Leasehold Reform (Ground Rent) Bill [Lords]

Mike Amesbury Excerpts

2nd reading
Monday 29th November 2021 Commons Chamber

[Mike Amesbury (Weaver Vale) (Lab)]

This is a Bill not for the many but just for the new leaseholders. Ministers have now heard the speeches of all Members taking part in the debate and in one sense they all spoke with one voice: they welcome this Bill in its narrow scope as far as it goes. We agree that abolishing ground rents via peppercorn, and beginning to rebalance the system so that it works for those who live in homes rather than for investors who use them as income streams, looking only for returns, is a good thing. However, as Members have stated—I think we heard from around 11 speakers, including interventions—the Bill deals only with ground rents, and only with the future. The feudal system now unique to England and Wales is still alive and kicking; that is something that I and the former Secretary of State, the right hon. Member for Newark (Robert Jenrick), agree on.

That is the issue with the Bill. For people already trapped in leasehold properties with high and escalating ground rents, it does nothing. For those trapped in flammable flats, facing soaring costs and crippling remediation bills, it does nothing. For leaseholders facing extortionate service charges without any transparency on where the money is going, or suffering from other unfair terms and conditions or limitations on enfranchisement, it does nothing.

We heard from my good friend and neighbour, my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders), who has constantly referred to this as the new payment protection insurance scandal. People across the House have referred to the obscure practices of recommended solicitors and so forth. The right hon. Member for Newark—I name check him again—referred to the Bill as an “appetiser” before the main course. I and Members across the House—certainly those of us on the Opposition Benches—would prefer an all-you-can-eat buffet of reform. My right hon. Friend the Member for Alyn and Deeside (Mark Tami), who is a good friend, referred to the scamming in north Wales and the north-west, with a plethora of dodgy clauses creating a cash cow for some interesting people in the market.

This Bill could do so much more, and given that it has taken this long to get any progress on leasehold reform from the Government, we expect it to do more. It is, in many ways, a missed opportunity for the Government to make good on a long-held promise. This is a story we are becoming familiar with—a Government on the side of vested interests. They are a Government on the side of some big developers who see housing as an income stream rather than as homes to be owned or lived in; developers who contribute £1 out of every £10 that the Conservatives receive in donations—developers who should instead be held to account for bad building and bad management.

We expect from Ministers at the very least a clear timetable for the more substantive second-part reforms of the leasehold landscape. We expect to hear that those will happen in the not-too-distant future. The Bill tackles only new homes yet to be built. As Members across the House have said, it will leave us with a two-tier system with nothing to help people, including those in my constituency, who are experiencing problems right now. Will the Government outline why, instead of using the Bill as an opportunity to help people currently exploited through leasehold, Ministers have left them waiting once again by failing to apply this legislation retrospectively, as the shadow Housing Minister, my hon. Friend the Member for Manchester Central (Lucy Powell), spoke about?

Do the Government have any numbers on how many more people will join those currently scammed into buying leasehold properties on bad terms while we wait for more legislation? It is those current leaseholders—people such as Katie Kendrick and Jo Darbyshire at the National Leasehold Campaign—who have been pushing for these changes over the years. Alongside the brilliant people at the Leasehold Knowledge Partnership, they have made the case time and again for doing better for those across the country who have been misled and taken advantage of. I also pay tribute to all members of the all-party parliamentary group on leasehold and commonhold reform.

Can the Minister answer why this legislation has arrived without banning houses being sold as leasehold properties? Just take a look at properties advertised on Rightmove for evidence. Local authorities will be keen to hear how Ministers will resource Trading Standards to conduct its new roles, as will I. I am also keen to hear what further action will be taken against those in the legal profession, as well as developers, who mislead. We also need to hear assurances from the Government on how they will tackle developers looking for new streams of income, for example so-called informal leasehold arrangements. Tackling ground rents only, this time around, means a risk of playing whack-a-mole. Banning freeholders from charging ground rents leaves them open—this was referred to by other Members—to finding new ways of replacing that income stream with other charges.

In conclusion, campaigners such as the National Leasehold Campaign, representing millions of leaseholders, are tired of consultations and bland statements uttered by Ministers about “When parliamentary time allows” giving the green light to foot dragging. This feudal system from a medieval era should be kicked into history, with commonhold as the default position. Our call to action and our amendments to the Bill intend to do just that.

Leasehold Reform (Ground Rent) Bill [ Lords ] (First sitting)

Mike Amesbury Excerpts

Committee stage
Tuesday 7th December 2021 Public Bill Committees

[Eddie Hughes]

It is a pleasure to serve under your chairmanship, Mr Hollobone, and to see the hon. Member for Weaver Vale still in his place following recent moves.

Government amendments 1 and 2, and Government amendments 3 to 5, which we will come to later, relate to the process known as a deemed surrender and regrant. For the benefit of those who are not experts in property law, me included, when the extent of the demise is changed—for example, where an extension is made to a property or to correct an error, or where there is an extension to the term of a lease—the lease is deemed to be surrendered and regranted to the leaseholder.

Government amendments 1 and 2 provide further protection for leaseholders in situations where that happens. Taken together, the two amendments disapply the requirement for a premium to be paid when a regulated lease or a lease granted before the Bill’s commencement day has been surrendered and regranted. In other words, a lease can have a peppercorn rent under this legislation after it has been regranted even if no new premium is paid.

Without these amendments, there is a significant risk that a previously regulated lease could cease to be regulated, leaving leaseholders to pay a potentially significant premium for a simple change, such as correcting an error within the lease, or leaving them to pay a ground rent. It might be helpful if I provided an example of such a situation. If a future leaseholder were to seek the correction of an error in their regulated lease and there was no premium charge for that correction, the Bill, as currently drafted, means that the lease would no longer be considered a regulated lease and therefore the peppercorn requirement would not be applicable to that newly corrected lease.

Amendments 1 and 2 will remove the requirement for a premium to have been paid for regulated and pre-commencement leases subject to a surrender and regrant, in order for the peppercorn rent to be applied. These amendments and the clarifications in amendments 3, 4 and 5 ensure that the Bill does not have unintended consequences when there is a deemed surrender and regrant and that there is fairness in the system for leaseholders and freeholders.

[Mike Amesbury (Weaver Vale) (Lab)]

It is a pleasure to serve under your chairmanship once again, Mr Hollobone, and to respond to the Minister. We have spent considerable time over the last few weeks, in Committee and at Second Reading, discussing vital issues of building safety and leasehold reform. These technical and tidying amendments make perfect sense. They address the potential of leasees paying a premium if this was not put in place, so the Opposition certainly welcome this.

I have one question on the potential for informal lease arrangements to sit outside the scope of the Bill. What reassurance can we give those still caught in the leasehold feudal system that there is provision to tackle this element of the industry?

[Eddie Hughes]

I thank the hon. Member for his support and for that question. My understanding is that the process through which leases will be regulated as part of the Bill would afford the opportunity for clarification of the informal leases to which he refers.

[The Chair]

Order. Mr Amesbury, are you still speaking, or have you finished speaking?

[Mike Amesbury]

I have finished speaking, yes.

[The Chair]

So you did not give way to the Minister? Do you want to speak on new clause 1 in this group of amendments?

[Mike Amesbury]

No, I was allowing my good colleague the hon. Member for Garston and Halewood to speak.

[The Chair]

So the Minister has the Floor and has given way to the hon. Lady.

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[The Chair]

Order. I actually asked the hon. Gentleman quite clearly whether he wished to speak to new clause 1, and he decided that he did not. We are now debating clause 2 stand part.

[Mike Amesbury]

Sorry. I made a mistake. I do apologise, Mr Hollobone. I thought you said clause 1.

[The Chair]

Because that particular opportunity was missed, we will ungroup—very kindly, on the Clerk’s advice—new clause 1 from that first group. When we come back to new clause 1 later in proceedings, the hon. Gentleman will have a chance to speak to it. His opportunity will come; it just has not come when we thought it would. We are now debating clause 2 stand part.

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[Mike Amesbury]

I thank the Minister for his explanation. I understand the exemptions and I am pleased that they are limited in scope. What reassurance can he give that there will be no unintended consequences in community housing, for example? He referred to ground rent as a means of recovering service charges. That has been a problem for the industry over a considerable number of years.

[Eddie Hughes]

It is important to point out that the Bill does not cover service charges. In the other areas that we are talking about, ground rent is paid for no discernible benefit in return, but in a community land trust there is the benefit of a shared endeavour to create high-quality community housing, so I do not think the hon. Gentleman’s concern applies.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3

Prohibited rent

Question proposed, That the clause stand part of the Bill.

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[Mike Amesbury]

I thank the Minister for his brief explanation. As my hon. Friend the Member for Garston and Halewood quite elaborately argued, this Bill is not about the many; it is just about the new. There are 1.5 million people who will still be in this system, many of whom write to us asking for us to advocate for them in this place. It is a particular issue in the north and north-west, and Wales. This Bill will do nothing for those people. In addition there is a plethora of complexities associated with the Bill—service charges, interesting management fees and so on—which we have spoken about at considerable length. So, while the Bill is welcome, it is narrow in scope and certainly does not deal with the situation here and now.

[Maria Eagle]

I very much welcome the intent of the Bill, which is to replace the standard charging of ground rent of real monetary value to leaseholders with a peppercorn rent. I welcome that very much; it is an entirely good and proper reform. Anybody who has had to deal with land law over the years—whether as a lawyer, or just as an MP trying to advise constituents—knows just how complicated it is to change these ancient and difficult land law provisions, which go back to feudal times in many ways and which very much have case law behind them. As we can see from this simple Bill alone, significant provisions have to be added to do the simplest things. I have every sympathy with the Minister, who has a record of trying to grapple with the complexities of English land law since he was Back Bencher. It is by no means easy.

I welcome, generally, clause 4, which reduces to a mere peppercorn the ground rent that is chargeable for new leaseholders. That is entirely to be welcomed. However, I want to set out to the Minister the difficulties that many of my constituents have. Thousands of them have in the last few years bought leasehold houses. This is particularly an issue in the north-west. As my hon. Friend the Member for Weaver Vale rightly said, there has arisen a penchant for selling newly built, often detached houses as leasehold properties. That has, and can only have been to enable the freehold—the reversionary interest—to be turned into a financial product that, over years, often decades, provides a stream of income for whoever retains the reversionary interest, who is often not the original developer or builder of the properties. It is sold on in financial markets to those who are interested in long-term investments providing a stream of income.

Many of my constituents, trapped in such leases, had no idea when they bought the houses that that would be the case, and that they would owe obligations for decades to whoever held the reversionary interest. They had absolutely no idea that the person who held the reversionary interest could change, and that it would be traded on financial markets and bought by people who wanted to exploit to the maximum the provision for income generation over years. The Bill, unfortunately, does not help any of my constituents who are stuck in such provision.

I am entirely in favour of changing that provision by means of the Bill, which I welcome, but there is an argument to say that the Bill actually makes things startlingly worse for those already trapped in such leasehold provisions that have ground rent and sometimes accelerated ground rent. It makes starker the fact that it is anomalous. I have many constituents on a number of estates across my constituency of Garston and Halewood who are finding it difficult to sell their properties. They have suddenly realised that they do not own a house, as they thought they did, but that they are renting it.

I am extremely anxious that the Minister does not rest on his laurels, having got this complicated piece of simple legislation through the House and on to the statute book, but that he realises that there is so much more to do to assist those who are stuck—particularly in my constituency and in the north-west—in newly built houses that they now find they do not really own. They are being financially exploited by remote owners of a reversionary interest that will endure for perhaps 99 or 999 years.

