Amendment 28

Leasehold and Freehold Reform Bill - Committee (2nd Day) – in the House of Lords am 5:30 pm ar 24 Ebrill 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

The Lord Bishop of Manchester:

Moved by The Lord Bishop of Manchester

28: Schedule 4, page 161, line 15, at end insert—“(3A) But in a case where the freeholder is a charity and the freehold interest was vested in that charity immediately before the passing of this Act—(a) assumption 2 must not be made, and(b) accordingly, marriage and hope value are payable.”Member's explanatory statementThis amendment would provide that, where the freeholder in the case of a lease extension or freehold enfranchisement is a charity which had owned the freehold interest since before the passing of the Bill, marriage and hope value are payable.

Photo of The Bishop of Manchester The Bishop of Manchester Bishop

My Lords, while I thoroughly enjoyed that previous group, I hope this one will not prove quite so wide-ranging. In tabling these amendments, my aim is to deal with an issue that in the charity world is specific to a small number of bodies but would severely impact the work that they do. First, I am a leaseholder myself, as it happens, as set out in the register of interests. I have been through the process of extending my lease; my flat is not in London, and it was quite a simple and cheap process. Secondly, although I am no longer on the board of governors of the Church Commissioners, it is the body that pays my stipend, owns my home and covers my working expenses, so I declare that interest too.

The commissioners are directly affected by the proposals in the Bill. They would indeed benefit from my amendments but, as has already been mentioned by the noble Lord, Lord Truscott, in the previous group, that charity is large enough to withstand the adverse impact. Smaller charities would struggle much harder to maintain their work, and it is their case I seek to plead today.

As I said at Second Reading, I wholeheartedly support the central thrust of the Bill, which is to protect leaseholders from freeholders who exploit them as a cash cow. I also agree that leasehold is ripe for bold reform. I have spoken repeatedly in your Lordships’ House on behalf of victims of the cladding scandal, as well as joining them on public platforms in Manchester. My lifelong commitment to those in housing need is well known in this House and that commitment remains undiminished.

I was unable to be in my seat on Monday and I am grateful that my right reverend friend the Bishop of Derby spoke to an amendment in my name that day. Having carefully read the report of that debate in Hansard, I have informed the Whips’ Office that I no longer intend to oppose the question that Clause 47 stand part of the Bill, nor does my co-signatory, the noble Lord, Lord Thurlow. I have taken that step as I believe my efforts at this stage are best focused on the specific issue of charities and marriage value. I apologise to noble Lords for the lateness of that decision but hope that they will take it as a sign that even a bishop can be penitent.

To focus on the subject of this group, in England there are a small number of charities, probably no more than a dozen, all of them with long and distinguished histories, which, in centuries far past, came into the possession of land lying largely within just a few miles of this House. As London grew and the land increased in value, rather than simply selling it and seeking to invest elsewhere—remember that back then there were far fewer opportunities for investment—the charities stuck with the business they knew and understood. They kept the freeholds and have used them as regular and predictable sources of income to drive their work. The charities, apart from the commissioners, of which I am aware, are John Lyon’s Charity, the Portal Trust, the Dulwich Estate, the London Diocesan Fund, Merchant Taylors’ Boone’s Charity, and Campden Charities —not a large number.

John Lyon’s Charity was gifted its land in St John’s Wood about 500 years ago. Income from being the freeholder, principally through marriage value, provides it with about £4 million per annum, which is one-quarter of its total income. Marriage value is not a matter, as we have heard, in which the freeholder can set their own arbitrary figure. It is not open to the abuses that have been associated with ground rents. It is also the case that around 80% of all marriage value is in or around the capital. This is a very London-focused issue.

The money that John Lyon’s Charity receives enables it to be one of the principal providers of youth services to some of London’s most needy children. Properties on its holdings sell for around £5 million. The leaseholders who purchase them are not London’s poor and needy. Many are not resident in the premises, which are let out to tenants. A typical leaseholder on such an estate is, as we have heard in previous debates, more than likely to be a wealthy overseas investor or corporation. I have nothing against them, but the Bill, in its present form, will transfer money used presently for youth work to these very rich organisations and individuals. It will present them with an entirely unearned windfall, hence my comments at Second Reading about this being a “reverse Robin Hood”.

I have been told that the Bill needs to be kept simple, and that making any exceptions will unnecessarily complicate it. Of course, there is already an exception for the National Trust, but I will not debate that any further. However, the simplest solution to a problem is not always the right one. In any battle between simplicity and justice, justice must always prevail.

