My Lords, I will, for a change, be very brief, not least because there are a number of amendments in this group in the name of my noble friend Lord Young of Cookham which give a practical way forward and are far superior to mine. I declare a personal interest as someone who pays £602 ground rent per annum on my London flat. While that is a disgraceful rip-off, for no services given, it pales into insignificance compared to the horror stories I heard at Second Reading about leaseholders hit with escalating ground rents running to tens of thousands of pounds.
At Second Reading, I attempted to use mockery to draw attention to the fact that the English leasehold and ground rent laws are an absolutely prehistoric abomination which should not exist in a top G7 country these days. I also said that I fully support this Bill and will do nothing to hold up its becoming law. The only problem is that it does not go far enough and does not deal with the injustices for all those caught up in the current ground rent racket. The peppercorn rent solution, ridiculous though that term now is, does in fact give justice to all future leaseholders, and I welcome that. Amendments 1, 2 and 11 simply apply that same just principle to the current racket. If it is right and just that all future leaseholders, who have not lost a penny, are protected from this evil racketeering, then surely it is far more important to deliver justice to all those who are being ripped off at present, some for extortionate sums, as the House heard at Second Reading. Amendments 1 and 2 simply say that all current ground rents will become peppercorn rents, just as the Bill does for future rents. Amendment 11 offers an alternative, setting a ceiling on the amount which may be demanded in ground rent per annum and giving a refund to leaseholders who are being ripped off by ground rents above £1,000 per annum.
I suspect that my noble friend the Minister will say that this is a very complicated subject, that the Government are working on solutions and that we will see the full details next year in the leaseholders Bill. I accept that my amendments take an absolutist, purist approach, but I do like the detailed, sensible amendments tabled by my noble friend Lord Young of Cookham, which may offer a compromise—letting leaseholders buy their freedom. As my noble and learned friend Lord Mackay of Clashfern will confirm, since he is a far better scholar of ancient Roman law than I ever was, in ancient Roman times slaves could buy their freedom, but very few could afford to buy their manumission. Most were freed by testamentary manumission—that is, in the will of their master—and Caesar Augustus regulated the system. So I call on my noble friend the Minister to become the new Caesar Augustus and set free the millions of leaseholders still paying their salarium.
If the Minister cannot accept my amendments, I would like to hear exactly what is wrong with Amendments 7, 8, 12, 17 and 18, proposed by my noble friend Lord Young of Cookham and Amendment 5 in another group, in the name of my noble and learned friend Lord Mackay of Clashfern. They seem to me to be an excellent way to remove this 800-year-old injustice, bring justice to leaseholders and not deprive freeholders of some of their entitlements. I beg to move.
My Lords, I will speak to Amendment 12 and its consequential Amendments 7, 8, 17, 22 and 23. Their effect is broadly the same as Amendments 1 and 2, in the name of my noble friend Lord Blencathra, whose speech I commend. Whereas he was able to express himself in four lines, I am afraid that my amendments have taken up four pages. The amendments also achieve the same as Amendment 5, which we will come to later, in the name of my noble and learned friend Lord Mackay. However, his amendment reserves all the detail set out in mine to the discretion of the Secretary of State, in regulations, and is time-limited. The amendments standing in my name, if accepted, would give a right to buy out ground rents for ever, beginning on 1 January 2023.
As my noble friend Lord Blencathra has just said, the Bill as drafted applies only to future leases, coming into force on such a day as the Secretary of State may appoint by regulations. It does nothing to help existing leaseholders or anyone who buys a lease with a ground rent before the commencement date, but it is government policy that existing leaseholders should have the right to buy out their ground rents. I refer to the Written Statement by the Secretary of State on 11 January this year:
“I am confirming that the Government will give leaseholders of all types of property the same right to extend their lease as often as they wish, at zero ground rent, for a term of 990 years.”
Later comes the crucial commitment:
“We will also enable leaseholders, where they already have a long lease, to buy out the ground rent without the need to extend the term of the lease.”
