Leasehold Reform (Ground Rent) Bill [HL]

Lord Stunell Excerpts

Committee stage
Monday 14th June 2021 Grand Committee

[Baroness Jones of Moulsecoomb (GP) [V]]

I congratulate the noble Baroness, Lady Grender, on her clear exposition of her very sensible amendments. It is obvious to everybody that rogue landlords have an easy ride in this country. It is far too easy for such unscrupulous landlords to get away with far too much, and that extends to freeholders abusing leaseholders with exploitative ground rents. In shorthold tenancies, a lot of wrongdoing occurs unintentionally by uninformed or incompetent landlords, but that is not the case in freeholder-leaseholder relationships, where the freeholder is usually a big corporate entity that is professionally managed and legally advised. For that reason, any breach of this Bill is likely to be wilful, intentionally exploitative and involve large sums of money.

It is obvious, then, that the penalties currently contained in the Bill are paltry and unsuitable to deter or to punish the criminal behaviour. As a proportion of these massive landowners’ revenues and profits, a minimum penalty of £500 is irrelevant. I would much rather see financial sanctions on companies being similar to those under the data protection laws, which specify penalties as a percentage of a company’s global turnover. That is how you get companies to sit up and pay attention. At the very least, these penalties should be much higher than they are in the Bill. I am sure that the Government know that, so I have no idea why they chose this figure of £500, which is absolutely ludicrous.

[Lord Stunell (LD) [V]]

My Lords, as my noble friend Lady Grender has clearly set out, the current provisions in the Bill to enforce compliance by those who are determined to do wrong will not work, and that view has been strongly supported by the noble Lord, Lord Naseby, and by the noble Baroness, Lady Jones of Moulsecoomb. The three reasons for that are quite clear: the penalties themselves are trivial; the enforcement system will be ineffective; and rogue landlords will prosper.

First, the penalties themselves are trivial. The noble Lord, Lord Naseby, has made the point perhaps better than I can, but in many cases £500 will be less than the current annual leaseholder charge. Indeed, with escalation clauses in place, over the lifetime of the lease £500 might be seen as very small change indeed. The case for making these penalties bite is overwhelming, simply because the unscrupulous who carry on as though the law has not changed will readily write off these penalties as essentially meaningless. I shall not engage in a bidding war with the noble Lord as to how high we should go, but each of us in our different ways would make the point that £500 is nowhere near enough to be effective as a deterrent.

It is not just nowhere near enough to be effective as a deterrent; it is not anywhere near enough to pay for a sound enforcement policy. The enforcement system will be ineffective. It is supposed to be paid for by the pitifully small fines, which will be paid not by all those who offend but all those who are successfully prosecuted—only those fines will contribute to the funding of the trading standards department. It will therefore be the case that the trading standards department exercises passive power only, exercised, if at all, only when a big fuss is made about a particular case, perhaps by a local councillor or an MP.

It is extremely doubtful that any responsible financial officer of a local authority, when building a budget for the next year, would authorise the recruitment of staff to enforce legislation on the basis that it would be funded by £500 for each case that is won. Of course, it would need recruitment of staff because, as my noble friend Lady Grender pointed out, there has been a 50% reduction in staff in trading standards over the past decade and a loss of skills to go along with that. This new burden, to be dealt with effectively, would have to have additional resources. I am sure that the Minister is not content simply to put in place a deliberate paper tiger of enforcement—unless that does in fact suit the Government’s purpose: something that looks okay in the Bill but about which their landlord friends can be told, “Don’t worry, just keep your head down and carry on.”

That brings me to Amendment 16, to which I have added my name. We have to stop rogue landlords prospering. Of course, they already do prosper, and that is what the Bill is all about: stopping abuses or restricting behaviour which, though lawful, ought not to be. Those with a great deal of power in a contractual relationship, the landlords, are imposing oppressive terms on those with very little power, the leaseholders. And those who impose the most care the least. Rogue landlords will weigh up the risks and rewards and reach a commercial judgment. They can easily afford to treat the penalty system as a small marginal cost as it stands; they know it will not even cost them £500 per breach but only £500 per breach which leads to a successful prosecution—that is quite a different thing.

That successful prosecution will be rare without Amendments 14 and 15, which seek to generate the money for there to be a team of people who can enforce it. That is where the importance of Amendment 16 lies, in introducing an effective banning order regime. Only with a clear process for banning repeat offenders, driving them out of the market, can the stakes be raised sufficiently high to deter rogue landlords and, in the most egregious cases, drive them out of business.

