Leasehold and Freehold Reform Bill

Earl of Lytton Excerpts

Committee stage
Monday 22nd April 2024 Lords Chamber

[Lord Kennedy of Southwark (Lab Co-op)]

My Lords, I have a number of interests to declare: first, as a leaseholder, secondly, as chair of the Heart of Medway Housing Association and, thirdly, as a non-executive director of MHS Homes Ltd.

I spoke at Second Reading and I am sure that, as we go through these few days in Committee, we will largely agree with each other that there is a major problem. We all want to see leasehold reform and commonhold reform. Everybody backs it. I know that the noble Baroness, Lady Scott, and the noble Lord, Lord Gascoigne, back it. The problem is that we are not doing anything about it. That is the shame here.

The amendment from the noble Baroness, Lady Fox, absolutely takes us forward. She includes a day to end leasehold flats, which would deliver that Tory party manifesto commitment. We should all back her if, as I hope, she divides the House at the next stage. Her amendment would deliver the Tory party manifesto commitment, but will the Government support it? Of course not. We know that. We all agree in these debates, but what we will get from the Government Front Bench is, “When parliamentary time allows”, “The next steps will follow in due course”, “We are keeping it under review”, or “We will get back to you”. That is the problem.

This is a golden opportunity that the Government have completely failed to deal with. We have sat here for years. I have asked question after question. I have been assured, “It is coming” or “Don’t worry, don’t ask questions, we are going to sort it all out”. Yet here we are and what do we get? A Bill that delivers very little. On the point about service charges and transparency, I can assure the Government Front Bench that if a leaseholder has problems with the service charge, they know they have problems. What they want from the Government are the tools to sort them out. The Government have not delivered that. They can give more transparency—great, but we need the tools for the job and they are not doing that for us.

This is very frustrating. I think we will have lots of agreement but very little action. I hope that, when we get to Report, a number of amendments will be passed and many members of the Government will support us in delivering the commitments that their party made to leaseholders at the last general election. The amendments from the noble Baroness, Lady Fox of Buckley, in particular, are really good, giving an absolutely clear cut-off date.

My noble friend Lady Taylor of Stevenage asked the Government to set out their strategy for commonhold. What is it? I hope they can tell us. The current strategy seems to be, “We will get back to you. We know it is important, but we can’t do anything about it at the moment—sorry”. That is just not good enough. There are lots of great amendments here, but we need some action from the Government. I hope that, when we get to the next stage, we will divide the House many times. Where we have got to at the moment is just not good enough.

In 1880 Henry Broadhurst was elected as the Member of Parliament for Stoke-upon-Trent. He was then elected as a Member of Parliament for Nottingham West. He raised the problems of leasehold in the other place. We are still talking about them today. He was elected in 1880, and we have still made only limited progress. It is about time we made some progress here. We want more transparency and we want the Government to deliver their commitments. We want commonhold, and we want it now.

[The Earl of Lytton (CB)]

My Lords, I agree fundamentally with the point made by the noble Baroness, Lady Taylor of Stevenage, and with what other noble Lords have said with regard to the desirability of a transition to commonhold. I say that because, apart from anything else, conventional leasehold has clearly got itself an extremely bad press. Like it or not, that is something we have to take account of. However, although it is poorly regarded among leaseholders, it happens to be the commercial preference and the model on which a great deal of leaseholder and freeholder value rests. We have to be a bit careful about that.

My interest here is very much about consumer protection. I do not want us to enter a brave new world in which the existing leasehold situation is seen as in any way second class. Comments are made about the evils of monetisation of the management process, but I think that is a slightly different issue. I do not see that as intrinsic in the tenure. I see that as an abuse, a lack of transparency and another area in which consumer protection has not operated.

--- Later in debate ---

On ground rents—again, as mentioned at Second Reading—the Competition and Markets Authority said that there was no legal or commercial reason to justify ground rents. I have just had a bill for £300 for my ground rent, for which I receive absolutely no service. Everyone involved knows full well that ground rents provide no service, are purely rent-seeking and are a legalised scam. If pension funds are invested in ground rents, as some are, they should find a better use for their money; for example, by investing in British companies. Our pension companies invest less in our own country’s companies and stock market than any of their international competitors—shame on them.

[The Earl of Lytton (CB)]

My Lords, I will speak to this group, as the noble Lord, Lord Truscott, mentioned my name, although I have not yet spoken. He represents one viewpoint and the noble Lords, Lord Thurlow and Lord Sandhurst, and the right reverend Prelate the Bishop of Manchester represent another. They are often portrayed as being mutually exclusive but, in property terms, that is not necessarily the case. Clearly, there are perfectly good managers who look after not only their residential tenants but their commercial tenants, and there are some are rotten managers. Some are good corporates while others are rotten—some are good resident management operations while others are pretty poor—so it is very difficult to make a standard rule for them all.

If one looks at the large urban estates across London, it is evident that there is a clear sense of purpose in trying to preserve the value, appearance and general amenity represented by the running of that estate. That inevitably comes at a cost, but I hope that that helps not only the commercial activities but the amenity of the residents.

