Leasehold Reform (Ground Rent) Bill [HL]

Report

That the Report be now received.

Clause 1: Regulated leases

Amendment 1

1: Clause 1, page 1, line 5, after second “a” insert “single” Member’s explanatory statement This amendment excludes leases of multiple dwellings from the definition of “regulated lease”.

My Lords, I take this opportunity to thank all noble Lords who have participated so far in the debates on the Bill and who have met me to discuss the policy and principles behind it. These discussions have led directly to the first set of amendments under consideration today. The government amendments in this group provide greater clarity in two key areas—rack rents and intermediate long leases—addressing issues that emerged both at Second Reading and in Committee.

First, government Amendment 1 inserts the word “single” into Clause 1 to put beyond any doubt or ambiguity the fact that the Bill is intended to apply only to a lease of an individual dwelling. My noble friend Lord Hammond has noted, both in this Chamber and in various meetings, that, as drafted, the Bill could perhaps be interpreted as also applying to cases where a lease is made up of multiple dwellings, held collectively.

Where a lease is for multiple dwellings, such as a where a business has a lease for all or part of a building, the intention of the policy is that there should be no restriction on such leaseholders arranging their finances with the superior landlord in a manner that suits the commercial needs of both parties. This amendment clarifies that the Bill is intended not to capture such leases but to protect individual leaseholders.

Noble Lords will have heard me say many times that this is narrowly focused legislation. Ending this legitimate practice is not, and never has been, the intention of this Government. By amending this clause so that it refers to a long lease of a “single” dwelling, we ensure that this legislation does not inadvertently put an end to this business model. The addition of this word provides welcome clarity on this matter, and I hope that the amendment will attract support from across the House.

Government Amendments 2 and 38 concern the exemption from the provisions of the Bill in cases where a leaseholder has taken up a long residential lease without the customary payment of a premium and instead pays a full rent for the term of the lease. As I am sure your Lordships are aware by now, the purpose of the Bill is to protect the large majority of leaseholders who pay a substantial premium on the granting of a lease, often with a mortgage, from further rental charges. Our guiding ambition here has been to put an end to the otherwise continuing unfairness of such leasehold arrangements.

However, the noble and learned Lord’s concern that the amendment is needed to enable variations to the term of the lease leads me to the main reason why the Bill is drafted as it is. It includes deemed surrender and regrants within the definition of a “grant of a lease” to avoid a potential loophole. Without this provision, a lease could be varied to change the term; for example, to the usual process of a lease extension. Such a variant would constitute a deemed surrender and regrant.

We have been clear that this Government do not want monetary ground rents in new leases, except in very limited exceptions, as provided for in Clause 2. We have been careful to ensure that lease extensions are not excepted, using the provisions in Clause 6. This amendment would undermine that and, indeed, the whole purpose of the Bill, and, therefore, I hope that the noble and learned Lord will not move it.

I now turn to Amendment 5, tabled by the noble Earl, Lord Lytton, which, if accepted, would mean that a large swathe of dwellings would no longer be subject to the peppercorn ground rent limit. I have listened carefully to the noble Earl’s explanation, but I remain unconvinced. The Government agree that landlords should of course be able to recover the costs they have incurred in providing and maintaining the building and any services provided. Legitimate service charges remain the proper and accountable way to do this. The amendment would in fact enable unlimited ground rents for many new leaseholders, with no ability to challenge them. As such, I hope that the noble Lord will not move his amendment.

The noble Earl, Lord Lytton, has also tabled an amendment to the Government’s Amendment 38. Amendment 39 seeks to amend the definition of “premium” and ensure that any repairs that may need to be carried out under a market rent lease would not be considered to be a premium for the purposes of the Bill. I reassure the noble Earl that we understand his position and that it is not the Government’s intention that the cost of such repairs would fall within the definition of a premium. However, I am advised that further research is needed with lawyers to determine whether an amendment is necessary for the avoidance of doubt at a later stage of the Bill.

I thank the noble Earl, Lord Lytton, for raising this issue, which I am of course happy to continue discussing. I hope, therefore, that he will not move Amendment 39 at this stage. I also ask that the noble Earl does not move his Amendment 5, and that the noble and learned Lord, Lord Etherton, does not move his Amendment 3.

I wish to speak to Amendment 3, in my name. I am extremely grateful to the Minister for speaking to me about my concerns about Clause 1(4). It is important that today, we have had an acknowledgement that Clause 6, which I understand is the way the Government intend to deal with preserving the right of a landlord to continued receipt of ground rent for the duration of the original lease, does not extend to a situation where the tenant requests, and the landlord might otherwise agree, subject to this Bill, to grant an extended demise or an extended grant of property.

