exempt. Why developers of retirement properties get a special carve-out is beyond me—surely the Government should be on the side of the elderly and vulnerable, at that time in their lives, who have downsized, freeing up family homes. However, they are unwillingly extorted in their new home and when they or their relatives come to sell, there are further charges—the so-called event fees.

The exemptions will mean that significant numbers of leasehold homes will still be built. The rhetoric has turned to “reform” rather than “abolish”. It is a disappointment but perhaps understandable in a Government that are now too weak to deliver big changes such as this and perhaps have too many of those with vested interests in their ranks or on their donor lists. Add to this the quiet death of the Renters (Reform) Bill—I hope the Minister will have an update on that—and it certainly leaves much for the next Government to get their teeth into.

On these Benches, our biggest concerns are building safety and cladding, which my noble friend Lady Pinnock, of Cleckheaton, will continue to work on as she has done since the very early days of the Grenfell tragedy.

The other big one for us is the lack of real reform regarding regulation of property agents and their management fees. These are a right rip-off and a licence to print money for doing nothing or next to nothing. The report from the noble Lord, Lord Best, in 2019 made many sensible recommendations as did the Law Commission in the same year. These should be implemented in full.

My own recent casework reminded me sharply of how vulnerable elderly leaseholders are when demands are made for payment for repairs that they deemed were completely overpriced. To prove their point, they went to the trouble of getting three quotes from local builders for the same work. The range within the local builders’ quotes was very little, but the difference between the landlord’s quotation and the most expensive local builder was thousands of pounds—for fencing.

A closer inspection of the last years’ invoices revealed the kind of stories we are now all too familiar with: huge sinking funds; many contingency cushions; eye-watering rises, all with no reasonable—an interesting word that we will no doubt talk about during the passage of the Bill—explanation. The residents decided collectively not to pay their most recent management bill. The company responded with threatening letters, which of course were intended to intimidate them into paying. I will not name the company, as following my involvement things began to be sorted out—we do have our uses—and moneys were reimbursed to residents. But this Bill will offer them very little to ensure that they are not ripped off again, and in this situation the fact that the digging was done by two retired accountants, who have now left the scheme, made me realise that even with the right to manage some residents may not want to manage for themselves and will need to employ a property management company. These are currently unregulated and unscrupulous in far too many cases.

I will, however, praise the work of the Property Institute, which represents thousands of property managers and aims to raise standards and improve transparency for residents. We need to remember that there are always good guys—and gals—out there who also hate their reputation being trashed by those less scrupulous.

The Bill will ban the sale of leasehold houses, but not so-called fleecehold estates: the practice that has developed over the past 10 to 15 years of the public spaces that were once adopted and maintained by the local authority now being in private hands—a management company—with the residents footing all the bills for communal repair and maintenance. What a nasty surprise for them on moving into their new home. First, they may not have known that they were liable for such costs. Often, people are told, “Oh, you’ll just be paying for the grass to be cut a couple of times a year”, before they realise that it is also for the playgrounds, roads, fencing and everything else. There is evidence to show that there is mis-selling in this area. Secondly, those people may not have realised that they would be paying for services that have already been done by the council. In effect, they are paying twice for facilities that others can also use, as well as paying full council tax. Freeholders refusing to pay the so-called rent charge could find their freehold changed to leasehold.

To be fair, the Bill really is trying to put some of this right, but it is all a little bit uncertain—there are more consultations, and more this and more that—as to how things will work; for example, on the ability to appoint a substitute manager. I look forward to the details of how that will happen, along with the proposals that give leaseholders a new right to request information about service charges and the management of their building. That is good but it, too, will need fleshing out, as it feels like the power of what is released and how is still very much in the hands of the management company.

Likewise, the proposals for right to manage will come to naught if leaseholders are not supported to transition. Current charities, such as the Leasehold Advisory Service and others, will need more tools and resources to help this transition and make it work. It is disappointing that commonhold has not taken off in the way that we expected, so we clearly need to give more support to make these really positive changes work.

Key to all of this working at all is to regulate managing agents. Without that, many of the measures will not be successful, or not as successful as they could and should be. We must raise standards and increase competence across the sector and, ultimately, have a fair and transparent system that residents feel is fair—and, if not, that there is a simple and accessible form of redress, unlike the current recourse to the First-tier Tribunal, which, when I explored it for those elderly residents, was neither simple nor accessible. We feel that this fleecehold practice should be abolished altogether and revert to local authority control, with developers contributing to the council coffers towards the upkeep of the estate.

I make a final plea to the Minister that there are potentially thousands of leaseholders who are in a bit of a quandary at the moment about whether they should extend their lease or wait for the legislation—will they be be winners or losers?—depending on which way things go. If the Government could give clear guidelines and guidance as soon as possible to all those who are thinking of selling or remortgaging, I am sure that would be welcome.

Of course, it would be churlish not to say that there is much to welcome in the Bill. I am sure that, by the end of it, we will all be a lot wiser as to marriage value, the extension of leases, enfranchisement, forfeiture, and much more. We look forward to working across the House to table amendments to improve this well-intentioned but somewhat disappointing Bill. In particular, we would like to ensure that the rhetoric around the Bill is borne out in reality.

Photo of Lord Best Lord Best Crossbench 12:43, 27 Mawrth 2024

My Lords, the Bill before us contains some very welcome reforms but also some omissions. It is silent on one overarching issue: the need for a regulator of property agents.

Any reform of leasehold needs to consider the arrangements for the sale of leasehold property and for the ongoing management of leasehold flats. A good agent, providing an effective service at a fair price, can enhance the quality of life for the residents, and a bad agent, demonstrating poor service, incompetence or misconduct, can make life miserable for leaseholders. Sadly, there are all too many examples of mis-selling, exorbitant service charges, lack of transparency and accountability, and overpriced leasehold management. In a survey by the Property Institute, no less than 62% of those who have bought leasehold homes maintain that they were given misleading or insufficient information. I suspect that most of us speaking in this debate have been sent tales of abysmal management and excessive fees, as illustrated by the noble Baronesses, Lady Taylor and Lady Thornhill. Yet in most cases leaseholders cannot change their managing agent and escape this trap.

The role of a new regulator of property agents would be to encourage and support the good, raise standards, and drive out the bad. The regulator would require agents to be suitably qualified and to engage in continuous professional development. The regulator would require adherence to codes of practice, probably with one overarching code and then specific codes for each specialism within the sector. Only those individuals and firms meeting the regulator’s criteria would be given a licence to operate. The regulator would have powers to discipline those who breached the relevant code, including the power to withdraw their licence.

I declare my housing and property interests as on the register and would add that I chaired the Government’s Regulation of Property Agents Working Group, which presented its report to government back in July 2019. The working group comprised representatives of the sector and consumers, and it was unanimous in strongly recommending the establishment of a regulator of property agents—estate agents, lettings agents and managing agents, not least of retirement accommodation. Over recent weeks your Lordships’ Committee on Industry and Regulators, of which I am a member, has been revisiting the working group’s 2019 report. Its conclusions were put to Secretary of State Michael Gove last week, and received widespread publicity. The Select Committee endorsed in all respects the earlier report, adding some extra emphasis for engagement by a new regulator with the consumers—the tenants, buyers and leaseholders. The Lords committee noted the strongly held views of those representing the consumer, with powerful advocacy from Generation Rent and the Leasehold Knowledge Partnership, but there was also unanimity of view from the relevant professional bodies and industry stakeholders.

In the briefings for our debate today, regulation of the sector is the number one issue for both the Property Institute—previously the Association of Residential Managing Agents and the Institute of Residential Property Management—representing 6,000 property agents, and Propertymark, incorporating the National Association of Estate Agents and the Association of Residential Letting Agents, with some 18,000 member agents. That is the industry’s top ask, as we consider amendments to the Bill. Indeed, the urgency for regulatory reform has increased now that the Building Safety Act 2023 has meant managing agents handling huge sums of leaseholders’ and public money to ensure that remedial work is carried out. It is more important than ever that only reputable and qualified professional agents are in charge.

It seems curious that, with support from all sides, and the obvious popularity of raising standards and rooting out bad practice in this sector, the Government have failed to include the creation of a regulator of property agents among their reforms to the leasehold sector in the Bill. Is it not necessary? None of the Select Committee’s expert witnesses or the relevant consumer bodies has claimed that the industry does not need this change or that self-regulation is sufficient. The preparation of a voluntary code of practice by an industry group convened by the RICS and chaired by the noble Baroness, Lady Hayter of Kentish Town, has paved the way for a regulator to determine the content of a statutory code. But all parties are agreed that a regulator with independence from the sector and real teeth is essential.

Too late? No one can say that the proposals for a regulator have come too late to be included in the Bill: the Government have had the Regulation of Property Agents report, the RoPA report, for nearly five years.

Too costly? It cannot be argued that the cost would be unduly burdensome. For example, some £15 million a year could be raised by a levy of £3 per annum for every leasehold property under management, Clearly, this would not add significantly to overheads or deter new entrants to the sector.

An ombudsman instead? Could a more powerful ombudsman scheme achieve a similar outcome more simply than by creating a new regulator? A regulator and an ombudsman perform complementary but distinct roles, as demonstrated by the financial services sector and the social housing sector. The ombudsman—and a single ombudsman service is certainly to be preferred to the current situation with two competing redress schemes that can cause confusion—can respond only to complaints by individuals, and the ombudsman’s powers to insist on codes of practice and sanction offenders are necessarily limited. By contrast, a regulator has a wide brief; can specify required qualifications; can take account of information from many sources, for example, from neighbouring agents who notice abuses, from press reports, from whistleblowers within firms, et cetera; and can have the flexibility to act accordingly.

The property agency sector has a vital role to play in keeping people safe and well, providing a valued service for owners and landlords, as well as for leaseholders and tenants. Good agents ought to be held in high regard. Bringing the industry into a properly regulated framework would professionalise the whole sector and give it the status and prestige it deserves. I therefore say to the Minister that there is still time to introduce an enabling clause into the Bill to empower the Secretary of State to create a regulator of property agents. This would be greeted with acclaim by all parties involved, especially by the leaseholders suffering at the hands of badly performing agents. Let us put this key component into the Bill while we can: who knows when the opportunity will arise again?

Photo of Lord Young of Cookham Lord Young of Cookham Deputy Chairman of Committees 12:52, 27 Mawrth 2024

My Lords, it is a pleasure to follow the noble Lord, Lord Best. I agree with everything he said about the regulation of property agents and, were he minded to table an amendment to the Bill, I would like to add my name. I thank my noble friend for her readiness to consult colleagues throughout the passage of the Bill: I am sure this will facilitate its speedy work.

My speech is in two halves, the first focusing on the Bill and the second dealing with unfinished business with the Building Safety Act. The Government are well ahead in the first half but heading for a score draw by the end. I warmly welcome the Bill, building as it does on previous pieces of legislation, all progressively empowering leaseholders and moving away from a feudal system of tenure that exists nowhere else in the world. I will just touch on the more controversial measures on ground rents and marriage value. Having attended a meeting, with other noble Lords, with freeholders, it is absolutely certain that this is going to be challenged in the courts. I take comfort from what is on the face of the Bill, namely that my noble friend asserts that the Bill is compatible with the ECHR.

The consultation on ground rents closed on 17 January and the Cabinet Office guidance says Governments should

“publish responses within 12 weeks or provide an explanation as to why this is not possible”.

That runs out on 10 April, so will we have a response before Committee, hopefully rebutting rumours in last week’s Sunday Times? If the Bill becomes an Act, and a leaseholder declines to pay the historic rent demanded by a freeholder, citing this Bill, and is taken to court, as seems likely, will the Government stand behind that leaseholder and bear the costs?

On marriage value, many properties in London, from where most of the freehold objections have come, have been on 99-year leases for centuries. Each time the lease expired, the freeholder had all the marriage value—financial polygamy if ever I saw it.

There is one area where we are going make progress: I was relieved to hear what my noble friend said about forfeiture. A tenant can lose possession of a £500,000 flat for a debt of £351, with the landlord keeping the entire difference between the value of the property and the debt. Will my noble friend go a little further than she did in her opening speech and commit to a government amendment to abolish forfeiture and replace it with a more balanced response?

I share the disappointment of other noble Lords at the absence of progress on commonhold. In 2019, the House of Commons Select Committee, with a Conservative majority, urged the Government to ensure that

“commonhold becomes the primary model of ownership of flats in England and Wales”.

The noble Baroness, Lady Taylor, quoted Michael Gove’s statement, which is worth repeating:

“I don’t believe leasehold is fair in any way. It is an outdated feudal system that needs to go. And we need to move to a better system and to liberate people from it”.

But in the Bill, there is no progress whatever on these flats.

Turning to the Building Safety Act, I welcome the measures the Government have introduced to alleviate the problems of those living in flats requiring remediation following the tragedy of the Grenfell fire, but there is a significant gap, best illustrated by quoting the commitments the Government made at the outset. In his Statement in the other place on 10 January 2022, the Secretary of State said:

“We will take action to end the scandal and protect leaseholders”.

Later, he clarified what he meant:

“First, we will make sure that we provide leaseholders with statutory protection—that is what we aim to do and we will work with colleagues across the House to ensure that that statutory protection extends to all the work required to make buildings safe”.—[Official Report, Commons, 10/1/22; cols. 285-91.]

Note that that commitment extends to all building work, not just cladding, and there was no qualification of the word “leaseholders”.

This broad commitment was confirmed by a letter written to all noble Lords by my noble friend’s predecessor, my noble friend Lord Greenhalgh, on 20 January 2022. He wrote:

“The Secretary of State recently announced that leaseholders living in their homes should be protected from the costs of remediating historic building safety defects”— not just cladding. However, the position now is that not all buildings are covered; not all building safety defects are covered; and, crucially, not all leaseholders are protected. In particular, it remains perverse that, while we debate a Bill to facilitate enfranchisement, the Government have deliberately chosen not to give protection to those that have enfranchised, while leaseholders who have not enfranchised continue to enjoy a better deal.

The two principal exclusions from the commitment given by the Secretary of State are leaseholders who live in buildings less than 11 metres tall; and other non-qualifying leaseholders, a category that does not exist in Wales, where remediation funding is available for all buildings and all leaseholders are protected. On buildings under 11 metres, the Government’s position seems to be that residents should be able to leave the building in the case of fire without expensive remediation. This position is at odds with that of the London Fire Brigade. This is its statement:

“With regards to the remediation of buildings, we strongly assert that all buildings with serious fire safety defects should be remediated regardless of height”.

Many of these flats are unsaleable and unmortgageable, the owners cannot afford to pay for remediation and, in the view of the fire brigade, they are unsafe. The department’s case-by-case approach is moving at a glacial pace, with no clear outcome even for cases that are audited by the department and deemed to require remediation.

Also excluded are leaseholders who own three or more residential properties. The perverse consequence of this is that you can own a manor in the Cotswolds, plus a villa in Italy on Lake Garda and a luxury penthouse in central London worth £1.5 million and qualify for protection. Yet if you and your partner own a small, terraced house and three small £100,000 buy-to-let apartments as part of your pension planning, only one of which has non-cladding fire safety defects, you will face bankruptcy. If we are to have exclusions, they should be value-based, not quantity-based.

Then there is the position of joint ownership. In many cases, landlords exceed the threshold of more than three UK properties only because they jointly own properties with their partner. I welcome the Government’s rather belated decision to consult on this. They issued a document last week, with consultation due to end next week. That is a very short time for consultation, but if it means that a fit-for-purpose amendment can be introduced in this Bill, then that could excuse it.

The LUHC Committee in the other place, with a government majority, rightly noted last year:

“Leaseholders are no more to blame for non-cladding defects than they are for faulty cladding on homes they bought in good faith. Buy-to-let landlords are no more to blame than other leaseholders for historic building safety defects, and landing them with potentially unaffordable bills will only slow down or prevent works to make buildings safe”.

That, of course, affects everybody in the block. At the moment, there are 4,092 buildings over 11 metres with unsafe cladding, but over half of those—2,077—have no remediation plans in place.

In short, the Building Safety Act created a two-tier system where leaseholders deemed qualifying will benefit from the protections, whereas those arbitrarily deemed non-qualifying have been left to fend for themselves, exposed to uncapped costs for non-cladding remediation. Those people took all available precautions when they bought and are in no way responsible for the defects that now need remediation. Without a truly comprehensive solution for all buildings of all heights and tenures, unfairness and uncertainty are set to perpetuate, not least because there is no deadline for remediation. My amendments to this Bill will seek to rectify those injustices and I hope the Government will listen.

Photo of Baroness Andrews Baroness Andrews Llafur 1:01, 27 Mawrth 2024

My Lords, it is a great pleasure to follow the noble Lord, who has been indefatigable in his pursuit of justice and improvements to the leasehold system. The Minister is going to have a huge amount of help to improve the Bill; she has already heard from the noble Lord, Lord Best, about how to improve the regulatory system, and there will be lots of advice coming from around the House, as there has been from every part of the industry that knows about leasehold.

I welcome the Bill, but like many others in the House—as I am sure the Minister will hear in the rest of the debate—I think it is a disappointing Bill because it does not fulfil the full task that the Law Commission undertook. Mr Gove, who is ever cheerful, was hardly right when he said at Second Reading in the other place that the Bill would mean

“the effective destruction of the leasehold system”.—[Official Report, Commons, 11/12/23; col. 659.]

That is not so, sadly. It does serious damage, but the leasehold system survives and will go on inflicting and perpetuating real damage, as we have heard already from around the House. He also conceded that more improvements were necessary and I think we have heard several, very powerful reasons for that. Without delaying it, I am sure that this House can improve the Bill very seriously.

The failure to follow the full recommendations of the Law Commission is particularly frustrating because it is one area of the complex and disastrous housing landscape where a solution can be found through the law. The Government have said that there has not been enough legislative time; I say very gently to the Minister, because I know she is not responsible, that if the Government had not distracted both Houses with legislation such as the Rwanda Bill, then we might have had more legislative time. There certainly would have been more time to consider, for example, the proposition made by the noble Lord, Lord Best, about introducing a regulator, or addressing the impact on building safety.

