Amendment 41

Part of Leasehold and Freehold Reform Bill - Committee (2nd Day) – in the House of Lords am 6:15 pm ar 24 Ebrill 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Lord Khan of Burnley Lord Khan of Burnley Opposition Whip (Lords), Shadow Spokesperson (Levelling Up, Housing, Communities and Local Government) 6:15, 24 Ebrill 2024

My Lords, I will speak to Amendment 42 in the name of my noble friend Lady Taylor of Stevenage, which was well supported by my noble friend Lord Truscott in his earlier remarks.

Deferment rates are a phenomenally complex area to understand, and the standard valuation method in Schedule 4 is extremely technical. The Law Commission set out options. It did not make recommendations, but the Government have chosen to allow the Secretary of State to prescribe the applicable deferment rate. I thank the noble Lord, Lord Borwick, for his contribution and for seeking to make the process for setting the deferment rate more efficient and asking for more clarity and certainty.

Our amendment is clear and would ensure that, when determining the applicable deferment rate,

“the Secretary of State must have regard to the desirability of encouraging leaseholders to acquire their freehold at the lowest possible cost”.

We understand that the 2007 Cadogan v Sportelli judgment, which has broadly set deferment rates, was made in the context of 0.5% interest rates. If the Government are minded to remain of the view that the Secretary of State should fix the deferment rates, how best should they do that? Although it may work in London, what would need to be taken into account for other parts of the country? Is there a need to set multiple rates for different parts of the country to deal with the variations?

I want to explore the prescribed rates a bit more and how they can function most effectively across the country. On balance, however, we believe it is right that the Secretary of State be given the power to set both the capitalisation and the deferment rates used to calculate the price payable on enfranchisement or extension. It may indeed be the case that the Sportelli judgment has produced deferment rates that are broadly adhered to as a starting point in most claims for leases with at least 20 years to run, but there are real problems in relying on a 17 year-old case to maintain generic rates over the long term.

As with much of the Bill, we await future regulations to understand the process by which the Secretary of State will determine those rates and what the initial rate that he determines will be. This is a point that the noble Lord, Lord Young of Cookham, and the noble Baroness, Lady Pinnock, alluded to. I will be grateful if the Minister could confirm whether it is the Government’s intention, before they introduce the regulations required to bring the new processes into force, to undertake a public consultation on precisely how the applicable deferment rate should be determined.

When it comes to the regulations required to bring the new valuation process into force, we recognise that they are the means by which the detailed methodology for setting the applicable deferment rate will be brought forward. However, while it would not be right to pre-empt those regulations at this stage, we believe that the objective underpinning the setting of the deferment rate should be set out in the Bill, as the noble Baroness, Lady Pinnock, also mentioned. How the Secretary of State sets the rate and what it should be are crucial to the premiums that leaseholders will pay. Can the Minister provide some clarification on this?

While the rate or rates will need to be set at a level that does not unfairly strip freeholders of value, we think it is important that the Bill states clearly that in determining what should be the rate or rates, the Secretary of State must have at the forefront of their mind the need to reduce premiums for leaseholders. While other considerations will clearly need to be taken into account, not least how to ensure that landlords receive adequate compensation to reflect their legitimate property interests, this amendment would oblige the Secretary of State to set a rate or rates with the overriding objective of encouraging leaseholders to acquire their freehold at the lowest possible cost. It is important as it is the deferment rate that will be the primary driver of price to be paid by leaseholders in enfranchisement or extension claims.

It is essential that reducing premiums for leaseholders is the determining factor in the process by which such a rate or rates will be set and reviewed; therefore, it must be put in the Bill. I hope the Minister will give due consideration to our amendment, and I look forward to her response.