The obvious question for the Minister, raised by these amendments, is why the Leasehold Reform (Ground Rent) Bill does not deliver government policy on ground rents. Why should we have to wait for the next piece of legislation to honour the commitment? On waiting for promised legislation, I am once bitten, twice shy. As Opposition spokesman in another place, when the hereditary Peers were removed, I was assured by the then leader of the House that stage two of House of Lords reform would be in place for the first round of elections to your Lordships’ House, by 2001. Twenty years on, I am still waiting.
My Lords, I shall speak in particular about Amendment 1, and the consequential amendments tabled by the noble Lord, Lord Blencathra. It was great fun to listen to him on Second Reading, with his eloquent flow sweeping away the whole caboodle of leasehold legislation and starting again from square one. That was spoken like a true reformer and radical, which, in his heart, I know he is.
Today the noble Lord was a bit more circumspect, but no less radical, with amendments that would not just reform the system but abolish it completely, starting on day one. That is an attractive proposal, especially to leaseholders—but even more so to lawyers. If implemented as drafted, it would leave a trail of wreckage that should keep lawyers employed for many a long year.
However, I suspect that, as befits a former Chief Whip in the other place, the noble Lord has carefully done his homework behind the scenes. No doubt he has had a word with the Minister and secured a commitment to bring back a government-led amendment on Report to comprehensively reform the entire leasehold regime and implement the recommendations of the Law Commission, and in the meantime to freeze the granting of lease extensions on grossly inequitable terms. If that is so, my noble friends and I will be ready add our names to that amendment, when it comes along.
However, perhaps the noble Lord’s quiet chat with the Minister did not go quite as well as he had hoped, and no such agreement was forthcoming—which may be why today he deferred to the amendments tabled by the noble Lord, Lord Young. Among those, Amendment 12, in particular, sets out in impressive detail a somewhat equivalent plan, as the noble Lord, Lord Young, has just spelt out. At first reading, that amendment would seem to provide less of a free lunch for lawyers than Amendment 1 would, and it is sensible, measured and proportionate, as one would expect from the noble Lord.
In his explanatory statement, the noble Lord describes Amendment 12 as a probing amendment. We certainly welcome that probing of the Government’s position and intentions. We too are concerned by the slow pace of reform, and the fact that the current Bill does nothing for existing leaseholders. Instead, the Government are offering jam tomorrow—or possibly the day after tomorrow—for current leaseholders. At least the noble Lord’s amendments offer us a sniff of jam today. I would encourage the Minister, in his reply, to explain fully to us exactly when he will come back with clear plans to achieve the reforms that the noble Lord has already drafted for him. I thoroughly endorse the noble Lord’s concerns about the gaps that could open up.
My Lords, I apologise that I was not able to take part at Second Reading. Some of your Lordships know that my wife was taken very ill with Covid—in fact, we nearly lost her—and I decided to take her away for a rest. I am pleased to say that she is now pretty well.
There are a couple of interests that I ought to declare. I am a vice-chairman of the Shared Ownership Housing APPG. I have taken a particular interest in care homes, so I will be addressing the Committee on Amendment 4. My friends know that I was chairman of the housing committee in the London Borough of Islington from 1968 to 1971, when there was a fair number of lease challenges. Finally, I say to my noble friend on the Front Bench that I welcome the principle behind the Bill and thank Her Majesty’s Government for actually moving things forward.
I do not want to speak for very long on any of the amendments. I understand my roommate’s enthusiasm, which he has for everything in life, and he does cut through the rubbish, usually. It is nice to see someone cut through, bearing in mind that this is a pretty revolutionary Bill to start with. That is one end of the spectrum, and that covers Amendments 1 and 2. The noble Lord, Lord Young of Cookham, went into it in great detail. I read with great care what he said at Second Reading and the Government would do well to do the same—I am sure they must have done. He covered what might well be in the next Bill. It should be looked at extremely seriously.
I am concerned—I wrote it down before the noble Lord spoke this afternoon—about the position of existing leaseholders when they come to sell. I think that is a fair question, which the Labour Front Bench raised. That problem will be there unless some action is taken. It certainly cannot wait until the second half of this problem is dealt with in another Bill.