The Government would also not have had to introduce 124 of their own amendments, 34 new clauses and a new schedule in Committee. We are making legislation on the hoof. Legislation like this, which is consensual, ought at least to have the benefit of proper and thorough scrutiny, and we will give it that in this place, not least to some of those 72 very constructive amendments which came forward from the Opposition in the other place—all of which were, of course, rejected.

Reference has been made to this bizarre medieval system of leasehold which we have inherited. Like the feudal laws it echoes, it places all the power in the hands of the freeholders, who are indeed free of all obligations to show responsibility, transparency or fair treatment to the leaseholders beholden to them. Leaseholders live with insecurity compounded by secrecy. They live with no control over what the freeholder is up to next—they never know, especially with offshore companies. They are subject to arbitrary cuts and things being loaded into maintenance, over which they have no control; the cases mentioned by my noble friend on the Front Bench were extraordinarily powerful. They are subject to bad or indifferent property management, as the noble Lord, Lord Best, has described. They worry constantly about whether they should or could afford to extend the length of lease, or pursue enfranchisement—what does it involve and what will it cost?—or what the implications are if they rent out, stay in or sell their homes? No other form of tenure faces such intractable problems.

We talk these days about the precariat; this is at the very edge of the precariat, and more so the 70% of leaseholders living in flats. Yet they have less protection in this Bill, which does not offer them what they need. I speak from experience: as a leaseholder in a block of flats in London, I am in that precariat. This is a speech of two halves, and the second half will be about a particular issue that comes on top of all the others.

If the Bill had been comprehensive, it would certainly have abolished leasehold for all properties. While I welcome the ban on new leasehold houses, I cannot understand the logic of not extending that to flats—not for political reasons alone. I welcome the changes which will make it cheaper and easier for existing leaseholders in houses and flats to extend their lease or buy their freeholds. It is long overdue to be able to extend a 90-year lease to 990 years. As has already been said, why could the Government not have followed the logic and given leaseholders greater protection against losing their homes if they are found to be in minor breaches of the lease? I take comfort from what the Minister has said, and I look forward to seeing what the Government will bring forward; I just hope it will deal with the problem. Also, why did they not follow the logic of placing in the Bill, the purpose of which is to reduce the cost of enfranchisement, a clear legal obligation to encourage leaseholders to acquire their freehold at the lowest possible cost when determining the applicable deferment?

Many of the amendments put forward in the other place will have served the purposes of this Bill very well. It would have been right and sensible to give leaseholders the right to buy up their ground rent, or to provide that all new flats should include a requirement to establish and operate a residents’ management company. Every day, we see the evidence for how effective resident management buyouts are, with lower costs, higher standards, and so on. As other Members have said, the Bill might have also included provision to give leaseholders the right to a share of the freehold, which is the first step towards the preferred option of commonhold. The extension of the protections around the Building Safety Act are very welcome.

We have heard already several times about the importance of the work done by the noble Lord, Lord Best, on the property agents working group. If the Government were worried about Henry VIII clauses, because that is what they said, it would be the first time I have ever heard, in this House, any Government be worried about Henry VIII clauses. I am not going to take that seriously and I do not think anyone else should either. All I hope, at this point, is that the Government find a better reason for supporting the case put forward by the noble Lord.

I am sure we will have a lot of further discussion in Committee, and I am grateful to the Minister for already having engaged with me on a particular issue that I will bring forward in Committee, unless the Government choose to do so. I ask the House to indulge me while I tell a particular tale which affects quite a lot of leaseholders in London, and it is a sort of extension of many of the issues.

Many leaseholders in blocks of flats around and beyond London have been threatened in recent years by upward extensions. Upward extension has been made possible by permitted development; there is no right to be consulted or requirement for a planning application, and there is no strength in objection. No affordable housing provisions are required nor is there provision for disability, and the proposed new homes are market-rent and do not help solve London’s housing crisis.

There is no provision for compensation caused by disruption or decanting of tenants. Imagine an 80 year-old who has been living in the top floor of a four-storey house who suddenly finds she is on a building site. She cannot afford to move, no one is going to help her, and she has to stay put. That is the situation facing the residents of my block of flats at the moment.

Extraordinarily, building control does not help. The way building control operates means that permission can be given without construction methods being tested in advance. There could be a builder who has never done this before, who suddenly decides to put a concrete structure on top of four storeys, and no one will actually know whether it is going to work. Building control will not take action until it has gone through the process. There is, in fact, potential damage or danger by construction methods and approach, recognised by departmental circular 3 of 2020, but it is given pretty short shrift. This is a really awful situation to be in when, as a resident, you have no power to challenge.

We were in that situation when we were threatened by two storeys. There was no consultation and minimal information. Permission was sought and granted, first for one storey under normal planning rules and then for two. We lost our judicial review on the one storey, and, extraordinarily enough, we won on appeal on the two storeys, because we were within the catchment area of a hospital heliport. It was nothing to do with planning or our rights; it was only by accident. We are still under threat of a one-storey extension.

In this Bill, I want the Government to honour their promise. The development ambitions of freeholders, all across London and beyond, are having a chilling effect on the ability of leaseholders to seek and afford enfranchisement. The new hazard is that the development value of the plans brought forward by our freeholder have doubled the collective enfranchisement cost from £0.75 million to £1.75 million. This puts it outside of the reach of most of the residents. The Law Commission proposed a remedy in its valuation report, and the Government—Mr Jenrick, no less—said in the House of Commons on 11 January 2021 that:

“Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’”.—[Official Report, Commons, 11/1/21; col. 10WS.]

The Bill has an impact assessment, thank goodness. Buried in it—you have to be forensic—in annex 2, paragraph 12, is the recognition that the prospect of paying development value can make enfranchisement prohibitively expensive, contemplating that there will be a new right for an option not to pay development value on condition that leaseholders guarantee not to develop themselves. I will draw my remarks to a close soon, but the assessment is detailed. It also contemplates that the freeholder would be due reasonable out-of-pocket expenses, if they have been genuinely incurred. The freeholder gets some profit, but the leaseholder gets absolutely nothing out of this. The Law Commission did not recommend it—this is an invention of the Government.

I have asked the Minister whether she thinks this is something that the Government can honour in the Bill, and she has said that it is a live issue. That is all I need for now, because I trust the Minister to take this issue seriously. It is quite a general issue. I will come back and discuss this with her, if the Government feel that they cannot. She has already told me that the permitted development review is under consultation and that there may be an implication there. Perhaps she could tell me more about that.

We will certainly engage over the course of Committee, and I will not make any further argument at this point, other than simply to say that I welcome the Bill. It is a huge opportunity; let it not be a missed opportunity. Let us use the resources and expertise in this House to make the Bill as robust and comprehensive as we can. I believe that there is quite a lot of good will on the part of the Government to do that.

Photo of Baroness Finn Baroness Finn Ceidwadwyr 1:14, 27 Mawrth 2024

My Lords, it is a pleasure to follow the noble Baroness, Lady Andrews, and to listen to so many well-informed and eloquent contributions. I thank my noble friend the Minister for her engagement on the Bill thus far. I am delighted to speak in favour of this important Bill, and in so doing recognise the tireless advocacy of so many noble Lords, especially my noble friend Lord Young of Cookham, the noble Earl, Lord Lytton, and the noble Lords, Lord Kennedy and Lord Best.

Just over a 100 years ago, a little-known thinker called Noel Skelton coined the idea of a property-owning democracy. That belief is still a core tenet of conservatism. However, today, we are talking about tenants, not just tenets. For far too many in England, property ownership has a fatal flaw: for far too many their ownership is fundamentally limited, in that they do not truly own the properties that they have saved to buy. They are merely tenants, albeit often on longer leases. In some cases, they are trapped by extortionate ground rents; in others, they risk losing the roof over their heads if they fail to make such payments. Some face exorbitant management charges or have to seek permission and pay a charge simply to change a kitchen cabinet.

Our leasehold system has its origins in the feudal property laws. Feudalism was a core part of my history degree; it has no place in contemporary Britain. This is why I am so delighted to speak in this debate today. Successive Governments have promised reforms to the leasehold system and failed to deliver. As we heard in the other place, Tony Blair’s new Labour promised to sweep it all away—it even produced a pamphlet about all its plans. However, the Labour Government did no such thing during their years in power. They retreated in the face of vocal opposition, and the situation of leaseholders today is little changed from that of the 1970s. That is why this Bill is so profoundly important.

The reforms are deeply conservative, championed by none other than Margaret Thatcher during her opposition and her premiership. I am encouraged that His Majesty’s Opposition plan to engage seriously, as we all have a common interest to ensure the Bill’s success.

The Bill corrects many injustices. Let me list just a few. It will end permanently the sale of new freehold houses; it will give new rights to existing leaseholders, making it cheaper and easier for them to extend their leases, and making such extensions 990 years as a default; it will bring new transparency over service charges and make it easier for leaseholders to enfranchise; it will protect more leaseholders from unfair and unjustified service charges; and it will improve the management of many buildings. These are huge steps forward, and I pay tribute to the work of my right honourable friend the Secretary of State for Levelling Up. Housing and Communities, as well as to the Housing Minister, Lee Rowley, and before him, Rachel Maclean. The reforms also build on the work of Sajid Javid as Housing Secretary, and incorporate many recommendations of the Law Commission. I welcome all of these measures. Taken together, this package is by far the biggest and most serious change to the leasehold system in recent decades.

However, I hope my friends in the Government will not object to me pressing them to go further in a few key areas, while recognising all that they have already secured. The first area is enfranchisement—the process by which leaseholders can take over their freehold. This will be improved by the Bill, but I urge the Government to go further and abolish the residential freehold exemption and lower the threshold of consenting flats required. Certainly, it should not be possible for a freeholder who also owns leases in a particular block to cast deciding votes on enfranchisement, and nor should absentee overseas owners be able to block the process.

Secondly, successive Housing Ministers have championed commonhold as a viable alternative to leasehold. I am encouraged that the Government have included a swathe of the Law Commission’s reforms, yet the Bill does not yet include the measures that the Law Commission considers necessary to make that system of tenure the new default. We need to move towards a commonhold system, and I sincerely hope that the necessary further measures can be incorporated as the Bill goes through its further stages. I hope that my noble friend the Minister can confirm that they will be included, so that we can finally get rid of the leasehold system.

Thirdly, my right honourable friend Boris Johnson secured a substantial majority just five years ago on a manifesto which included the promise to implement a

“ban on the sale of new leasehold homes”.

The Government have sought to suggest that banning leasehold houses fulfils this promise. It does not, for the majority of leaseholders are in flats. I recognise that no Government would want to ban immediately the sale of new leasehold flats, and that the commonhold fixes I have referenced above would need to be shown to work. However, I suggest that the Government take a power to allow the Secretary of State to end all leasehold, while committing here that it would be commenced only once the market was ready.

Fourthly and fifthly, we have heard a great deal in the other place about the need to address both forfeiture and the fleecehold estates. My honourable friend Rachel Maclean said quite simply that forfeiture must go, and she is right. It is simply wrong that a freeholder can make a tenant forfeit their flat over a disputed service charge. Likewise, my honourable friend Neil O’Brien was one of many who argued strongly about the need to end the model of fleecehold estates and to help the 3 million or 4 million people who are stuck with them. I will not repeat all the points made, save to say that I completely endorse the thrust of their arguments and call on my noble friend the Minister to commit to act now.

I have outlined five areas where I believe the Government should move further. I hope they will do so, so that the Bill, which already achieves so much, can be one which truly delivers the reforms needed to end leasehold for good.

Photo of Lord Campbell-Savours Lord Campbell-Savours Llafur 1:20, 27 Mawrth 2024

My Lords, I congratulate my noble friend on the Front Bench on her very comprehensive canter around the course of reform, and I look forward to meeting her during the proceedings on the Bill, if at all possible. I too give a cautious welcome to aspects of the Bill. I say “cautious” because I believe that a lack of political courage and clarity of purpose at this stage at least to commit to the issue of enfranchisement under a more acceptable form of tenure has created a lot of anxiety. I will return to this issue later in my brief contribution.

I should confess to some experience in some areas covered by the Bill. In the 1970s, I purchased the freehold on my London home, a seamless process which worked fairly well. Also in the 1970s, on acquiring offices in a Lancashire town, I found myself in a quagmire of lease complications over leased accommodation with both office and residential leases. It seems I had inadvertently acquired a series of subleases, which I managed to dispose of to a number of grateful lease-holders at no cost to them. I have never had any desire to be a landlord.

More recently, I, along with other flat owners, after protracted and expensive negotiations and days in a leasehold tribunal, acquired the freehold to our flats outside London. The experience of sitting through days of these hearings at great expense has given me front-line experience of the process of enfranchisement. However, a far greater interest in terms of this Bill is the experience and knowledge I gained while an MP over attempts to purchase the freehold of a London flat used for attending Parliament.

In that case, over half the block concerned was owned by persons overseas, and many of these owners held their London assets in the name of nominee companies, either in tax havens or in the Far East. At that stage, there was no way to crack that wall of secrecy. The managing agents pleaded client confidentiality. In effect, they could do what they wanted. So why did we want to buy? I saw the service charge rise in 17 years, from just over £2,000 a year to nearer £10,000 today, so I just sold up. The scandal of escalating service charges is not only hitting London, it is now hitting flat resale prices in many of our great northern cities. The evidence is to be found in property auction prices at Cluttons, Nationwide and Savills, to name but a few. Escalating service charges are at the heart of arguments over the Bill, and I greatly welcome those provisions in it that provide for greater transparency.

I have always believed that transparency influences conduct. It stands at the heart of my whole approach to political life. For example, just imagine what arguments are going to break out when leaseholders learn of the percentage uplifts being added to their bills for contractual services, maintenance costs, insurance premiums and variable admin charges. I have never seen a leasehold title service charge notification which reveals top-slicing percentages. The question is: how will service charge companies compensate for their lost revenues? Will it simply fall on increased account-handling charges?

I return to the issue of title. This appears to me to be the issue of most concern in the property market. I have had some very interesting conversations on this area of thinking, as set out by Michael Gove over recent days. The letter from the Residential Freehold Association is what alerted me. I quote:

“The proposed cap on ground rents would represent a retrospective interference in the value of legitimate investments made by institutional and private investors, and could wipe out almost the entire value of investments into ground rents. The Government cannot illegitimately reduce the value of these investments without compensating the investors, who will be entitled to, and will seek, compensation for the loss of value they will suffer. Interfering with investors’ existing contractual income streams will lead to a high rate of insolvency for landlords, leaving thousands of buildings in England and Wales without a functioning landlord”.

I do not think the association has really grasped the scale of public anxiety and abuse deployed in property portfolio administration by some of its members. There is a very controversial message there, and while it may be exaggerated, it does need a response from the Government. I think it needs to be corrected. We now hear reports of ground rent investments falling. They are increasingly being offered on property auction sites, and I worry that innocent buyers are picking them up in the expectation of long-term income returns, without realising the possible long-term negative effects on their investments.

The Government are not sending out a clear message. I have been able to talk to auctioneers marketing these products, who all report a nervousness in the market, with the only real interest, interestingly, coming from those investors who lack the savvy to do their homework —primarily investors from overseas. I have also had the opportunity to talk to one investor who commands a very substantial portfolio in the area that we are talking about. It was a difficult message for me, as he described in detail his concerns over what he regarded as expropriation. He foresees the collapse of his portfolio. The question is: what are we to do with this group of investors, some of whom are ethical in their dealings, and others whose approach has been thoroughly exploitative?

I want reform and an end to exploitative leasehold practices, but, equally, I want fairness. Confiscation cannot be on the agenda, but I want reform. This is obviously a very difficult issue for the Government. I suspect it will be all left to the incoming Labour Government to sort out. I suppose, in truth, that I want a review of all forms of title. The system removes the speculative [Inaudible]. That is a tall order.

I speak in the [Inaudible]. After about 4.30 pm each day, I start believing [Inaudible]. Reliability of transmission to the Chamber is impossible in terms of participation, especially in Committee, which invariably comes later in the day on all Bills going through Parliament. I will do my best to intervene when I can, although I shall be following the whole debate, which I find extremely interesting.

Photo of Lord Stunell Lord Stunell Democratiaid Rhyddfrydol 1:29, 27 Mawrth 2024

My Lords, it is a pleasure to follow the noble Lord, and I am sorry that his speech was somewhat interrupted by technological problems.

I declare an interest as a vice-president of the LGA simply because it is one of many organisations which have contributed evidence and views on the Bill. I also want to declare that I am the joint leaseholder of just one residential flat, which I occupy during my parliamentary work, and I am in the same block of construction that the noble Baroness, Lady Andrews, referred to, with exactly the same issues; I shall certainly work alongside her at later stages of the Bill. However, that will not be the central point of what I want to say. There have been some powerful contributions so far, and many of the things I want to highlight have already been properly drawn into the debate by people who have created the policies I want the Government to advocate, never mind persuading them to join with me.

Unfortunately, the Bill comes from the same stable as the levelling up Act. With that Act, all the promise was in the title; the delivery part was the problem. We have exactly the same tendency here. With the leasehold reform Bill, the promise is in the title but the delivery is not in the Bill. The Bills have other things in common. Both suffered—in this Bill’s case, it is still suffering—from a headlong rush by the Government to introduce new material into the Bill as it goes along. In many cases, as we see in the report from the Commons, it was not controversial enough for the Commons to think that it should be divided on. However, it came at such short notice that the Commons did not have the opportunity to examine whether the stuff brought in front of it was going to work. We have heard enough evidence so far today that the Government are spending an increasing amount of time chasing their tail, trying to make their legislation work. We saw that with the levelling up Act, and some of us think that, however hard they chased, they did not succeed in catching their tail on that one.