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[Mike Amesbury]

On Second Reading, my right hon. Friend the Member for Alyn and Deeside (Mark Tami) highlighted the issue that could arise where, within a single development, on one side of the road would be properties built in its first phase, under the current arrangements, and on the other side of the road properties built in the next phase, under the new arrangements. It is simply inequitable. When people come to market, which property will they purchase? The Minister is familiar with these issues, and my hon. Friend the Member for Garston and Halewood is right that they need tackling, despite the difficulty.

[Maria Eagle]

I have every sympathy with that point because I know of examples in my constituency. In the past few years, as these egregious excesses were coming to light and before legislation could be drafted, the Government have tried to impress upon developers that they should not do this kind of thing, and there have been voluntary arrangements. House builders have made voluntary arrangements, sometimes midway through the completion of a phased development, such that some buyers of properties built in the early phases of a development have had to pay ground rent, or accelerating ground rent, service charges and some of the other things that have not been dealt with in this legislation, but in later phases that has not been the case; so there is a difference between properties—even those built to the same design in different phases of one development.

One could say that caveat emptor is the basis of land law in England. It is indeed: “Let the buyer beware.” However, I have a lot of sympathy with constituents of mine who were rushed into buying a property so that they could access Help to Buy, who were first-time buyers, who had not done a degree in English land law before they sought to become homeowners—which, let us face it, is most people—and who relied upon the advice they were given. I have many criticisms of the legal profession and the solicitors—even conveyancers—who advised some of my constituents, because it seems to me that there has been a potential failing, in some cases, there.

In any case, the Minister has come to this, wanting to do something about it—indeed he has drawn a line in the sand, as he said—but he must not forget those individuals that, in drawing the line, he has not helped, and who may in fact find their predicament more starkly highlighted, and may find it more difficult to move on and sell the property that they now have than they would have done without this legislation.

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[Nickie Aiken (Cities of London and Westminster) (Con)]

It is a pleasure to have you as Chair of the Committee, Mr Hollobone. I welcome the Bill and the Government’s obvious determination to ensure that buyers of new developments will be protected from what I can only describe as dodgy practices.

Having looked into the issue before coming to Committee, and knowing bits and pieces from the media coverage of this story in recent years, I find it shocking that property developers and renowned house builders have thought it acceptable to expect families or individuals buying a property—we all know how expensive that can be; people save for years to have enough for a deposit—to be hit with a ground rent that they do not know is going to double and double over the years. I absolutely welcome the Minister’s determination to stop that practice.

I call on house builders across the nation to think about the consequences of such practices on their customers, and their future customers. I know that a number of house builders have taken steps to stop this practice. I believe that the Competition and Markets Authority is carrying out an investigation and that some, but not enough, house builders have stopped the practice voluntarily. That is why I am glad that the Bill will protect us in the future.

I was taken aback by the fact that the chief executive of Redrow, a renowned house builder, said in a letter to the then Select Committee on Housing, Communities and Local Government that ground rent of £400 per year would not always necessarily double over 10 years, but in fact could reach £12,800 a year. For the average family, the idea of trying to find that amount of money is eye-watering. Even people on good salaries would find that amount punitive. I absolutely welcome the Bill. We must regulate to safeguard hard-working families who want to invest in homes.

[Mike Amesbury]

I have no doubt that members across the Committee agree with much of what the hon. Lady says, but these measures are for the future, not for the here and now. The CMA investigation is very welcome, as is the work by the Select Committee and all the campaigners who have helped to force the issue, but many people are still applying these practices. Welcome though they are, these are baby steps.

[Nickie Aiken]

I thank the hon. Member for his intervention; I was coming to that point. In my constituency—the Cities of London and Westminster—many leaseholders live in properties with much older tenancies that involve ground rent. I believe the vast majority are on peppercorn. I have lived in the two Cities for 25 years, as a leaseholder and now, I am glad to say, as a freeholder. There is a massive benefit to being a freeholder, even though I own a flat.

The hon. Gentleman is right, and I am sure that this Government and this Minister will be looking at legislation that can protect all leaseholders, no matter what kind of tenancy they have. I understand that the renters reform Bill will be coming through, which will be a massive step towards creating a balance between tenants and landlords. This Bill and any further legislation that the Government consider on leasehold are about balance and fairness. I welcome the Minister’s taking forward this Bill and future legislation to protect leaseholders.

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[Eddie Hughes]

Perhaps one day they will make me Secretary of State and I will be able to make those decisions myself, Mr Hollobone—don’t laugh. As I said, it is our intention to come forward with proposals, so we will be talking again in the new year and discussing this in detail.

[Mike Amesbury]

rose—

[Dr Neil Hudson (Penrith and The Border) (Con)]

rose—

[The Chair]

We will hear first from Mr Amesbury and then Dr Hudson.

[Mike Amesbury]

On a point of clarity, will the legislation apply to properties that are currently being built, whether they are in Birmingham, Westminster or Manchester? Will the narrow scope of the one peppercorn policy apply to properties that are being built, but are not yet completed?

[Eddie Hughes]

As I referred to in the discussions about previous clauses, I believe that the legislation will apply once it has been enacted following Royal Assent, so it will apply to new contracts that come into force once the Act is in force. It would not necessarily apply to a property that is being bought today. It will apply only once the law has been enacted. We will have Royal Assent, legislation will be provided and then it will be enacted.

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[Mike Amesbury]

Some developers have responded to the change in landscape and enforcement action with strong encouragement, but others out there have not done so. My hon. Friend the Member for Nottingham South is correct to say that this is another opportunity to get developments erected as soon as possible. We need only look at the skylines across our cities to see that happening, and some developers will want to continue with that cash cow at the expense of leaseholders. It is a real fear, and I would certainly welcome a Government assessment of the impact in that transitional period.

[Eddie Hughes]

As I said in answer to the previous question, we can already see—not just now, but over the previous few years—that there has been a rapid decrease in the number of properties being constructed and subsequently sold in this way, so the hon. Gentleman should feel reassured that the Government’s intended legislation is already having an incredibly positive effect.

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[Eddie Hughes]

The figures are already publicly available.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Clause 5

Permitted rent: shared ownership leases

[Mike Amesbury]

I beg to move amendment 11, in clause 5, page 4, line 7, at end insert “, unless subsection (2A) applies”.

This is a paving amendment for Amendment 13

[The Chair]

With this it will be convenient to discuss amendment 13, in clause 5, page 4, line 7, at end insert—

“(2A) Where a landlord charges a service charge more than £100 per month, the permitted rent in respect of the landlord’s share in the demised premises is a peppercorn.”

This amendment provides that a landlord of a shared ownership property may not charge ground rent in respect of the landlord’s share if service charges exceed £100 per month.

[Mike Amesbury]

The amendments were tabled to raise the issue of the often sky-high service charges in shared ownership property—often with little given back in return. I could list any number of examples and am confident that other Members in the room could as well. The Minister will have heard, as I did, the many stories about the extortionate costs faced by shared owners, other leaseholders and social housing residents. The errors are often only exposed when residents, facing costs they cannot afford, lobby hard for information and transparency.

We have heard it all: service charges for shared owners in Kent tripling in one year; leaseholders in Essex being charged £4,275, plus VAT, per year for ground maintenance, when a local landscaping company quoted £660 per year for the same work—something that I discussed with my hon. Friend the Member for Garston and Halewood only this morning; and leaseholders in south London being charged over 400% more for their cleaning costs than they were in 2013. I know that inflation is increasing at the moment but—my God—not by that level. To get in the Christmas spirit, a rather festive example stood out to me in the Financial Times, which published an article over the summer about residents in central London being charged £200,000 for Christmas lights, without being consulted in advance.

Those costs impact on leaseholders, and some social housing tenants as well. For shared owners, a particular concern is being charged 100% of the service costs while only owning a small portion of the property. We have seen that up and down the country through the building safety scandal and historical remediation costs. The Opposition welcome the narrow scope of the Bill on peppercorn ground rents, but the fear is that there will be other means or opportunities to rake in the money, and to continue treating leaseholders as a cash cow.

[Eddie Hughes]

Clause 5 is essential if the Bill is to avoid creating unintended consequences for future shared ownership leases. It will protect leaseholders by ensuring that they pay only a peppercorn rent on their share of the property, but it will also allow landlords to collect a monetary rent on their own share. Without the clause, landlords could not collect a monetary rent on the share of the property that is rented.

Clause 5 applies to qualifying shared ownership leases. Subsection (4) defines a qualifying shared ownership lease as one in which the tenant’s share of the premises is less than 100%. Subsection (7) clarifies that, in a situation in which a shared ownership lease does not distinguish between rent on the tenant’s share and rent on the landlord’s share, any rent payable under the lease is to be treated as payable in respect of the landlord’s share. Subsection (8) means that the clause no longer applies if clause 6 applies. For example, if the leaseholder undertakes a so-called voluntary lease extension in regard to a shared ownership lease, where the leaseholder chooses to enter into a new lease that replaces an existing lease outside the statutory lease extension process, the treatment of that is dealt with under clause 6. We will consider clause 6 shortly.

Clause 5 ensures that the shared ownership model can continue to operate for new leases.

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[Eddie Hughes]

I completely understand my hon. Friend’s point, and I appreciate the extenuating circumstances that might apply to some of the properties in her constituency. We certainly do not experience that in Walsall North.

The amendments proposed by the hon. Member for Weaver Vale would be unfair to shared ownership landlords and would therefore undermine confidence in the sector. I urge the hon. Member to withdraw his amendment.

[Mike Amesbury]

The evidence out there grows by the week. There is a genuine fear that landlords, freeholders and developers will look for other opportunities in response to the legislation. We already see those service charges up and down the country. I know it is a particular issue in London and the south-east, but every city across the country has seen some interesting non-transparent service charges—that includes estates and houses.

[Maria Eagle]

Does my hon. Friend agree that it is important that the Committee prevents the inclusion of loopholes in the Bill that could be widened by clever lawyers and then exploited by developers and those with a financial interest in keeping things as they are? His proposals are trying to prevent loopholes from being left in this admirable but small piece of legislation.

[Mike Amesbury]

I concur. That is exactly my point. I know that a similar amendment was tabled in the other place, as the Minister will be aware. We certainly need reassurance. There are lots of good intentions from the Minister and his Department with regard to this legislation, but we need to look at every opportunity to close those loopholes. I would like to have further discussions as the Bill continues its parliamentary journey—it is a conversation we need to continue. However, in that spirit, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Mike Amesbury]

I beg to move amendment 12, in clause 5, page 4, line 7, at end insert “, unless subsection (2B) applies”.

This is a paving amendment for Amendment 14.

[The Chair]

With this it will be convenient to discuss amendment 14, in clause 5, page 4, line 7, at end insert—

“(2B) Where a landlord charges any remedial costs during the course of the lease, the permitted rent in respect of the landlord’s share in the demised premises is a peppercorn.”

This amendment provides that a landlord of a shared ownership property may not charge ground rent in respect of the landlord’s share if any remedial costs are charged.