One other area concerns me: the situation, which is not uncommon, particularly in the provinces—I am speaking today from Sandy in Bedfordshire—where a landlord offers a 25-year lease on a residential property at a market or rack rent. That is pretty common in mixed-use scenarios; for example, a shop with a flat above, where the owner wants the commercial and residential parts to be leased out concurrently. In those sorts of circumstances, it seems—some would say absurd but that might be going too far—unusual and strange to expect just a peppercorn rent when a lessee is getting the benefit of living in or renting out the property.
I call the next speaker, the noble and learned Lord, Lord Mackay of Clashfern. Lord Mackay, could you unmute, please? I will move on to the next speaker, the noble Baroness, Lady Grender.
My Lords, the debate so far has underlined the urgent need for reform across the entire leasehold sector and has reflected some of the strongly made arguments at Second Reading. In particular, many of the amendments are about the 4.5 million current leaseholders who are still captured by this unfair legacy and the failure to shift to commonhold, initiated in the 2002 Act.
I start by taking this opportunity to thank the Minister for discussions in advance of Committee and to stress our strong support for the Bill’s intentions. Its primary purpose is to chop off the head of the snake: the continuing supply of investment opportunities for freeholders on which they can base their borrowing for the next batch of unsuspecting leaseholders. I therefore hope that it goes through the parliamentary process with considerable speed. That said, what we cannot afford is any loopholes that enable this “something for nothing” industry to continue. When we debate later clauses, noble Lords will see that I believe there is a significant loophole that will be exploited: informal extensions, more ON which later.
As the relevant Committee, it is vital that we continue to remind ourselves of the shocking unfairness out there for many leaseholders. Last month, the Daily Mail featured a story about Carole Patterson, aged 44, an administrator in human resources whose ground rent on her flat in south London doubles every five years, rising to £1 million a year in 50 years’ time. The freeholder, MEA Real Estate Ltd, is prepared to waive the ground rent for a one-off payment of a whopping £100,000, described as
“a quarter of the value of the property”.
Given the value of that property, it is now almost impossible for her to sell on. Currently, leaseholders exist in a climate that was probably signed off by a solicitor, supposedly on their behalf. For all the Caroles, it is critical that this reform begin, and soon.
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As my noble friend Lord Stunell and other noble Lords said, we also strongly support the elegant solution of the noble Lord, Lord Young of Cookham, in Amendments 7, 8, 12, 17 and consequential Amendments 22 and 23 to achieve the right to buy out ground rent, and we hope that the Minister will give it fair wind. As the noble Lords, Lord Young and Lord Naseby, and my noble friend Lord Stunell all explained, the dangers of the Bill creating a two-tier market and the dangers that that will impose on already struggling leaseholders are significant. Therefore, we see this amendment as an extremely useful contribution to the Bill. For Carole Patterson, who I have already mentioned, and thousands like her, these are significant amendments and we are very happy to support them.
Before I call the noble Lord, Lord Lennie, I will return to the noble and learned Lord, Lord Mackay of Clashfern.
Lord Mackay of Clashfern (Con) [V]
I am glad to say that I have managed to unmute with the help of the host.
I very much support the principles behind these amendments in this group. If it is wrong to have a new lease with ground rent of the kind that we are concerned with, why is it not wrong to have it in existing rents? That is what we need to address, and now, if at all possible, although I am equally strongly in favour of getting the Bill on the statute book as soon as possible and I would not like any delay to result from the other considerations. Nevertheless, these other considerations are very strong and I cannot see why it would not be possible to incorporate dealing with them in the Bill as well as preventing another wave of the problem.
I am very much in favour of my noble friend Lord Young of Cookham’s Amendment 12 and all the complementary ones around it. I had the responsibility a long time ago of looking at this question of leasehold and I confirm what has just been said—that it was certainly my idea to try to get rid of it altogether. I was brought up under the Scottish system, where Scottish tenement property is capable of being owned outright without the necessity of a lease. I also had the experience of later seeing the feu, or feudal, system abolished. It had a rent, called a feu duty, which was part of the basic responsibility of the title, and the Government of the day decided to get rid of it altogether. Of course, that meant that something had to happen to the feu duty. It was capitalised by a very simple formula that the feuer had to pay, and so the whole thing finished. I would love to see something like that happen to the leasehold system but I realise that that is a hope beyond immediate realisation. Therefore, my stance is the same as that of my noble friend Lord Young of Cookham—I think I am right in saying that I participated in the Bill when he was concerned with these matters a considerable time ago. I have suggested a small alteration to his way of dealing with the matter which I will explain briefly later.