During the passage of the Building Safety Act, which I and other noble Lords spent a good deal of our time trying to steer through and improve, on all sides there was a broad level of consensus as to what should be in it. However, in many cases the Government were somewhat resistant to the sensible improvements suggested by Members on all sides of the House, including their own Back-Benchers. Some of those things have had to be put right through further amendments, both to the levelling up Bill and now to this Bill, where loopholes and omissions have come to light.

We had a hint in what the Minister said that we will have some more tail-chasing in subsequent stages of this Bill. Capping ground rents and forfeiture may be coming back to us—I hope they do. However, I hope also that they will come sufficiently soon for us to spend a reasonable amount of time examining the material the Government bring forward, so that we do not have to have follow-up Bills chasing the Government’s legislative tail.

Having said all that, I welcome the Bill before us, despite the fact that it suffers from some major flaws. They have already been spelled out by others, so I will not rehearse them. Some of the worst were set out by my noble friend Lady Thornhill earlier. Can the Minister give us some positive information about the Government’s consultation on capping ground rents and on service charges? The noble Lord, Lord Young of Cookham, rightly brought both matters into play earlier on.

There are also some missed opportunities for real reform. The regulation of property agencies is clearly right up there near the top, and the omission of flats from the creation of new leases is just absurd. Some 70% of leaseholds are flats. The biggest growing market is flat-building in inner urban areas, and all such flats are leaseholds. The problem is getting bigger; it is becoming a larger fraction of the housing market as we speak. The idea that it is not appropriate, timely or sensible to tackle that seems strange in the extreme and difficult to justify, and it certainly needs to be challenged.

I will not say that the failure to make more progress on commonhold is a mystery; the problem with commonhold is that it is broadly seen as a neat solution, but nobody has quite grappled with how you bring it into force. It is a pity that the Government are still struggling when there is so much good information available from the Law Commission and others about what needs to be done to make that happen.

The barriers to the right to manage are being tackled in the Bill. However, as the noble Baroness, Lady Andrews, pointed out, there are some serious tripwires for potential enfranchisers to get to grips with, and I am sure we will want to discuss that in more detail.

However, I want to pick up a point that my noble friend Lady Thornhill raised about the right to manage. The right to manage works well if you have managers who are tenants or leaseholders in those blocks. Therefore, if you like, it is an upper middle-class project enfranchisement. If your leaseholders are solicitors and accountants and so on, you are well made—you can do it, but surely the right to manage needs to go much further through the socioeconomic pyramid than that. This means that, to be workable, there will be not just right-to-manage projects but residential management agents who can do that work effectively on behalf of leaseholders. Surely they then have to be of good quality and integrity—in other words, regulated. I hope that the Government, in responding to the noble Lord, Lord Best, on his point about property agents, will also pick up the residential management agents question as well.

There is a deeper philosophical debate to be had about who in a mature democratic society should have the right to monopoly exploitation of the scarcity value of land. The balance of that debate has moved over the last 250 years substantially in the direction of providing better protection for the weak and minimising harm to the common good. Both are at the expense of the monopoly holders of the scarcity of land. The Government are fond of saying that Britain is world leading but in this area of policy we are world trailing. Only England and Wales, which this Parliament is responsible for, and Australia, have anything like our anachronistic leasehold system tainting the whole property market. It is time that we caught up with the rest of the pack, even if it is too much to hope that the Bill will get us somewhere near the front of it.

The Bill is just a skirmish in a much bigger battle for fair property rights and access to decent housing for all. I very much welcome that when introducing it today the Minister said that she will be ready and willing to engage with us on improving the Bill because, my goodness, it does need improving.

Photo of Lord Moylan Lord Moylan Chair, Built Environment Committee, Chair, Built Environment Committee 1:38, 27 Mawrth 2024

My Lords, it is a pleasure to follow the noble Lord, Lord Stunell, with whom I served on the Built Environment Select Committee. I declare as interests that until August 2023, I was a member of the board of the Ebbsfleet Development Corporation, and that I own and live in a leasehold flat in London and own nominally a further leasehold flat as a will trustee, though I have no financial interest in it.

Some time ago, the block of flats in which I live was the second block in the country to exercise the right to manage when that legislative provision was introduced. It has worked extremely well for us. It has persuaded me very strongly that the control of the management of the building in which you live is the solution to many of the problems that leaseholders have experienced with their freeholders and managing agents. I am slightly baffled as to why the noble Lord, Lord Stunell, suggests that this is something that only the middle classes can attain to. The residents in the block where I live probably fit the description that he set out, but I do not understand why he says that this can be done only by them. We do not manage the building ourselves. We interview, appoint and periodically change a professional managing agent—a property agent—but that agent reports to us and is accountable to us, financially and in the decisions made. The structure also allows us to put in place a long-term plan. The legislation requires us to have a 10-year plan, which has made the prediction of service charges very much easier.

I strongly support those parts of the Bill aimed at giving residents greater control of the management of the blocks in which they live. However, if, as is not the case where I live, there is profound disagreement between the residents of a shared property concerning heavy expenditure, no legal structure will resolve those issues satisfactorily. We need to bring about a change in human nature, which I am afraid is probably beyond the capacity of your Lordships’ House.

I am concerned that the right-to-manage provisions appear not to extend to local authorities, even where the property is held outside the housing revenue account. That is a point that I may wish to probe further in Committee. I am also concerned that landlords will not be able to recover their legal fees from tenants as a result of disputes and about how that impacts on right-to-manage companies and any other form of tenant control that might be adopted as a result of the Bill. It would in effect make it impossible for the right-to-manage company to take action against delinquent leaseholders, because they do not have the resources or the deep pockets of these freeholders to take legal action and risk being left with large legal bills. I would like to probe that further as well.

Where the right to manage is not exercised, leaseholders must face the prospect of service charges being administered by or on behalf of the freeholder. This is the nub of the matter. I will come to ground rents in a moment; this is a much more important issue. I certainly take the view that freeholders should not make a penny out of service charges. There is no justification for them to do that. I would be perfectly happy if the Bill contained a provision preventing that from happening. I would also be happy if the Bill contained a provision saying that the total revenue to a managing agent was capped at a certain percentage of expenditure. I do not think that it requires, at least in this respect, for a regulator to enforce that. One could simply make such Bills unenforceable in the courts, so that the demand could not be collected.

Where I depart from the Government—and, I think, from nearly all noble Lords who have spoken so far—is on the provisions relating to the retrospective cancellation of ground rents, and indeed of marriage value. I am afraid to say that this is an astonishing proposition from a Conservative Government. As lawyers have said, it clearly threatens to damage the reputation of English law in the eyes of both domestic and foreign investors. It makes a wholly unjustified transfer of wealth from one group of persons to another—an estimated £40 billion being transferred from one pocket to another, with almost no justification involved. It will cause very serious difficulties for pension funds and other good-faith investors. I worry that there will be a tendency in this House not to engage properly with this issue, but to say, “Leave it all to the European Court of Human Rights, because they’re going to sue anyway; let them sort it out”. I think we have to engage with the equity of this issue: with its fairness and justification. I have great difficulties with it.

I come to the question of estate charges. I have not heard until today the expression “fleeceholder charges”; I think we are talking about the same thing. These were brought up with great eloquence by the noble Baroness, Lady Thornhill, and I share her outrage. The reason I mentioned my former membership of the board of the Ebbsfleet Development Corporation is that Ebbsfleet is being developed on this basis. The residents of Ebbsfleet will be paying charges for the maintenance of common utilities—parks, roads, amenities and things like that—which would normally be borne by a council.

I think this is the next great scandal approaching the housing market; I have actually said this in the House before. But I do not think it is the case that one should present this, as the noble Baroness did, as a case of wicked mis-selling by developers, because it is in very large measure attributable to councils that are simply resiling from taking on their duties. They will accept the additional council tax generated by the new properties, but will not take on the responsibilities for maintaining those common amenities. So there are at least two parties involved whose attitude on this needs to be addressed if we are to correct it.

I come finally to two lighter points. First, could we all agree to drop this use of “feudal” as a term of abuse? First of all, not everything about feudalism was bad, despite what the noble Baroness, Lady Finn, may choose to correct me on. But, much more importantly, the law of property in this country was totally reorganised by the Law of Property Act 1925. That made provision for a form of tenure where property was shared and gave it the name “leasehold”. That might be an ancient name—they have got rid of “copyhold” and all the other stuff that existed—but the fact is that leasehold as we know it today is not even 100 years old, let alone medieval. It is the creation of 20th-century law. We should recognise that and stop trying to demonise it by making out that it comes from the Dark Ages.

Finally, and very briefly, although this last point may be thought to stretch the scope of the Bill a little, I shall be making a personal effort at some point to try to persuade the Secretary of State that it is time to amend the building regulations to make starling nest bricks compulsory in new developments.

Photo of Lord Adonis Lord Adonis Llafur 1:48, 27 Mawrth 2024

My Lords, I follow the noble Lords, Lord Moylan and Lord Young, in pressing the Minister further on this vexed issue of ground rents. The history of the proposals on ground rents is of a kind of mirage on the horizon, which the Government are constantly hoping to attain, and then it vanishes at the moment when action is expected to be taken. Perhaps I can just sum up the past, because it is important to understand quite how firm the commitments the Government have given are. They have not just raised this as an issue for consultation; they have given very firm commitments up to now. I will then press the Minister further, not just on when the Government intend to respond to the consultation which, as the noble Lord, Lord Young, said, is due, but also on some of the key issues of principle that underlie that consultation.

This process began on 9 November last year, when the Secretary of State issued a press notice from his department, headed “Ground rent reforms to save thousands for leaseholders”. It was a straightforward statement that said:

“Proposals to slash ground rents and save homeowners thousands have been unveiled by the government today”.

The 9 November statement said not that the Government were consulting on whether there should be reform of ground rents, but what the specific reform should be.

The press notice of 9 November set out, in respect of historic ground rents—not new peppercorn leases—the five options of

“setting ground rents at a peppercorn … putting in place a maximum financial value which ground rents could never exceed … capping ground rents at a percentage of the property value … limiting ground rent in existing leases to the original amount when the lease was granted … freezing ground rent at current levels”.

So, in November, the Government set out five options, and the consultation was to choose between those five. Each of the five, if I may comment on the point made by the noble Lord, Lord Moylan, has differing impacts on those who currently earn the ground rents, and some would appear to take more account of their rights than others. What the consultation does not have is an option of no reform of ground rents.

So my first question to the Minister is: is it still the Government’s position—this is a fundamental issue that either this Government will grapple with, or the next one will have to inherit—that there will be a capping of ground rents? Or is it their position that the status quo might be an option?

To muddy the water further, when the Secretary of State introduced the Bill on 11 December—repeating all kinds of points about feudalism which the noble Lord, Lord Moylan, does not like and which my noble friend Lady Taylor pointed out that he had expanded on in his previous speech—he came down very firmly in favour of restricting ground rents for historic leases at peppercorn value. What he said regarding the conclusion of the consultation on the five options that had just been announced will I think be of some importance to us at later stages of the Bill, or to a future Government. He said that,

“at its conclusion, we will legislate on the basis of that set of responses in order to ensure that ground rents are reduced, and can only be levied in a justifiable way … my favoured approach would be, and I believe that it should be, a peppercorn. Of course, if compelling evidence is produced, as a Secretary of State with great civil servants, I will look at it, but my preference is clear, and I suspect that it is the preference of the House as well”.—[Official Report, Commons, 11/12/23; col. 659.]

I too suspect that it was; I think there would have been a cross-party majority in the House of Commons. Indeed, there would be a cross-party majority in this House for limiting ground rents.

That leads to the issue of the disappearing consultation, and why the Government have given no response to it. I suspect that the content of the briefing to the Sunday Times, which the noble Lord, Lord Young, referred to, is more significant than we might be giving credence to. I suspect that it goes to the heart of the issues that the noble Lord, Lord Moylan, raised, and a concern on the part of the Government that there will be protracted legal action, or that they might have to provide some form of compensation.

I do not support the status quo and I believe that, where profits are made by companies and private entities in a totally unjustifiable way, injurious to those on whom they impact, it is a proportionate use of Parliament’s power to intervene to stop it—particularly in cases where that harm is set to increase, which is the big problem at the heart of many of these ground rent complaints, where you have formulae for increasing ground rents that are completely beyond the power of existing tenants to influence. Though it is true that tenants might have the right not to buy, if this is a totally onerous and unjustifiable imposition in the first place, it is right that Parliament should intervene.

However, it is not my view that matters in respect of this; we need to know the Government’s view—not just when they will respond to the consultation and whether they still stand by the five options but, crucially, their view on the legal position with respect to the rights of ground landlords and whether they might have a legal case or be liable for compensation. It is extremely important that we know this, because we may have to legislate in a different way depending on their view.

As it happens, the Secretary of State did address that issue in his Second Reading speech. This is a very Michael Gove statement, because it is so robust and yet not followed up by any action, which is a characteristic of his:

“I know that some people will say, ‘What about A1P1 rights under the European convention on human rights? You are taking property away from people.’ I respect the ECHR, but if it stands in the way of me defending the interests of people in this country who have been exploited by ground-rent massaging, I am determined to legislate on behalf of those people, because their interests matter more than that particular piece of legislation”.—[Official Report, Commons, 11/12/23; col. 659.]

My final question to the Minister is: is it still the Government’s position that if they are persuaded that the right option is to limit or, in effect, eliminate ground rents, they are justified in doing so despite the European Convention on Human Rights? I would be very grateful if she could give us specific answers to these specific questions when she replies.

Photo of Lord Truscott Lord Truscott Non-affiliated 1:56, 27 Mawrth 2024

My Lords, it is a pleasure to follow the noble Lord, Lord Adonis. I will come to ground rents shortly. I declare an interest as a long-standing leaseholder.

The Bill before your Lordships’ House today is, in my view, profoundly disappointing, as one or two noble Lords have said. As the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, said in the other place, leasehold is a “fundamentally unfair system”, and his aim is the effective destruction of the leasehold system. Leasehold is, in his words, “outdated” and “feudal”, although I know that the noble Lord, Lord Moylan, does not like that word. I agree with the noble Baroness, Lady Finn, that leasehold has no place in the 21st century. The Bill falls a long way short of its objective of the destruction of leasehold, as the noble Baroness, Lady Andrews, also said.

As it stands, the leasehold system is virtually globally unique—in a bad way—to England and Wales. It perpetuates a property market where around 10 million leasehold dwellers are at the mercy of freeholders and associated freehold professionals who sponge off them. Leasehold codifies and preserves, in the modern age, the medieval relationship between the serf and the lord of the manor, because that is historically where leasehold comes from. I agree with the noble Baroness, Lady Finn, on this. As a historian with three degrees in history, I can assure noble Lords that it is quite the historic pedigree. There is a gap between those who own property outright and those who do not. This applies not just to the great estates that still own huge chunks of prime London and other areas but our country as a whole.

The Secretary of State, Mr Gove himself, said in the other place that the Government would destroy the feudal leasehold system:

“We will do so by making sure that we squeeze every possible income stream that freeholders currently use, so that in effect, their capacity to put the squeeze on leaseholders ends”.—[Official Report, Commons, 11/12/23; col. 659.]

The noble Baroness, Lady Thornhill, repeated this. We hear that Mr Gove is having trouble fulfilling the Tories’ election manifesto pledge to reduce all ground rents to peppercorns. The noble Lord, Lord Adonis, referred to this. But Mr Gove is being opposed by the Treasury, Downing Street and freeholder interests. Meanwhile, as noted in the debate, the Competition and Markets Authority has ruled that there is no legal or commercial justification for ground rents. Ground rents provide no service and are purely rent-seeking.

I have very little sympathy for the self-serving arguments of vested interests that want not only to water down the Bill further but to emasculate it completely. The effect of reducing ground rents to peppercorns is exaggerated by the pension industry and freeholder lobby groups. I do not agree with the noble Lord, Lord Moylan, on this point. Some are hiding behind the European Convention on Human Rights and the right to property. The noble Lord, Lord Adonis, referenced this. Apart from this making an excellent case for an opt-out from the ECHR, which I would have thought the noble Lord, Lord Moylan, would welcome, I point out that the rights of leaseholders need protecting too.

We were told that marriage value was to be abolished under the Bill—

Photo of Lord Moylan Lord Moylan Chair, Built Environment Committee, Chair, Built Environment Committee

I have never actually argued that we should withdraw from the European Convention on Human Rights. I have an open mind.

Photo of Lord Truscott Lord Truscott Non-affiliated

I did not say that at all. I said that I would have thought that the noble Lord would welcome an opt-out from the ECHR on this. If that is not the case, I am happy to accept what he says.

Going back to marriage value, I do not think that marriage value should be replaced with a deferment rate that makes lease extensions even more expensive than they are now, because the deferment rate that the Government are talking about setting is merely marriage value by another name, and it can end up with leaseholders paying even more for lease extensions than they pay now, because it depends on the rate. In my view, His Majesty’s Government should completely abolish the outmoded concept of marriage value based not on what a property is currently valued at but on what a freeholder imagines it may be worth in the future. However, I welcome the Government’s commitment to an online calculator, so at least leaseholders know what the cost of extending their lease might be.

I listened carefully to the Minister’s opening speech, and I hope that she can assure the House that, when the Bill becomes law, it will indeed be cheaper and easier for existing leaseholders to extend their lease or buy their freehold. The greater transparency on charges, including insurance, and the end of the unfair presumption of leaseholders always paying all the landlord’s legal costs is a step forward. As it stands, the system is heavily weighted in favour of the landlord or freeholder. Any legal challenge is fraught with risk, uncertain and extremely costly. Very few leaseholders attempt it. As noble Lords have said, the stories of excessive and padded service charges and extortionate insurance premiums are legion and endemic. These abuses must be brought to an end as soon and as far as humanly possible.

The extension of right to manage in residential blocks is long overdue. I do not accept that mixed residential and commercial blocks cannot be managed by right-to-manage companies, or that investments will dry up as those who live or invest in such blocks are given more say over how they are run.