[Mike Amesbury]

Taken together, the amendments revisit a question that I have posed to Ministers many a time in previous debates in Committee, on Second Reading and so forth: what about the costs of remediation for leaseholders? It is something we are all familiar with—here in Committee and well beyond—in particular for leaseholders caught in the scandal. We are of course waiting for the next stage of the Building Safety Bill—Report—in the Commons after spending many weeks in Committee. I see the Minister and some other familiar faces. While we wait, hundreds of thousands of leaseholders are receiving bills for astronomical amounts of money to remediate dangerously cladded housing. The cost is for more than cladding, as many people know—there are missing fire breaks, wooden balconies and so forth. Some of the bills top £100,000. I know my hon. Friend the Member for Salford and Eccles—a not too far distant neighbour—is very familiar with those kinds of bills in her constituency.

The cost of remediation on shared owners’ shoulders can equal the value of their share of the property. Again, shared ownership leaseholders are too often charged 100% of the remediation cost for properties that they own only a small proportion of. Meanwhile, the associated costs of the building safety crisis, such as waking watch and insurance premiums continue to go up—we have examples of 1,000% and 1,400% right across the country. Despite repeated promises from Ministers—at my last count we were at 19 if I include the new Secretary of State—the issue is very much ongoing.

The amendment will not solve the problem. The Opposition have repeatedly set out a plan to get the building safety crisis fixed and ensure that developers, not leaseholders, bear the brunt of the costs. I am interested in the recent language from the Secretary of State in that regard. He seems to say some of the right things—there are some warm words—but we are now desperate for action. The amendment would at least ensure that shared ownership leaseholders cannot be charged for ground rents while they are also being charged for remediation work, taking one of the many costs of the crisis off their shoulders. I look forward to the Minister’s response.

[Lilian Greenwood]

I certainly recognise the situation that my hon. Friend describes. I have a large number of constituents living in flats and being asked to pay astronomical costs for the remediation of their properties for which they bear no responsibility. Will he clarify whether the amendment would apply only where remediation costs are unfairly distributed between the freeholder and leaseholder, or would it apply in all situations where leaseholders are being asked to pay remediation costs?

[Mike Amesbury]

My hon. Friend makes a very good point. This is about historical remediation costs, but it is a good point to raise. I look forward to the Minister’s response.

[Eddie Hughes]

Amendments 12 and 14, proposed by the hon. Member for Weaver Vale, seek to reduce the payment of rent on a shared ownership property in different circumstances. As I have said, in the Government’s existing shared ownership scheme, owners have a full repairing lease and pay rent on the landlord’s share of the property. The role of ensuring that the fabric of the building is maintained and safe for residents is an essential part of the relationship between landlord, leaseholder and, in some cases, a managing agent. Reasonable service charges remain the proper and accountable way through which landlords should recover costs for maintaining a building and provision of services.

I reiterate that the Bill is focused entirely on the issue of ground rents, so remediation costs are outside its scope. The Building Safety Bill is the appropriate legislative mechanism for addressing remediation, as it contains the appropriately detailed legislation for a complex issue of this nature. I ask the hon. Member to withdraw the amendment.

[Mike Amesbury]

We will put this to a vote.

Question put, That the amendment be made.

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[Mike Amesbury]

To pick up on the point of my hon. Friend the Member for Garston and Halewood on “voluntary”, a freeholder might offer a seemingly reasonable deal to voluntarily and formally extend a lease, but there is a real risk that elements of that could have a premium applied and ground rent could continue. What reassurance is there that that cannot happen? We have seen lots of examples of that. The mis-selling of leasehold properties was mentioned, which the Competition and Markets Authority has investigated and seen evidence of, and which we are all familiar with from constituents. If there is any possibility of a loophole here to do that, unfortunately there are people in this field who will do it, so again it is about that reassurance that the measure closes down those potential loopholes.

[Eddie Hughes]

I think the hon. Member should be reassured. However, to ensure that that is the case, the Government will communicate regularly and frequently with professional legal bodies to ensure that they understand the case completely. No matter what legislation we introduce, it will not be possible to get away from the fact that, in seeking to enter into a legal contract, members of the public should engage good, independent legal advice. Unfortunately, some people will not and will be disadvantaged as a result.

[Mike Amesbury]

That goes back to the point that, at the end, people seemed to seek legal advice, which they thought was independent and objective, but clearly it was not. This is about that reassurance. On behalf of our constituents, many of whom are trapped in that situation and still somewhat nervous, I seek that reassurance.

[Eddie Hughes]

I feel that the clause strikes the right balance between, first, ensuring that the loophole is closed and, secondly, landlords feeling reassured that they will not be disadvantaged in any way by granting a lease extension. I think that both the points that the hon. Gentleman made are covered.

Amendment 3 agreed to.

Amendments made: 4, in clause 6, page 4, line 39, after “period” insert “(if any)”.

This amendment clarifies that clause 6 can apply to a replacement lease for a term that does not extend beyond the end of the term of the pre-commencement lease.

Amendment 5, in clause 6, page 5, line 7, after first “of” insert—

“premises which consist of, or include,”.—(Eddie Hughes.)

This amendment clarifies that clause 6(5) can apply to a new lease which includes some premises not demised by the lease to which subsection (2) applied.

Clause 6, as amended, ordered to stand part of the Bill.

Clause 7

Term reserving prohibited rent treated as reserving permitted rent

Question proposed, That the clause stand part of the Bill.

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[Eddie Hughes]

Clause 7 will apply if a regulated lease includes a prohibited rent. Should a lease include such a rent, the effect of the clause is that the term in the lease is in effect replaced by the correct rent term under clauses 4, 5 or 6 of the Bill.

The clause means that, should a lease include a prohibited rent, there is no requirement on the leaseholder to pay that rent. Any requirement in the lease to pay a prohibited rent has effect as if it were a requirement to pay the relevant permitted rent as established under the Bill.

Later in the Bill, with clause 16—in a moment—we will come to the provision in the Bill that enables a leaseholder to seek a declaration from the first-tier tribunal as to the effect of clause 7 on their lease. Clause 7 is important because it has the effect of immediately rectifying, in law, any lease that includes a prohibited rent.

Clause 16 is an important measure to ensure that parties to a lease can seek clarity as to whether a term in the lease is a prohibited rent and, if so, what the permitted rent is. Clause 7, as the Committee will recall, sets out the rent that should apply in cases where a lease reserves a prohibited rent. We expect that in most cases the effect of the clause will be clear, and that the landlord will accept that a prohibited rent is not enforceable. However, where that is not the case, clause 16 means that a leaseholder, or landlord, can apply to the appropriate tribunal for a declaration. If the tribunal is satisfied that the lease includes a prohibited rent, it must make a declaration as to the effect of clause 7 on the lease. In other words, the tribunal must also clarify what rent is payable.

Under clause 16(3), where there are two or more leases with the same landlord, it will be possible for a single application to be made. That may be made either by the landlord or by one of the leaseholders with the consent of the others. That will mean that if there are several properties in the same block, or perhaps in different blocks but with the same landlord, it will not be necessary for a separate application to be made in respect of each lease.

Clause 16 also states that where the lease is registered in the leaseholder’s name with the Land Registry, the tribunal may direct the landlord to apply to the Chief Land Registrar—the Land Registry—for the declaration to be entered on the registered title. The landlord must also pay the appropriate fee of about £40 for that. This will ensure that there is a record of the declaration for any successor in title to the lease. It will also mean that if the leaseholder wishes to sell, the true position will be clear to their purchaser’s conveyancer.

In the case that the tribunal does not direct the landlord to apply to the Land Registry, the leaseholder may do so themselves. That will involve the payment of a modest fee of around £40. I hope that we can agree that it is important that a leaseholder does not encounter difficulties when selling and that future leaseholders clearly benefit from the actions taken to address the prohibited rent included in their lease. The clause achieves that by ensuring that the correct position in relation to ground rent under their lease can be made clear on the register of title.

[Mike Amesbury]

I thank the Minister for his explanation. If we look at the evidence provided by the National Leasehold Campaign and the Leasehold Knowledge Partnership, and take our mind back to the Select Committee call for evidence, I think in 2018, which I know he had a keen interest in at the time, there was a real concern about access to tribunals. Decisions seemed to be weighted against leaseholders. On the worry about access to, and supported provided to, tribunals, what reassurance can he give that the situation can improve as a result of the changing legal landscape?

[Maria Eagle]

I wish to ask the Minister a question. I apologise to him; obviously we have not yet reached the debate on the commencement provisions, but he might be able to enlighten us on the Government’s intention. Clearly, it is entirely welcome that clause 7 would simply replace the unfair term in the lease that asks for real money for ground rent rather than the peppercorn, which the legislation is intended to outlaw, but the commencement provisions are not totally clear about when that provision will be commenced.

My understanding is that there will be a regulation-making power for the Government to bring into force the Act on the day that they wish to do so. My concern about not being clearer about when clause 7 comes into force is that there may be a gap between when the Bill is passed and when the clause is commenced by the Government, because they will have to make a regulation to do so. Does that leave a space for unscrupulous landlords to continue to have unfair contract terms in their leases after Royal Assent but before the commencement of the legislation?

I wonder whether the Minister could assuage concerns by making it clear that it is the Government’s intention not to have a big gap between Royal Assent and commencement such that a loophole could be created in which clause 7 has not yet been commenced, preventing unscrupulous characters who may want to induce potential tenants into leases with contract terms that would be outlawed by the Bill from doing so. A simple commitment from him that there will be no such gap would satisfy me entirely.

--- Later in debate ---

[Eddie Hughes]

That is very kind, Mr Hollobone; thank you.

I support the principles behind the clause—it is vital that there is transparency in the leasehold system—but there are doubts as to whether the clause is effective in achieving that objective. It places a duty on all landlords but does not specify how each landlord must satisfy that duty. Furthermore, it relates only to the short period between Royal Assent and the peppercorn limit coming into effect. It would therefore place a significant burden on enforcement authorities for a limited period. Additionally, the changes that the clause requires for the penalty enforcement process to align with the rest of the Bill would delay the implementation of new peppercorn rents.

We are looking closely at how to best achieve the objectives that informed the clause. On Second Reading, the hon. Member for Weaver Vale and my hon. Friend the Member for Wimbledon (Stephen Hammond) raised very good points about the importance of transparent, objective legal advice during the purchase process.

I firmly believe that the Government’s provisions will lead to fairer, more transparent homeownership. I hope the Committee will agree that the clause should not stand part.

[Mike Amesbury]

I thank the Minister for his explanation. He referred to the fact that I and a considerable number of other Members spoke about this matter on Second Reading and have done so throughout the campaign to reform the feudal leasehold system. I cannot quite understand the objection to the clause, given that the lack of transparency has been a major factor in the leasehold landscape—we have referred to the CMA investigation and mis-selling by solicitors. The clause would help to improve the landscape and improve the situation for leaseholders. It makes perfect sense to include provisions on transparency of information in the Bill that the Government are arguing for and which we are scrutinising and challenging. We support clause stand part.

[Maria Eagle]

I have some concerns about the Minister’s suggestion that we should not keep clause 8 in the legislation, partly because of the exchange that we just had on clause 7. I expressed a little sedentary shock that six months may pass between Royal Assent and the commencement of clause 7. A lot of leases can be signed in six months, which I consider an extended period, and clauses that will become prohibited may not be at the time.

Leases are difficult enough to read as a layperson without having to be aware that the law has been changed to prohibit a particular clause and that a rent set out in a lease should be replaced with a peppercorn rent. One would have to follow Hansard reports of Bill Committees carefully, as well as the commencement of legislation, to have an understanding that there was a prohibited clause in a lease that one had just signed. Even then, one must understand the legal language in leases, which is not the easiest thing for lay people, perhaps first-time buyers. It is extremely useful to have a provision such as clause 8 in the legislation to make it clear that there is an obligation on landlords to inform tenants of this interim period of time.