Let us look at what happens if things start going wrong and getting fragmented. First, there becomes a distinction, if one is not very careful, between the purposes of long-term management in the view of the residents and the purposes of long-term management in the view of the commercial operator or landlord. Under the purposes of this Bill, if the enfranchisement of a 50% commercial ownership block goes ahead, there will be an enforced leaseback to the original freehold owner. Straightaway, you have an enforced leaseholder, whose business model was not quite hypothecated on that basis, who is none the less obliged to take it on but does not need to have the primary amenity and visual appeal functions that might be relevant to the residents.

I have seen that happen in historic high streets, where ownership has become fragmented in this way. We tend to find that when a shop becomes vacant, and if there are difficulties in the letting market, it will be let to a charity shop, a slot machine operator, a tanning shop, or some other type of operator, because the person who has it needs to move it on quickly. There is not that fat on the bone associated with having the larger estate, nor is there the fat on the bone to take on some assignee, as I have had to deal with in the past, who really runs a rather low-grade sort of business but is well funded. Therefore, you have to work out whether you can afford to fight an appeal, or fight a case, on an assignment of a lease in order to see off that person and their particular trade. If you cannot, there is a general deterioration of the area. It might be a fast-food takeaway that opens late at night; the police might be around every now and again; there might be people congregating there because it is late at night, and that sort of thing affects residents. If one is not careful, things like emptying bins and delivery of incoming goods to a retail operation can start being operated at times that are not that helpful to the interest of residents, who once might have been part of this overall concern. I can see both sides of this, and we have to be careful not to make standard rules about things where the decision is much more nuanced and difficult. It really depends on where one is starting from, the circumstances, and everything else.

As I said earlier, my interest is in consumer protection. I do not want to see degraded environments; I want to see environments that are lively and looked after and where everybody has confidence in them being managed. Fragmented management very seldom achieves that. The issue is about management being a slightly different issue to ownership. It is a big issue that we need to address, because it will not be dealt with by a local authority. That has no function there. Beyond the planning functions of a change of use, or licensing for some premises that needs it, it has very few powers of control. If overarching control is needed, and there may be an argument that ecclesiastical, heritage or possibly other environments do need it, we should very careful that we are not chucking out that baby with the bathwater and ending up with a slow process of attrition that suits nobody and ends up degrading the value not only of the freeholders, who can look after themselves by and large, but of the area and its appeal, which is ultimately to the detriment of residents. I do not want to go down that road without being clear about what we are doing, and making sure that there is some way we can pick up on processes of deterioration before they take root.

[Baroness Thornhill (LD)]

My Lords, this is my first intervention today—I spoke at Second Reading. I regret that this is yet another Bill that was heralded with robust rhetoric from the Secretary of State which has now come face to face with reality. I regret that some of that reality is from those with vested interests and therefore we are getting a watered-down Bill. We certainly believe on these Benches that it is a missed opportunity.

I turn to the group of amendments on enfranchisement. We on these Benches support the Government in Amendment 16. We need to see as many restrictions as possible on leaseholders’ ability to enfranchise removed by the Bill. After all, they have bought a home and should be able to extend their lease and buy their freeholds in a way that is easy and affordable, to use the Government’s own words.

It is perhaps no surprise that we also support Amendment 17 in the name of the noble Baroness, Lady Taylor, in so far as it would allow the Secretary of State to give more leaseholders rights to collective enfranchisement, and we note the detail of the noble Baroness’s reasons. However, the power cannot and must not be used to narrow the qualifying criteria or to exclude more leaseholders from freehold purchase. We are pleased that it would be subject to the affirmative resolution procedure, as this includes public consultation and the involvement of both Houses.

However, we know that cohorts of leaseholders will still not even qualify to buy their freehold under the Bill. For example, MPs in the Public Bill Committee in January heard from experts and campaigners that there really is a problem with leaseholders in mixed-use buildings—from our debate today, I would say we have a problem with mixed-use buildings that needs to be sorted out. The Government are admirably using the Bill to try to liberate leaseholders in mixed-use blocks by, as we have said, moving the 25% rule on non-residential premises to 50% and introducing mandatory leasebacks on commercial space to slash the cost of collective enfranchisement, but—and I find this strange—they have not lifted the restrictive regulations in the 1993 Act that mean that shared services, such as a plant room, would disqualify leaseholders from buying out their freehold. Apparently, there is even a regulation stipulating that the mere existence of pipes, cables or other fixed installations connecting residential and commercial premises in a mixed-use building would block leaseholders from buying their freedom. That means that many leaseholders who would otherwise stand to benefit from the changes on mixed use will be blocked from securing collective enfranchisement and being in control of their buildings. I ask the Minister whether we can discuss this aspect before Report.

Turning to what I will call the three “tricky” amendments, I noted that the noble Baroness, Lady Taylor, wisely hedged her bets on these. I suspect that it is because, like me, she knows that the intentions of the noble Lords speaking on them are based on good experience and a genuine wish to see the measures agreed, but she worries whether, in fact, they are just another means of putting commercial interests before residential interests and not getting that balance right.

Instinctively, like the noble Lord, Lord Truscott—I was relieved when he made his comments—we oppose these three amendments, because in our view they seek to row back. But I have listened attentively to what has been said and I am completely changing what I was going to say: I genuinely believe that there are some serious areas that need looking at. There is much experience in the Committee, but I am concerned that we have been subject to special pleadings.