I regret the absence of the regulation of property management agents, as the noble Lord, Lord Best, has repeatedly raised, or even an insistence that they should be trained and qualified. Property agents can control millions of pounds, and the standards of some of them are unbelievably poor. I know of no other body that manages potentially such large sums of other people’s money that is wholly unregulated. Voluntary codes and redress schemes are not enough.

Commonhold is once again being insufficiently promoted by His Majesty’s Government, as mentioned by the noble Lord, Lord Young of Cookham, and others, including the noble Baroness, Lady Taylor of Stevenage. It may be unpopular with developers but I believe it offers a realistic alternative to the flawed leasehold system.

On forfeiture clauses in leasehold, which a number of noble Lords and the Minister mentioned, although I agree that no one should lose their home for service charge arrears of a few hundred pounds—these can be dealt with by the county court and bailiffs—forfeiture clauses can be a useful deterrent to other breaches of the lease that are otherwise difficult to enforce, such as persistent anti-social behaviour. I look forward to these and other issues being fully debated as the Bill progresses through your Lordships’ House.

Photo of The Earl of Lytton The Earl of Lytton Crossbench 2:03, 27 Mawrth 2024

My Lords, I remind your Lordships of my profession as a chartered surveyor and my lifelong involvement with building, survey valuation and property management, for my sins. I thank the Minister for organising a drop-in session last week, and for her suggestion of a further meeting. I thank her particularly for the answers to several questions I raised after that session, which I received this morning. I will look at those with great care. I also thank the many bodies and individuals who have communicated with me about the Bill.

On the face of it, the Bill contains some very welcome measures. For all the reasons the Minister has given, I support its aim of better consumer protection, but it lacks coherence in many areas, particularly its interface with building safety.

We know the problems, and other noble Lords have explained them: the escalating and opaque charges demanded of leaseholders, the building safety crisis that aggravates cost and risk, a mercenary culture among those who control and manage blocks in which anything not expressly forbidden is fair game, mortgage-lending practices which exacerbate the wasting asset problem, and an opaque leasehold system that, while arguably not itself the prime cause, certainly facilitates abusive behaviours.

There are laws and regulations on our statute book relating to misrepresentation, unfair terms, quality of goods, fitness for purpose, and implied warranties and misdescriptions, to name just a few. To my knowledge, few are enforced to the satisfactory protection of leaseholders. Of course, the regulation of property agents is completely absent.

Let me point to progress in the remediation of defects which are plaguing leaseholders. Of the firms which signed a non-binding pledge with the Secretary of State, the best performer is understood to have remediated some 35% of the affected stock for which it was responsible. The worst performer remediated perhaps 8%. This was rather conveniently set out in the Mail on Sunday of 17 March.

The Government’s January statistics on the developer remediation contract also make uncomfortable reading. Developers have accepted responsibility for 5% of some 90,000 residential buildings of 11 metres in height and above. Some 37% of those where a determination had been made—more than a third—needed remediation of some sort. There was not a squeak about the homes in the 11 metre and below category, where residents might arguably be safer from loss of life but just as vulnerable to the remediation and financial loss trap. Building safety continues to foul up other leasehold issues.

The noble Lord, Lord Young of Cookham, referred to a two-tier market; I would describe it as a three-tier market of qualified, partially qualified and non-qualified leaseholders. This overlies a labyrinth of tests and exclusions regarding such matters as freeholder assets, cladding or non-cladding defects, building height and building information, particularly where landlord certificates are required and the landlord is not the managing agent. Leaseholders unable to contract are further let down by a level of complexity with which even professionals are reluctant to engage. There is a particular problem with conveyancers. While this overshadows some 1.6 million unqualified leases, the construction sector appears to have escaped the bulk of its true responsibilities. This Bill does not address the fundamental issue that all innocent owners should be protected from poor construction and management practices as a consumer right.

In the grand political gesture of this Bill—and there is something of that—the Government appear unaware of how interconnected construction, property and financial markets are. The policy on ground rents appears to be unravelling. All parts of this model have to be addressed together if we are to stand any chance of fixing the problem. The Government wag their finger at freehold—fair enough—and seek to remedy some of the leasehold issues by adjusting the tenure balance. Unfortunately, exploitative practices and building remediation do not entirely go away under this model. The same innocent home owners remain imprisoned in their unmortgageable, unsaleable and potentially uninsurable homes—homes that should have been a safe haven and a secure investment, but are consuming lives and livelihoods, and damaging life chances, productivity and health.

These reforms do not seem to be driven by benefit to leaseholders as consumers who need protecting, so much as by political risk management. Otherwise, why does the Bill seek to turn leaseholders into freeholders, while denying freeholders the protection the Government promised to give to leaseholders? This is an example of incoherence in the Bill.

The Government’s policy is to make freeholders, who may be innocent of creating the construction defects themselves, uniquely responsible for ensuring remediation; doing so at their own cost and risk; taking a legal punt on cost recovery from a developer, if one exists; and doing so out of resources to be depleted by the effects of the Bill. Do the Government think that freeholders are willing and able to do this for the primary benefit of leaseholders, or indeed solvent enough to enable them to do so?

It seems to me that the default here simply puts the matter back into the hands of leaseholders and lawyers. As somebody who is interested in property markets, that is something I want to avoid. I have even heard it suggested that insolvent freeholders’ administrators will hand over the freehold to residents, with all the supposed benefits and none of the remediation and other burdens. I regard that as completely naive.

The claim of abolishing marriage value in fact disguises a transfer of an identifiable element of value long recognised in valuation practice and statute. I do not necessarily advocate for or object to that; I merely state it as a matter of fact, but in future this will solely benefit the leaseholder. This has wider consequences for the financial model. I cannot say which way that will pan out, but it has consequences. Furthermore, it is unclear from the Government’s impact assessment whether any real net benefits would fall to leaseholders. In London and the south-east, most benefiting leaseholds seem to be owned by investors, and a significant number of them are non-UK resident. I do not necessarily object to that at all, but is that the object of the policy in transferring the benefit of this gain? By contrast, investors owning three or more units are actually denied the protections of the Building Safety Act. How do the Government explain that dichotomy?

I also point to Schedule 4, where the market value of assets is defined not by a relevant reference to the accepted national and international standards relating to that term—market value—which assumes a willing buyer and a willing seller, but by reference to a willing seller alone. Presumably they are deemed to be willing at whatever low price the buyer suggests, for that is the inevitable consequence. Can the Minister explain that, and does she subscribe to a rules-based approach to property evaluation?

The market is on notice about the direction of travel here. Even without peppercorn rents, the Bill is definitely going to shift the dial. I simply ask the Minister: where is the evaluation of all these direct and indirect effects? We need to know.

The Secretary of State’s views on the problem are well known and have been repeated by noble Lords. I am not sure whether it is the leasehold system as such or the culture and policies which attend it that is most at fault; presumably, it is a combination of the two. I really support the consumer protection measures in the Bill, but I counsel against wanton destruction of value, undermining people’s investment in their homes and the risk of market disruption. Those have to be avoided. I regard the Government’s proposals as a bit piecemeal and lacking in strategic foresight on replacing leasehold, which people generally feel has to be replaced. But in the meantime, it is going to continue for some time for certain people.

This is not good enough. There are around 5 million leasehold homes in England, worth at least £1.25 trillion. Home owners and their lenders need to be assured that there are plans in place for a smooth transition from one system to the other, whatever the regime happens to be, and that they do not lose out in the meantime. Process and cost have to be transparent—and, please, less profiteering.

There are opportunities in this highly complex Bill to deliver better consumer protections and I look forward to working with other noble Lords to progress them. But parts of the Bill are very far from transparent themselves and this is regrettable. I promised the Minister suggestions on ways of further clamping down on exploitative behaviour that has blighted leasehold over the past 20 years. I regret to tell her that I have not yet finalised these. However, drawing on experience from the continent and elsewhere, I shall elaborate on them as the Bill proceeds. I will certainly return to building safety issues in Committee, because things simply cannot continue as they are. The policy needs to be much more joined up.

In conclusion, lest they become a protracted legal battleground with much collateral damage, all these things have to be dealt with together and not considered piecemeal. If they are, great dangers arise from getting it wrong.

Photo of Lord Howard of Rising Lord Howard of Rising Ceidwadwyr 2:15, 27 Mawrth 2024

My Lords, I want to speak about the abolition of marriage value for leases under 80 years. This will create financial and legal problems, as my noble friend Lord Moylan has alluded to.

Apart from the shocking moral issues of arbitrarily transferring wealth from one holder to another, with no compensation—from a freeholder to a leaseholder in this case—there is a danger of tampering with property values, when so much of the nation’s economic activity is based on the security of property assets.

I find it difficult to believe that His Majesty’s Government have properly considered the implications of going down this path. If assets can, on the whim of a politician, have their value dramatically changed, we will ultimately end up with a breakdown of the financial system. Noble Lords might consider someone who has put some, or possibly all, of their life savings into an investment suddenly having nothing. There will certainly be examples of this if the proposed confiscation takes place, as well as a diminution of pension fund benefits from pension funds which have invested in freehold ground rents.

There is a strong risk of litigation under the Human Rights Act, as has been mentioned. This could lead to an ECHR challenge against the Government for the unjust removal of property rights, which could result in a significant bill for the taxpayer.

There are 5.2 million leasehold properties, but only 400,000 are under 80 years. Of those, almost two-fifths are owned by professional landlords and rented out. In these cases, the transfer will be from one investor to another. The remaining three-fifths of leases are owner-occupied properties. These transfers will mean a loss for His Majesty’s Treasury, because freeholders will suffer a tax-deductible loss, but the profit to resident leaseholders will be tax free as it is their principal private residence. This would amount to a loss in today’s value of at least £1 billion to the Exchequer.

Four-fifths of the total value of all transfers will be in London and the south-east, with a reputed 60% of higher-value properties held by foreign owners in central London. This means that the Bill will lead to a significant transfer of wealth out of the United Kingdom.

By grandfathering leases under 80 years, where marriage value is already imputed into their enfranchisement or lease extension value, freeholders would not suffer from an estimated loss of more than £7 billion. If the Government give up the idea of abolishing marriage value for leases under 80 years, a substantial legal threat will be removed and a loss of significant sums to His Majesty’s Treasury will be avoided. More importantly, the long-term threat of erosion of stability in the financial system will have also been avoided. I will put down an appropriate amendment in Committee.

Photo of The Bishop of Manchester The Bishop of Manchester Bishop 2:20, 27 Mawrth 2024

My Lords, I begin by declaring my interests. I am no longer a church commissioner, as my time finished at the end of last year, but I am paid and—if the Lord spares me—will be pensioned by the Church Commissioners in due course. The commissioners are freeholders, not least of the Hyde Park Estate, which has been in continuous Church ownership and care since around the 11th century, when it belonged to the monks of Westminster Abbey. I guess, if I am going to echo a word that we have used several times today, that makes it genuinely feudal. I also own one leasehold flat in the West Midlands, as set out in the Members’ register.

I support this Bill. It addresses many deep injustices which other noble Lords have addressed and hence I do not wish to repeat. I am also grateful to the noble Baroness the Minister for meeting me and colleagues from the charity sector a few days ago. I am grateful for the comment from the noble Lord, Lord Best, about regulation and the comments from the noble Lord, Lord Young of Cookham, on forfeiture and buildings with fire, safety and other defects. I am also grateful to the noble Earl, Lord Lytton, who is such a doughty campaigner on these matters. It remains a huge scandal that so many people remain trapped owning apartments that are unsaleable.

However, there are three areas that I would like to see explored at later stages; I shall try to be brief for now. The first is about marriage value. Noble Lords might expect a Bishop to support marriage and I will not disappoint. I am grateful to the noble Lord, Lord Moylan, for raising this subject, not least in referring to pension funds, and again to the noble Earl, Lord Lytton, and, most recently, the noble Lord, Lord Howard of Rising. My concerns are with particular reference to charities which own freehold as part of their permanent endowment. We have already heard that some 80% of marriage value in UK relates to properties in and around central London. As several noble Lords, including the noble Earl, Lord Lytton, have stated, many leaseholders in such blocks are corporate and often overseas entities. They are not the people this Bill aims to protect or benefit, nor should it. The Church Commissioners’ Hyde Park properties have an average sale value of £1 million. Those who own them are not, by and large, London’s poor.

The Bill, as drafted, will take money presently used for charity purposes and give it to the wealthy—robbing the poor to pay the rich: a reverse Robin Hood. Lest I be seen as being parti pris, let me offer a non-Church example. John Lyon’s Charity exists to fund children and young people’s services, particularly in nine north and west London boroughs. It is the largest independent funder of children and young people’s services in Greater London and, in 2022-23, it reached the milestone of having awarded over £200 million in grants since 1991. That is over 4,500 grants to over 1,700 organisations. The loss of marriage value could cost it around £3 million per year, money which would go to owners of apartments valued in the millions. John Lyon’s is not the kind of rogue landlord that leaseholders need protecting from.

It is a widely accepted principle of charity law, accepted even when right-to-buy legislation was extended from council housing to many housing association tenants, that charity assets should not be transferred to individuals or bodies that would not qualify as their beneficiaries. This Bill seems to fly in the face of that principle. Is it possible to exempt charities? It appears that the National Trust already has such an exemption and one not restricted to those parts of its estate that are inalienable under Act of Parliament. The principle of exemption is not at stake; what we need to talk about is its extent. Will Ministers look at whether that exemption, or one similar to it, afforded to the National Trust could be extended to encompass other charities? Should that prove impossible, will they put forward a full compensation scheme for when a charity loses marriage value?

My remaining two points relate specifically to mixed blocks in town and city centres. Typically, you will get a ground floor of retail, then there will be some floors of offices and then the residential floors on top. These points might well have been addressed by us moving away from leasehold entirely but, while it remains, they need to be addressed if our town and city centres are to be the vibrant hubs that we need.

First, how are we to prevent groups of enfranchised leaseholders, particularly if many of them are overseas companies, from neglecting the community facilities—ground-floor shops, and sometimes even schools? I have heard it said by one of my colleagues that, on one estate, we could end up with a whole load of vaping or mobile phone shops. We would lose all the shops that really matter to those who live perhaps not in that block but locally. Can the Government offer amendments that will enshrine ways to protect the non-residential parts of blocks, particularly those areas devoted to community and retail uses, or can we limit those entitled to vote on decisions about their properties to actual individual residents in person, rather than remote and often disinterested corporate entities, which would see shops as a way in which to get a rental income, not a service to a community in which they play no part?

Finally, I am concerned that the reduction of threshold for enfranchisement could lead to less building of homes in town and city centres—or we could end up with too few homes and too much office space. I am aware that I am taking a different view from that of the noble Lord, Lord Truscott, a few minutes ago, so perhaps we need to establish the facts. Have His Majesty’s Government undertaken an impact assessment on future home building and, if not, will they do so, and report to your Lordships’ House during the passage of this Bill?

I believe that this is a good Bill, but one capable of improvement, and I look forward to continuing to engage with it through its later stages.

Photo of Baroness Twycross Baroness Twycross Opposition Whip (Lords), Shadow Spokesperson (Education) 2:26, 27 Mawrth 2024

My Lords, I declare an interest as deputy mayor for fire and resilience in London, and I thank the noble Lord, Lord Young, for his kind words about the London Fire Brigade.

My deputy mayoral role does not cover residential housing directly, but I am acutely aware of the emotional and financial costs faced by leaseholders. In particular, the issues in relation to remediation following the tragic Grenfell Tower fire have opened my eyes about leasehold and about what a number of noble Lords have observed, and what I understand the Secretary of State himself has said, to be a feudal and outdated system. If it is not quite from the dark ages, as the noble Lord, Lord Moylan, argued, it definitely deserves to be consigned to history.

I shall speak later about some the issues faced by Londoners. First, however, I ask the Minister about the issue of forfeiture covered by my Private Member’s Bill, which would seek to amend the Housing Act 1988. I thank the Minister for her time discussing it, and for her assurances that the Renters (Reform) Bill would cover this. I know from her opening remarks that the Minister is aware of the issues around forfeiture.

As the Minister is aware, the main issue that my Bill would address is the current uncertainty as to whether residential leasehold properties with ground rents of more than £250 a year outside Greater London, or more than £1,000 inside Greater London, are to be deemed to be assured tenancies under the Housing Act 1988. Currently, if the leases are assured tenancies and the ground rents are not paid, the landlord is able to repossess the property. There is no jurisdiction under the Housing Act 1988 for a court to refuse to grant possession to the landlord under an assured tenancy. However, a court has the discretion to grant relief from forfeiture, provided that the leaseholder pays any outstanding amounts owed. This is an anachronism that should be addressed at the earliest stage. Would the Minister accept an amendment that would do this in this Bill, given that the renters Bill appears to be taking some time to progress? As the noble Baroness, Lady Thornhill, said, it appears to have had a quiet death.

In my view, it does not really matter that there are not numerous examples of such forfeiture happening; it is the principle, possibility and threat that matter. This is an opportunity to address this through legislation. Forfeiture of this nature could undoubtedly happen. We know this, because it already happens in relation to service charges. Recently, the Evening Standard raised the case of a Londoner who had not paid her service charge due to the fact she had lodged a tribunal case against the freeholders for bogus service charges. Because the woman concerned had refused to pay a £5,500 bill —a figure 10 times higher than the estimate provided when she bought the flat—she is in breach of the lease and could lose her home. The paper rightly pointed to forfeiture as being the most mafia-like element of leasehold law in what it described as a crowded field. The woman concerned was in fact owed money by the freeholder; she had been awarded money by a tribunal challenging bogus charges but was still liable to lose her home.

The tribunal system is slow and unfair. Many freeholders do not play ball. There are examples of unscrupulous freeholders and agents slowing down an already glacial process and often not paying what they owe. Will the Minister say how the Government feel this legislation will address issues in the tribunal system and why they have not included removing forfeiture at this point through the Bill?

