Leasehold and Freehold Reform Bill

Viscount Hanworth Excerpts

2nd reading
Wednesday 27th March 2024 Lords Chamber

[Viscount Hanworth (Lab)]

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.

Leasehold Properties: Managing Agents

Viscount Hanworth Excerpts

Monday 17th July 2023 Lords Chamber

[Baroness Scott of Bybrook (Con)]

My Lords, we are well aware of the significant issue concerning leaseholder protections where leases are extended or varied. A change to primary legislation is necessary to ensure the continuation of protection. We are looking to bring forward the necessary legislation as soon as parliamentary time allows. Obviously, compensation will be part of that discussion, I am sure.

[Viscount Hanworth (Lab)]

Is the Minister not aware that freeholders are frequently motivated to consolidate the ownership of their properties by driving the leaseholders into unsustainable debt, by dint of exorbitant service charges?

Leasehold Reform

Viscount Hanworth Excerpts

Thursday 23rd March 2023 Lords Chamber

[Baroness Scott of Bybrook (Con)]

My noble friend is absolutely right. Leaseholder issues are complex and contain a lot of legal issues that need to be dealt with. Therefore, we need to take our time, and we are doing so, but the government manifesto says that we will deal with this issue within this Parliament, and we intend to do so.

[Viscount Hanworth (Lab)]

My Lords, the Minister will be aware that freeholders have been empowered to impose the costs of any litigation that has been initiated by an aggrieved leaseholder upon that leaseholder. When will that extraordinary anomaly in British law be corrected?

[Baroness Scott of Bybrook (Con)]

The Government recognise that the existing statutory requirements do not go far enough to enable leaseholders to identify and challenge those unfair costs. We believe that leaseholders should not be subject to unfair legal costs and should be able to claim them from their landlords, and we are taking action to address that.

Residential Leaseholders

Viscount Hanworth Excerpts

Thursday 12th January 2023 Lords Chamber

[Baroness Scott of Bybrook (Con)]

My Lords, the Government have already committed to: making it easier and cheaper for leaseholders to extend their lease or buy their freehold; banning new leasehold houses, so all new houses will be freehold from the onset rather than in exceptional circumstances; delivering a reformed commonhold system as an alternative to leasehold ownership for flats; and giving leaseholders more information about what their costs cover and ensuring that they are not subject to unjustified legal costs. I am sorry that the noble Lord could not find time to come to a meeting that I agreed to the last time I was at this Dispatch Box talking about the same issue. It was at that meeting that we discussed what noble Lords were expecting to see and how we could meet those expectations. However, as I say, we will bring forward further leasehold reforms later in the Parliament but I cannot say at this time exactly what date it will be.

[Viscount Hanworth (Lab)]

The Minister will be aware that the property companies that own freeholds are able to impose on leaseholders any legal costs that might arise from a leaseholder’s appeal to a tribunal in the face of the freeholder’s exorbitant service charges. When will this extraordinary legal anomaly be redressed?

[Baroness Scott of Bybrook (Con)]

The Government believe that leaseholders should not be subject to unjustified legal costs and should be able to claim their own legal costs from their landlord. The Government are committed to taking action to address this as soon as possible.

Housing Market

Viscount Hanworth Excerpts

Thursday 17th November 2022 Lords Chamber

[Viscount Hanworth (Lab)]

Margaret Thatcher had a vision of a property-owning democracy, in which citizens should own the dwellings they occupy. In 1980, the Conservatives’ Housing Act gave council tenants the right to buy their homes at discounted prices. Surely, the belief was that property owners are more likely to vote Conservative than are the dispossessed or people who are reliant on public authorities to provide their housing. Home ownership had been increasing since the 1950s, when roughly 30% of occupants were owners. Following the Housing Act of 1980, the growth of ownership continued, with the proportion rising to a peak of 70% in 2000. Since then, it has been steadily declining towards 60%.