If the Minister had said in our debate on clause 7 that the delay was going to be a week or two weeks, then perhaps I would not have risen to support this clause, but we are talking about six months. Many leases have clauses that are to become prohibited later on, but the tenant who signed them may not understand that. We wish that were not the case but there are some landlords out there who wish to induce people to sign leases with charges attached that are shortly to become unlawful. Perhaps then there will be some money paid over, and it is more difficult to get that back than not to pay it in the first place.

Given that there is likely to be a period of up to six months between Royal Assent and commencement of the legislation, clause 8 is a valuable provision to keep in the Bill. I cannot understand why the Minister wants it removed. I would be happy if he were to tell me that commencement of the legislation would take place within a week or two of Royal Assent. I would not then be so concerned about this gap. I am concerned that we are creating or allowing too many loopholes that enable our constituents who are signing new leases to fall into traps that those who wish them to sign leases want to induce them into. The fewer loopholes, the better. Clause 8 is an important provision to leave in the Bill and I would vote for it to stand part of the Bill.

[Eddie Hughes]

Clearly, six months is the limit that we have set. I am sure that people will be working assiduously to try to ensure that that period is minimised. The suggestion that the hon. Member for Garston and Halewood made—that she would be reassured to hear that it would be a week—is nigh on impossible. We will continue to work hard to limit that period. During that time, we will communicate regularly with professional bodies to ensure that all solicitors are informed of and understand the changes that are coming.

[Mike Amesbury]

What is the Minister’s concern with a duty to inform?

[Eddie Hughes]

We are placing a duty on the landlord, and the unintended consequences might be that there are a number of cases that are highlighted and then brought to a tribunal in a very condensed period of time, placing an unnecessary burden. I think it would make for a slightly chaotic approach to the system. We are aiming for a smooth transition. Given the effort that we have put into communicating with legal bodies and the work that hon. Members are doing to highlight the changes the Government have made, it feels like an unnecessary process. However, we will continue to work with the hon. Member during the passage of the Bill to see if there is anything else we can do to meet the objective of the clause.

Question put, That the clause stand part of the Bill.

--- Later in debate ---

[Eddie Hughes]

We must ensure that the breaches of prohibited rent that I set out in clause 3 are acted on. Clause 9 will place a duty on local weights and measures authorities in England and Wales, that is to say trading standards authorities, to act where a breach of clause 3 occurs in their area. It also gives them the power to act where a breach occurs elsewhere in England and Wales.

In addition, through subsection (2), English district councils that are not trading standards authorities will be given the power to enforce clause 3 but, unlike trading standard authorities, will not be required to do so. That will maximise our ability to act against perpetrators. Both local weights and measures authorities and district councils will be able to retain the financial proceeds from the penalties they impose to cover the costs incurred in carrying out their enforcement functions in relation to residential leasehold property.

Subsection (3) clarifies the area in which a breach occurs and, to be thorough, captures areas where a premises is located on a local authority boundary, although we think that those will be few and far between. I am sure we all agree that although it is important for enforcement authorities to have the necessary duties and powers to act on breaches, it is also important that we provide protection against the duplication of penalties, which is what subsection (4) does.

Equally, I am sure we all agree that it is right to expect landlords to understand the requirement of the new legislation and abide by it. It is our hope, therefore, that enforcement action will not be needed in most cases, but by conferring duties and powers on enforcement authorities, the clause will be instrumental in ensuring that any breach of the restrictions on ground rents can be robustly enforced. That is vital as a deterrent and to protect leaseholders from unfair practices.

[Mike Amesbury]

My only concern is the obvious one about resources. I refer to my declaration in the Register of Members’ Financial Interests, as I am a vice-president of the Local Government Association. Over the last 11 years, resources have been somewhat depleted as a result of austerity and Government cuts. Although there is the control and skill capacity locally to be the foot soldier for enforcement, it is a matter of having the people and resources to carry that out and implement it.

I notice that on the Bill’s journey in the other place, a reference was made to future local government settlements. The last 11 years have not been good if we use them as an example of potential resources. I would be interested in the Minister’s reply on that important and vital matter.

[Maria Eagle]

It is good to see that there is some provision about enforcement because there is often a gap in legislation, so the law is made and practical enforcement is not set out. I find it quite an interesting approach to enforcement to say that local trading standards or weights and measures authorities in England and Wales “must enforce” in their own area the standard statutory obligation of such an authority but

“may enforce…elsewhere in England and Wales.”

I may be wrong, but that seems a fairly novel approach to enforcement. I am not saying it is bad, but I would like the Minister to set out in a little more detail why the clause is worded in this manner and whether there are any precedents in respect of other enforcement arrangements that have been drawn on to set out the provision.

Subsection (2) says:

“A district council that is not a local weights and measures authority may enforce section 3 in England (both inside and outside the council’s district).”

We have the prospect of roving entrepreneurial weights and measures departments perhaps thinking that they can go and levy fines of up to £30,000 for a breach somewhere else entirely. I think I have read somewhere that they get to keep the proceeds, so this is quite an interesting tax farming idea—perhaps going back to old England, whereby the collector is given a percentage of the takings. Like my hon. Friend the Member for Weaver Vale, I was going to ask what provision the Government will make to enable a local authority’s trading standards department to search out such breaches. Perhaps they intend to enable trading standards from elsewhere in the country to come galloping in.

[Maria Eagle]

I agree with my hon. Friend about the savage reduction in available resource that the Government have visited on Liverpool. I am interested to hear from the Minister about the intention of this formulation and whether he anticipates that trading standards from out of area will be galloping around the country doing enforcement work in the manner that the clause lays out, because it is not something that I have seen before in legislation. I may be wrong, but it is not something that I can recall seeing.

[Mike Amesbury]

Perhaps there will be a VIP fast lane for the new hit squad that goes across the country.

[Maria Eagle]

I will be interested to see whether there is any kind of entrepreneurialism undertaken by trading standards around the country, but I would like to hear what the Minister has to say.

Leasehold Reform (Ground Rent) Bill [Lords] (Second sitting)

Mike Amesbury Excerpts

Committee stage
Tuesday 7th December 2021 Public Bill Committees

[Eddie Hughes]

The Bill will allow enforcement authorities to act on unfair practices against leaseholders. Clause 10 enables an enforcement authority to impose a financial penalty on a landlord who has required a leaseholder to pay a prohibited rent. There is a separate power under clause 11 to make a recovery order to repay the prohibited rent.

It is important to note at this point that a conscious decision has been made for former landlords to be subject to penalties for breaches of the ground rent restrictions and to remain accountable for their actions at the commencement of the legislation. I am sure that the Committee will agree that we would not wish to see the development of the poor practice of landlords selling their leases in order to avoid financial penalties.

Clause 10 sets clear parameters for enforcement authorities to work within, but we must of course ensure adequate checks and balances so that those in breach are not unfairly treated. Before imposing a financial penalty, enforcement authorities must be “satisfied beyond reasonable doubt” that a breach has occurred. Where an enforcement authority is satisfied, subsection (2) clearly defines the parameters of the financial penalty that may be imposed. The Government’s decision to increase the maximum penalty from £5,000 to £30,000 shows that we have listened to parliamentary stakeholders, who felt that a stronger deterrent was needed.

Subsection (3) permits only one financial penalty to be issued where multiple breaches have occurred on a single lease. However, where enforcement action has been taken against a landlord, and that landlord is found to have breached clause 3(1) again, they may be subject to a further financial penalty after their initial fine. I am sure that the Committee will agree that that is the right thing to do.

In a case in which a landlord has committed breaches in relation to multiple leases, an enforcement authority may impose a single financial penalty to cover all breaches. In that scenario, the minimum or maximum amount of the financial penalty is the sum of the minimum and maximum penalties that could have been imposed if each breach had been dealt with separately. If a landlord has breached clause 3 on two of their leases, for example, the enforcement authority could not decide to issue a single penalty of £600 as that total would mean that the landlord had paid a penalty below the minimum amount of £500 per breach. The enforcement authority will be required to consider issuing a penalty of at least £1,000.

Importantly, clause 10 ensures that landlords are protected from being charged twice for the same breach by two separate enforcement authorities. Should the minimum and maximum penalty thresholds need updating, the Secretary of State has the power to change them through regulations for England, and Welsh Ministers can do so for premises in Wales. Subsection (10) makes it clear that this may be done only to reflect changes in the value of money. Financial penalties are an important deterrent, but they must be managed appropriately. The clause sets out a clear framework for enforcement authorities to work within and provides a balanced and fair approach towards those in breach.

Clause 11 forms an important part of the Bill’s deterrent measures to discourage landlords from including an inappropriate monetary ground rent in a regulated lease. Subsection (1) enables an enforcement authority to order the repayment of a prohibited rent where they are satisfied, on the balance of probabilities, that the leaseholder has made such a payment and the landlord has not already refunded it.

Subsection (2) sets out who the enforcement authority may order to repay the prohibited rent, including the landlord at the time when the payment was made, and the current landlord. That means, for example, that if it is not possible to trace a previous landlord, a leaseholder will still be able to recover the ground rent that they were wrongly charged. That is fair; a new landlord must take responsibility for the leases that he has taken over. Subsection (2)(c) makes it clear that an agent acting on behalf of the landlord may also be ordered to repay any prohibited rent that the leaseholder paid to them. That is important, as we know that there may be cases where the landlord is absent or unresponsive. A responsible managing agent would wish to ensure that leases, and their own practices, comply with the law.

There are protections in the clause to prevent duplication of recovery orders. Where the tenant has applied to the appropriate tribunal for a recovery order, the enforcement authority may not make such an order. If an enforcement authority has already made an order in respect of that payment, no further order may be made in respect of it.

Subsection (4) enables some administrative ease to assist enforcement authorities. It enables an enforcement authority to make a single order in respect of a number of prohibited rent payments, provided that they all relate to the same lease. The clause is vital to ensuring that an enforcement authority can act where a prohibited rent has been charged and order the landlord to repay it so that the leaseholder is not out of pocket.

On clause 12, it is only fair that where a prohibited rent has been wrongly paid, it should be possible for the leaseholder to recover interest on the amount that they are out of pocket. The clause makes provision for that. Interest is payable from the date of a payment of a prohibited rent until the date that it is repaid. The interest rate, as is standard practice for such matters, is the rate specified in section 17 of the Judgments Act 1838.

To ensure that the amount of interest to be paid is not disproportionate, subsection (5) places a cap on that amount. It must not exceed the original amount of prohibited rent that the landlord is required to repay. It is only fair that a leaseholder should not only be recompensed for the amount that they are out of pocket, but recover the interest on that amount.

[Mike Amesbury (Weaver Vale) (Lab)]

It is a pleasure to welcome you to your place, Ms Elliott. I welcome the Minister’s and the Government’s response to some of the debates on the Bill in the other place about the maximum level of fine. Given that a number of landlords and freeholders have deep pockets, it will act as a more effective deterrent.

On multiple breaches, I am making an assumption that an element of sense will be applied, so that someone with multiple breaches would be looking at the maximum fine. I know that that will be a judgment call for the enforcement authorities and trading standards, which will be well resourced—we have had the assurance from the Minister today.