The Bill is a missed opportunity to transform an outdated system which affects millions of people. In the case of this city, over one-quarter of London’s households live in leasehold properties. It is not good enough that more fundamental change, a move to commonhold, is being delayed. While the Government’s recent proposals for reform are welcome as far as they go, they are too little and far too late. England and Wales are, as far as I know, the only countries in the world still operating this feudal freeholder/leaseholder system. The Bill is a missed opportunity to provide the fundamental reform required.

The Mayor of London has championed London’s leaseholders and, like other Labour politicians, has called for wholesale reform of leasehold. London’s housing strategy calls on the Government to introduce alternative tenures, such as commonhold, which has already been introduced in Scotland, and increase the support and advice to existing leaseholders. Mayors have limited levers to improve the situation—this definitely needs government action—but in London, the mayor has developed a range of ways to support fairer outcomes for leaseholders. This includes a requirement for 990-year leases as standard for shared ownership homes funded by City Hall. The mayor has introduced a leasehold guide for Londoners, which provides guidance to help leaseholders make sense of the current unfair and complicated system.

London has also introduced a service charges charter. This ensures that City Hall’s investment partners consider affordability and transparency when providing information to leaseholders. But best-practice guidance is only ever picked up by responsible freeholders; what we really need is an end to leasehold once and for all. What more will the noble Baroness do to ensure that leaseholders get a fair deal? In the absence of government action, will the Government give further powers to regional mayors? Or will they commit to go further than the current Bill by including stronger measures in government amendments?

The Mayor of London is also campaigning for a cap on ground rents of existing leases at a peppercorn rate, which would bring the greatest benefit to leaseholders who are currently required to pay ground rent to their freeholder, often with no clear service in return. I was disappointed to read that the Secretary of State has apparently bowed to pressure from those purporting, without basis, I understand, to represent the interests of pension funds and may back away from measures introducing peppercorn ground rents. Can the Minister reassure us that the Government will reconsider this?

My final point is about the remediation of historic building safety failures. The Government have rightly acted, through legislation and through funding, to protect some leaseholders. But remediation has been far too slow and some people are left either unable to move or with unreasonable and rising insurance bills, even after remediation work has been completed. I know that the Minister is aware of the issue with timber-framed leasehold properties in Barnet, and the recent fire which has led to high remediation costs that are not obviously currently covered by building safety legislation and which will potentially, therefore, unfairly fall on the leaseholders. Will she meet with Barnet Council to discuss this issue? Will she commit to looking at the gap it represents in current building safety legislation? The issues in Barnet are by no means unique. The building safety issues are part of a shocking legacy of many years of poor practice in development. Almost seven years after the tragedy of the Grenfell Tower fire, we are still seeing issues in building safety for leaseholders revealed only when fires occur.

This Bill goes only part way to address the issues faced by leaseholders. Like other noble Lords, I ask the Government to strengthen the Bill further as it passes through this House to avoid continuing an outdated and unfair system.

Photo of Lord Bailey of Paddington Lord Bailey of Paddington Ceidwadwyr 2:33, 27 Mawrth 2024

My Lords, it is a great pleasure to follow the noble Baroness, Lady Twycross, with whom I have worked for many years in City Hall. This is my first time contributing to a debate, so if I get a few things wrong, please handle with care.

I have personal experience of being a leaseholder, and I know how the system can be abused to rob you of your dignity and deny you control of your own finances. Today I speak on behalf of millions of leaseholders who want to be released from this feudal system—I share enthusiasm for the term—that renders them “captive consumers”, according to the Competition and Markets Authority.

This is about whether or not we are a property-owning democracy. In 2019, some 13.9 million people voted for a Conservative manifesto that pledged leasehold reform. A further 10 million people voted for a Labour party that promised the same. Since 1966, all parties have promised leasehold and commonhold reform in election manifestos. Once we understand how important this has been to most people in this country, it is astonishing that we have not yet been able to deliver the changes that many, if not all, leaseholders want.

Freeholders have no incentive to get the best financial value for upkeep, insurance or repairs, because they are not picking up the tab. This arrangement is ripe for abuse. Some 95% of flats are leasehold; this legal structure is a forced condition of sale for an increasing number of first-time buyers and elderly downsizers.

Many people in the leasehold world propagate a number of myths to make sure that we continue to hold on to this old-fashioned and—I will say it again—feudal regime. They say that leasehold reform is an affront to property rights, but leaseholders have already paid a premium for their home. According to a leading freehold lobby group, the Residential Freehold Association, professional freeholders typically own only a very small economic interest, defined as just 2.5% of the capital involved in most cases. The association says freehold reform is unprecedented abuse of existing contracts. Freehold lobby groups are ignoring all the times in the past when Parliament has stepped in to rebalance rights and obligations on property for the greater good. This is not a recent leaseholder thing; there are laws dating back to the 19th century that have sought to bring greater equality to existing contracts. Indeed, in the 1980s and 1990s, Margaret Thatcher and John Major gave flat leaseholders the right to acquire their freehold.

Leasehold reform removes professional landlords and puts a burden of management on residents who do not have the time or skill to take care. This is simply a straw man to prevent bill-paying leaseholders taking rightful control of their home, their money and their lives. I am a Londoner and know the valuable role that the great estates play, not only serving leaseholders but the wider community, in placemaking.

However, let us not pretend that all freeholders are benevolent actors or high-performing service providers, such as Cadogan Estates, the de Walden Estate or even the Canary Wharf Group. Your average freeholder appoints a managing agent who does the day-to-day management. That agent could easily be appointed by leaseholders, as flat owners already do in many places across the world. It has already been said in this debate that a property is best managed by those who live there and know what is going on. We could concentrate on some of the bad behaviours by freeholders, such as artificially inflated and undocumented service charges, major works projects that are handed to a friendly contractor and then billed at double, sometimes triple, the going rate when you get a second opinion on what the cost should really be. We have some of the highest housing costs in the whole of Europe, and I submit that leasehold is part of the problem. Last year, Hamptons found that leaseholders in England’s flats were paying a punishing £7.6 billion in service charges, which had jumped 50% in five years.

There are many parts of the Bill that should be commended and that I wholeheartedly back, and I have heard many other noble Lords back the measures in it. However, there are some things on which we need to go further. I personally think the ultimate solution is commonhold, and it is a shame that it is not being proposed here.

Things like 990-year leases as an extension as a norm are of course a good measure. Stopping the punitive legal costs regime, which allows freeholders to dump all their legal and professional costs on to leaseholders whether they win or lose a case, feels like feudalism to me—so I will use that word again.

All of these points lead to the question: how do we beef up the Bill? The Bill, in my opinion, does not go far enough in liberating leaseholders. For those who think the provision of information will deal with the abusive practices, I say: think again. The Government are basically saying to leaseholders, “You must become serial litigators, you will have to take on the big guys” —in the same way that the sub-postmasters had to take on the Post Office. As Conservatives, we should be fighting any unchallenged power anywhere in our system. We must always support the little man. The best version of Conservatism is supporting the little man to take care of his own affairs, and that has to be done.

For me personally, the most egregious thing is forfeiture. This is a gangster-like power, routinely used to abuse and extort money from hapless leaseholders under the threat of losing their home and all of their equity. There is no doubt that, even though there are only a few cases of this every year, just the idea that it can be done is terror enough. I come from a group of people for whom buying your own home is freedom, and that freedom is curtailed by the mere existence of forfeiture.

I could go on at length about all of the things that should be added to the Bill, but I will say this: we must turbocharge the right to manage and enfranchisement. More needs to be said about that, and I personally will be tabling amendments to make sure that it is done.

To conclude, to accept these few amendments, and many of the amendments that have been talked about in the House today, will make the Bill what has been promised. The Tony Blair Government promised to do this and did not. This Government can do it and fulfil something that the people of this country deeply need to happen. I say again: are we a freedom-loving, property-owning democracy or not? The passage of the Bill and the provisions it actually brings into law will make the difference in that statement.

Photo of Lord Palmer of Childs Hill Lord Palmer of Childs Hill Deputy Speaker (Lords), Liberal Democrat Lords Spokesperson (Work and Pensions) 2:41, 27 Mawrth 2024

My Lords, I first thank the noble Lord, Lord Bailey, for his contribution; may it be the first of many. I declare my interest in the register as the chairman of the advisory board of the Property Redress Scheme, but I do not intend to speak on redress here today.

No one will disagree that the leasehold system has been plagued by cowboys and those seeking to exploit a broken system. The Government have sought to address these issues in the Bill. I am concerned that it does not go nearly far enough. That said, where they are acting, there are huge flaws that will fundamentally undermine our property rights and, as such, put our pension funds and economic prosperity at risk.

I draw the attention of the House to an aspect of the Leasehold and Freehold Reform Bill which has not, until this debate, received the attention I believe it warrants and very much needs. It concerns marriage value, referred to by the noble Lord, Lord Truscott, the noble Earl, Lord Lytton, and in detail by the noble Lord, Lord Howard. For those who are unfamiliar with this term, marriage value is defined as the increase in a property’s value once a lease below 80 years is extended or enfranchised. Existing legislation requires the financial benefit—or additional value—created when extending or enfranchising a lease and merging the freeholder and leaseholder interests to be shared equally by both parties, so they benefit, more or less, on equal terms.

As this House is no doubt aware, the Bill proposes to abolish marriage value. It concerns me deeply that this proposed change has not featured in public debate around ground rents and leaseholds. The change only very briefly featured in discussions during the Public Bill Committee’s scrutiny in the other House, and indeed much of that discussion, I might say, was about whether marriage value is a hypothetical concept. I can assure noble Lords, as other noble Lords have, that marriage value is certainly not hypothetical.

Furthermore, its immediate abolishment will cause a number of underassessed problems for the country. As I will outline, this is a highly inequitable measure that will disrupt investment in our property market and wider economy. Let me outline my concerns about the inequitable nature of the proposed measure.

The Government have stated that the abolition of marriage value will transfer £7.1 billion of freehold investors’ equity to leaseholders. In the broken feudal system of leasehold, this could initially be a warmly welcomed measure. However, if you scratch the surface, the assumed benefits of the measure fall apart. Of the 5.2 million leasehold properties in England and Wales, only 400,000 have leases under 80 years, the point at which marriage value is applied. As such, £7.1 billion will be transferred to just 8% of all leaseholders.

That sounds good, perhaps, but of these 400,000 properties—or 8% of all leaseholders—two-fifths are owned by private landlords. Many of these landlords would have made the decision to buy these short, and therefore cheaper, leases with the explicit intention of renting them out at proportionately high market rent, and therefore maximising the return of their investment, because they are not looking to the long-term. Worse still, four-fifths of the total value of this equity transfer will occur in London or the south-east, negatively impacting efforts to rebalance regional wealth disparities. However, what has struck me most significantly is that, of these higher-value properties, 60% of the leaseholds—and I do mean leaseholds—are held by foreign owners in central London.

Let me summarise that. Through this measure, the Government are transferring £7.1 billion of freeholder wealth to just 8% of all leaseholders. Two-fifths of these leaseholders are private landlords, four-fifths of the wealth transfer will occur in the already prosperous London and the south-east, and a huge amount of this wealth will be transferred out of the country into foreign ownership for leaseholders.

This is not the end of the inequitable consequences of immediately abolishing marriage value. Let us imagine that there are two flats next to each other at the point at which the properties have only 80 years remaining on their leases, when marriage value begins to be applied. One leaseholder did the right thing, and took money from their savings or remortgaged to be able to extend their lease and protect the value of their asset. Under this measure, those who did the right thing and protected their asset will be worse off than those who did not, who will now receive this benefit for free.

Essentially, the Government are principally transferring wealth not to those who require more support but to relatively wealthy individuals in the main, many of whom deliberately buy or remain in short-lease properties. The Government are about to deliver foreign leaseholders an enormous birthday present, while undermining the property rights that are the bedrock of UK pension funds. This is surely an unintended consequence that requires further consideration by the Government.

I move on to the wider implications for the property industry and our economy. I am sure noble Lords would agree that the UK has a world-leading reputation as a nation that respects property rights. This reputation has allowed us to build a strong domestic and foreign direct investment environment. I am concerned that retrospectively—I emphasise the word “retrospectively” —expropriating assets from property investment sends all the wrong messages to both domestic and international investors that British property rights are no longer sacrosanct. This failure to protect property rights will undermine the UK as a place to invest. Money will divert to the UK’s international competitors because of the risk that the UK Government can move the goalposts and retrospectively—I emphasise the word again—apply changes to existing investment returns. This will lead to uncertainty and a loss of confidence in the UK economy. The result will be fewer British businesses getting the investment they need, less housing being built, lower economic growth, and lower tax revenues to fund things such as the NHS and other vital public services relied on by the people of this country.

Abolishing marriage value threatens to completely undermine investor confidence in our property market and damage the wider economy. As we have seen in the media this weekend, the Treasury has intervened in the ground rents element of the Bill due to concerns about the impact on pension funds. Marriage value, although overlooked—but not today in this Chamber—bears similar risks for the Government. Additionally, it will lead to a tax-free gain for the leaseholders who are owner-occupiers, but the freeholders’ loss will in effect not be taxable, further impacting on the Treasury’s coffers. This needs to be reassessed.

Additionally, as has been mentioned in passing, the UK Supreme Court has observed that, as a minority group, landlords, although often unpopular, are entitled to protection of their so-called human rights, and the abolition of marriage value can be argued to be an unfair expropriation as it falls short of the fair balance principle. Marriage value has, quite rightly, been enshrined in law since 1993 to ensure that freeholders are fairly compensated when the lease is enfranchised or extended. This expropriation of wealth takes away an entitlement without a fair balancing aspect, which will lead possibly to an ECHR challenge—mentioned by another noble Peer—that could further saddle the taxpayer with a substantial bill.

Fortunately, there is a compromise to be made. I propose that the Bill needs a straightforward amendment which tweaks the legislation by grandfathering the current situation for those leases which have fewer than 80 years to run to reversion. If the term grandfathering is unfamiliar to some, I am referring to the well-established practice of excluding leases with fewer than 80 years remaining on the date of Royal Assent from the changes to marriage value. By grandfathering those existing leases with fewer than 80 years, where marriage value is already imputed into their reversion value, freehold investors will not suffer from the destruction of £7.1 billion of financial value. Any lease with more than 80 years remaining at the time of the Bill passing will not have marriage value included within the calculation of the premium for a lease extension or enfranchisement, now or in the future. The Government will therefore still have achieved the objective of abolishing marriage value.

To abolish marriage value would be to abolish investment confidence in our property market through a deeply inequitable measure. A grandfather clause would protect investors, thereby maintaining investor confidence in our property market. In case people do not understand the principle of marriage value and the abolition of it, I stress that this does not stop extending or enfranchising but affects purely the overvaluation or undervaluation of the property. I therefore trust that, in the course of the debates on the Bill, we might consider a grandfathering clause relating to property.

Photo of Viscount Hanworth Viscount Hanworth Llafur 2:53, 27 Mawrth 2024

My Lords, rent is income derived from the ownership of land or other property. It is an income derived without effort on the part of the owner. The owner would have acquired a title to the property at some time in the past. This may have been achieved by means of their labours or by inheritance, or the title may have been acquired by nefarious means that are nominally legitimate. The British economy is in decline; it offers diminishing opportunities for gainful employment. Therefore, there is, nowadays, a heightened incentive to acquire an income through rent. However, since such acquisitions are often at the expense of another party, rent-seeking requires to be restrained if it is not to damage the social fabric.

In recent years, the market for residential property and accommodation in the UK has been severely affected by the activities of rent seekers. The Bill seeks to place some restraint on these activities. It is appropriate briefly to describe what has been happening in recent times. The problems arising have two aspects. They affect both newly built and pre-existing properties. Newly built properties have been sold to new occupiers under leasehold clauses that allow the housebuilder to retain the ultimate ownership. They are often built in estates and the housebuilders will propose that payments are due for the upkeep of the estate.

There has been nothing to prevent the housebuilders which retain the freehold increasing these so-called service charges to an exorbitant level that far exceeds the cost of maintaining the estate—an income derived without effort on the part of the recipient. It is remarkable that many housebuilders have managed to sell the properties under leasehold clauses without the new occupants realising that they are not the full owners of the houses. The Bill addresses this abuse by partially banning the sale of new houses under leasehold clauses. However, it also contains provisions for a category of permitted leases in respect of new houses.

It is notable that the provisions of the Bill that restrain the sale of new houses under leasehold relate only to future ownership. They do nothing to redress the abuses of the past. Admittedly, freeholders and their agents must now guard their behaviour for fear of a legal redress that the leaseholders will be empowered to seek, but this seems to alter the balance of power between the two parties in only a minor way. Hitherto, the powers of the freeholder have been exorbitant. They have been able to set the service charges and insurance fees at whatever levels they choose. They have also been able to impose upon the tenants any legal costs that might arise out of their defence of a case brought against them in a tribunal or a court, regardless of the outcome. They still have unlimited powers of repossession in cases where tenants have refused or have been unable to pay the service charges.

The second major concern is that leasehold arrangements are to the disadvantage of the inhabitants of flats. It should be recorded at the outset that of the dwellings in England, 70% are flats and 30% are houses. Flats may be located in tower blocks or in small terraced houses. Other speakers have described how tenants in tower blocks have been affected by shoddy workmanship and inflammable cladding. Many have had no legal redress and are facing financial ruin. I shall concentrate on flats in modest houses and, for an illustration, I shall consider a small estuarine town on the mouth of the River Thames at a commuting distance from London.

The attractive terraced houses are at increasing elevations as one moves away from the water’s edge towards the high street at the centre of the town. Most of the houses are divided into two or three flats, typically occupied by elderly people or impecunious families. Like many seaside towns, this one has not been prospering of late, but there are clear signs that this is changing through the influx of wealthier Londoners. A prescient property company has been buying up the freeholds of these properties, which have remained mainly in the hands of previous owners who have moved away. They may have sold the leaseholds in respect of two or three of the flats that the houses now comprise.