I have also been told that it would be wrong for some leaseholders not to profit from the abolition of marriage value when others, whose freeholders are not charities, do. I will not go back as far as my good friend, the noble and right reverend Lord, Lord Sentamu, did when citing Magna Carta in the previous debate, but there is another principle that is long established: the assets of a charity should not be alienated from it at anything less than full market value, except where those assets are being applied directly to the purposes set out in the charity’s objects clause. That principle has been applied even to such flagship Conservative projects as tenants’ right to buy, in which charitable housing associations were excepted as not being forced to sell properties at a discounted value, unless that discount was being made up from elsewhere. I have not heard any case, not even an unconvincing one, as to why leaseholders of charity-owned freeholds should be treated more favourably than charity tenants.

My amendments in this group offer one way forward. They stipulate that marriage value should continue to apply in cases where the charity owned the freehold before the Act came into effect. There would be no loophole allowing charities to purchase freeholds and apply marriage value in future, nor any opportunity for other bodies to seek to register as charities thereafter. From day one, those leaseholders with charity freeholders should know exactly who they are.

We could tighten it up even further—this is still just Committee stage. It would make little difference if the exemptions applied only to charities, or their predecessors, which owned the freehold prior to 1950, which would of course exclude most housing association leasehold properties. Given how few they are, we could even name them in a schedule. We could explore how marriage value for charities might be phased out over a period of some decades, as was referred to more generally in the previous group, instead of the impact hitting in full in the first year. We can also look at ways of compensating charities in full for the loss of assets—again, an issue referred to in the previous group. I note the Minister’s comments that to fully compensate all freeholders would be an unfair burden on the taxpayer. We are talking here about something much smaller—a small number of charities severely impacted—and I beg to suggest that that can be afforded. None of this needs to slow down the progress of this much-needed Bill through your Lordships’ House.

I am grateful to the Minister, who has already met me and representatives of some of the affected charities, written to us setting out the Government’s current position, and assured us that she remains ready to meet again. I greatly appreciate her openness to such conversations. I also appreciate the Opposition Front Bench for similarly listening to our concerns. I look forward to hearing the views of other Members of your Lordships’ House, so that the charities impacted can have a better sense of where we might find ways forward to tackle this problem. In the meantime, I beg to move.

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

My Lords, it is a pleasure to follow the right reverend Prelate the Bishop of Manchester, and I have added my name to his amendments.

There is a great deal that I could say on this issue but, since I said most of it in the debate on the last group, I shall keep my remarks fairly short. I can add a little personal knowledge of one charity to which the right reverend Prelate refers, because it is very Kensington-based. I have no connection with it and no interest to declare—but Campden Charities was started in the 17th century by Viscount Campden, a devout Puritan. When he died, he left a charitable endowment, naturally in the shape of land that he owned, for the benefit of the poor youth of Kensington. His widow, when she died, did likewise with her property—hence the plural. It is Campden Charities: technically, they are two separate endowments, but they are run as one. They own land in Kensington to this day from which they have an income, and they continue to support the poor youth of Kensington—and there are poor youths in Kensington—giving them grants to allow them to continue their education and apprenticeships, and work of that sort. Their income is now going to be, to some extent by this measure, reduced and expropriated.

As I say, apparently as Conservatives we feel no embarrassment in doing this—we feel no constraint on us. We are too tender and too ginger to feel that we can expropriate the assets of ill-doers such as Putin’s friends—they are sacrosanct. But those who do good, such as charities, can have their money taken away with very little debate and handed to leaseholders who may or may not be poor and meritorious. Who knows? What is it next, I wonder, for my noble friends on the Front Bench? Shall we be stealing the widow’s mite from the poor box?

Photo of Lord Bailey of Paddington Lord Bailey of Paddington Ceidwadwyr

My Lords, I want to pay tribute to Campden Charities, as I am a beneficiary of the activities of Campden Charities. I came from a community where the likelihood of one of us appearing in the Lords was next to zero, and Campden Charities is an important part of my arrival in your Lordships’ House. I point out that removing the ability of charities countrywide to provide such services would be devastating to some of the poorest communities in this country. Again, I stand here as a witness to the effectiveness of some of the work that they do.

Photo of Lord Thurlow Lord Thurlow Crossbench

My Lords, it is not on the list but I did put my name to this amendment and I am very keen to support the right reverend Prelate. Much of the debate we have had so far this afternoon seems to be focused on the rich, greedy landlords versus the impoverished tenants. If we strip this away from the debate and focus on these landlords, those addressed in this amendment are charities; they do good. They are not bad actors. Their managing agents, in the case of their property investments, are not bad actors. They are responsible to the Church and they thoroughly deserve this exemption, as we were reminded very eloquently in the excellent few words of the previous speech. I proudly add my name to the amendment.

