Leasehold Reform (Ground Rent) Bill [HL]

Second Reading

Moved by

That the Bill be now read a second time.

My Lords, first, I declare my residential and commercial property interests as set out in the register.

This Bill will lead to fairer, more transparent home ownership for thousands of future leaseholders. It represents part of the most significant changes to property law in a generation and should be welcomed by all across this House. The Bill is intentionally narrow in scope and exists to put an end to ground rent payments for new residential properties with long leases—those in excess of 21 years.

The Bill’s measures have been informed by consultation with the public and the leasehold sector. We consulted on proposals to reduce future ground rent in October 2018; that consultation received more than 1,200 replies, which have informed the Bill and its implementation approach. I extend my thanks to all those who have made invaluable contributions to the process of bringing this Bill forward, as well as to those who engaged with me ahead of today. We can all agree that this has ensured that the Bill will be even more effective in delivering on its promise to ensure that, for the first time, ground rent in residential long leases will have no financial element. I look forward to further engagement with noble Lords across the House in the coming weeks.

The Bill is only the first part of a two-part legislative programme to reform the leasehold system. Further leasehold reform will follow later in this Parliament and will redress a range of issues facing leaseholders. Taken together, this programme of reform delivers on our manifesto commitment to improve the leasehold system for generations to come.

I am pleased that the Bill is now before the House. It is an integral part of Government’s broader reform to create a housing marking that works for everyone. This includes improving leasehold as a system of home ownership. There are an estimated 4.5 million leasehold dwellings in England and 235,000 leasehold properties in Wales. In England, that represents almost one in five of the total housing stock. Leasehold has always been a common form of ownership for flats: more than two-thirds of leasehold dwellings are flats and the rest are houses, which equates to 3.1 million leasehold flats and 1.4 million leasehold houses in England.

We know that leaseholders face a range of problems, such as a lack of transparency in an often opaque system and high charges when buying or extending a lease. We have been consistently clear on our ambition to take forward a comprehensive programme of reform to end these unfair practices in the leasehold market. We are committed to helping existing and future homeowners by banning the sale of new leasehold houses, giving freehold homeowners the same rights as leaseholders to challenge unfair charges and closing loopholes to prevent unfair evictions.

On 7 January, the Secretary of State announced a package of leasehold reforms covering enfranchisement valuation and 990-year leases. This is the first part of our response to the Law Commission’s reports on leasehold and commonhold. We will respond to the Law Commission’s remaining recommendations in due course. In addition, we know that commonhold does not work as well as it could. That is why we have established the Commonhold Council—a partnership of industry, homeowners and government—to prepare the market and consumers for the new, widespread take-up of commonhold; the first meeting of that council took place last week. Our reforms will ensure that leasehold is a fairer and more transparent system for homeowners.

My Lords, I welcome the Bill although, as the Minister might expect, with some caveats. But I welcome the way in which he introduced it and the context in which he placed it. Four years after it was promised in 2017, a leasehold reform Bill has reached this House—and it is an important start to remove what the Minister called the massive and increasing disadvantages that leaseholders have to contend with. The law has until now not been on their side, and this helps redress that.

We recognise that leasehold reform has been in process for decades. The Law Commission has done its work after endless investigations and consultations, but the Minister will know that, along with many others in this House, I am disappointed that the Government have not been able to bring forward the full range of leasehold reforms that we were promised. The Minister spoke about bringing them forward later in this Parliament. Inevitably, my first question is: what does that mean and can he be more specific? As we know, this Bill will deal with new leases only.

However, the Bill is a start in addressing the scandals and abuses that leaseholders have faced for years. As the Minister said, the problem is that leaseholders receive no clear service in return for these ground rent payments and it is not always clear what costs leaseholders will have to pay when they purchase their home. How very true. A survey for Propertymark, which has been campaigning for leasehold reform for years, found that 57% of leaseholders had no idea of the escalating costs they would face and, tragically, 50% were first-time buyers. Had they known, 93% said that they would not have chosen a leasehold home. They certainly had no idea that their ground rents could double in 10 years. This has been a real scandal, documented throughout by the Leasehold Knowledge Partnership, which has charted years of distress and anxiety among leaseholders.

My Lords, I draw the House’s attention to my relevant interest as a vice-president of the Local Government Association and a member of Kirklees Council.

The basic tenet of the Bill is to be welcomed. The excellent briefing by the House of Lords Library states very clearly the intention that

“freeholders or landlords will no longer be able to make financial demands for ground rent. It seeks to do this by establishing that new, long residential leases are only permitted to charge a peppercorn rent (which has zero financial value) … In addition, the bill would prohibit the charging of administration charges relating to peppercorn rents. The bill would also establish a civil penalty regime for those who charge a prohibited rent”.