Social housing in the form of council houses and flats had been steadily increasing since the 1920s. The expansion was at the expense of private renting, which often involved severely substandard dwellings. Since 1980, social housing has experienced a radical decline in consequence of the sale of the council properties and the cessation of council house building. Since 1990, the proportion of private renters has increased from a mere 12% to the present 20%, and we have heard much about the pathologies of the sector. In consequence of the failure to build sufficient numbers of houses, there is now a crisis and the shortage has led to inflated property prices. When these are affected by the current high rates of interest on mortgages, the impact on personal finances becomes severe.

In talking of home ownership, as I shall, one must be precise in the definitions, both of the nature of the properties and the conditions of their ownership. The majority of dwellings are flats, rather than houses, and the majority of the occupants of flats who are classified as owner-occupiers are, in fact, leaseholders who own a tenuous right to occupy their dwellings for a limited period.

Most newly built houses are nowadays sold to leaseholders, many of whom are reported to have been surprised to discover the limits of their ownership. There have been angry accusations of mis-selling. Leaseholding is an insecure and problematic form of tenure, which has been increasingly subject to abuses originating with the freeholders, who can be powerful and exploitative. The law grants leaseholders the right to buy the freeholds of their properties, but the cost of doing so is subject to a negotiation with the freeholder, who is in a position to make it unaffordable. There is an urgent requirement for legislation to reduce or eliminate the scope for abuses, but the Government have been slow or unwilling to act, in spite of promises to do so.

Building contractors, large and small, are responsible for enabling the abuses of leaseholders of newly built properties. Once the leaseholds of the properties have been purchased for the first time, the constructors are liable to sell the freeholds to a property company. A substantial price can be commanded because the freeholder will be able to derive a large income by charging the unwitting leaseholder exorbitantly for a variety of real or imaginary services.

One of these charges will be the ground rent, albeit that this will no longer be available on properties sold after 2022. There are also service charges attributable to communal areas in housing estates or for the upkeep of roads on an estate that have not been adopted by the local authority. Service charges for drainage and sewerage are not uncommon, albeit that these services are charged for by the local rates. These costs should normally be attributable to the costs of the housing development. Other charges levied by freeholders concern permission to make alterations to the property, including painting the front door, for example.

However, the major burden imposed on leaseholders results from a regular escalation of the service charges, which can be doubled every few years. Such charges can severely affect the value of the properties so as to render them virtually unsaleable at a reasonable price. Under the Landlord and Tenant Act 1985, a so-called fixed service charge, which does not reflect the actual cost of any services provided, cannot be challenged for reasonableness. It can escalate in an unbridled manner.

Occupants of flats are liable to face far worse abuses than are suffered by the leaseholders of newly built houses. The freehold can be sold over their heads without consultation or agreement. Property companies intent on deriving large incomes have purchased many such freeholds, and service charges can be levied when no services are provided. A management company that is the ostensible provider of the services is typically a subsidiary of the property company that has acquired the freeholds, even if it does not go by the same name.

A leaseholder has the right to appeal to a so-called tier one tribunal against the levy of unfair charges. A Minister declared recently in the Lords that service charges are governed by the law and must be reasonable, but this is far from the case; a leaseholder would be strongly advised against making an appeal to the tribunal. The reason for this advice is that freeholders nowadays issue contracts in which the small print declares that their leaseholders will be liable to pay any legal costs that the property companies might incur if they are called before the tribunal. One might have imagined that the costs of litigation would be assigned by the tribunal in view of the outcomes of the legal processes, but this is far from the case. Freeholders may call on expensive legal representation to make their case with the assurance that they will not pay for it.

A wealth of horror stories regarding this abuse can be found on a website called Leasehold Knowledge. This is the creation of two financial journalists who have been horrified by what they have uncovered. A litigious leaseholder can find themselves bankrupted by their attempt to seek redress against unfair charges. If a leaseholder in financial distress can no longer pay the charges for non-existent services, the freeholder can take possession of the property and no compensation for the loss is payable to the leaseholder.

These matters urgently demand legislative intervention but, so far, little has been forthcoming from the Government. Instead, the prospective legislation is the product of Private Members’ Bills. The Leasehold Reform (Ground Rent) Act 2022, admittedly a piece of government legislation, effectively abolished ground rents, which had been a vehicle for exploitation, but it leaves open many other avenues for freeholders to fleece leaseholders.