Photo of The Earl of Lytton The Earl of Lytton Crossbench 5:45, 24 Ebrill 2024

My Lords, I am very pleased to be able to speak to this amendment and very grateful to the right reverend Prelate for tabling it. His office asked me whether I would add my name, and I am afraid I neglected to do so. Implicit in what the right reverend Prelate and the noble Lord, Lord Moylan, said is that we have within the Bill a carve-out for the National Trust as a charity that does not apply to other charities. My understanding, and I think noble Lords will know the principle, is that this touches on and concerns the question of hybridity of a Bill. That is dangerous territory for somebody who is a non-lawyer, but none the less I raise the question, because public Bills should apply equally to all citizens and entities. If you single out one, you have to face the consequences of having a hybrid Bill.

I scanned around earlier to see how many legal minds there might be sitting around the Chamber, because I am not one and I stand to be shot down, not being a lawyer, but the matter did crop up on the levelling-up Bill and I had reason to look into that in some detail, although it was not debated in the Chamber. So I hope I am reasonably up to date in believing that the only workaround here is if the entity singled out in the legislation is what is known in the jargon of the legislator as “a class of one”. I have seen the letter dated 22 April to the right reverend Prelate from the Minister. She appears to allude to the uniqueness of the National Trust in that its lands are inalienable. I looked at the world wide web at lunchtime to see just how inalienable things actually are, because as I will explain, I am not sure that is necessarily a correct point on which to rest the case.

What I discovered, among other things, was “Battle over National Trust sale to developer”, which was a question of three acres of a meadow near Bovey Tracey in Devon in 2021. There was another freehold property on the market, and I think it was described as being a former National Trust property. I therefore assume that the National Trust is doing what other charities normally do—namely, that it gets property bequeathed to it, or it acquires property by public subscription, and that may contain bits that it wants and considers rightly inalienable, and other bits that it considers expendable. Any charitable organisation having property is required by the Charity Commissioners to make best use of its assets, and that means not having bits of deadwood floating around. It has to be organised, and that happens in any management process. So to what extent inalienability cuts into this, I am absolutely not sure.

Photo of Lord Berkeley Lord Berkeley Llafur

I am grateful to the noble Lord for giving way. Can he explain what the word “inalienable” actually means?

Photo of The Earl of Lytton The Earl of Lytton Crossbench

I believe it means that it cannot be disposed of away from the purposes of the charity. I am not a lawyer and I am afraid I do not know exactly, but I understood it to be the term contained in the Minister’s letter to the right reverend Prelate, which is why I used it.

I want to make it clear that the organisation of a charity is necessarily of a commercial nature but devoted, ultimately, to its charitable purposes. It cannot be otherwise; it must use its assets optimally, and it is required to do so. I can see no discernible difference between something like the National Trust and an organisation such as the Church of England. Any such charity acquires, disposes and otherwise deals with its land assets as a matter of course. It is required to do so if it is disposing according to a set of rules, with which I am familiar, under the Charity Commission: CC 28, which state that you have to get best value for the asset, or words to that effect.

I am concerned about the potential hybridity aspect of the Bill, to which the right reverend Prelate did not refer, but it is implicit in what he is asking. It is a question that needs to be raised and is a procedural one for this House. I would very much like to know the answer, and if the Minister, who has not had any warning, cannot give it today perhaps she would be kind enough to write and copy in other noble Lords who are listening.

Photo of Baroness Pinnock Baroness Pinnock Liberal Democrat Lords Spokesperson (Levelling Up, Communities and Local Government)

My Lords, I thank the right reverend Prelate the Bishop of Manchester for drawing our attention to the fact that when you make complex changes, the consequences cannot always be predicted and may not be ones we would wish to support.

The issue is one I hope the Minister will be able to help us resolve. The right reverend Prelate cited the balance between justice and simplicity. He said to always come down on the side of justice, and so would I. However, in this case, we have competing justices. The principle being advocated throughout the Bill is the justice of rebalancing the rights and responsibilities between freeholders and leaseholders to the benefit of leaseholders—a principle most of us support. The difficulty is that the justice we support has a consequence we would not support: reducing the funds available to charities whose income is based on freehold property. So, there is a conundrum for us.

The right reverend Prelate listed the charities that he thought were affected by these changes. I noted they were all London-based, no doubt because of land values in London. It is important for us to know whether this is a more extensive problem, or a London-based one. The first question we need to ask is, what other charities will be affected?