The clause picks up on several earlier points made on both sides of the Committee. It is essential that people are informed from the outset of the duties that will be not only implied but overt as a result of the Bill. Residents and leaseholders will be particularly keen to ensure that where they have been wrongly charged and levied—essentially, ground rent should never have happened in the first place—they will be able to retrieve that quickly. I welcome the clauses but there are still a number of questions for the Minister.

[Maria Eagle (Garston and Halewood) (Lab)]

It is a pleasure to serve under your chairmanship, Ms Elliott. I have a couple of points for the Minister. There are extensive provisions on the recovery of prohibited rent, which I generally welcome. I notice that on page 14 of the explanatory notes, under the heading “Financial implications of the Bill”, it says:

“An Impact Assessment has been prepared for the Bill and covers the implications on private sector bodies and home purchasers… The Impact Assessment illustrates a de minimis impact of less than £5m.”

It then says that there is an assumption

“that the number of enforcement cases will be very small.”

One would hope that that would be the case, because one would hope that landlords will not seek to charge and benefit from ground rent in the interim between the Bill coming in and peppercorn becoming payable, when it becomes commenced, by putting provisions into new leases that charge ground rent. One hopes that that is a correct interpretation. The explanatory notes then say:

“Over and above the use of the proceeds arising from the enforcement action, a further amount of expenditure will be required to provide additional capacity within the National Trading Standards function to support local weights and measures authorities. Leasehold law is a complex area, and it is felt that a central support function will aid the effective introduction of the provisions of this Bill. The cost estimate of this support function is £29,000 per annum”,

which is very precise. It is sort of a round figure, but it is quite a small sum. I wonder whether the Minister could explain the assumptions underlying the explanatory notes.

--- Later in debate ---

[Eddie Hughes]

Clause 13 makes various supplementary provisions in relation to enforcement authorities. Importantly, it requires them to have regard to any guidance that may be issued by the Secretary of State and Welsh Ministers, depending on the location of the property. We have made it clear that the Government intend to issue guidance on various matters to ensure that enforcement authorities act with consistency. Subsection (3) amends schedule 5 to the Consumer Rights Act 2015 to ensure that enforcement authorities have the investigatory powers that they need to enforce the ground rent restrictions in the Bill.

The final subsection of clause 13 introduces the schedule, which sets out how an enforcement authority may impose a financial penalty or make a recovery order. This includes the relevant time limits, rights of appeal, the recovery of a financial penalty or an amount ordered to be paid if the landlord does not comply and retention of sums received. We will consider these details when we come to consideration of the schedule. The clause contains important supplementary provision to ensure that enforcement authorities receive the guidance necessary to perform their role properly and consistently. It gives them the powers they need to be effective and sets out procedures that are appropriate and fair.

I turn to Government amendment 9. Members will know that the Bill applies to both England and Wales. They will also know that in the other place the Government made a series of changes to give certain powers to Welsh Ministers. I would like to take this opportunity to once again thank colleagues in the Welsh Government for working constructively with us on these issues. Amendment 9 in my name is one more change in a similar spirit.

Clause 13 and paragraph 11 in the schedule allow enforcement authorities to keep the proceeds of any action to cover the cost of that action. With penalties of up to £30,000 per lease, that is vital so that local authorities or local trading standards are not left out of pocket for implementing the provisions in the legislation. To act as an effective deterrent, freeholders, landlords and managing agents need to understand that action will be taken if they charge a prohibited rent.

However, enforcement penalties have not been designed as a new income stream for the authorities. As such, any excess proceeds from a penalty beyond what is needed to cover the enforcement action in relation to the Bill and other residential leasehold enforcement cannot be kept, ensuring penalties remain proportionate to the breach and enforcement costs are still covered. In these circumstances, the Bill would see all such excess proceeds being paid to the Secretary of State. Amendment 9 would make sure that, if the penalty is imposed in relation to leases of premises in Wales, the excess proceeds would go instead to Welsh Ministers. This is a small but sensible change, and I hope it will be supported by the Committee.

The schedule sets out the procedure that an enforcement authority must follow when they wish to impose a financial penalty or make an order requiring the repayment of a prohibited rent under the legislation. This will help to ensure consistency and fairness in enforcement. Enforcement authorities must give the relevant person notice of their intention to impose a financial penalty within six years of the breach occurring and within six months of the authority having evidence that they consider justifies serving the notice. The relevant person will usually be the landlord, but where the notice relates to a recovery order it may be a former landlord or agent. The notice must contain relevant information about the reasons for imposing the penalty or making the recovery order, the amount of the penalty or the terms of the order, and the right to make representations. The landlord then has 28 days to respond.

If, after considering any representations, the enforcement authority decides to impose a penalty or make a recovery order, it must give a final notice. This must set out the amount of penalty and/or terms of the recovery order and the reasons for the penalty or order. It must address how these will be paid, the landlord’s rights of appeal and the consequences of failing to comply. An enforcement authority may at any time withdraw or amend a notice of intent or final notice by providing written notice to the relevant person. The landlord, or person acting on their behalf, has a right of appeal to the appropriate tribunal against the decision to impose the penalty or make the order, the amount of the penalty, or the terms of the order.

Any appeal must be brought within 28 days of the final notice and is to be a re-hearing of the enforcement authority’s decision. However, the appropriate tribunal may admit new evidence that was not previously before the enforcement authority. In those cases, the existing final notice is suspended until the appeal is determined or withdrawn. The appropriate tribunal may confirm, vary or quash the final notice. It may increase or decrease the penalty imposed, but it is bound by the same minimum and maximum limits as the enforcement authority.

If the landlord fails to pay all or part of the financial penalty, or to repay a prohibitive rent, the enforcement authority can seek repayment on the order of the county court as if the penalty or payment were payable under an order of the county court.

I am aware that concerns have been raised about the resources of local authorities to enforce the legislation. I trust the fact that the schedule enables an enforcement authority to retain the proceeds of any financial penalty for future residential and leasehold enforcement is very welcome. My officials have discussed with national trading standards and the Local Government Association what further options can be considered to support the Bill’s implementation. Furthermore, we are producing guidance to which enforcement authorities must have regard and which will support those authorities in fulfilling their enforcement responsibilities under the legislation, as called for by my hon. Friend the Member for Cities of London and Westminster.

[Mike Amesbury]

With regard to the excess that could be generated, and terms of the clause and the amendments, there could be a transfer to the Welsh Secretary. Does the Minister envisage that happening in reality, given the situation that many local authority trading standards have faced over the past 11 years? That point has been echoed across the Committee today. Could the Minister elaborate on the discussions that he has had with the Welsh Government, because there are elements of a tidying up exercise here? The Minister said that he had further discussions of other mechanisms that would help trading standards effectively conduct and resource their enforcement role. What are those mechanisms and sources of other potential income?

[Maria Eagle]

I have a couple of probing questions. There is no doubt that it is good to see some enforcement provisions. Given the range of penalties from £500 to £30,000 and given that trading standards have to effectively obtain their costs from the proceeds when undertaking the enforcement activity, is the Minister concerned that that might offer an incentive to trading standards—the enforcement authority—to pitch their fine or notice at a higher level than perhaps might otherwise be the case? Does he agree that going through this administrative fining arrangements, with all the appeals that we see in the schedule, would probably not be worth it for an enforcement authority if it were only going to get £500 at the end of the day, given the difficulty of understanding all the nuance of landlord and tenant law and leases? Is it therefore much more likely that there will not be much enforcement activity?

One of the other concerns for such an officer and an enforcement authority, might be that if there is an appeal to the administrative tribunal by the landlord against the amount being levied by way of penalty, that might be reduced from what the authority originally set out to cover its costs, say, to a much lower figure, closer to £500, which would perhaps most certainly not cover its costs. Is there an incentive in part for the enforcement authority to pitch the fine high, but any tribunal that considers an appeal may cut the fine to such a level that the enforcement authority might not be able to obtain its costs back from the proceeds? Perhaps, therefore, the overall impact will be that the enforcement authority thinks better of engaging in enforcement if it does not have resources it can guarantee will be used to do that. I would be interested to know what the Minister and his Department have considered in respect of the incentives built into the system in the Bill.

--- Later in debate ---

[Eddie Hughes]

Clause 14 provides leaseholders with an alternative route for redress should they wish to take action directly, instead of by approaching an enforcement authority. It enables the leaseholder to apply directly to the appropriate tribunal for a recovery order that requires the landlord to repay the prohibited rent.

The clause mirrors the provisions in clause 11 in relation to enforcement authorities, enabling a leaseholder—or someone acting on their behalf—to apply to the tribunal for a recovery order if they have paid a prohibited rent and it has not been refunded. As in clause 11, the recovery order may apply to the landlord at the time the prohibited rent was paid, or to the current landlord. It may also apply to a person acting on the landlord’s behalf, where that person received the money. As I said, the provisions are fair, and are included in the Bill to ensure that the prohibited rent can be recovered effectively and repaid to the leaseholder. The person ordered to repay the rent has up to 28 days following the date of the recovery order to make the repayment. That ensures that the repayment is made promptly. Later in our discussion we will come to provisions in the Bill for the landlord to appeal if they consider it appropriate.

The clause also includes, as clause 11 did, provision that a single order may be made in respect of multiple wrongful payments. It prevents duplication by clarifying that the tribunal may not make an order if one has already been made successfully by an enforcement authority in respect of the same payment. The clause gives choice to leaseholders, which I am sure we are all in favour of, to seek their own resolution to any prohibited rents that have been paid. They can choose to apply to the appropriate tribunal without involving their local enforcement authority. I hope that we can all agree that that is a helpful provision to ensure that leaseholders can take their own action if desired.

Clause 15 makes equivalent provision to that in clause 12 in relation to interest that may be ordered on top of an order to repay prohibited rent. Clause 15 applies where the recovery order is made by the appropriate tribunal rather than an enforcement authority. As in clause 12, the clause provides that interest is payable from the date of a payment until the date it is repaid. The interest rate is the normal rate that applies to court judgments: a simple interest rate of 8% per annum. To ensure that the amount of interest to be paid is not disproportionate, there is a cap on the amount of interest that a person may be required to pay. It must not exceed the amount of the wrongly paid rent that the tribunal orders to be repaid. As I said in relation to clause 11, which clause 15 mirrors, it is only fair that a leaseholder should not only be recompensed for the amount that they are out of pocket but recover interest on it.

[Mike Amesbury]

With regard to the tribunal, I referenced the evidence from the National Leasehold Campaign and the Leasehold Knowledge Partnership, and that David versus Goliath arena. I do not think it is a matter of choice; I wonder why anyone would opt for this route versus the other provisions in the Bill. Clause 15 is very straightforward, applying the same principle.

[Eddie Hughes]

I thank the hon. Gentleman for his contribution. Just because we cannot imagine the circumstances in which it would be necessary does not mean that they do not exist. Whether a person should choose to pursue it themselves depends on how well informed and able they are. Perhaps they might find it easier or quicker. I am not sure, but the option should at least be available to them.

[Mike Amesbury]

That demonstrates why clause 8 and the duty to inform were so important. That would, again, help with this potential.

[Eddie Hughes]

I can say only what I said earlier: I do not think that clause 8 and the duty to inform are required. I am not sure that it would necessarily make it easier. The hon. Gentleman questioned why somebody would want to pursue it themselves. As I said, they would no doubt be a well informed and able person. I am not sure that the duty to inform would have applied.