The property company is a conglomerate—or, at least, a federation of agencies. A search of the companies register reveals that the constituent parts have directors in common. They comprise a property company, a managing and letting agency, a firm of solicitors and an insurance broker. There is also a shadowy affiliated company, Capital Recoveries. The property company has purchased the freeholds at what might seem to their owners to be attractive prices, but they are unlikely to have recognised in full the prospective values of their properties.

Some of the existing freehold owners acquired their titles in an era of low interest rates that encouraged them to buy to let. The current high interest rates, and, in the case of leasehold purchasers, the additional burden of increasing service charges, are encouraging many of them to sell up. The remaining problem for the property company is how to expel the tenants from the properties that are now in their control. This is not difficult to do in an era of no-fault evictions. In the meantime, it might be prepared to bide its time by deriving rents from the tenants.

The only anxiety of the property companies is that they may have to face an incoming Government intent on providing greater protection to tenants. The present Bill will require the property companies to smarten up some of their practices. After the Covid pandemic, the lists of service charges both for small houses divided into flats and for blocks of many flats contained an item described as “charges for the deep cleaning of communal areas”. There were no such communal areas in the small houses, and the testimony of the tenants was that no one from the management and letting agencies had ever paid a visit. Such spurious charges may no longer be sustainable under the prospective legislation, but it will continue to permit many other abuses.

Photo of Lord Thurlow Lord Thurlow Crossbench 3:00, 27 Mawrth 2024

My Lords, there is much to be applauded in the Bill before us today. However, I am concerned that in seeking their objectives the Government are using a sledgehammer to crack a nut. The law of unintended consequences shines brightly through these proposals, and I shall address some of these concerns. I declare my interests as a retired chartered surveyor, as well as other items on the register. I am also a leaseholder of a flat. I thank the Library for its excellent briefing, and others who have provided experience and expertise.

I said that there is much to be applauded in the Bill, and there is. We have heard a lot about squeezing out bad practice from managing agents—I think it misses the point. There is improving the rights of occupiers—sometimes. Reducing ground rents and their review patterns—agreed but flawed. Improving the lease extension process—agreed. That is not a good school report. There is a shortfall; there are omissions in the Bill, missed opportunities and uncomfortable Henry VIII clauses, which are highlighted in the Delegated Powers and Regulatory Reform Committee report.

First, I will look at the impact of the Bill on investors, who are the freeholders. Here I will build on the comments of the noble Lord, Lord Howard of Rising. There appears to be a misunderstanding within government that freeholders are frequently bad actors in freehold disguise. Of course, there are some of these and they need to be brought to heel, but the vast majority of freehold residential ground rents are now in the hands of institutions—life insurance companies, charities, endowments, pension funds and other legitimate investors.

We should consider for a moment why these institutions invest in freehold ground rents. They do this because they provide a certainty of income, which, crucially, matches their liabilities. Removal of this value may impact the capital adequacy of these legitimate organisations, itself attracting the interest of regulators—government through another door—and will almost certainly require significant government compensation for the loss of value these proposals will inflict. Some pensions will fall in value and some legitimate investment managers, who have been entrusted with the husbandry of those assets, risk administration.

I see nothing in the Bill offering compensation for those who will suffer this collapse in value. I look forward to the Minister’s proposals concerning compensation and find it curious that this has not been recognised and addressed. I hope it is not being left to Mugabe-style economics: simply stripping one group of property owners for the benefit of another.

I turn to the abolition of marriage value. The noble Lord, Lord Palmer, usefully defined the phrase. When valuing a property, be it residential or commercial, marriage value is calculated to apportion value-sharing between freeholder and leaseholder, which is then divided either according to formula or agreement. Abolition of marriage value does not just interfere with the division of proceeds for a lease extension, it gives the entire sum to the head leaseholder—much better for there to be a regulated sharing arrangement.

Do the Government recognise that many of those leaseholders are not the occupiers? Many investors have bought leasehold flats and houses as investments on long leases specifically to sublet them to third parties—they are very good investments. They are buy-to-let landlords—they are investors and not occupiers. As we have heard from the noble Lords, Lord Campbell-Savours and Lord Palmer, many of them are foreign nationals. Many of them buy through companies registered overseas that probably pay little or no tax. We heard some figures relating to the volumes of money that could be transferred in this direction.

For such foreign-based investors, the Bill is the Christmas present of all time. Make no mistake, smart investors, recognising this forthcoming windfall, are already buying residential short and medium-term leases precisely for this purpose. Having cheaply extended the lease, they will immediately reoffer the flat for sale with vacant possession and enjoy the big lottery win. These winners—I repeat, these winners—are not the occupiers the Bill is designed to protect; they are speculators.

The Bill provides a huge transfer of wealth at the stroke of a pen, and not enough thought has gone into how that wealth will be distributed. The assumption that it is always the occupiers who will be relieved of the pain of paying for a lease extension is simply not the case. We should be clear that the great transfer of wealth the Bill seeks to engineer is going largely to speculators and not to the occupiers. Occupiers are often sublessees, even on long leases. Does the Minister intend to introduce an amendment to ensure that it is the occupiers, and not the investors, who will benefit from this change in the law?

Regarding the right to manage, in principle giving the residents of blocks of flats the right to manage the building is fine, but in practical terms it would be much better to tighten up on the rules applying to bad managers than to make the right to manage by occupiers so straightforward. Bad property management is one of the drivers of the Bill and, without further thought, things may not improve. The process of enforcing service charges, calculating service charges, dealing with those who refuse to pay their share, dealing with building services, and more, is not easy—certainly not easy for residents unless they instruct agents.

I ask your Lordships to consider someone living on the upper floor of a multistorey block of flats with no lift, because the right to manage has been applied and the manager cannot collect the necessary dues—they are not organised in the process of doing so—to service the lift. It can get worse—think for a moment of the disabled, unable to use the stairs. I have a close friend who is wheelchair bound and currently stranded on the upper floor of a modern block of flats because the lift has been out of service for several months. That may become the norm—a clearly unintended consequence. The right to manage needs better construction.

We have heard from numerous speakers that it would be far more effective to better regulate expert property managers and require qualifications. I fear that there will be a difficult time ahead for residents of many blocks of flats who decide to manage themselves and become entangled in a complex business that they do not fully understand, with its legal obligations. Nor will they, with all the best will in the world, have the skills to deliver—the noble Lords, Lord Moylan and Lord Bailey, clearly illustrated this. Other than for very small buildings, the right to manage should be subcontracted. This brings us back to the need for regulation and qualifications for managing agents.

Touching on service charges, I applaud the changes proposed—transparency, response times, removal of unfair practices, open reporting and penalties for non-compliance. All these and more are good. However, I do not believe the £5,000 maximum penalty proposed for bad property management behaviour is nearly enough. While it may seem high in relation to the service charge for an individual flat, it could be a very small sum of money for the firm of property managing agents which is looking after hundreds, if not thousands, of flats. This figure needs increasing to the point that it hurts, thus positively encouraging a managing agent to exercise their functions well and with the occupier’s interests in mind.

The right to manage mixed buildings has been discussed extensively this afternoon. It is hugely complex. Non-residential elements in such buildings need expert attention to an even greater extent than in blocks of flats. It is not layman’s territory. To allow residential leaseholders to manage a mixed-use building with a significant percentage of non-residential floorspace is inviting trouble, particularly when development opportunities arise. These days, such developments frequently create large volumes of housing units, helpfully adding to the Government’s targets. This will almost certainly be lost as the ownership, control and management of those properties are transferred to the residential occupiers’ management company or, in many cases, the foreign nationals and companies registered overseas who are already rubbing their hands in anticipation. That is unless, of course, the residential management team brings in the skills, but that is not without cost and it is likely to be an expensive exercise. Notwithstanding best intentions to try to exercise these functions in practical terms, it will be almost impossible, as what might have been a significant development opportunity stagnates or becomes broken up, and the critical mass required for major redevelopment is lost.

As I said at the beginning, there is much in this Bill that I applaud, but I fear it has not been sufficiently carefully thought through.

Photo of Baroness Bray of Coln Baroness Bray of Coln Ceidwadwyr 3:12, 27 Mawrth 2024

My Lords, it is a pleasure and an honour to follow the noble Lord, Lord Thurlow. The Government’s Leasehold and Freehold Reform Bill is certainly attracting support and high expectations in some places, and not only from current and potential leaseholders, with lower charges, longer lease extensions and more rights regarding management of blocks of flats. Leasehold for newly built single houses is to be abolished, so it is leasehold flats—which make up the great majority of leasehold properties—that are really being discussed today.

What is not to like about the possibility of leasehold properties paying lower, possibly even peppercorn, ground rent—which really means zero rent? That already applies to leases taken on since 2022, but consideration is now being given to applying it to all leasehold properties. What is not to like about the possible abolition of marriage value, making a far more profitable outcome for leaseholders applying for an extension to their diminishing lease, or about all leases, new and renewed, running for 990 years?

However, I have real misgivings about the main thrust of this Bill. Essentially, I find it hard to support in principle government intervention in legally held property rights, especially those that have existed for many years in accepted legal property arrangements established between two consenting parties, the freeholder and the leaseholder—although I would advise that both parties get proper legal advice so that they understand what they are taking on. It is surely important to reflect that leasehold has been a property arrangement that has benefited millions of people over many years, certainly in London, where owning property is an expensive business. Leasehold has provided, probably, the only route for most people to owning at least a small home for a set period, usually extendable, that is remotely affordable.

I myself, after working for some years in London and sharing a flat with an endlessly changing group of friends, decided I that I had to have a place of my own, and leasehold provided the only affordable and dependable route. Yes, there are greedy freeholders and property investors whose demands need to be restrained, and I very much welcome the Bill’s proposals to help leaseholders to challenge more easily poor management and unreasonable charges in court, but overall this system has survived as long as it has because, in the main, it has worked. It has provided benefits for both sides.

My first problem with the Bill concerns the proposals to axe two key components affecting the financial benefits that accrue to the freeholder. Both have been discussed at some length already, so I will try to be brief.

The first is ground rents, which stem from the entirely legitimate principle that the land on which leasehold properties sit is not owned by their inhabitants and therefore requires rent to be paid. I believe that the Government are still considering the long-term future of ground rent. I totally agree that the level of ground rent must be kept reasonable, but it cannot simply become peppercorn, which would create a huge drop in income for freeholders and investors, such as pension funds. I suspect it could lead to a major legal challenge, as we have also heard. However, I would support a proposal that defends the principle of ground rent but limits the impact by settling on a permanent reasonable sum, to be agreed by both sides involved.

My second concern is marriage value, which we have also been hearing about. This arises when a leaseholder applies to the freeholder for a lease extension when the lease drops below 80 years. Marriage value represents the total value of the property—of both the freehold and the extended leasehold added together. The total is then divided between the two parties to reflect the benefit to both of them of marrying their interests.

The Bill proposes abolishing marriage value and, as the noble Lord, Lord Palmer, mentioned, allowing the leaseholder to extend their lease for far less, at the expense of the freeholder. As several noble Lords have said, this will massively advantage the many investors who own leaseholds as an investment rather than a home, especially in lucrative areas such as London and the south-east. According to figures produced by Quod and Cluttons, 80% of this transfer of marriage value would occur in London and the south-east, where approximately 60% of leasehold properties are held by investors, not home occupiers.

Alongside this, another proposed change would allow leaseholders to extend leases without having to have lived in the property for at least two years. I am told, and as we have also heard from the noble Lord, Lord Thurlow, that increasing numbers of investors are already circling round, given the prospect of more easily buying properties with leases that are running down, extending them to 990 years and selling them on for a huge profit. Property prices will certainly rise in those circumstances.

Mv final problem is with the proposed change in the rules for mixed-use buildings. A mixed-use building with more than 25% non-residential use cannot currently be managed by leasehold residents, but this limit is set to be raised to 50%, giving rise to concern about management of the buildings, as we have heard from the noble Lord, Lord Thurlow. Where leasehold residents successfully apply to manage buildings with a much larger—50%—business and retail presence, or to buy the freehold, as they can with a majority in favour, they will find the management a very much more complicated task. To meet the needs of retailers whose shops often open on to the streets, and business offices, and to keep residents happy, very hands-on management is needed, along with knowledge of business needs. There are suggestions that, in these cases, leaseholders who want to run these buildings should have lived there for at least two years so that they can begin to understand the needs and issues of these buildings, as well as having familiarity with where they are based.

One other problem is that, as I have been told, freeholders may start reducing the number of leasehold flats in mixed-use buildings precisely to avoid losing control. This includes local authorities, which have, over many years, housed leaseholders in mixed-use buildings but would be concerned about them taking control of the buildings and subsequent management failures, which could affect the overall quality and appearance of the streets where they are sited.

I have real concerns about some of the Bill’s proposals. I hope the Government will consider the issues raised here very carefully.

Photo of Lord Kennedy of Southwark Lord Kennedy of Southwark Shadow Chief Whip (Lords), Deputy Chairman of Committees 3:19, 27 Mawrth 2024

My Lords, I have a number of interests to declare. I am a non-executive director of MHS Homes, chair of the Heart of Medway Housing Association, a vice-president of the Local Government Association and a leaseholder.

I welcome the Bill, but there is a big “but”. It represents limited progress. The next Parliament will have to return to the issue of leasehold reform to liberate leaseholders, deliver on commitments made and deliver justice for them.

I pay tribute to the campaigners outside Parliament, who have never given up. They include the National Leasehold Campaign, led by Councillor Katie Kendrick, Jo Darbyshire and Cath Williams; and the Leasehold Knowledge Partnership, led by Sebastian O’Kelly, Martin Boyd and my good friend, the campaigner Liam Spender. They will deliver justice for leaseholders.

The noble Baroness, Lady Thornhill, talked about the Lloyd George Budget of 1909. The noble Lord, Lord Bailey, talked about 1966. There is a fantastic play called “Fleecehold”, by Michele Sheldon. If it is on, I urge noble Lords to go and see it. In one scene, in 1884, Henry Broadhurst, a Liberal, and then Labour Member of Parliament for various Midlands constituencies, discusses leases on the Floor of the House of Commons. This has been a long-term problem, which we have still not sorted out. Many Members of Parliament have also stood up for leaseholders. I pay tribute to the noble Lords, Lord Young of Cookham and Lord Best, and many others who have raised these issues time and again.

It is most frustrating to look at the timeline of events and actions taken in more recent times. I have a few examples to share with the House. The fire at Grenfell Tower broke out on 14 June 2017—just short of seven years ago. We have still not resolved issues arising from that tragedy. It is not right that there are people living in blocks whose flats are unsaleable and unmortgageable. There is no excuse for it. It is a complete failure by the Government, on their watch. Does the Minister think this is acceptable? When will they finally do something about it?

There has been a complete lack of action following the report of the Regulation of Property Agents working group, chaired by the noble Lord, Lord Best. It was published in July 2019, towards the end of the last Parliament. We are now at the end of this Parliament, and nothing has happened. This Bill is the ideal place to deal with it, but there is nothing in it. This is just not good enough. Nothing has happened in five years. Can the Minister explain why this is acceptable?

Three Law Commission reports were published in July 2020 on leasehold enfranchisement, the right to manage and commonhold. It is good that this Bill largely addresses leasehold enfranchisement, but there is very little on the right to manage and nothing on commonhold. Again, can the Minister explain why this is acceptable? We have been waiting nearly seven years to complete the job on Grenfell and nearly five years without any action on regulating property agents; and it is nearly four years since the Law Commission report, in which nothing was done about commonhold. Telling this House that this is all extremely complicated and will take time is not acceptable. We have been waiting for action for years, without promises being delivered.

It has been frustrating to watch the right honourable Member for Surrey Heath tour the television studios and radio stations, speak to newspapers, give interviews about what he wants to do to end the feudal leasehold system, make promises, pledges and commitments, and give assurances and undertakings. The noble Lord, Lord Young of Cookham, referred to letters and to a Statement in the House of Commons. These have amounted to absolutely nothing.

When I spoke to a member of the Government privately, they said: “Well, Roy, you must understand that this is what Michael does.” Another member of the Government said: “Roy, everything you want to do, Michael wants to do, but you have to understand, he has been vetoed by No. 10. His plans are now shot to pieces. It is all over.” I do not know if this is true or not, but going around making promises and pledges with no agreement to deliver them is shoddy politics. There will be a heavy price to pay. Making promises and pledges without delivering is stringing people along. It is just not good enough.

I will look at a few of the issues that are missing from the Bill. There is no ban on creating leasehold flats. Why not? Seventy per cent of leaseholds are for flats, but there is nothing in the Bill at all. The answer, as the noble Lord, Lord Bailey of Paddington, said, is commonhold. Why it is not there? The Government have had the report from the Law Commission for four years. Why are they not dealing with it?

There are other issues that are just not happening. There is the stuff about the Building Safety Act; again, after Grenfell, why are they not doing that? I just do not understand why. There was also a Conservative Party manifesto commitment on forfeiture in 2017, but it is not in the Bill. Why not? It is ridiculous. We are going to be putting it in the Bill; we will certainly have amendments on that one. Forfeiture can happen for as little as £350 in unpaid rent or service charges. If pursued to its conclusion, the process allows the landlord to take the tenant’s entire flat and not account to the tenant for a penny. Any mortgage is not repaid and the lender can pursue the tenant for the full amount of the debt. I accept that very few flats or houses are lost to forfeiture, but the whole process is used to bully tenants—the people in the properties—and it is just not right. They made that commitment in 2017 and it is about time they delivered it.

I move on to a few other issues. My noble friend Lady Twycross mentioned the assured shorthold tenancy trap. She was up on the ballot for a Private Member’s Bill; she got it and was then approached by the Government, who assured her: “You don’t need to do this Private Member’s Bill because we’re going to do it in a renters reform Bill”. But the Renters (Reform) Bill has disappeared. It started in the House of Commons before this Bill did, but it is still not out of that House. At the moment, it has vanished without trace. My noble friend was told there was no need for her to do it, so I hope that the Government will deal with the issue in this Bill, because we cannot guarantee that the other Bill will ever appear in this House. We know there have been all sorts of problems with people upset about what is in that Bill, so we certainly need to ensure that it is addressed here.