I want to hear the Minister say to your Lordships that he genuinely wants this Bill to deliver an effective regime of penalties and punishments that will safeguard the good intentions of this legislation against the small minority of unscrupulous landlords who seek to bypass it and who continue to exploit leaseholders regardless. One way the Minister can do that is by accepting these three amendments. The Bill as drafted certainly does not give us those assurances. If he does not accept the amendments, he surely has a duty to your Lordships, and to leaseholders themselves, to explain what alternative mechanisms he proposes to put in their place instead.

[Lord Lennie (Lab) [V]]

My Lords, Amendments 14 and 15 refer to the penalties contained in the Bill, whereas Amendment 16, as we have heard, refers to the banning orders regime. I am pleased that the noble Baroness, Lady Grender, has introduced these, so that the Committee can consider whether these current penalties are appropriate and whether the banning orders should be extended.

First, on the issue of financial penalties, as we have heard, the amendments would increase the minimum financial penalty from £500 to £5,000, and increase the maximum penalty from £5,000 to £30,000. Given the sums of money which are involved in leasehold arrangements and the costs associated with ground rent, the current penalties seem lower than would be expected. If the Minister is not able to accept the noble Baroness’s amendment, I hope he will explain and justify how the Government arrived at those figures.

On the banning order regime, the noble Baroness brings forward the question of whether the provisions of the Housing and Planning Act should be strengthened. The amendment proposes the banning of landlords from collecting ground rents if they receive multiple penalties. On the same issue, I would be grateful if the Minister could explain whether consideration has been given to banning landlords from renting properties at all when they receive financial multiple penalties. Tenants must be protected from rogue landlords who break legislation over and over again. I hope that the Government will detail what steps they are taking to hold these repeat offenders to account.

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[Lord Naseby (Con)]

Yes, thank you so much.

I declare an interest in that I happen to own 40 acres around my home. Somebody suggested the other week that maybe a small bit of this—say five acres—might be a help to the housing market. I certainly would not think of having it on a leasehold basis. If I am going to build houses in the interests of the community in Bedfordshire, they will be sold, because if something is sold the family involved have real ownership. When they own their home it is not a disincentive but an incentive to do something good for their home; it is in their interests. I suspect that it is a disincentive to do so for most leaseholders.

I think the noble Lord is right to ask the question. I think he said that he sent three letters to the Duchy. The least that the Duchy should do is come back to the questions he asked. I hope that will go on the record. I say to my noble friend on the Front Bench that none of these are black and white, other than the fact that there should be a review within the six-month period.

[Lord Stunell (LD) [V]]

My Lords, this has been a very interesting debate. Everybody has spoken with a sense of understanding and concern, remembering that today is four years since the Grenfell tragedy. It should be a matter of particular regret in the kind of debate that we are having that, four years on, so few of the deep issues that have been revealed subsequent to that fire have yet been fully dealt with or accounted for. It is a matter of regret to me that the building safety Bill is still somewhat on the distant horizon, and that we have not yet solved at all the question of who will pay for the costs of this tragedy, since it affects households right across the country.

Noble Lords would expect me to focus particularly on Amendment 20 in the rest of my remarks. Before I do, I will comment briefly on Amendment 19 from the noble Lords, Lord Kennedy and Lord Lennie, which calls for a review. I will skip the number of days and focus on the four issues that they have said need urgent reform and which every speaker in this debate and anybody who has considered the issue would agree on: lease forfeiture, transfer fees, redress schemes and enfranchisement. The Bill does not deal with those four issues. It is time that the Government face up to that and present to Parliament—preferably in the form of legislation, but if not a published report—precisely what their view is on those issues.

The move of the noble Lord, Lord Berkeley, to clarify where Crown exemptions come into play for leaseholders raises an issue that he has brought to your Lordships on a number of occasions. I would be very interested indeed to hear whether the Minister is brave enough to accept his challenge to write to the Duchy of Cornwall and get it to answer the noble Lord’s letter. Your Lordships certainly deserve to hear from the Duchy precisely how it intends to proceed. If the legislation needs change and reform to take account of that, we need to hear the Minister say that he is ready to do that and to make sure that Crown exemptions are used with appropriate discretion and not in any way at all to put residential leaseholders of Crown land in a more disadvantageous place than those holding leases where the freeholder is a private body.

On Amendment 20, my noble friend Lady Pinnock set out, as she has done many times before to your Lordships, the grievous burdens placed on leaseholders across the country as a consequence of the remediation made necessary following property inspections post Grenfell. Before I go on, I remind noble Lords that I served as a Minister in the Department for Communities and Local Government, as it then was, with responsibilities for building regulations between 2010 and 2012.

