Leasehold and Freehold Reform Bill

Committee (2nd Day)

Clause 36: Enfranchisement or extension: new method for calculating price payable

Amendment 23

23: Clause 36, page 29, line 29, at end insert “and has effect subject to section (LRHUDA 1993: Non-development guarantee)” Member's explanatory statement This amendment is related to another amendment in the name of Baroness Andrews inserting a new Clause (LRHUDA 1993: Non-development Guarantee).

My Lords, in moving this amendment I shall also speak to Amendment 24. These might seem to be rather arcane amendments; Amendment 23 is a technical amendment and Amendment 24 is the substantial point and a proposed new clause. This might look like an arcane point but it is a very significant one and it is simple to correct. The amendment asks the Government to act on a promise to remove a significant blockage, which at the moment increases the cost of enfranchisement to leaseholders who are threatened with upward extensions to blocks of flats and have to pay the freeholder extra for the possible profit he might have made had he chosen to develop. The proposed new clause, although detailed— I apologise for the length of my speaking note—would remove the blockage. I am extremely grateful to noble Lords around the Committee for supporting this, and to the Minister, who has already met me. We all agreed that this is something that must be put right in the Bill.

I declare an interest as a leaseholder in a block of flats that has been under threat of an upward extension for not two years but five years. The consequent blight and anxiety have been considerable. Asking for compensation for not extending upward is now an accessible and popular option for freeholders looking for more profit, especially when it falls under the relaxed requirements of permitted development. That means that there would be no automatic planning hearing, and often what would count as a major development slips by for determination simply by planning officers. There is no requirement for affordable housing, friendly accommodation that would help disabled people, or considerations of planning issues such as the impact on structural stability or protection from massive disturbance for residents.

Given that upward extension can be authorised in wider circumstances than the normal planning rule, it is estimated that there are about 2.2 million custom-built private sector leasehold flats in blocks where development value—for example, for upward extension—could be an issue, and therefore where leaseholders might face this additional obstacle to enfranchisement. There are certainly many people already affected by upward development in London alone.

The Minister knows I have enormous respect for her—she and I have solved many problems outside this House together, and I am sure that we can do so inside the House as well. Perhaps in her response she could explain to me why the impact statement recommends something that the Law Commission did not recommend, and which I find slightly bizarre—that

“the freeholder will be paid reasonable out of pocket expenses that have been genuinely incurred in pursuit of development”.

Why do the Government feel they have to reward the developer again for doing this, when the Secretary of State in another place is all for squeezing freeholder revenue streams, not finding new ones?

This is about helping the Government. The proposed new clause would speed up the process of decision— I am doing the Government’s job for them. To cut through the legal language necessary in the proposed new clause, let me explain briefly how it would work, and how Amendments 23 and 24 relate to Schedule 5.

Amendment 23 makes a link between the non-development guarantee and Schedule 5. Paragraphs 2(2) and (4) of Schedule 5 restate the existing law in the 1993 Act and define development value in relation to the premises to be enfranchised as any increase in the value of the freeholder’s interest in the premises

“attributable to the possibility of demolishing, reconstructing or carrying out substantial works of construction on, the whole or a substantial part of the premises”.

Subsection (1) is the key provision of the proposed new clause. It covers the point that leaseholders can obtain

“a reduction in the price payable for collective enfranchisement in relation to any premises”

if the nominee purchaser—the leaseholder, or the leaseholder’s representative—guarantees not to pursue development. This is achieved by way of a non-development guarantee, or NDG, to be proposed when the necessary notice under Section 13 of the 1993 Act is given. The guarantee specifies that the nominee purchaser, if they acquire the freehold, promises not to carry out or allow others to carry out similar development works.

In proposed new subsection (2) we have provided that, in making this calculation, exact terms will be followed: works of

“demolition, reconstruction or substantial work of construction”