--- Later in debate ---

[Eddie Hughes]

Clause 17 enables enforcement authorities to assist leaseholders, where they request it, with various applications to the appropriate tribunal for redress. We have discussed that a leaseholder may apply to the tribunal for a recovery order to recover any permitted rent, along with any interest that would have been payable. We have also discussed the provision to apply to the tribunal for a declaration that will establish for the record whether a term in a lease is a prohibited rent, and if so, what the permitted rent is.

We want to ensure that the system of redress for leaseholders is easy to navigate. That is why we have taken a belt-and-braces approach whereby enforcement may take place via the enforcement authorities or a leaseholder may seek redress directly by application to the appropriate tribunal. Should a leaseholder wish to do this, the clause makes it clear that an enforcement authority may offer assistance to the leaseholder with that process. I hope hon. Members agree that it is important to give enforcement authorities the power to offer appropriate assistance to leaseholders who wish to seek redress directly from the tribunal. The clause achieves that.

[Mike Amesbury]

The clause seems fairly proactive, essentially hand-holding through the process, which in one dimension is most welcome. However, I still question the incentives for people to go down the enforcement authority route—trading standards—rather than the tribunal route for cost recovery. I am curious.

[Maria Eagle]

I have a similar concern to my hon. Friend’s. The clause states that, “An enforcement authority may,” not “must”, which means that it may not. It may decide that it does not wish to. If it were to take enforcement action itself, it can retain the proceeds of any enforcement that occurs, but there is no indication that the costs of assisting a tenant, which may be just as an extensive as if it were to carry out the enforcement action itself, are recoverable in any way. Does that not suggest that the relevant enforcement authority may choose not to?

--- Later in debate ---

[Eddie Hughes]

Clause 19 is included to prevent a potential loophole whereby a landlord might charge an administration fee in relation to a peppercorn rent. This measure is achieved by amending the Commonhold and Leasehold Reform Act 2002, thereby requiring that no administration charge is payable in relation to the collection of any ground rent that is restricted to a peppercorn by this Bill. Subsection (5) provides a leaseholder with recourse to redress, if needed. It enables a leaseholder to apply to the first-tier tribunal in England or to a leasehold valuation tribunal in Wales for an order varying the lease on the ground that such an administration charge is not payable.

A further measure, should it be needed, is included in subsection (6), which amends the Landlord and Tenant Act 1987. This enables a leaseholder to apply to the relevant tribunal to request that it makes an order appointing a manager where prohibited administration charges have been made. A tribunal-appointed manager does not act on behalf of the landlord; they are appointed by the tribunal to take over the landlord’s right to manage the building. This is a strong measure, intended to provide a deterrent to help ensure that a landlord does not continue to seek administration charges in relation to a peppercorn rent under the Bill. Clause 19 is necessary to ensure we guard against any potential loopholes in this legislation.

[Mike Amesbury]

I welcome clause 19. The interest in charges that are applied under various titles is well documented. I think the clause does close a loophole. Of course, the Opposition have stated our desire and concern to see these provisions extended to some 4.5 million leaseholds. There are 1.5 million households that are in leaseholds, with some 270,000 in the north-west and a similar figure in Wales. This measure obviously applies to those going forward. I welcome the clause within the narrow scope of the Bill.

[Eddie Hughes]

I commend the clause to the Committee.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clause 20

Amendments to the Housing Act 1985

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Eddie Hughes]

My understanding is that consideration has been given and we do not think there is anything, but we need to be prepared should the circumstance arise. That is my understanding of the requirement.

[Mike Amesbury]

What would those circumstances be? Can the Minister give us examples?

[Eddie Hughes]

As I said in my speech, the law is complex and there are interdependencies between various Acts. The provision makes sure that there is nothing that we have missed in terms of another piece of legislation that would be relevant and would have an impact; it gives us the opportunity to make an amendment appropriately. That is my understanding.

--- Later in debate ---

[Dr Neil Hudson (Penrith and The Border) (Con)]

It is a great pleasure to serve under your chairship, Ms Elliott. I am grateful to the Minister. I very much welcome the Bill. It is a tightly scripted, focused Bill, which will accelerate its passage. I welcome these clauses, which allow the Secretary of State and the Government to bring in subsequent and consequent amendments, if need be.

One of the key themes of the Bill is that it gives homeowners and leaseholders more of a sense that they have rights over the building they own and that is their home. Currently, in many cases, the leaseholder has to apply to the freeholder for permission to do things to the property that they consider to be their home. That can include whether they can keep a pet in the building. Is that something that the Government will look at as we move forward? When someone owns their home, they should have the right, as a responsible pet owner, to keep a pet. I declare a strong interest in that, both personally and professionally—I am a veterinary surgeon and am fully aware of the physical and mental health benefits to people and animals of the companionship of responsible pet ownership. Will the Government look at those rights moving forward?

[Mike Amesbury]

The hon. Gentleman spoke about people owning their home. This is the whole issue with leasehold; people do not own their home. I wish him well with the pets, and his practice.

--- Later in debate ---

[Eddie Hughes]

Clause 23 defines key terms for the purposes of the Bill. For example, it defines “long lease” and “rent”. Only long leases are regulated by the Bill. A long lease is generally a lease granted for more than 21 years, although some other types of lease are also captured. These are leases for a term fixed by law under a grant with a covenant or obligation for perpetual renewal—that excludes a situation where the lease is a sublease from a lease that is not a long lease—and leases terminable after a death, marriage or civil partnership. In the Bill, “rent” includes

“anything in the nature of rent, whatever it is called.”

Clause 23 also signposts where other terms, such as “peppercorn rent” and “regulated lease”, are defined elsewhere in the legislation.

We have arrived at these definitions after careful consideration. They have been drafted with the intention of avoiding the creation of loopholes that could be exploited to get around the intention of the legislation. The fact that ground rent has not been specifically defined is a very conscious decision, and has been arrived at following a great deal of deliberation. Rent has been defined broadly, and in the way it has been, to ensure that it captures the nature of ground rent without being too specific and risking landlords reintroducing it by another name.

Changing these definitions risks undermining the intention of the legislation. We have, however, provided some further clarification to the definition of rent in response to issues raised in the other place. Specifically, clause 23(3) makes it clear that other legitimate charges—such as service charges, insurance and so on—that might be reserved as rent in a lease will not be reduced to a peppercorn under the legislation merely because they are reserved as rent in the lease.

[Mike Amesbury]

Again, I welcome the intention of the clause and its various provisions and the amendment, but in relation to service charges, which relate to an earlier narrative under other clauses, there is still the potential that, as we deal with the issue of ground rents, the issue will become service charges. They are not at all transparent. We can look at managing agents, for example. They seem to be accountable to nobody other than themselves. You, Ms Elliott, or I, or anybody in this room, could set up as a management agent and tuck away some interesting so-called service charges. As I said, they are not transparent. We are absolutely clueless as to what some of them are for. An example is car-parking payments. Additional charges for that are sometimes astronomical. I think we could see those consequences that I referred to before. I gave the example of charges going up by 500% or 400% across the country as a result of this measure. We need assurances about that. I know that the Government and the Minister have tried to tighten things up, to prevent those loopholes, but assurance is needed, particularly for leaseholders out there who may be listening to our proceedings.

[Eddie Hughes]

I completely understand the hon. Gentleman’s point. It is incumbent on the Government to ensure that when the legislation is in force, we are in contact with professional organisations, tenants groups and so on to ensure that, if we see a pattern of egregious behaviour of the type that he has described—people effectively trying to reclaim costs through some other route—we find a means to address it. I understand his concern, and I look forward to working with him, once the legislation has taken effect, to ensure that we track any unfortunate consequences.

Question put and agreed to.

Clause 23, as amended, accordingly ordered to stand part of the Bill.

Clause 24

Crown application

Question proposed, That the clause stand part of the Bill.

Leasehold Reform (Ground Rent) Bill [ Lords ] (Third sitting)

Mike Amesbury Excerpts

Committee stage
Thursday 9th December 2021 Public Bill Committees

[Mike Amesbury (Weaver Vale) (Lab)]

I beg to move amendment 10, in clause 26, page 15, leave out subsection (4).

This amendment aims to ensure that the provisions apply to retirement properties from the time at which they come into force for other types of property, whereas at present the Bill will prevent those provisions coming into force for retirement properties before April 2023.

It is a pleasure to serve under your chairmanship once again, Ms Elliott. With my final amendment—not including new clauses—I want to raise something that was raised repeatedly in the other place: the question of retirement properties. I understand that, after a review, the Government have dropped their plans to exclude retirement homes and they will be included after a period of transition. I am glad to see that the Government and Ministers have moved forward on this. However, like Members of the Lords, I see no reason why those living in retirement properties should not be given the same rights as those in other types of leasehold property, at the same time. In the spirit in which we have tabled other amendments, this amendment’s aim is to ensure that all leaseholders are treated equally and that the 50,000 or so leasehold owners of retirement properties are not subject to unjust costs while other leaseholders are free from them. That is something that Members from across the Committee have raised.

Should the Minister not want to accept the amendment, I would be grateful if he outlined why exactly retirement property has been given this longer transition period. Given that this is a growing market and we should certainly be encouraging our senior citizens who want to rightsize—freeing up family homes for those who need the space, while living somewhere that suits their needs—what assessment has the Minister made of the number of leaseholders who will fail to benefit from the new system should they purchase somewhere before 1 April 2023? What will he say to them? The stories about retirement housing and fees are some of the worst in the housing market. They have been very well documented, and I know that the Minister is familiar with them. Can the Minister outline what he intends to do about that in the transition period right up until April 2023?

[The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Eddie Hughes)]

It is a pleasure to see you back in the Chair, Ms Elliott.

As hon. Members will know, it is our intention to protect leaseholders from unfair practices through the Bill by ensuring that future regulated leases are restricted to a peppercorn rent, unless excepted. The Government believe that those who purchase retirement homes should benefit from the same reform as other future leaseholders. Although we would like the provisions of the Bill to come into effect as soon as possible, we have decided to give the retirement sector additional time to prepare for these changes. The hon. Member for Weaver Vale has tabled amendment 10 to remove this provision and do away with the transition period entirely. I am grateful for his consideration of this point and would like to explain the reasoning for including a transition period for retirement properties, and why I believe that that is the right thing to do.

The plan for peppercorn ground rent was announced in 2019, following the Government consultation entitled “Implementing reforms to the leasehold system”. At the time, we also announced that we would proceed with the proposal to exempt retirement properties from the peppercorn ground rents policy. That decision was made on the basis that developers of retirement properties incur additional costs as a result of the communal spaces that are characteristic of these kinds of development. However, having reviewed this in further detail, we concluded that the argument in favour of an exemption did not outweigh the benefits of ensuring that those purchasing retirement homes can take advantage of reform in the same way as any other leaseholder could.

The Government believe that it is a matter of fairness that those buying retirement properties should be able to realise the benefits of this legislation. It was therefore announced in January 2021 that the exemption for retirement property would no longer apply, and we have offered the transition in recognition of that change of policy. As such, the Bill will come into force no earlier than 1 April 2023 for retirement homes. This transition period will allow developers of retirement properties time to adapt to the forthcoming changes. We believe the transition period in the Bill has been fairly granted in balancing the needs of developers and fairness to leaseholders.

--- Later in debate ---

[Eddie Hughes]

It is based on when we expect the Bill to come into force in its standard form, and then allowing a subsequent transition period. Assuming that the Bill comes into force quickly after Royal Assent—we have committed to that happening within six months—with the transition period following on from that, we anticipate the provisions coming into force in April 2023. On that point, I ask the hon. Member for Weaver Vale to withdraw the amendment.