The Bill sets out the 26 clauses needed to enact that intention.

The Bill is, therefore, both technical and detailed, and I am sure that other noble Lords will be able to use their expertise to probe and challenge different aspects of the Bill and whether it achieves its stated intention. In her excellent contribution, the noble Baroness, Lady Andrews, has already started to challenge and probe the meaning of the clauses in the Bill. I concur with all the questions she asked; they are both relevant and important.

As the Minister said in his opening speech, there are 4.5 million domestic properties with leasehold agreements, of which approximately 3 million are flats and 1.5 million houses. This is, therefore, not a niche issue but one which affects millions of people. My attention was first drawn to an impending scandal when it was reported in local Yorkshire media some three or four years ago that new-build houses had been bought with the new owners seemingly unaware that the developers had attached a spiralling ground rent charge to the property. As the Minister has stated, the Competition and Markets Authority became involved. The situation has been likened to the mis-selling of PPI. An individual case was highlighted in a report in the Independent this weekend. There, the annual ground rent for a one-bed flat in London, purchased for £170,000 in 2018, was to double every five years. In 20 years’ time, the ground rent will have risen from an affordable £1,050 per annum to a completely unaffordable £16,800. Such abuse is the scandal that the Bill seeks to prevent, by permitting only a peppercorn ground rent and banning administrative charges on ground rents, thus closing any further legal loophole through which leaseholders are at the mercy of unscrupulous freeholders. This is welcome news, but it does, of course, penalise those freeholders who have acted responsibly and not exploited the situation.

My Lords, I draw attention to my interests, as set out in the register, in various businesses associated with property, including long leasehold property, though, I hasten to add, not including residential ground rents. As the Minister has already made clear, this is the first part of a two-stage reform process. I am sure that this afternoon the House will hear many issues raised which relate to stage two and there will, no doubt, be a very deep debate about that stage of the reform programme before we move to it. I shall attempt to focus my comments today on stage one—the Bill before the House.

As the Minister indicated in his opening remarks, this issue has been on the Government’s agenda for some time. When I was serving in the previous Government, it was a live issue in 2018 and 2019 and some considerable time and energy was spent looking at the wider issues of leasehold reform. Residential ground rents have been around for many hundreds of years. It is fair to say that, until relatively recently, residential ground rents themselves have not been the major cause of concern. Service charges, management practices and the broader operation of the leasehold property system have occasioned some concerns, but ground rents themselves generally did not.

Unfortunately, over the last decade or two, as the previous two speakers have outlined, we have seen an increasing practice of ground rents being used not as a nominal annual payment but as a substantive and escalating one. That has been an abuse which clearly has to be tackled now; it has rendered the need for radical reform unavoidable. I note the CMA investigation into the practices of doubling ground rents. I also pose the question: where were the conveyancers of these innocent leaseholders who apparently did not understand the nature of the transaction they were entering? I hope that the relevant bodies will also be looking at whether conveyancers did their job properly during these processes.

My Lords, I welcome the opportunity to debate this Bill and in doing so refer to 45 years of professional interest in the matter and my interest as the first chairman of the Leasehold Advisory Service. Although I have personal interests in residential and commercial lettings, they do not include long leasehold and, as a technician, I take no particular position for or against it. I, too, am a vice-president of the Local Government Association.

First, to positive matters: I pay tribute to the Government for moving to tackle some of the known problems and abhorrent abuses with long leaseholds—especially that of escalating ground rents. For years, I have advised clients against taking on such leaseholds, so that maybe makes me part of the problem. But I do think that much swifter action could have been taken to deal with them—but there we are. I welcome the measures. I also welcome the actions of the CMA. But, before we get too excited, I would just point out that 18,000 escalator rents, as I would call them, equate to 0.4% of all leasehold ground rents.

Anything that speeds up the leasehold transaction process is, of course, good for market confidence. So dealing with unnecessary delays is also extremely welcome. However, I do need to point out some procedural shortcomings here. There is an overwhelming case for remedies, so it is utterly extraordinary to me that the department should have chosen to conduct its consultation via SurveyMonkey. The department then found it necessary, on analysis, to allocate a significant proportion of the responses to a category entitled “General comments that did not answer the question”. Undaunted, but finding there some muddle in responses on leaseholders’ payments for various things, it then resorted to regression analysis to resolve the confusion. I suggest that this is not an appropriate way to conduct consultation on such an important matter, and I feel that in this instance it damages the credibility of the process.

My Lords, I very much welcome this Bill. I am no property expert but I have explained my interest in the Bill—I hope, as other noble Lords have said, that there will be at least one more. I welcome the Government’s statement, I think from 11 January this year, accepting the recommendations to introduce legislation to allow residential leaseholders to extend their leases at zero ground rents for 999 years or to buy it out. This is welcome. Although this Bill does not cover that, it sets some useful pointers—I hope—on government thinking. I declare an interest as living in Cornwall and the Isles of Scilly.