The Grenfell inquiry has been hearing evidence of failures at many levels: building owners, building managers, designers, materials suppliers, on-site contractors, inspection teams and enforcement bodies. No one has escaped damning evidence of their failures. What there has not been is any evidence at all of failure by residents or leaseholders. On the contrary, it was the residents of Grenfell Tower who repeatedly warned of the dangers that other people chose to ignore. That led to the terrible tragedy, the deaths and the unmeasurable impact on so many lives of families in and around Grenfell Tower who survived that night.

It also led to the discovery that this was not an isolated case of many unfortunate things coming together in a sequence of horrible coincidences to make a one-off dangerous, combustible building. We now know that more than 400 other residential blocks have been found to have similar dangerous cladding, and the enforced inspection of those blocks has brought to light many other fire safety defects, costing billions of pounds in total. Many of those blocks are occupied by blameless leaseholders who find that they now live in a dangerous and unsaleable home and are being presented with enormous bills for remediation under the terms of their leases.

The Minister will say that this is not the place to insert a proper compensation scheme—nor does Amendment 20 do that—but he needs literally to take stock. That is what Amendment 20 tabled by my noble friend Lady Pinnock does. It asks for a taking stock of the impact of this Bill on leaseholders who live in those defective properties.

Time after time your Lordships have pressed the Government to come forward with a proper scheme of compensation for leaseholders all over the country who have been unwittingly caught up in the Grenfell scandal. Every time your Lordships have pressed Ministers—this Minister in particular—we are told, “Not here and not now”. Meanwhile, as my noble friend Lady Pinnock spelt out, leaseholders are being sent five-figure bills with 28 days to settle or face the forfeiture of their lease. They cannot raise finance on their now-worthless properties, and the Government still have not issued the vital information on how they can even access the loan scheme the Government announced months ago.

Will the Minister tell your Lordships today when those missing loan scheme criteria will be published and what the distribution system of those loans will be? Please can he assure us that it will not be administered via an outsourcing company such as that in Virginia, USA, which earlier this year was the nemesis of the green homes grant fiasco? Let this piece of work be started soon, carried out efficiently and delivered to the benefit of leaseholders as quickly as possible.

Secondly, will he urgently bring forward a proper compensation scheme and lift the threat of forfeiture and bankruptcy from innocent leaseholders trapped in these blocks? Will he, as an earnest of good intent, accept my noble friend Lady Pinnock’s amendment today so as, at the very least, to commit to take stock of the impact that a ground rent ban could have on those affected leaseholders and tenants?

[Lord Greenhalgh (Con)]

My Lords, I turn to Amendments 19 and 20 from the noble Lords, Lord Kennedy and Lord Lennie, and the noble Baronesses, Lady Pinnock and Lady Grender.

Under Amendment 19 the Government would be required to carry out a financial assessment of the Bill within 30 days of Clause 3 coming into force. The Government would also be required to consider whether further legislation would be necessary to address any financial consequences related to the Bill

“for tenants in long leases of dwellings, including but not limited to in relation to … lease forfeiture … transfer fees … redress schemes”

and

“enfranchisement.”

The effect of Amendment 20 would be to require the Secretary of State to complete a financial assessment of the impact of the Bill on leaseholders, specifically with regards to building remediation costs.

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[Lord Blencathra (Con) [V]]

My Lords, I declare a personal interest as someone who pays ground rent on my London flat. I am coming at this from a slightly different angle from the noble Lord, Lord Lennie.

My noble friend the Minister is an honourable man, and I therefore believe him when he says that the Government want this Bill to come into force as soon as possible; he has urged us not to push any amendments which might delay its passage. I am therefore mystified at Clause 25 and the very bitty commencement dates. As the noble Lord, Lord Lennie, said, Bills often have different commencement dates, but the only things coming into effect on Royal Assent are the regulation-making powers and the usual consequentials at the end of the Bill, which we have just voted through on the nod. If the Bill is as urgent as the Government and we on this Committee say it is, why have we no date for the commencement of the only thing which really matters—the abolition of new ground rents and their replacement by the new peppercorn regime? Every week which goes by allows more iniquitous leases to be created.

I understand that the residential homes sector has been granted more time to adjust. I am sure that Messrs McCarthy and Stone and others will put that time to good use, adjusting their service charges to take account of any future ground rent losses. But as we consider what to do about the commencement dates at Report, we really need to know, very firmly on the record, when we will see the second and third legs of this three-legged stool. When will the Government introduce a fully-fledged leasehold reform and abolition Bill, and when will they introduce provisions like those advocated by my noble friend Lord Young of Cookham and my noble and learned friend Lord Mackay of Clashfern to have a proper ground rent buyout system?