I do not have an answer to the next question: is there a workaround that mitigates the effect of the principal changes the Bill seeks to implement? I am sure the bright young things in the department could come up with a way of mitigating the outcome, so that charities do not lose their income, which is in nobody’s interest. I am confident that somebody will come up with a great way of overcoming this problem, while retaining the other justice: fairness towards leaseholders.

So, there are questions but no answers, and I look forward to hearing what the Government might be able to do.

Photo of Baroness Taylor of Stevenage Baroness Taylor of Stevenage Opposition Whip (Lords), Shadow Spokesperson (Levelling Up, Housing, Communities and Local Government)

My Lords, this debate has again outlined what a huge benefit it would be to have proper, detailed pre-legislative scrutiny of Bills such as this. I hope that will take place when we get a commonhold Bill, whoever brings it forward.

In principle, I am in much of the same mind as my noble friend Lord Truscott when it comes to special pleading on marriage value. I fear that the amendments in the name of the right reverend Prelate the Bishop of Manchester are in danger of being an almighty sledge- hammer to crack not a very big nut, and my comments are made on that basis.

First, I thank the right reverend Prelate and Lynne Guyton, from John Lyon’s Charity, for meeting me yesterday to explain the issue in more detail. The issues set out by the right reverend Prelate affect a very small number of charities, such as the ones in central London that he has outlined. They have been in place for centuries and, as was explained to me, use marriage value on lease extensions as a critical contribution to the funding of their charitable work. The leaseholders of these properties are largely offshore companies or non-residential wealthy owners, so the argument put forward by the charities is that, in this case, the benefit of marriage value has what the right reverend Prelate described as the “reverse Robin Hood effect”. The benefit currently accrues to the beneficiaries of the charity, such as youth clubs, arts projects, emotional well-being initiatives, supplementary schools, parental support schemes, sports programmes, academic bursaries and similar projects. I thank the noble Lord, Lord Bailey, for his personal testimony in this respect.

The fear is that, after the Bill has passed, the benefits will then accrue to the said wealthy offshore companies and leaseholders. I believe the Government have been in conversation with the charities concerned and have promised to look at what can be done to ensure that a very limited exception is considered. However, it is our understanding that this has not been forthcoming, and I hope the Minister will tell us where the Government have got to. Have the Government carried out any impact assessment of the way the Bill will affect charities that have long-standing property endowments solely for the purpose of enabling their charitable aims?

However, as with group 2, these amendments would amend Schedule 4, which is where the market value element of the premium for any enfranchisement claim is determined. The second amendment tabled by the right reverend Prelate the Bishop of Manchester has also applied it to the later section on loss suffered, in paragraph 32, which refers back to assumption 2. Straightforwardly, these amendments would disapply assumption 2 for charities, and thereby include marriage and hope values in determining market value.

As I said during the first Committee sitting on the Bill, we genuinely appreciate the intention behind supporting what is argued to be the unique circumstances of this small group of charities. However—and it is a big “however”—the amendment as drafted is almost certainly far too broad to encompass only their very unusual circumstances. Perhaps the Government will continue to work with right reverend Prelate and the charities concerned to see what can be done to support them; otherwise, we fear that a general amendment such as the one tabled could open a big Pandora’s box and encourage those wishing to avoid the new system of enfranchisement—which we support, of course—and there may be plenty who wish to do so, to misuse charitable status for that purpose.

The noble Earl, Lord Lytton, referred to exemptions created for the National Trust, which the Government felt were justified. Presumably, the Government feel that some exemptions are justified.

While we do not feel that the amendment as tabled would avoid some of the obvious pitfalls of creating a loophole in the stated aims of the Bill—with which we agree—I look forward to the response of the Minister about whether any progress can be made in this respect.

Photo of Lord Gascoigne Lord Gascoigne Lord in Waiting (HM Household) (Whip) 6:00, 24 Ebrill 2024

My Lords, I thank the right reverend Prelate the Bishop of Manchester, and my noble—and actual—friend Lord Moylan for their valuable contributions at Second Reading, and for the amendments that they have put forward which seek to alter the Government’s current position on marriage value and hope value. I say on behalf of my noble friend the Minister that we are grateful for all the time and engagement with the right reverend Prelate on this issue, along with the Church Commissioners and the charities which she has spoken to today.

In addition, we are grateful to all noble Lords who have spoken on this group and on the somewhat excited group previously. As has been noted, a lot of the points that I will speak to were covered in the previous discussion. I also say to the right reverend Prelate that we are always happy to meet. In answer to the noble Baronesses, Lady Taylor and Lady Pinnock, the Minister is more than happy to engage with any noble Lord who is impacted by this, as well as charities, to discuss it further.