At the moment, the Bill does not address one of the two circumstances in which, in the normal course of events, there will be a deemed surrender and regrant by operation of law, which operates irrespective of the intention or awareness of the parties. The Minister says that it does not matter because the landlord can always agree with the tenant to grant a separate lease of any extended area of land which the tenant wishes to include in the lease, and that the landlord would otherwise be willing to grant. This leaves a very messy situation. Clause 6—which, with respect, is not entirely straight- forward—is intended to deal with the second situation whereby there is a deemed grant and surrender, and that is where there is any extension to the duration of the lease.

The second normal circumstance is not addressed at all. It is an everyday occurrence, not an unusual one, for a tenant and a landlord to agree informally to changes in the area of the lease. Therefore, subject to the solution that is proposed, which is a separate lease of this grant of extended land included within the lease, there is nothing in the Bill that addresses this. This can be dealt with quite simply, either by taking out Clause 1(4) or by extending Clause 6 to include this second situation, which is the granting of greater land than is currently within the original lease. It makes absolutely no sense to include something dealing with the one but not the other, when those are the only two circumstances which would normally give rise to a deemed grant and surrender. It leaves a lacuna in the Bill, in that there still may well be a landlord who is not aware of the terms of the Bill and who may not appreciate that granting, in accordance with the tenant’s request, a greater piece of land to them has the effect of removing the ground rent to which the landlord would otherwise be entitled.

Although I very much welcome what the Minister has said about many of the amendments he has tabled, and his explanation, legally speaking we are left with a very untidy situation. There is now a distinction between the two circumstances in which there is a deemed surrender and regrant, one being expressly dealt with in Clause 6, and the other not at all. That could lead to a landlord with no awareness of the situation—and with no intention of doing so—losing the benefit of the ground rent under the original lease.

My Lords, it is a pleasure to follow the noble and learned Lord, Lord Etherton, and I thank the Minister for introducing this group of amendments, in which I have two: 5 and 39. I declare my property interest but hasten to add that it does not involve long leasehold; I also declare my interest as a property professional. I particularly thank the Minister for meeting me this morning at short notice; I very much appreciate that and I think it is fair to say that we had a frank and generally constructive conversation. I am indebted to the British Property Federation for the comments it sent me, to the Wallace Partnership Group for its observations on the Bill, and to the Homes for Later Living group, which is a retirement homes specialist.

The pivotal point here is the question of who takes on the responsibilities of property management and things such as safety oversight, particularly in complex buildings. I am thinking of developments such as Salford Quays, but there are others in the pipeline, including King’s Cross and Battersea, that will come on stream and are in the process of evolving even as I speak.

The British Property Federation believes—and I agree with it—that most leaseholders in these large, complex, often urban developments will not want to take on the sort of responsibilities implicit in the management and future-proofing of the common areas and common parts of buildings in these multi-occupied developments. Hardly had I considered that point when it was pointed out to me that a poll by Savanta found that only 31% of people would willingly take on the management of their apartment block, even when faced with the option of saving on ground rent. I have some experience that reinforces this, so much more so when we come to the scale of some of these urban and often redevelopment situations that are truly industrial in their complexity.

A buy-to-let investor is hardly going to have interest in participating in the day-to-day running of an estate. Freeholders, with a nil or peppercorn rent and no other interest beyond the maintenance and management charges that may be taken away from them by right to manage, are hardly going to have an interest in taking on costs that they might not be able to recover. By that I mean costs on things such as long-term capital expenditure on visual improvements or repurposing parts of the development—matters that are not a service charge and therefore there is some question as to the degree to which they could be recovered. With no skin in the game, how is the freeholder going to finance or forward-fund these things? For practical purposes, the Bill ends up providing us with the opportunity for non-responsive freeholders.

I do not believe that the Bill adequately covers what I refer to as the orphan freehold syndrome. In saying that, I do not espouse a particular solution—not even the preservation of freehold tenure under a long leasehold situation. I take that as read. I am trying to deal with the Bill’s consequences and the importance of long-term stewardship of buildings and places: the constant upgrading, adaption, repurposing and enhancements that go on all the time. In my opinion, it needs a purposeful freeholder or body that can respond to the obligations embodied in the covenants between landlord and tenant, and indeed the freehold covenants that may affect the block more widely. To do that, it needs to be solvent, motivated and competent.

Buildings are of increasing complexity, and so is their day-to-day management. In many cases we are dealing with matters of extraordinary technical and interactive complexity. These bring new challenges. The Building Safety Bill will of course add significant new ownership and management responsibility in due course. There is no certainty that by default there will be a competent and motivated freeholder as last man standing.

I was going to make a passing comment about managing agents, but I simply say that the report by the noble Lord, Lord Best, on the regulation of property agents is still not brought into effect by the Government. It ought to be, because the competence of agents is a factor here.