I know that my noble friend the Minister will say that it is up to the usual channels and that he cannot make promises on when other Bills will be introduced, but we need to stress to him, and to the rest of the Government, that we will be very impatient unless we hear a firm commitment that this will be as soon as possible—ideally, in the next Session of Parliament and not sometime in this whole parliamentary period.

We have all said that this Bill is a good first start—a very good one leg of the stool—but we must see firm promises on the introduction of the next two legs or I, at any rate, will not be content to agree the commencement mishmash in Clause 25 when we come to Report.

[Lord Stunell (LD) [V]]

My Lords, I address my remarks to Amendment 26, just spoken to by the noble Lord, Lord Blencathra. I strongly support what he said and the arguments that he put forward in support of his amendment.

One key risk of separating out the legislation for all new domestic leases from those of the 4.5 million existing domestic leases is that a gap will open up in the market between homes traded under existing leases and those traded under the new regime. As the noble Lord, Lord Blencathra, has just said, the existing leases are very disadvantageous compared to those that will be formed under the new Bill. In many respects, existing leaseholders will be under a double disadvantage. They will have a home that may be identical in every respect to one that is subject to the new Bill, with a lease signed a week after Royal Assent—or maybe in two years, when it is finally implemented. The existing leaseholder will be at a permanent long-term disadvantage up to the point when stage 2 of this reform comes into force.

This amendment would bring the Bill into force immediately. It would mean that the long tail behind the existing leaseholder system would be cut off. There would be no new leaseholders stuck with the old system, with a Bill that has had Royal Assent but not been brought into effect. It would, as quickly as possible, create a bigger market of those with new leases rather than old leases.

In its turn, that will throw up disparities between the two categories of leaseholder resident. Those who have an existing lease—particularly those with an informal lease extension, which might have huge escalating charges written into it—will find that the gap between them and their near neighbours under the new system widens and widens. Inevitably, that will lead to a two-tier market; perhaps at first only at the margins but, over time, as the number and proportion of new leases on the market increase in relation to the number of existing leases, that gap will widen. The disadvantage suffered by those holding existing leaseholders will also widen and will be twofold: first, they will find it harder to sell their leases on, because they will be less attractive to purchasers than those leases available under this Bill; and, secondly, in the meantime, they will be stuck with paying through the nose the exorbitant terms of their existing lease.

Amendment 26 from the noble Lord, Lord Blencathra, is a good step forward in the absence of any real commitment by the Government to bring much closer together this Bill, stage 1 of reform, and the next Bill, stage 2 of reform. The noble Lord is absolutely right to press the Government and to express his concern that that announcement has not yet been forthcoming. Indeed, Ministers have been very reluctant to make it. We need to know when stage 2 will be before your Lordships’ House. We need to know how soon it will be that the follies, injustices and oppressions of the current system will be stopped. We need to make sure that as few people as possible find themselves in the unenviable position of hearing, “Take it on these terms or take it on no terms.”

In an earlier debate we debated the four things that the noble Lord, Lord Kennedy, thought should be reviewed. The Government did not accept that. In our first day’s work we tried to make sure that there was some definite timetable for future reform. The Government were not willing to accept that. Today’s amendment from the noble Lord, Lord Blencathra, would, unfortunately, still not achieve it, but it might be a powerful lever to force the Government toward bringing these two stages of reform closer together, cutting off the tail of existing leases being signed as quickly as possible, and, as soon as possible, reforming the whole system.

[Lord Naseby (Con)]

My Lords, I do not want to be repetitive because much has been said by those who have taken a particular interest in the Bill—and indeed the market, which is why we are taking an interest in the Bill. I have little to add, but if I was sitting in my noble friend’s position, as the Minister responsible, I would see merit in the timeframe of six months from the noble Lord, Lord Kennedy. That would be the maximum break.

I declare an interest in that I share an office with my noble friend Lord Blencathra. He is very clear on his views in life and he is more often right than wrong. My noble friend on the Front Bench needs to reflect on this.

We know that this has been a very difficult area and I have sympathy with my noble friend on the Front Bench. But we cannot have a situation where phase 1 happens—I think we all have confidence that it will, whether immediately, as my noble friend Lord Blencathra says, or along the lines of the amendment from the noble Lord, Lord Kennedy—but the second half is to happen only sometime in the distant future. I again reflect on the period when I was chairman of the housing committee in Islington. You could not have had a situation where people in one section of society had their problems sorted out but those in another section—almost identical, except that they are a bit earlier in life—did not, and their problems were kicked into the long grass. My dear friend on the Front Bench has to come back, maybe not today but on subsequent sittings on this Bill, with a firm commitment that the second stage will happen and with a timeframe for it to happen.