What there is on leasehold houses is absolutely welcome, but there are still some issues about that. It was introduced in the House of Commons only on Report; remember, it was left out of the Bill when it was first published, so it came in then. There are one or two little problems. Clause 7 and part 1 of Schedule 1, paragraph 1, together allow new leasehold houses to be created as under leases or sub-leases. An example may be where a local authority granted a head lease to a developer before 22 December 2017; the developer could still create leasehold houses. In Clause 7 and part 1 of Schedule 1, paragraph 3 allows the creation of new retirement leasehold houses, regardless of whether they are built on freehold land. Again, that issue has been raised elsewhere, but why are some of the most vulnerable in our society not protected? That is another big issue we need to deal with.

Then there is the control of service charges. In many cases, with great property companies and good freeholders, it all works absolutely fine. Sadly, of course, that is not always the case and we need further reform. It was 50 years ago that there was talk in the other place about reform to service charges; we still do not have that matter sorted out, and much of the of the detail in Part 4, which deals with service charges, is left to statutory instruments—secondary legislation. There is very little detail in the Bill.

Clause 51 extends information rights to properties paying a fixed service charge. The clause does not allow for extending the right to challenge unreasonable service charges. I can assure your Lordships that leaseholders know when they are being ripped off. When things are bad, they know. So, while it is great to get some information, what they need are the tools to actually stop it. The Bill does not do that.

Clause 54 creates a new system of accounts and annual reports. Again, that is to be welcomed, but we need to go further. Clause 56 introduces a new right to claim damages of up to £5,000; again, we need clarity on what that actually means. There are two issues: we all know that “damages” has a specific legal meaning. The clause may not provide an effective remedy to claim money for delay where the leaseholder is unable to prove loss. That needs to be addressed in Committee. It is also unclear whether the clause allows each affected leaseholder to claim up to £5,000, or whether it is just £5,000 for the leaseholders as a collective body. There are many issues we need to explore in Committee.

Part 4 of the Bill requires landlords and estate managers to join an approved redress scheme, but much of the detail is missing and the Secretary of State will determine who is obliged to join by regulations, which we have not seen yet. This change is welcome, but there are still issues.

On the whole issue of commencement and interpretation, many provisions will be commenced by regulation at a later date. The Bill has 123 clauses and 12 schedules. Only four clauses will come into force two months after the Bill is passed. The rest of it will come into play when the Secretary of State determines. When will that be? We do not know. We have not got the regulations here; we do not have visibility on any dates. So, again, we need some more assurances. Even if the Bill passes, most of it will not come into force until you decide you are going to bring it in. We need to be careful about this. We need a clear timetable for when this stuff is going to come into force. I think it is really important. There are many cases, on the issue of marriage values, of leases that are approaching 80 years now. This needs to be resolved for them in particular.

So, as I said when I started, I welcome the Bill. It is progress, but it is very limited progress. We need much more progress here in Committee. I hope the Government will listen to what the House is saying and bring amendments forward. If not, certainly colleagues around the House will bring amendments forward and we will divide the House on those.

I will spend a bit of time working on what I call the “Gove amendments”—that is, all the pledges Michael Gove has made over the last few years. I will create amendments and divide the House for him, so he can actually deliver what he wants to do. It is really important that, if you make these promises and pledges, you actually want to do that. I am sure he does want to do it, so I am disappointed we have not got there. I am going to help the Secretary of State in that way and make sure that the House gets the chance to vote. Then he can have the chance to speak up for them when they get to the House of Commons. I will leave my remarks there and look forward to the noble Baroness’s response.

Photo of Lord Borwick Lord Borwick Ceidwadwyr 3:31, 27 Mawrth 2024

My Lords, I first declare my interest in my home, which is a long-leasehold property in London. It would not normally be declarable, but in the case of this Bill, this should be an exception. I also declare interests in the register in property companies, some of which are developing and have developed houses.

I have been puzzled by this Bill as it seems to be determined to solve a problem that I do not think generally exists. The problem is presented as a moral problem of the existence of leaseholds, using words such as “feudal”. I hesitate to challenge noble Lords to find bigger or more urgent moral problems to discuss on the last day before a recess. We could be here for weeks, and we would not agree with each other anyway. But I bet that few, even my noble friends on the Front Bench, would put leasehold tenure anywhere near the top of their list.

The freeholders have been upset that this Bill will force them to sell something that they do not want to sell, and I can see their point. Even though that horse bolted many years ago, I do not believe that anybody who has freely entered into a contract with another well-advised party should be forced to change its terms by the Government. This Bill makes that mandatory if the leaseholder alone wants it. This is the case now, so there is no change there except for the price.

The Bill is described as making it cheaper and easier for the leaseholder to buy. Why is it cheaper than before? It is partly because of the abolition of marriage value in the calculation of Schedule 4, but mainly because the price is likely to be lower. How much lower? The trouble is that we cannot tell, because the discount rates to be used in the calculation will be laid out in the statutory instrument when it is published in many months’ time. It is impossible for a tenant to know for certain that he is getting the purchase cheaper until that rate is announced. The Government have said that the rate will be a market rate, but a fixed rate, even though market rates constantly vary. How can there be a fixed rate that is also a market rate?

There is a trend in legislation for Bills to get longer and more complex. We have seen this in several recent Bills. This trend makes it more expensive for the citizen to obey and for us to legislate. This Bill, with 234 pages, is a distressing example. There is a separate trend that the consideration in another place has become more trivial than it was in prior years. I fear that our friends in another place may have passed this Bill with the cheerful feeling that we will study it. I am not sure that we can study it with the diligence that they expect when we cannot hope to find out what the most important rate in the calculation is until next year.

Photo of Baroness Pinnock Baroness Pinnock Liberal Democrat Lords Spokesperson (Levelling Up, Communities and Local Government) 3:34, 27 Mawrth 2024

My Lords, I thank the Minister for being so generous with her time in discussing the content of this Bill and for being willing, on behalf of the Government, to front it. As we have heard, there is wide support for the Bill, but significant shortcomings have been noted from all quarters and all sides.

Reform of this archaic property ownership arrangement is long overdue. There has been a welcome focus on general consumer rights and protections over recent years. However, the leasehold/freehold arrangement has remained largely unchanged, to the considerable detriment of leaseholders. Liberal Democrats have long supported radical reform of the leasehold/freehold arrangement. As my noble friend Lady Thornhill reminded us, it was David Lloyd George in 1909, in the People’s Budget, who first laid down that reform was essential, not just to extend, as the Bill does, the rights of leaseholders but to deal with the concept of an outmoded system that harks back to times when everyone was beholden to the landowner.

As we have heard, this is a Bill of 123 clauses and 12 schedules—and that is just at the last count. Since the Bill’s introduction in the Commons, the Government have added 224 amendments, which illustrates its complexity and, as the noble Baroness, Lady Andrews, pointed out, developing legislation on the hoof—or as my noble friend Lord Stunell said, the Government chasing their tail.

The Bill seeks a number of key changes to the leasehold/freehold relationship which are positive. Unfortunately, the Government have failed to use this opportunity to really grasp the nettle and set down a complete reform of the system. The Government have long promised a fundamental reform to replace freehold with commonhold, which is more in line with property rights across western Europe. Despite the 2022 Act, commonhold remains a rarity. Why have the Government failed to use this opportunity to end freehold and introduce commonhold for all property, including flats?

It is extremely disappointing that, according to media reports, the Government are even backtracking on reform of ground rents. The Secretary of State announced only last November that the proposal will “save leaseholders thousands” by slashing ground rents and setting them at a peppercorn. That is another promise abandoned. Evidence shows that some freeholders increase ground rents substantially year on year, as we have heard this afternoon, and yet other ground rents remain so low that they are not worth collecting but remain as a charge on the property. Ground rent really is paying something for nothing and should be confined to history. However, I accept that there are financial interests, such as pension funds and charities, the concerns of which must be taken into account as reform proceeds. Nevertheless, a solution that achieves abolition can and must be found.

The other significant omission in the Bill is the abolition of draconian forfeiture, whereby the failure to keep up with ground rent payments can result in the forfeit of the property to the freeholder. There can be no justification in any circumstances for this to remain on the statute book. I hope that the Minister is able to respond to the numerous questions about the lack of action on forfeiture in the Bill.

This much-diluted reform Bill does, however, contain some positive changes, even if they are rather muted. Scrapping the presumption that leaseholders are required to pay landlords’ legal costs is putting right a plain wrong. Leaseholders’ service charges have been exploited by some freeholders and managing agents to such an extent that these have, on occasion, risen by up to 1,000%. The proposal in the Bill is to insist on transparency and reasonableness—but what is reasonable? How will it be defined? This leaves too many loopholes for the unscrupulous to continue to exploit. Can the Minister explain how exploitative behaviour by some freeholders, or their managing agents, will be prevented, given the wording of the clause?

That brings me to insurance charges. Since the terrible tragedy of Grenfell Tower, insurance costs for leaseholders in flats have escalated to the point at which some are paying more than £3,000 a year for buildings insurance—a travesty, considering that leaseholders do not own the bricks and mortar being insured. Of course, there must be some arrangement by which the building is insured, but to put the commissioning rights in the hands of the freeholder or agent is like putting the cat in charge of the cream. Clause 57 seeks to protect leaseholders from the worst excesses of insurance commissioning, but it is not at all clear that it will be effective. Perhaps the Minister will be able to demonstrate that the days of milking the buildings insurance to the benefit of those not paying the insurance will completely end.

So-called fleecehold is another money-making wheeze by developers and property agents. Developers, having realised that local authorities were not in a position to take on further liabilities, have devised a system whereby house owners on newly constructed estates pay a service charge for maintenance of green spaces, play areas and even roads, as my noble friend Lady Thornhill so eloquently exposed. The same householders will also be paying council tax to cover such maintenance in other estates in their district. Undoubtedly, what will happen is that, as an estate gets older, more maintenance will be required, especially if the estate road was not built to adoptable standards in the first place. The liability will fall on home owners, who may not be able to suddenly pay out for a new road. So it is good that the Bill proposes in Clause 98 to insist on a redress scheme, but how much better it would be if assets in new estates were forced to be adopted by the local authority in perpetuity.

Part 8 amends the Building Safety Act 2022 to ensure that the landlord will be responsible for remedying or mitigating relevant defects in a building. Some of us who have spoken today spent many happy hours debating the Building Safety Bill and drawing attention to its defects at the time, and it is a great pity that the Government have failed to grasp this new opportunity to redress the serious limitations of that Act and extend rights to leaseholders in buildings under 11 metres, and enfranchised leaseholders.

The Minister will not be surprised to hear that we on these Benches will seek to put right the wrongs that have still not been addressed by the Government in their legislation. As others have said, people are living in flats that are unsafe, unable to be sold and unmortgageable because this Government have failed to deal with wrongs that are not of the residents’ making but of the making of the developers and construction firms which built those flats in the first place. We will pursue amendments along those lines.

There are some real positives in the Bill, such as removing the duty on leaseholders to pay the freeholder’s legal costs in a dispute. The various redress proposals have considerable merit. Enabling existing leaseholders to extend the lease or purchase the freehold in a new way is another positive step, as are the measures in relation to some regulation of property agents, although this does not go far enough, as the noble Lord, Lord Best, and my noble friend Lady Thornhill pointed out. I recognise that, having said at the outset that the Bill is a step in the right direction of reform, I have then spelled out the many glaring omissions and the lack of bold endeavour which are a feature of the Bill as it stands.

The debate has exposed the controversy surrounding any reform, but we on these Benches will use the remaining stages of the Bill to probe the detail and propose amendments in areas where the Bill is deficient, which are various and numerous. I look forward to the Minister’s response.

Photo of Lord Khan of Burnley Lord Khan of Burnley Opposition Whip (Lords), Shadow Spokesperson (Levelling Up, Housing, Communities and Local Government) 3:47, 27 Mawrth 2024

My Lords, it is a pleasure to close this Second Reading debate on behalf of the Opposition, and I thank all noble Lords who have participated in it. The expertise, skills and knowledge on this subject in your Lordships’ House have been demonstrated in such an eloquent manner. I am sure that the Secretary of State, Mr Gove, will be delighted with the scrutiny his Bill is getting in this place.

I echo what so many others have said and add my own tribute to all the individuals and organisations which have campaigned for so long for reform in this area. It was interesting to hear the noble Baroness, Lady Thornhill, talk about her ancestral colleagues raising this issue in 1909, and my noble friend talking about leasehold being raised in the 19th century in this building. Without being subtle at all, I pay tribute to my Chief Whip, my noble friend Lord Kennedy, for his relentless and consistent efforts over a long period of time to educate our Benches, with his experience and expertise in the area.

As a number of noble Lords have pointed out, we have waited a long time for this Bill. It beggars belief that we are on to our fourth Prime Minister and we have had 10 Housing Ministers since the Government first proposed legislation on leasehold reform in 2017. We are pleased that the Bill will progress today. It will provide some limited relief to leaseholders. We welcome and support most measures in the Bill, including changes to the calculation of premiums payable for lease extensions or collective buying of the freehold, and the end of marriage value, as well as the introduction of 990-year extensions, ground rent reforms and freehold estate regulation.

The problem is that the leaseholders across the country expected so much more from the Government. We are clear that, in due course, as my noble friend has mentioned, Labour will have to finish the job and enact in full all the Law Commission’s recommendations on enfranchisement, the right to manage and commonhold. We are determined to do so.

I know the Minister is looking forward to responding to the many issues raised by noble Lords. We had a number of powerful contributions across the House. It is always refreshing to hear from the noble Lord, Lord Best, and, in relation to his property agents working group, it is a shame that his 2019 report has been largely ignored. The noble Lord is calling for a regulator, and has consistently done so, and the point was made that the industry has come out with this as one of its top requests.

The noble Lord, Lord Young of Cookham, and my noble friend Lady Andrews talked about uncertainty and lack of clarity. In her eloquent speech, my noble friend spoke about how the Bill deals with the problem but, although making some progress, it is a game of two halves; there is some good progress in certain areas, yet so much is missing, and I agree with that. She also shared personal stories and spoke passionately about the letters she received from leaseholders. I agree with my noble friend Lady Taylor of Stevenage, who said that this is a long way from what leaseholders want and have waited for. The Bill needs so much more substance added to it.

One of our key areas of concern is that there is so much material arriving throughout the passage of the Bill. As the noble Lord, Lord Stunell, mentioned, this is now becoming the norm and not an exception. How can that be effective for scrutiny, for noble Lords and Members in the other House to properly advise or amend?

I want to probe the Minister on some areas of concern which, at this stage, the Bill fails to cover. First, in 2021 the Law Commission provided the Government with updated recommendations on the archaic law of forfeiture, and yet, as many noble Lords mentioned, there is nothing in the Bill to end the unjust windfall gains exploited by freeholders. My noble friend Lady Twycross described freeholders’ behaviour as “mafia-like”, and the noble Lord, Lord Bailey of Paddington, said the way they operate is “gangster-like”.

The Secretary of State claimed that he wanted to

“squeeze every possible income stream that freeholders currently use”,—[Official Report, Commons, 11/12/23; col. 659.] so why has this income stream been untouched? The Minister mentioned that she would be bringing the issue of forfeiture back to your Lordships’ House. This has happened too many times and it is another example of not being able to look at something from the outset. As mentioned by my noble friend Lord Kennedy, we will work with all noble Lords across the House to decide whether we can support what the Government bring back to end the forfeiture rule.

As previously mentioned by many noble Lords, Labour has committed to implementing in full the recommendations in the Law Commission’s three reports on leasehold. Why is it so difficult for the Government to do the same?

In 2021, the Government established the Commonhold Council to

“advise the government on the implementation of a reformed commonhold regime and bring forward solutions to prepare homeowners and the market”.

I understand that the council has not met for two years and, as has been discussed, there is no sign of commonhold in the Bill. Have the Government completely given up on this?

I re-emphasise that deferment rates used for calculating lease extension and freehold purchase premiums are missing from the Bill. These are crucial for determining the prices paid by leaseholders who want to buy out or extend their lease. Will the Minister bring forward more detail at the next stage of the Bill to set out the methodology for their calculation?

Almost every country in the world, apart from Britain, has either reformed or abolished this archaic, feudal model. I know the noble Lord, Lord Moylan, objects to “feudal”, but we are quoting the word that Secretary of State Michael Gove has been using. If the noble Lord looks at Hansard, the speech of the noble Lord, Lord Bailey, mentioned “feudal” more times than anybody else here.

There has long been cross-party consensus on the need to do something about this horrific situation, so why have the Government watered down their commitments to leaseholders of flats? This is a point that the noble Lords, Lord Stunell and Lord Young of Cookham, made about being on our own in not being able to deal with the situation.

Just what do the Government stand for on the Bill? It is remarkable that, in a recent interview with the Sunday Times, the Secretary of State went so far as to declare, without qualification, that he intended to abolish the leasehold system in its entirety. There have been all these extravagant promises, yet we have a Bill before us which is missing in detail, and the Secretary of State’s ambition nowhere to be seen.

Leaseholders have been badly let down. Having waited so long, and had their expectations raised so high, they are understandably disappointed at the limited Bill that we are considering today. This unambitious piece of legislation makes it clear that proponents of caution and restraint have won out over those who want to lay claim to a legacy of bold reform in this area. The Government’s poverty of ambition has real implications for leaseholders being routinely gouged by freeholders under the present system.

The scaled-back leasehold reform Bill as the Government have introduced it is a far cry from what successive Ministers have led leaseholders across the country to believe would be enacted by this Government in this Parliament. Leaseholders deserve a clear answer about the real reason why they have got just a limited Bill. We on these Benches are determined to overhaul leasehold to their lasting benefit and reinvigorate commonhold to such an extent that it will become the default and render leasehold obsolete.