Presently, three Private Members’ Bills that address the problems of leaseholding have been introduced into the Lords. I am heartened by these initiatives, but I fear that they will fail to get a Second Reading before the end of the Session. I ask the Minister why the Government cannot adopt these Bills as their own. The Leasehold Reform (Reasonableness of Service Charges) Bill would compel the freeholder or the managing agent—liable to be a subsidiary company—to be transparent in itemising its costs. At present, the leaseholder has no means of knowing the details of the insurance on their property, which is liable to be charged at an exorbitant rate. The Leasehold Reform (Disclosure and Insurance Commissions) Bill seeks to make these matters more transparent. Finally, there is the Leasehold Reform (Tribunal Judgments and Legal Costs) Bill. This would nullify the clauses in the leaseholder contracts that burden leaseholders with the freeholder’s legal expenses. It would also prevent the freeholder using the service charges to burden the other leaseholders in a building with the costs incurred in defending a case brought before a tribunal by one of their number.

How have these abuses arisen? I fear they are the consequences of an increasingly dysfunctional society in which opportunities for gainful employment are diminishing. In such circumstances, rent-seeking and extortion flourish, and dogs eat dogs. The larger and the more powerful dogs can wreak havoc.

Housing: Leasehold Properties

Viscount Hanworth Excerpts

Monday 17th October 2022 Lords Chamber

[Baroness Scott of Bybrook (Con)]

The noble Baroness is right, and I can assure her that I am talking about it almost daily in the department. I will continue to do so and hope that, the next time I come to the Dispatch Box on this issue, I will have a date.

[Viscount Hanworth (Lab)]

Some of the companies issue contracts in which the small print declares that their leaseholders will be liable for any costs that the companies might incur if they are called before a tribunal. Does this have any legal sanction and, if it does, can steps be taken to prevent this happening?

[Baroness Scott of Bybrook (Con)]

I am not sure what the noble Lord is talking about. If he is talking in particular about leaseholders with a freeholder who does not have a managing agent, that can often be quite difficult. The Government are looking at that; we are looking at suitable legislation slots so as to have something in place if they do not employ a managing agent. If I am wrong on that, perhaps the noble Lord could write to me and I will answer.

[Viscount Hanworth (Lab)]

It is a clear issue and I will give the Minister instances of its occurrence.

[Lord Foulkes of Cumnock (Lab Co-op)]

Is the Minister aware that, notwithstanding the appalling situation of housing in England, there is one part of the United Kingdom where it is even worse? The First Minister of Scotland refuses to visit the Homeless Project Scotland in Glasgow, students are sleeping in hotels and on the floor, and the housing policy in Scotland is engineered by two Ministers who are eccentric members of the Scottish Green Party. Is that not a ridiculous thing? This minority party is driving the policy in Scotland and causing so much hardship.

Public Services

Viscount Hanworth Excerpts

Tuesday 26th October 2021 Lords Chamber

[Lord Greenhalgh (Con)]

My Lords, it will not surprise you that I do not agree with that. Some £64 billion-worth of money is being spent by local government on the delivery of very efficient services through the private sector, but you have to be very careful about how you engage. There are plenty of examples where local authorities have not used competitive tendering but have chosen to enter into partnerships, which have had tragic consequences in the last year because of the pandemic. So I encourage local authorities to be judicious, fulfil the guidelines that are supplied around procurement, go through sensitive competitive tendering and check the creditworthiness of those whom they choose to bring on board.

[Viscount Hanworth (Lab)]

Many of the firms to which the functions of local authorities have been outsourced are motivated by considerations other than public service: the profit motive is dominant. I am aware of one firm, to which the traffic and parking services have been outsourced, that has been issuing spurious penalty charge notices for traffic offences. Their operatives are working under an incentive scheme. Their supposition is that many people will automatically pay the penalties, fearing that, if they do not, the charges will be doubled and they may be taken to court. Do the Government have any desire or means to address such abuses?