To some extent, it seems that this Bill just covers the easy bits. I hope I am wrong about that, because the noble Lords who have already spoken raised some interesting issues that are way beyond my competence. My understanding—I am sure the Minister will correct me if I am wrong—is that this applies to new build, but does it cover conversions from shops or houses cut into several smaller bits? I suspect many people will wish for some element of retrospectivity in this, but that is probably impossible.

I will concentrate my remarks on Clause 23, which concerns the Crown lands of the Duchies of Lancaster and Cornwall. I am pleased to see that no exemptions are mentioned here. That is really good. However, there is potential for some people who might seek to delay or wriggle out of the spirit and letter of this Bill, which applies not only to this Bill but—hopefully—to the next one as well. I have been seeking assurances from the Duchies of Cornwall and Lancaster and the Crown Estate, for when it comes to the next piece of legislation, about the statements in paragraph 7.150 of the Law Commission report that

“the Crown has given an undertaking to Parliament that, in most cases, it will act ‘by analogy’ with the legislation to give its leaseholders the same rights that they would enjoy if their landlord were not the Crown.”

My Lords, like other noble Lords, I welcome the Bill before us today. Although the scandalous problems currently facing leaseholders in homes covered in dangerous cladding materials will not be alleviated by it, as my noble friend Lady Pinnock so eloquently spelled out, and it will not in any way improve the lot of existing leaseholders faced with escalating ground rents and spurious charges for routine paperwork—as the noble Earl, Lord Lytton, so comprehensively set out—it will nevertheless be a small step forward, and I welcome it. It will, at least to an extent, provide protection in future for new leaseholders from predatory third-party owners and landlords, who are often in it solely for the steady cash flow and income—in fact, not a steady but an escalating cash flow and income. They have very little or no interest in providing even a notional service to those who pay the fees.

So far as it goes, so good. We shall look to move the Bill forward expeditiously—not least because, like other noble Lords, we want to see the Minister honour what he said in opening this debate: publishing the Government’s response to the Law Commission’s report, tabling the second further leasehold reform Bill as soon as possible, and then beginning to tackle some of those existing abuses and malpractices blighting the leasehold sector. But we will also look for some meaningful assurances from the Minister about the timetable for that further reform; I suspect that the answer the noble Lord, Lord Berkeley, will get is, “shortly”. But we need some assurance that real progress will be made—not just shortly, but pretty much immediately. We will also want to examine carefully the safeguards—or, rather, the lack of safeguards—in the Bill for leaseholders against unscrupulous landlords. They will be working hard to find loopholes to exploit in yet more imaginative and lucrative ways to restore their missing cash flow.

I think there is a bigger question for the Minister. If, as the Law Commission has shown and multiple sources of evidence attest, the current leasehold model is fundamentally unfair and inequitable, why is he merely tweaking it in this legislation and introducing a peppercorn rent to neutralise it, rather than going where the evidence leads and abolishing leasehold for new contracts altogether in favour of commonhold? I hope the Minister will explain why the Government are being so timid and cautious in the Bill.

My Lords, I declare a personal interest as someone who pays ground rent on my flat in London.

I congratulate my noble friend the Minister on his usual courteous and full explanation of the Bill. I just do not know what he has done to draw the short straw again, but I suspect that he will get as much hassle from this House on this Bill as we saw with the Trade Act, China and the Fire Safety Act. However, I shall support it, inadequate though it is, because it is a small step in the right direction and because I have never before been involved putting lipstick on a pig, which the Bill attempts to do.

Before one can judge the merits, one has to look back at how we got here with these things called leasehold and ground rents. I do not mean just looking back at the 2017 consultation, nor the Commonhold and Leasehold Reform Act 2002, nor the 1993 leasehold reform Act, nor even the Leasehold Reform Act 1967. No, to understand where we are coming from, we have to go back a bit further than that—right back 1,000 years to the 11th century and the Domesday Book of 1089, which uses the term “freeholder” for the first time. The term “leasehold estates” appears a few decades later.

Medieval or feudal law was not concerned with hard-working families trying to get on the property ladder; in those days there was no concept of levelling up in Hartlepool or Rotherham. Land meant power in the Middle Ages, and powerful families wanted to retain ownership of their land while maximising their earnings from it. Thus the concept of leasing was established to allow serfs to work a plot of land, for a fixed period, on the basis that they would pay “in kind” by providing food and services to their master further up the social order. Thus, the common law of the landlord-tenant relationship evolved in England during the Middle Ages, based on a feudal social order and an agrarian economy, where land was the primary economic asset and ownership of land was the primary source of rank and status.