We look forward to working with noble Lords across the House, as well as the Minister opposite, to do whatever we can to strengthen the Bill throughout its passage in your Lordships’ House and on to the statute book. We on these Benches want to make the existing Bill the most robust piece of legislation that we can make it, by rectifying its remaining flaws. Like many noble Lords across the House, I look forward to the Minister’s response detailing how she will fill the gaps over the remaining stages of the Bill. However, I remind noble Lords that if they do a word index of what has been discussed today, some of the key phrases coming out of today’s debate are as follows: “missing detail”, “insufficient”, “limited”, “lacking ambition”, “significant shortcoming”, “not properly thought through”, and “glaring omission”. I look forward to hearing from the Minister.

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities) 3:58, 27 Mawrth 2024

My Lords, it is a pleasure to close this debate and to reflect on the many thoughtful contributions that we have heard. I thank all noble Lords for their engagement with the Bill thus far, and especially all noble Lords who met me before this debate to discuss their concerns. As the Bill progresses, I am keen to continue engaging. If any noble Lords would like a briefing, please get in touch. I will put further dates forward ahead of Committee, and of course noble Lords can ask for a meeting at any time, and I will try and accommodate them.

I have heard that some noble Lords would like to see what is in the Bill clarified and improved. Other noble Lords want to see it go further still, and I look forward to engaging with them on all those issues as the Bill comes to its Committee. That said, listening to this debate, I am also struck by the strength of consensus among noble Lords that the system of leasehold needs reform. I will now seek to address all noble Lords’ points in turn.

The noble Baroness, Lady Taylor of Stevenage, began the debate and set out her wide range of concerns, particularly those areas where she expects to bring forward amendments. I am grateful to her for her engagement and her work with the Bill so far; I look forward to continuing this as the Bill progresses. I will turn right away to the Government’s position on ground rents, on which she and noble Lords right across the House, including my noble friend Lord Moylan and the noble Lords, Lord Adonis and Lord Palmer, courteously asked for updates.

I understand the strength of feeling about this issue and the level of interest, given its size. We are aware that reforms to protect leaseholders will have a negative impact on those who benefit from ground-rent income, and are carefully considering this as we formulate our policy. That is why we are studying the recently closed consultation very carefully. Next steps will be set out in due course to this House as soon as I am able to do so.

I also want to address the specific point made by noble Lord, Lord Adonis, about the ECHR. The Government consider that all provisions in the Bill are compatible with the relevant convention rights; and that, in the case of provisions regarding Article 8 and A1P1, any interferences are justified and proportionate.

The noble Baroness, Lady Taylor, also had a specific question about marriage value, setting deferment rates in primary, rather than secondary, legislation. My noble friend Lord Borwick also raised this point. I understand their concerns, but we do not feel that setting rates on the face of the Bill would be appropriate. The Government absolutely recognise that careful consideration is needed on how to set rates, and that many different elements need to be considered when setting them. We have been clear that we will set the rates at market value to ensure that the amount landlords are compensated reflects their legitimate property interests, and we have had active conversations with relevant stakeholders. Ultimately, the Secretary of State’s flexibility to make these decisions is paramount, and we will continue these conversations. I welcome any further views that noble Lords might have on this matter.

I will come to the overall principle of marriage-value reform shortly, but with regard to the specific points made by the noble Baroness, Lady Thornhill, and the noble Lord, Lord Truscott, about the online calculator, it is an important issue, and I can confirm that the Government absolutely remain committed to launching this. This will help leaseholders understand how much it will cost to extend their lease or acquire their freehold up front. However, before we can launch such a vital tool and make a true success of it, we must first pass the Bill, so that the online calculator reflects the final provisions of the reforms in the Bill.

I turn now to the central issue that the noble Baroness, Lady Taylor, and many others raised: the future of the leasehold market. The Bill delivers our manifesto commitment to ban new leases of houses. Once commenced, other than in exceptional circumstances, new houses will have to be sold as freehold. I know that noble Lords across the Chamber, including the noble Viscount, Lord Hanworth, have expressed particular interest in the exceptions where a lease might still be justified, such as shared ownership, which helps consumers take their first step on the property ladder, or National Trust land where the freehold cannot be sold on. We expect a developer to prove it through the new steps included in the Bill. We believe that each can be justified, but we will keep a close eye on the market, and will not shy away from using the powers in the Bill to tighten or remove exceptions if required.

I turn now to the issue of banning leasehold flats, not just houses. The majority of houses have always been provided as freehold. There are few justifications for building new leasehold houses, so this Government will ban them. Flats, on the other hand, have shared fabric and infrastructure, and therefore require some form of arrangement to facilitate management. This has historically been facilitated by a lease.

None the less, the Government recognise the issues in the leasehold system, and I have heard the concerns from the noble Baronesses, Lady Taylor, Lady Thornhill and Lady Andrews, my noble friends Lady Finn and Lord Bailey and many other noble Lords regarding a lack of commonhold measures as a meaningful alternative to replacing leasehold for flats. I want to reassure your Lordships that the Government remain committed to commonhold reform and that we see it as a long-term replacement for leasehold.

Photo of Lord Kennedy of Southwark Lord Kennedy of Southwark Shadow Chief Whip (Lords), Deputy Chairman of Committees

The Government have now had the report from the Law Commission for four years. I think the noble and learned Baroness, Lady Butler-Sloss, who is not in her place at the moment, raised the question: how much longer do they need?

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

As I think I have said to the noble Lord many times from this Dispatch Box, this is a complicated issue. I think there are about 121 recommendations in the Law Commission’s framework and we just have not had the time to go through them. However, this takes us a good way towards commonhold for the future.

The Law Commission did fantastic work to review the commonhold framework, and, as I said, it set out 121 separate detailed recommendations on how to modernise it. I appreciate the points from the noble Lord, Lord Kennedy, about commonhold and his frustration that these reforms have not come forward. However, these are not trivial changes. Implementing them requires detailed consideration. It is a complex policy, and to make sure we get it right and so that commonhold does not fail to take off for a second time, we will take the time required to make it work. We will therefore set out our response to the Law Commission’s report as soon as that work is concluded.

On the comments made by the noble Baroness, Lady Thornhill, the noble Lord, Lord Stunell, my noble friends Lady Finn and Lord Moylan and many others about leasehold rights to manage, managing a large or complex building is not an easy feat, especially meeting building safety requirements, and some leaseholders may simply not want this responsibility. That is why the Government believe that leaseholders should therefore have the choice to manage their buildings, which they now do. The Bill delivers the most impactful of the Law Commission’s recommendations on right to manage, including increasing the non-residential limit to 50% in mixed-use buildings to give more leaseholders the right to take over management, and changing the rules to make each party pay their own process and litigation costs. These measures will help existing leaseholders now and save them many thousands of pounds into the future.

The Government recognise that the participation threshold of one-half can frustrate leaseholders if they cannot reach it. However, we agree with the Law Commission that the threshold is proportionate and ensures that a minority of leaseholders are prevented from acquiring the freehold against the wishes of the majority of leaseholders in the building. We are therefore very clear that we should hold the participation requirement at half of the total number of residential units in the premises.

The noble Baroness, Lady Thornhill, my noble friend Lord Moylan and many others have also made powerful arguments that the creation of new freehold estates must end, and that local authorities should be compelled to adopt all communal facilities on a new estate. It is up to the developers and the local planning authority to agree on specific issues relating to new development, including appropriate funding and maintenance arrangements. That said, we are carefully considering the findings and the recommendations of the Competition and Markets Authority report to address the issue that home owners on these estates face.

On the questions from the noble Baronesses, Lady Taylor and Lady Thornhill, about expanding the right to manage regime to cover the residents of freehold estates, the Government recognise the benefits that the right to manage regime on freehold estates would bring, empowering home owners to manage and take a greater control of the estate on which they live. However, there would be many detailed practical issues to work through to deliver this, which would all require careful handling since they affect property rights and existing contract law. Instead, we have introduced measures in this Bill to empower home owners and make estate management companies more accountable to them for how their money is spent, including the ability to apply to the appropriate tribunal to appoint a substitute manager.

The noble Lord, Lord Best, spoke extensively and eloquently about the regulation of property agents, which my noble friend Lord Young, the noble Lord, Lord Truscott, and many others, supported. This Government remain committed to driving up professionalisation and standards among property agents. We welcome the ongoing work being undertaken by the industry and others to drive up standards across the sector, including on codes of practice for property agents. I put on record my sincere thanks to the noble Lord, Lord Best, and the noble Baroness, Lady Taylor, for their valuable work on this issue. However, as a Secretary of State made clear at Second Reading, legislating to set up a new regulator would require significant additional legislative time of a kind that we simply do not have in the lifetime of this Parliament.

On cost, the Government believe that any regulation can and should be done in an appropriate and proportionate way that controls the cost to business. Managing agents must already belong to a redress scheme and leaseholders may apply to the tribunal to appoint a manager to provide services in cases of serious management failure. The Leasehold and Freehold Reform Bill will make it easier for leaseholders to scrutinise costs and challenge services provided by landlords and property managing agents, and ultimately for them to take on management of the buildings themselves, where they can directly appoint or replace agents. These measures, alongside existing protections and work undertaken by the industry, will seek to make property managing agents more accountable to the leaseholders who pay for their services.

The valuable work on the regulation done by the noble Lord, Lord Best, remains on the table, but this Bill is tightly focused on the fundamental improvements for leaseholders. These, alongside our building safety reforms, already make this a time of great change for managing agents, necessitating higher standards across the sector. We continue to listen and look carefully at the issues that Members across the House are raising on this.

My noble friend Lord Young spoke specifically about forfeiture, as did the noble Baronesses, Lady Taylor and Lady Twycross, my noble friend Lord Bailey and many others. As I said in my opening remarks, the Government recognise that this is a real and significant problem. There is huge inequity at stake. We have heard from colleagues today about why we should act. We think it is the job of government to go away and work through the detail of this, which we are doing. We will report back to the House shortly with more details as we consider the matter further.

My noble friend Lord Young, the noble Lord, Lord Stunell, the noble Earl, Lord Lytton, the noble Baroness, Lady Pinnock, and many others, raised several concerns about building safety, which I will try to address in some detail. The Government understand that many individuals are frustrated with the distinction between qualifying and non-qualifying leaseholders. We have been clear that the primary responsibility for resolving issues in buildings requiring remediation is with those who caused them. In circumstances where it does not prove possible to recover the cost of remediation from the developer, we have established a threshold that strikes a balance between leaseholders and landlords as to who should be paying for the costs of remediation. No leaseholder, whether qualifying or non-qualifying, can be charged more than they otherwise would have been in the absence of the leaseholder protections for costs relating to historical building safety defects.

A range of support is in place for leaseholders whose lease does not qualify for protection. All residential buildings above 11 metres in England now have a pathway to fix unsafe cladding, through either a taxpayer-funded scheme or a developer-funded scheme. With regard to buildings under 11 metres, it is generally accepted that the risk to life from fire is proportionate to the height of the building. Therefore, the risk to life from historic fire safety defects in buildings under 11 metres will require remediation only in exceptional circumstances.

Photo of The Earl of Lytton The Earl of Lytton Crossbench

In relation to critical fire safety, the Minister referred to the risk to human life. I understand that that is what the independent expert statement was intended to cover; namely, critical life safety. What would she say about the other critical issues: finances and the cost of remediation, which none the less continue and are the matters that concern insurers and finance houses, which are by and large less concerned with questions of human life?

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

We have taken the issue of human life as the important one. I think we will have further debates on 11 metres as we go through the Bill. I am conscious of time; if the noble Earl does not mind, we will deal with those matters in Committee.

Given the number of small buildings under 11 metres that need remediation, our assessment remains that extending leaseholder protections to below 11 metres is neither necessary nor proportionate, as I think the noble Baroness has heard many times before.

Regarding my noble friend Lord Young’s issue about enfranchised leaseholders, the Government decided that the leaseholder protection provisions in Part 5 of the Building Safety Act would not apply to leaseholder-owned buildings. That was because the freehold to the building is de facto owned by all or some of the residents who, as leaseholders, have collectively enfranchised and would still have to pay to remedy the safety defects in their buildings. However, leaseholders in those buildings, either individually or collectively, can pursue developers and their associated companies via a remediation contribution order for funds that they have spent or will spend remediating their buildings for relevant defects.

I turn to joint ownership. This Government understand that individuals are frustrated with the distinction between leaseholders who own properties jointly and those who do so independently. We are listening carefully to feedback from stakeholders on this matter. We have also published a call for evidence on jointly owned leasehold properties, which was launched on 22 March; this will enable the Government to understand the scale of the issue and consider whether any further changes can be proposed.

The noble Baroness, Lady Andrews, asked about development value. I am very grateful to her for engaging with me beforehand about this issue. I can say to the noble Baroness, as she acknowledged, that we committed to enabling leaseholders voluntarily to agree to a restriction on future development of their property to avoid paying development value as part of the collective enfranchisement claim. We are consulting on making changes to the existing permitted development right and are seeking views on whether sufficient mitigation is in place to limit potential impacts on leaseholders. I urge the noble Baroness to contribute her views to that consultation before it closes on 9 April. When it closes, the Government will carefully consider and review all the responses and see how the regime can be improved.

I was very sorry to hear of the personal difficulties of the noble Lord, Lord Campbell-Savours, when purchasing his freehold, and I hope that the reforms in this Bill will address the issues he raised. With regard to the point that he and my noble friend Lord Bailey raised on service charges, the level of service charges that leaseholders pay will depend on many factors, such as the terms of the lease and the age and condition of the building. This means that the cost of things such as repairs, maintenance of common areas and management of the building will differ considerably. The transparency and redress reforms in this Bill will empower leaseholders to take action against any unreasonable costs.

As well as speaking extensively about building safety issues, the noble Earl, Lord Lytton, made a compelling case for thinking about leasehold from the perspective of consumer protections. The Government are committed to improving consumer protections against abuse and poor service from landlords, managing agents and freehold estate managers. That is why we will set a maximum time and fee for the provision of information as part of the sales process for leasehold homes and those homes encumbered by estate management charges, and introduce rights of transparency over service charges, extended access to redress schemes and reform of legal costs. We consider that it is a powerful package of consumer rights and reforms, and, following Royal Assent, we will make sure that appropriate guidance is available for consumers. None the less, I look forward to meeting the noble Earl after Easter to discuss how this package can be further improved and well implemented.

The noble Lord, Lord Palmer, the noble Baroness, Lady Bray, and my noble friend Lord Howard asked about the Government’s policy on marriage value. Any suggestion of retaining marriage value—wholesale or in limited circumstances—would be counter to our aim of making it cheaper and easier for leaseholders to extend their lease or acquire their freehold. Such proposals would risk both perpetuating and creating a two-tier system—eroding the benefits that the Government are delivering through the Bill. Removing marriage value and hope value will deliver a level playing field and wide access for leaseholders who may otherwise find it prohibitively expensive to extend their lease or purchase their freehold. Our wider reforms to enfranchisement value will ensure that sufficient compensation is paid to landlords to reflect their legitimate property interests.

The right reverend Prelate the Bishop of Manchester spoke about the positive contribution that charities make to our society, which this Government wholly recognise. He asked specifically about exemptions from our reforms for charity. Although well-meaning, attempting to created carve-outs for specific groups of landlords—for example, charities—would complicate the system that we aim to simplify and would risk both perpetuating and creating a two-tier system. We appreciate the engagement that the right reverend Prelate has conducted with us so far and hope that we can continue that engagement on issues that we know, and he knows, are significant.

The noble Baroness, Lady Twycross, and the noble Lord, Lord Kennedy, brought up the renters Bill and assured tenancies. We are aware that leaseholders with ground rents of more than £250 per year can be legally regarded as assured tenants. In the Renters (Reform) Bill, we are addressing this problem by removing all leaseholders with a lease longer than seven years from the assured tenancy system. That Bill is progressing through Parliament, and our priority is to pass this vital legislation before the end of this Parliament.

The noble Lord, Lord Khan, brought up the issue of the Commonhold Council. The council has met regularly since it was established in 2021 and last met in September. The Government are currently reviewing the Law Commission’s proposal to reform the legal framework for commonhold and plan to reconvene the group ahead of finalising their response to the Law Commission.

If I have missed any other specific issues raised, I can only apologise. A tremendous amount has been said in this session—all of great value—and I reiterate my commitment to meeting any Member of this House who wishes to discuss the Bill further after Easter. I hope that is acceptable to the House.

The Leasehold and Freehold Reform Bill will deliver on the Government’s 2019 manifesto commitments, promoting fairness and transparency in the residential leasehold sector. I look forward to working with noble Lords during the passage of this most important Bill.

I have noted forfeiture, commonhold, the regulation of property agents, marriage value, ground rent and service charges as areas of serious interest to noble Lords, although others of equal importance have been raised. I am sure noble Lords will recognise that this is a very long list and there is little time remaining in the parliamentary Session. However, we are listening and looking carefully at what can be done on all those things.

Photo of Lord Kennedy of Southwark Lord Kennedy of Southwark Shadow Chief Whip (Lords), Deputy Chairman of Committees

Before the Minister sits down, although I am frustrated about the Bill, I have great respect for her and look forward to our debates in Committee. I particularly asked about commencement, because this is a Bill of 123 clauses and 15 schedules, and only the issues on rent charges and three parts of the Building Safety Act are going to be brought into force after two months. Nothing is being brought in on Part 1, on leasehold houses, Part 2, on leasehold enfranchisement and extension, Part 3, on the rights of long leaseholders, Part 4, on the regulation of leasehold, Part 5, on the regulation of estate management, or Part 6, on redress schemes. Basically, about 95% of the Bill is not going to come into force until a date that the Secretary of State determines. As in my earlier remarks, I am a bit frustrated sometimes that what we should get from the Secretary of State does not materialise. Will the Minister write to me and be clear about when these are going to come into force? We need to know what date they are coming into force, otherwise all the promises amount to nothing.

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I am happy to write to the noble Lord on this issue, and I will put a copy of that letter in the Library.

Bill read a second time.