My Lords, it was certainly worth waiting for the speech of the noble and learned Lord, Lord Mackay, because we now know we are all batting on the same wicket. As we have heard, Amendment 18, tabled by my noble friend Lord Kennedy and me, in addition to amendments tabled by the noble Lords, Lord Young and Lord Blencathra, introduces the issue of existing leaseholders and brings into question why the Government are not legislating to protect them. To us there seems to be no rhyme nor reason why they are not.
Although the provisions of the Bill are welcome and the Government are right to set future ground rents to zero, they are offering nothing for those tied into existing leaseholds. In 2019, the Ministry for Housing, Communities and Local Government estimated that one in five homes in England were leasehold dwellings. That equates to approximately 4.5 million properties, and the number will have grown since. Many of those households, tied into leasehold arrangements, are subjected to ground rent arrangements overwhelmingly balanced to benefit landlords—what the noble Lord, Lord Blencathra, called legal racketeering. Some leaseholders are being charged extortionate amounts and others have seen their payments rise exponentially.
In fact, the Competition and Markets Authority is currently taking action against both Countryside and Taylor Wimpey, which are doubling some ground rents every 10 to 15 years. There is one factor that every household paying ground rent has in common: they receive little to no benefit from paying that sum. The Government should take action for those already stuck in leaseholds and paying extortionate ground rent charges. Amendment 18, tabled by my noble friend Lord Kennedy and me, seeks to address this by ensuring that the Government bring forward further legislation. Can the Minister confirm whether any further legislation is anticipated or planned on this theme and, if so, when?
The purpose of Amendment 9 is to raise the question of remedial costs for leaseholders. The crux of this matter is that the Government have failed to introduce legislation to deal with the fact that building owners are attempting to pass on the cost of remedial work to leaseholders. Despite promises from Government Ministers that leaseholders would not be forced to pay to fix fire safety problems that were not their fault, the issue is still ongoing. I have a nephew who is a leaseholder in a block of flats in Hackney. The freeholder, Southern Housing, has simply failed to engage with the Government. It has not applied for any grant aid to assist to fix the fire safety problems, leaving the leaseholders potentially to bear the cost. We are talking here about tens of thousands of pounds per household. Can the Minister confirm when legislation will be introduced to prevent leaseholders facing those extraordinary costs?
My Lords, we have heard a great deal today about the difficulties facing some existing leaseholders, particularly in relation to ground rent—poignantly in the speech by my noble friend Lord Blencathra and, with some powerful examples, from the noble Baroness, Lady Grender.
We are very concerned about leases with high and increasing ground rents. We are aware that such onerous conditions affect not only the affordability of living costs for affected leaseholders but their ability to sell or even re-mortgage their properties. That is why we asked the Competition and Markets Authority to conduct an investigation into potential mis-selling and unfair terms in the leasehold sector. This included the issue of onerous ground rent. Following a detailed investigation, in February last year the CMA published its report, which estimated that the issue of doubling ground rent has affected more than 18,000 leaseholders. In March this year, it informed developers that they may be in breach of the law. Noble Lords will agree that this is very serious indeed, and the Government welcome the CMA’s continued efforts to bring justice to home owners affected by unfair practices.
Our commitment to existing leaseholders certainly does not end there. As I made clear at Second Reading, this is just the first of a two-part legislative reform programme that will improve the leasehold system. Further legislation later in this Parliament will address a range of issues facing existing leaseholders. In answer to the noble Lords, Lord Stunell and Lord Lennie, the aim is to have that next stage in the third Session.
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 remaining recommendations in due course. We are absolutely committed to a comprehensive and ambitious programme of reform to create a fairer and more transparent leasehold market, but we need to make sure we get it right. That takes time, which is why we have started with this ground rent Bill, focused tightly on ground rents on new residential long leases.