[Mike Amesbury]

I thank the Minister for his response, and I thank other Members for their contributions. This measure would be a step forward. Martin Boyd of Leasehold Knowledge Partnership has consistently expressed concerns about the matter in the past. I know that Members and stakeholders have lobbied for these properties to be exempted completely, which would have been the wrong course of action. I concur with the hon. Member for Cities of London and Westminster in hoping that the market responds positively to the changes. In the interests of minimalist legislation and in the spirit of co-operation as we march towards Christmas, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Eddie Hughes]

The clause makes provision for the commencement of the Bill. The substantive provisions of the Bill will come into force on a day appointed by the Secretary of State in regulations, but Members can rest assured that we intend there to be no unnecessary delay in implementation. I thank the hon. Member for Garston and Halewood, who is not in her place, for her question on Tuesday regarding the commencement of the Bill following Royal Assent. We understand her concerns about the commencement date, but setting a hard date right now would mean no flexibility should other issues arise making it difficult to achieve.

I assure the Committee that we will press ahead at full steam to bring the legislation into force, but we must also be practical and allow for contingencies, should they arise. That is why we think it is right to have a contingency period for us to implement the provisions within six months of Royal Assent. For completeness, I reiterate what I said in relation to amendment 10: the clause also provides that the Bill cannot be brought into force any earlier than 1 April 2023 with regard to retirement property. We are keen that leaseholders of retirement properties get the same benefits from the legislation as other leaseholders, but we also want to ensure that the sector has time to prepare for the change.

Question put and agreed to.

Clause 26 accordingly ordered to stand part of the Bill.

Clause 27

Short title

Amendment made: 8, in clause 27, page 15, line 25, leave out subsection (2).—(Eddie Hughes.)

This amendment removes the privilege amendment inserted in the Lords.

Clause 27, as amended, ordered to stand part of the Bill.

New Clause 1

Ground rent for existing long leases

“Within 30 days of the day on which this Act comes into force, the Secretary of State must publish draft legislation to restrict ground rents on all existing long residential leases to a peppercorn.”—(Mike Amesbury.)

This new clause aims to ensure that the Government introduces further legislation to remove ground rent for all leaseholders, whereas the Act currently only applies to newly established leases.

Brought up, and read the First time.

[Mike Amesbury]

I beg to move, That the clause be read a Second time.

Today is the last day of the Committee—I know people will be disappointed about that—and my last day sitting opposite the Minister. Indeed, it is my last day shadowing the housing brief, a role I have thoroughly enjoyed. I hope that I have made some difference with challenge and scrutiny in the building safety crisis and on leasehold reform. I wish the Minister and his departmental team well, and I urge them to be bolder in their response to the crisis. Ultimately, of course, Opposition Members and I want to secure a Labour Government in the not-too-distant future, although I know that not everyone in Committee shares that objective.

--- Later in debate ---

[Eddie Hughes]

I thank my hon. Friend for his endorsement and will turn to him for advice and support as we formulate that policy. However, we do need to take time to get the reforms right. Hon. Members can rest assured, though, that reforming the leasehold system is a high priority for the Government. I therefore ask the hon. Member for Weaver Vale to withdraw the motion.

[Mike Amesbury]

In this case, I am going to agree to disagree. The measures in the new clause are a fundamental aspect of legislation. We have spoken about how all leaseholders should be equal, and indeed collectively we want to ensure that the feudal leasehold system is left in the history books once and for all.

On Second Reading, the former Secretary of State, the right hon. Member for Newark (Robert Jenrick), said that the Bill was

“the appetiser for the main course”

while I referred to the desire of Opposition Members and, importantly, the desire of the constituents we represent, for an

“all-you-can-eat buffet of reform.”—[Official Report, 29 November 2021; Vol. 704, c. 714-33.]

We have waited long enough. Indeed, we have had this nonsensical, unjust system for hundreds of years in England and Wales, and I know that none of us is proud of it, so I will not withdraw the motion. The Minister has examples on his patch where existing leaseholders will be trapped in the current system, but over the road or in another phase of a development, properties will be ground rent free. That is wholly unjust and has real consequences. I encourage all members of the Committee to support the new clause.

Question put, That the clause be read a Second time.

--- Later in debate ---

[Mike Amesbury]

I beg to move, That the clause be read a Second time.

Our system of leasehold is unfair, unfit for purpose and a hangover from a time that should be consigned to history, as I have stated throughout the Committee and throughout the journey of the Bill. The best answer to fixing the issues with leasehold is to move to a system that most of the world moved to a long time ago. That system is commonhold.

Current levels of commonhold are very low, so the new clauses asks the Government to understand the impact the Bill will have on levels of commonhold. In the other place, the Minister claimed the Bill would level the playing field, and it would be useful to have that information once the Bill comes into force. This Minister will be aware, I hope, that the Mayor of London has committed to furthering commonhold and pledged in his manifesto to start further trials in our capital. Will the Minister tell us how much longer the rest of the country has to wait to learn what is the Government’s policy on increasing commonhold uptake beyond the claim made in the narrative about the Bill?

Will the Minister update the Committee on how the Commonhold Council is coming along, what progress is being made and when we can begin to expect concrete change to take place? Commonhold should be the default tenure; that is something hon. Members across the House have spoken about for a number of years, and this is a real opportunity to turbo-charge that change. I look forward to the Minister’s reply.

[Eddie Hughes]

The hon. Gentleman’s new clause 2 would require the Government to produce an assessment of the legislation’s impact on the level of commonhold ownership. The impact assessment would have to be published within 60 days of the Act’s passage. However, as he said himself, the problem with commonhold in this country is that, despite its name, it is not a common tenure at all. Fewer than 20 developments have been created since the Commonhold and Leasehold Reform Act 2002 Act came into force.

We want that to change. We want to see the benefits of freehold ownership extended to more homeowners. The change brought about through this legislation will help to create the conditions for more commonholds. It will level the playing field, as it will remove an incentive for developers to build leasehold rather than commonhold homes. However, we also need further to lay the groundwork for greater use of commonhold, which is why we have established the Commonhold Council—a partnership of industry, leaseholders and Government—to prepare consumers and the market for the widespread take-up of commonhold. It is also why we asked the Law Commission to recommend reforms to reinvigorate commonhold as a workable alternative to leasehold, for existing and for new homes. We are reviewing those proposals and will respond in due course.

The new clause looks at the interaction between the Bill and commonhold. We have of course considered that interplay, and believe that the Bill and our work to increase uptake of commonhold are consistent with our aim of more fairness and transparency for homeowners. The Bill and our commonhold reform programme are complementary and we do not believe it necessary to conduct a specific impact assessment as the new clause demands. As hon. Members will know, such exercises also take up considerable resources. I think we are all agreed that we should avoid delaying further leasehold reform, and I am afraid that would be the effect of the new clause.

The hon. Member for Weaver Vale asks about progress on the Commonhold Council. All I can say is that work is ongoing. I am sure the chair of the council, Lord Greenhalgh, will continue to push forward, and we will be publishing more information on its work early in the new year.

I am sorry that the hon. Gentleman felt it necessary to table the new clause, but I hope he will consider withdrawing it.

--- Later in debate ---

[Mike Amesbury]

I thank the Minister for his detailed response. It would be useful to have an update from the chair of the Commonhold Council for shadow Ministers, and to all members of the Committee. That would be appreciated. In the spirit of co-operation, it was important to table the new clause as part of the narrative and to get the detail on the record. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 3

Service charges

“Within 2 years of the passage of this Act, the Secretary of State must publish an assessment of the impact of the Act on the level of service charges and other costs charged to holders of long residential leases.”—(Mike Amesbury.)

This new clause aims to ensure that the Government publishes a report on the impact of reducing new ground rents on other costs incurred by leaseholders.

Brought up, and read the First time.

[Mike Amesbury]

I beg to move, That the clause be read a Second time.

This final new clause addresses a point made to me by a number of stakeholders and members of the Committee over the past few weeks. It would ensure that the Secretary of State published an assessment of the impact of the Act on the level of service charges and other costs charged to leaseholders.

Ground rents have been a convenient way of pushing up the costs of leasehold, and an easy way of making more money off leaseholders, but they are not the only way. As we have said, new ground rents are tapering off in number, but other charges have begun to crop up and are starting to take their place—ground rents for parking spaces, rather than residential units, is one example. We are already beginning to see a number of these charges emerge. The Leasehold Knowledge Partnership gives several examples on its website. I encourage Members to look at them.

In an earlier debate, I raised the point that service charges are increasing as freeholders exploit other income streams. Those freeholders do not seem to care about the financial pressure they are putting on leaseholders, or that these are people’s homes, where they deserve to live without being exploited by whatever organisation has bought the freehold or chosen to manage their property.

The clause would require details of charges to be published within two years of Royal Assent. That, frankly, is because we face greater reform, and so I expect that we might see these trends emerging before the Government introduce more legislation. Developers looking to explore other avenues of income will bide their time until they feel the coast is clear.

I tabled the new clause in the hope of raising with the Minister again that we risk playing Whac-a-Mole with leaseholder costs; we could ban one stream of income only to find that freeholders have discovered another. I ask the Minister to outline exactly how he expects to prevent that.

[Eddie Hughes]

As we draw towards the end of the Bill Committee, I thank Members on both sides of the room for their considered input. We work best when we work collaboratively. As I have said a few times, this is an issue I started to champion as a Back Bencher, so it is an incredible privilege to be the Minister leading the discussions. I thank everyone for their time.

New clause 3 brings us back to the issue of service charges, and to concerns about freeholders using such charges to charge ground rent by another name. The Government believe that all fees and charges should be justifiable, transparent and communicated effectively. Service charges that have been artificially inflated to make up for lost ground rent income would not meet those requirements. If any landlord seeks to recoup what they consider to be lost ground rent or other funds through service charges or any other charge, the wide definition of the term “rent” in the Bill will allow a tribunal to take the charge into account when deciding if it is actually prohibited rent. That is why the Bill has been drafted as it has, and why we have adopted a flexible definition of rent. As I explained in a previous sitting on Tuesday, the definition relies on its naturally understood meaning and includes anything in the nature of rent, whatever it is called. Where a freeholder has attempted to get around these provisions, the definition allows the tribunal to consider, in each case, whether such a charge actually represents a prohibited rent, even if it is not explicitly called a ground rent.

As was discussed earlier in the week, the penalties for landlords who charge a prohibited rent are significant —a maximum of £30,000 per lease. If a landlord had a block of 10 flats, then the penalty they would be risking would reach a significant amount.

We have provided a robust system with not only a serious deterrent, but a route for challenging freeholders who act this way. That is all relevant to the new clause, which asks for an impact assessment. I understand the concerns that motivated the new clause, but hopefully the hon. Member for Weaver Vale can appreciate that the drafting of the Bill is intended to specifically guard against service charges being used in the way that he mentions.

--- Later in debate ---

[Eddie Hughes]

I thank the hon. Lady for that intervention. There are two sides to that story. The fact that this legislation is being enacted, and the attention that will be drawn to that, will hopefully inform a good number of leaseholders. Also, the possible financial penalty—up to £30,000—should act as a significant deterrent for the freeholders, who are much more likely to be well informed and will hopefully be severely deterred by that. As the description of rent is so wide-ranging—it includes anything in the nature of rent—they will well understand that, should they be challenged at tribunal, they would likely be found out.