Amendments 28 and 46 would exempt freeholders who are charities at the time of the Bill receiving Royal Assent from the removal of the requirement for leaseholders to pay marriage value, and for hope value to be payable. Before I go into detail, I reiterate the Government’s wholehearted recognition of the vital role and work that charities provide in our communities up and down the land, as has been noted by my noble friend Lord Bailey.

However, as the noble Baroness, Lady Scott, explained previously, we do not believe that leaseholders should pay marriage value. The leaseholder needs to enfranchise to prevent financial loss from the running down of their lease, and to prevent their losing possession when it ends. As has been said, we do not believe that their position, which concerns their security in their home, should be used as a basis for requiring them to pay more than a third party to enfranchise, nor that the freeholder should profit by way of windfall by selling to the leaseholder as compared to a third party. Under our valuation scheme, the freeholder is compensated as if the lease ran its course.

The good work of a charity is separable from its funding. Requiring leaseholders of charities, for no other reason than the coincidence of the nature of their freeholder, to pay marriage value when other leaseholders do not have to would be, I am afraid to say, unfair. Granting exemptions would also create an unbalanced two-tier system. By removing marriage value across the board, we will level the playing field and ensure that we are widening access to enfranchisement for all leaseholders, both now and in the future.

There have been a couple of references to the National Trust. Briefly—as I know it has been covered previously in this debate—it is a different scenario given that its land is inalienable and cannot be sold, yet it is not exempt from the removal of marriage value. I am not aware of the case that the noble Earl, Lord Lytton, mentioned, but I am certainly more than happy to look into it for him. I assume—and it is only my assumption—that it is because it is for the National Trust as an entity to decide, but I assure the noble Earl that I will look into it.

The noble Baroness, Lady Pinnock, asked about other charities that may be impacted by this beyond those that we have discussed. Again, I am not aware of any, but I am sure that that work has been done by the department. I will certainly take it back and investigate. Further to the point made by the noble Baroness, Lady Taylor, it is something on which we will continue to engage with any noble Lord or any charity that is impacted, as we have done with the right reverend Prelate.

For these reasons, I respectfully hope that the right reverend Prelate the Bishop of Manchester and my noble friend Lord Moylan will understand and therefore not press their amendments.

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

Before my noble friend sits down, perhaps I may address a point he made earlier which was made also by my noble friend Lady Scott of Bybrook. The idea that the Government are peddling, that if a landowner sells a leasehold or freehold interest to a third party, they do not receive marriage value, is to assume gross inefficiency of markets and complete ignorance of market participants. It is of course true that the purchaser would not pay marriage value as a separate sum, but the purchaser is perfectly aware of the potential for marriage value and will pay a price that incorporates that. To assume anything else is to assume that all those clever and evil hedge fund managers are too dim to notice what is going on. It simply is not the case. The line the Government are peddling is simply unfounded in fact and reality.

Photo of Lord Gascoigne Lord Gascoigne Lord in Waiting (HM Household) (Whip)

Obviously, I completely respect my noble friend, but I think I have answered that point.

Photo of The Bishop of Manchester The Bishop of Manchester Bishop

My Lords, I thank all noble Lords who have taken part in this debate, which has been somewhat less emotive than the previous one. I am grateful to the noble Lord, Lord Moylan, for his support, and for his description of the good work that is done by the Campden Charities for young people in Kensington. I am particularly grateful to the noble Lord, Lord Bailey of Paddington, who spoke movingly of how that same charity has been part of what has enabled him to become the great asset he is to your Lordships’ House today, and to the noble Earl, Lord Lytton, for his helpful and insightful questions.

I am grateful to the noble Baroness, Lady Pinnock, for asking whether other charities, including those outside London, are affected. While I cannot guarantee that my list is exhaustive, I am pretty sure that if there are any that we have missed, they would quickly come forward, but I do not think that there are many.

I thank the noble Baroness, Lady Taylor of Stevenage, both for her meeting yesterday and for her support for the matter being further considered. Can we find a workaround that does not disapply the whole principles of the Bill, but which deals with the problem that these particularly good causes are going to suffer as things stand? I am very happy to look at some tighter drafting, as she suggested. I am grateful to the noble Lord, Lord Gascoigne, for his response, and for his willingness, and that of the noble Baroness, Lady Scott, to continue to engage with us on this matter.

In the previous debate, we were told that compensation for loss of marriage value would be too much of a strain on the taxpayer. We are talking about a very much smaller amount here, and I wonder whether that would be a course that we could continue to pursue in further conversations before Report. For now, I beg leave to withdraw my amendment.

Amendment 28 withdrawn.

Amendment 29 not moved.