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There is still no firm commitment from the Government on when the Bill will come into force and, the longer the Government leave setting a date, the greater the risk that new monetary ground rents will continue to be created. The Government could stop this by indicating even a provisional date for this legislation to come into force, which would shift the bargaining power in favour of prospective purchasers of leasehold properties. That is why Amendment 22, in my name, prescribes a date of 1 January 2023 for this right to buy out ground rents to come into force.
The case for giving existing leaseholders this right was well made by the Law Commission. They took head on the counterargument that this right is unnecessary because leaseholders can extinguish the ground rent by extending their lease. I quote from Law Commission paper 387, entitled Leasehold Home Ownership: Buying your Freehold or Extending your Lease. Paragraph 3.63 of the consultation paper states:
“we explained that the 1993 Act right to a lease extension has been criticised for requiring leaseholders simultaneously to extend the term of their lease (and therefore pay the landlord for the deferral of the reversion) and to extinguish the ground rent (and therefore pay the landlord the value of the remainder of the original term). We noted suggestions that leaseholders should be able to choose between extending their lease, extinguishing their ground rent, or both, in order to reduce the premium payable on the lease extension.”
The paper continued:
“Support for the introduction of a right to extinguish the ground rent under a lease without extending the lease (whether alone, or together with the right discussed immediately above) was widespread. Consultees who supported this option included various professional bodies, the majority of commercial freeholders, a majority of firms and individual professionals, and a significant majority of leaseholders and other individuals.”
I continue to quote from the report, which states:
“Generally, consultees’ reasoning for supporting a right to extinguish the ground rent without extending the lease focussed on the predicament of leaseholders who are subject to onerous or doubling ground rents in long or very long leases. Both professionals and leaseholders explained that these leaseholders have no need to extend their lease term (which may be as long as 999 years), but wish to buy out their ground rent before it becomes onerous, and/or to make their property saleable. It was said to be ‘pointless’ to require them to claim an extended lease term purely to solve this problem.”
The report goes on to say:
“Several consultees considered that, given the forthcoming ban on ground rents in the majority of new leases, the right to extinguish ground rent in an existing lease (which is very long and does not require extending) would help to avoid the creation of a ‘two-tier’ market, consisting of leases with ground rent and those without. This argument was most persuasively made by a number of leaseholders from 1 West India Quay Residents’ Association. Pointing out that media coverage of the ground rent scandal has led prospective buyers to scrutinise ground rent obligations much more closely, Antonio De Gouveia wrote: ‘If Government is to cap or eliminate ground rents on new leases (which we think they will do), then there is even more reason for new legislation from the Law Commission to enable all leaseholders in our building to buy out their ground rent (onerous or not)’.”
I note in passing that the point about a two-tier market was made in the helpful briefing for the Bill from the Law Society. This all led the commission to its conclusion in paragraph 3.108:
“We recommend that leaseholders who already have very long leases should be entitled to extinguish the ground rent payable under their lease without also extending the term of the lease.”
My amendments deliver that. They have been drafted so that costs are kept to a minimum. No valuation is required because proposed subsection (6) of Amendment 12 sets out the terms, based on Law Commission examples. There is no prejudice to enfranchisement rights and timescales are set out to prevent any delay by the freeholder.
My amendment also addresses a different complaint raised by the Law Commission, namely that the current process for statutory leasehold extensions is too long and cumbersome. Landlords have options to game the system to make it as difficult as possible for leaseholders to exercise their rights. Look at paragraph 2.23 of Law Commission report 392.
My Amendment 12 therefore seeks to give effect to the Law Commission’s recommendations for simplification by proposing a straightforward way in which to buy out monetary ground rents without the need for notice and counter-notice, as exists under the current legislation. There will be nowhere for unscrupulous landlords to hide if the approach suggested in this group of amendments is adopted.