Given the two sides of that equation, there is good reason for us to be confident that nobody will try to introduce rents through the back door. On that note, I once again ask the hon. Member for Weaver Vale to withdraw the new clause.

[Mike Amesbury]

I thank the Minister for his detailed response, and all those Members who made powerful and informative interventions. Undoubtedly this is a live issue. I said, in relation to an earlier clause of the Bill, that any one of us could set up as a management agent and apply some interesting service charges. We have seen evidence of that weekly—daily. I urge the Minister, and certainly the Department—he spoke about keeping a serious watching brief—to respond to the problem. This Bill is the appetiser, we are told, but they should certainly respond to it in the main course. Opposition Members and, indeed, Government Back Benchers will rightly hold their feet to the fire.

In the spirit of co-operation, and given that this will be my last input today, we will withdraw the new clause. I genuinely thank everybody for giving their valuable time to consideration of the Bill so far. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Bill, as amended, to be reported.

Leasehold Reform (Ground Rent) Bill [Lords]

Mike Amesbury Excerpts

Report stage & 3rd reading
Monday 24th January 2022 Commons Chamber

[Mike Amesbury (Weaver Vale) (Lab)]

I beg to move, That the clause be read a Second time.

[Madam Deputy Speaker (Dame Eleanor Laing)]

With this it will be convenient to discuss the following:

Amendment 1, in clause 2, page 3, line 16, at end insert—

“Retirement developments where some leasehold residential flats have already been sold prior to commencement but others remain unsold

(12) A lease is an excepted lease if it is a lease of a retirement home in a development, where—

(a) other residential flats within the development have sold and completed on a long leasehold before the relevant commencement day under section 26(4) but it is a flat within the development which remains unsold, and

(b) the development commenced prior to 6th July 2021.”

This amendment seeks to avoid retirement developments where properties are on the market, but not fully sold by the time the Act comes into force for retirement properties, needing to have two lease types within one building, some paying ground rents and others funding the development of communal areas by another method.

[Mike Amesbury]

Let me begin by thanking all colleagues who have helped this short but important Bill through its stages so far, including our friends in the other place. In particular, I thank those who joined the Minister and me in scrutinising the Bill in Committee. Let me also begin with an apology to the Minister. I told him on the occasion of our final meeting in the Committee that that would be my last outing in respect of housing, having handed over the portfolio to my capable hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook), who is sitting behind me. I was wrong to say that, and I am very pleased that I was wrong. I stand here today ready to continue to raise an issue which matters hugely to me, to many of my constituents, and to leaseholders across the country—and, indeed, to the Minister himself.

Although the Bill is short, many important issues in it have already been covered extensively, first by our colleagues in the other place and then by Members here, in Committee. I do not wish to repeat too much of what has already been said, but the two new clauses tabled for Report are an opportunity for Members on both sides of the House to raise again two important aspects of the Bill.

New clause 1 would require the Government to produce draft legislation within 30 days to reduce ground rents to a peppercorn in existing long residential leases. The antiquated feudal system of leasehold is unjust for the many and not just the new. People in England and Wales have been trapped in that relic from the past for far too long. I urge the Minister to set them free, level up their life chances and support the new clause.

New clause 1 proposes that the narrow scope of the Bill be simply widened to improve the lives of leaseholders—the 4.5 million people trapped in this feudal system. Some 1.4 million of them are in houses, many in the north, the north-west and Wales, and may be experiencing high ground rents on top of other exploitative terms built into their leasehold contracts.

[Theresa Villiers (Chipping Barnet) (Con)]

We are all united in wanting to stamp out abusive practices with ground rents, but is the defect of the hon. Gentleman’s amendment not that it amounts effectively to a confiscation of existing property rights? That in itself has fairness issues, but it also deters future investment in our building stock. That future investment is needed, for example, if we are going to insulate against climate change and turn our buildings into more carbon neutral ones for the future.

[Mike Amesbury]

A feudal system of kings and barons needs to be kicked into touch. It is unjust and it is unfair. I am sure the right hon. Member will make an informed decision when it comes to the Division Lobby, but I know whose side I am on.

[Mr Clive Betts (Sheffield South East) (Lab)]

The Levelling Up, Housing and Communities Committee looked at the leasehold issues in some detail and produced a report that led to the Competition and Markets Authority conducting its investigation. We looked at the issue of property rights and took advice and evidence from leading property lawyers, who said that where there is a general public interest, it is perfectly reasonable under the European convention on human rights to go down the road being suggested, and that even for existing properties, the ground rent system and other leasehold issues could be changed to reflect the fact that currently they are simply unfair.

[Mike Amesbury]

I thank my hon. Friend for that intervention and all the work he and the Select Committee have done to move the matter forward. Together with the Select Committee and many others, I certainly want to see this system kicked into history.

I reaffirm that campaigners have waited long enough for change, and we should not keep them waiting any longer. A former Secretary of State, the right hon. Member for Newark (Robert Jenrick), referred to the Bill as the “appetiser” before “the main course”. Again, I affirm that what we need is an all-you-can-eat buffet of reform here and now.

Amendment 1, tabled by the right hon. Member for New Forest West (Sir Desmond Swayne), would prevent some retirement properties from being bound by the legislation. Unfortunately, we are not able to support the amendment. In fact, in Committee I tabled an amendment that would have done quite the opposite. Those who buy retirement properties should have been able to benefit from this new legislation and be put on par with everybody else. Justice is justice. The right hon. Member has certainly been consistent, but consistently wrong on this matter.

[Sir Desmond Swayne (New Forest West) (Con)]

Has it occurred to the hon. Gentleman that for many purchasers it will be in their interests to pay a lower purchase price and pay a ground rent, rather than to have to pay a very much higher price at the outset?

[Mike Amesbury]

I will agree to disagree. The Government have proposed a compromise, giving a longer transition phase for retirement properties, and we will support that approach, as was stated in Committee.

I find that the concerns of retirement community developers do not outweigh the need for those buying retirement properties to be treated fairly as consumers. Given the notice that the retirement community has had about the change, the transition period is generous enough. Many in the industry have done the right thing and already moved away from this income stream model, and I ask that their colleagues do the same.

In conclusion, the Bill marks another milestone in the slow journey to put the feudal system of leasehold into the history books. I thank all those campaigners who have educated legislators and the Government to secure change. The investigation and intervention from the Competition and Markets Authority have shone an authoritative light on the leasehold scandal. Developers have been exposed and are now responding by ditching the practice of doubling ground rents every 10 years. I urge Ministers to strengthen the Bill for all leaseholders and back new clause 1.

[Sir Desmond Swayne]

I draw your attention, Madam Deputy Speaker, and the attention of the House to my entry in the Register of Members’ Financial Interests.

I am deeply embarrassed about the way that the retirement living industry has been treated over the past few years in the progress to this Bill. In recognition of the significantly greater capital costs of building developments that have communal areas, which have traditionally been funded through an income stream of ground rent, the industry was granted an exemption, or an assurance that it would be exempt from the provisions of the Bill, back in June 2019. That exemption was then withdrawn in January 2021. I understand that the decision to withdraw the exemption was made almost a year earlier, in February 2020, and that discussions about revoking the assurance of exemption had actually begun in August 2019. Throughout all that period, the industry continued to be reassured that the exemption was good and would hold, and it was not.

Throughout that period, the industry continued to raise capital on the basis of the model with which they had been told they could continue. The amendment goes one tiny little bit towards trying to remedy the damage that has been done. It accepts that the practice will have to end, but it asks for one tiny concession, namely that, when the provisions of the Bill bite in March 2023, properties that are part-sold can continue to sell the residual remaining flats or properties on the basis of a continued ground rent. Without that, what we will have is some properties within a development being worth significantly more in terms of the purchase price than others, and some properties paying a ground rent and others not. It will be hugely complicated and divisive. Therefore, the amendment merely asks for that to be addressed. At the most, if the provision were to pass, we anticipate that this would account for about 2,000 properties. I ask the Minister to reflect on this, and, even at this late hour, accept the amendment.

--- Later in debate ---

[Mike Amesbury]

I thank the Minister and everyone in the House who has been involved with the Bill: the Clerks, the Library specialists and the Bill team. I also thank hon. Members who have participated in each part of our proceedings, giving their time, effort and wisdom. I thank the many Members who contributed on Report: the right hon. Member for New Forest West (Sir Desmond Swayne), who is not in his place but we agreed to disagree; my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders), the co-chair of the all-party parliamentary group on leasehold and commonhold reform; my hon. Friend the Member for Sheffield South East (Mr Betts), the Chair of the Levelling Up, Housing and Communities Committee; the hon. Member for Warrington South (Andy Carter); my hon. Friend the Member for Reading East (Matt Rodda); and the hon. Member for Strangford (Jim Shannon). They all made very powerful contributions.

I would like to reiterate and re-affirm the comments made by the Father of the House, the hon. Member for Worthing West (Sir Peter Bottomley) and put on record my thanks, and that of the Opposition, to the incredible campaigners at the National Leasehold Campaign, Catherine Williams, Katie Kendrick and Jo Darbyshire, and at the Leasehold Knowledge Partnership, Martin Boyd, Sebastian O’Kelly and, of course, the late Louie Burns. I want to pay my respects to the Father of the House, who has consistently campaigned on this issue and educated others, including me. I know he will continue to do so. I thank him.

They and many others have done the hard graft in fighting for leasehold reform and, with this Bill, they are only now beginning to see their efforts bear fruit. It is unfortunate that their wait will continue. The Bill represents the picking of a single apple in the orchard. It really is narrow in scope, a point acknowledged by the Minister. It does not attack the many issues raised by Members across the House that plague existing leaseholders. It will not deal with existing ground rent costs, untransparent service charges or management agent fees. It is crazy that anyone of us here or beyond could set themselves up as a management agent and charge astronomical and unfathomable service charges. Those issues must be dealt with sooner rather than later.

The Bill will not force accountability on freeholders or managers for their actions. It will not cover, as has rightly been pointed out, historical building safety costs, which are still being debated at considerable length in this Chamber. It will not deal with the cost or difficulty in obtaining enfranchisement, unfair contract terms or the many other issues still faced by homeowners locked in leaseholds, such as insurance, which is a major unfairness. The unfairness and injustice must be gone for good. The Government need to take further action. Leasehold is a system hundreds of years old. A 28-page Bill is not enough to finish it off—and we need to finish it off. The Bill is a good attempt at preventing future wrongs, but with so many real existing wrongs in front of us it is easy to see why leaseholders sitting in properties today will feel short-changed when new neighbours literally across the road will be freed from the problems that are still impacting them—a real injustice.

I am partially pleased—partially—that in advance of today’s debate the Government published a consultation on wider leasehold reform, but let us not pretend that that is a considerable step forward. We have been here before. We have had numerous consultations. A consultation paper published in 2017 on tackling unfair practices in the leasehold market was closely followed up in 2018 by consultation on implementing reforms in the leasehold market. We have had announcement after announcement from Government press officers. What we have not had so far is real and fundamental change. After hundreds of years of leasehold, patience is wearing thin. England and Wales are lagging far behind the rest of the world and our neighbours closer to home—I referred to Scotland.

In conclusion, the Government will have to do more, and do it quicker than “in due course”, to convince leaseholders that they are serious about taking on those vested interests to which Members from across the Chamber have referred. Members tonight have echoed the view that we need a clear timetable. Be the history-maker, Minister, set people free and usher in an age of commonhold.