[Lord Greenhalgh (Con)]

My Lords, revenue from parking is ring-fenced, and most local authorities would never incentivise any staff who are doing this to start to fine—

Queen’s Speech

Viscount Hanworth Excerpts

Monday 17th May 2021 Lords Chamber

[Viscount Hanworth (Lab)]

The title of the Government’s energy White Paper is Powering Our Net Zero Future. It addresses the need to staunch our emissions of carbon dioxide in view of the advancing crisis of climate change. It proposes that, by 2050, we should double our generating capacity for electricity, while reducing our overall energy consumption to two-thirds of its present level. This is a gross underestimate of our requirements for electricity and power.

According to a widely accepted analysis, the electrification of transport would require a 75% increase in generating capacity. The decarbonisation of the economy will create numerous additional demands, some of which I will mention later. The only source that could meet such demands is nuclear power. Therefore, I believe we should embark without delay on the necessary infrastructure projects to create this supply and exploit it.

An alternative opinion has been offered by the FIRES report, which is the work of a group of academic engineers. FIRES is an acronym that stands for “Future Industrial Resource Efficiency Strategy”. The report argues that we have run out of time. It proposes that the only way we can hope to meet the 2050 target of net zero emissions is by a radical regression which would entail abandoning much of the technology that accompanies our present state of affluence.

According to that report, we would have to immobilise ourselves by forgoing our present means of transport, including automobiles and aircraft. International shipping would also need to be much reduced. Building construction involving steel and concrete would need to be severely curtailed, and we should cease to eat red meats. Such a curtailment of economic activity involving a further abandonment of manufacturing would lead to mass unemployment and the immiseration of much of our working population. It is an appalling prospect to contemplate.

As evidence of the lack of time, the report talks of the 30-year period covering the time from the inception of a new technology to its realisation in a fully operational system. One can point to the length of time it has taken to design and complete the third generation of nuclear plants, such as the European pressurised water reactors, or EPRs, at Olkiluoto in Finland, Flamanville in Normandy and Hinkley Point in Somerset. However, there are convincing recent and historical counterexamples suggesting that such projects can be accomplished far more rapidly. In fact, an EPR reactor which is virtually identical to that at Hinkley Point has been constructed at Taishan in Guangdong province in China. Work began in 2008 and, in spite of numerous reported setbacks, it began full operation in 2018.

One might also consider the post-war experience in Britain in establishing our civil nuclear industry, which, at the time, embodied a wholly new technology. Britain’s first nuclear power station at Calder Hall in Cumbria was opened officially by the Queen in October 1956. The construction had begun in 1953 and its design work could not have begun much before 1952 when Churchill called for the construction of the plant. There should be ample time between now and 2050 to revive our nuclear industry.

We should now consider some of the uses of the enlarged supply of electricity which would be required for domestic heating and to power numerous industrial processes. Steel, which is currently manufactured in coal-fired blast furnaces, could be made in electric arc furnaces fed by both iron ores and scrap metals. Hydrogen and ammonia, which would be among the predominant vectors of energy, should be produced by high-temperature electrolysis of water, the heat and electricity for which should be provided by nuclear reactors.

Provided that the hydrocarbon fuels are created in a manner that does not add to the burden of atmospheric carbon dioxide, there should be no need to forgo the use either of the internal combustion engine or jet engines. The technology for the direct air capture of carbon dioxide, which is energy intensive, already exists. It could be deployed on a large scale to provide the carbon component of the fuels.

Portland cement, which is used in concrete, has become a major element in modern building construction. Its manufacture emits large quantities of carbon dioxide and it should be greatly reduced. However, a reversion to the use of lime mortar in brickwork could be mandated, since the setting of the mortar reabsorbs the carbon dioxide that has been emitted in the reduction of the calcium carbonate limestone to quicklime. Bricks that are now fused inseparably by a sand and cement bond could be reused extensively, as they are in much of present-day domestic building.

The time is not available for me to describe such a scenario in more detail, and to realise it will require energy, imagination and government initiatives. At present, all three of these ingredients are in short supply.