My Amendment 17 provides for the First-tier Tribunal to have jurisdiction in dealing with any issues arising from the exercise of the rights given by Amendment 12 and mirrors the provisions in Clauses 13 and 15. Amendment 12 goes further, in that it would also permit the tribunal at its discretion to award damages to a tenant denied rights to buy out a monetary ground rent, which is intended to serve as a deterrent to landlords denying such rights. Amendment 22 brings in the commencement date of 1 January 2023, giving those involved time to make the necessary preparations. Amendment 23 is consequential.
Why not use the Bill to give an option to millions of existing leaseholders, rather than wait for another Bill that deals with ground rents? There is no disagreement on policy, and here we have the vehicle. I await the response from my noble friend the Minister and hope that he will set the tone for this Committee by looking favourably on this first group of amendments.
We should remember that leaseholders’ organisations desperately want this Bill in place, and the Liberal Democrats support their intentions. There should be no delay in its passage. But the Minister owes it to those leaseholders to commit to delivering a comprehensive reform in the shortest possible time. That is not only the right and equitable course of action, but the best way of avoiding disruption to the market.
The noble Lord, Lord Young, referred to the Law Society’s briefing on the Bill. I draw noble Lords’ attention to the Law Society’s belief that leasehold purchasers and their mortgage providers will, understandably, steer clear of taking out leases under the existing legal framework if they can find a much more favourable lease elsewhere in the market, under the new terms in the Bill. That means that existing leaseholders who are trying to sell will be put at a double disadvantage—not only having to pay outlandish charges but having more difficulty in selling their homes than if they had benefited from the new terms.
That risk to a stable market gets worse the longer the second stage of the reform is delayed. Perhaps the fact that that the noble Lord, Lord Young, referred to hereditary Peers’ legislation speaks to that foreseeable risk of endless delay. Two experienced senior members of previous Conservative Governments have tabled amendments in very similar terms to try to pre-empt that delay—which may be some kind of hint that they lack trust in the Government’s commitment to deliver on the second stage. In the Minister’s reply we need to hear exactly when he, as the responsible Minister, and the Government he represents, will bring forward that follow-up legislation, which we believe is now a pressing priority.
The amendments in this group are absolutely crucial and I too look forward to the Minister’s response.
I therefore thank the noble Lords, Lord Kennedy and Lord Lennie, for Amendment 18, which I have also put my name to. It addresses the critical need for a swift resolution to the problem of existing leaseholders, and therefore asks for the next Bill to be delivered in draft form as quickly as possible. We recognise that the Law Commission has suggested a longer period, but the Government do not always do what it recommends. At present, a third of Law Commission recommendations are not implemented, some due to timing, but others because the Government have decided not to implement them. At certain points, politicians need to decide and act. With chronic unfairness built into the system for 4.5 million leaseholders, this is one of those moments.
Regarding the readiness for this change on the part of the freehold investment sector and the ongoing oligopoly of housebuilders, it is possible to argue that, since the leasehold reforms of 2002 or perhaps earlier, they have been forewarned that the clear intention over time of various Governments, of all parties, has been to move out of the leasehold system. If they are not prepared for that scenario, the problem belongs fully with them and not with the Government.
As my noble friend Lord Stunell—also a member of the former Chief Whips club in our own party—said, we of course support the intention of Amendments 1 and 2, in the name of the noble Lord, Lord Blencathra, to move more swiftly to cover all leaseholds. We also support his Amendment 11, which would limit ground rents with a relevant cap of £250 and provide for reimbursement. It is an interesting approach, given that, as I understand it, a property in London with a ground rent of more than £1,000 a year, or of over £250 per annum in the rest of the country, now falls into the definition bracket of an assured shorthold tenancy. That means that for some aspects of leasehold obligations, the courts do not have jurisdiction, especially regarding forfeiture, which was much discussed at Second Reading. I therefore look forward with interest to the Minister’s response to this issue.
Amendment 10, meanwhile, raises the issue of service charges in shared ownership properties. The purpose of the amendment is to highlight the sky-high fees that many residents in those properties are being charged, often with little return. Will the Minister use this opportunity to explain what steps the Government will take to help those in shared ownership agreements who are facing extortionate service charges?
Amendment 11 raises the important point of informal arrangements, which can be used to bypass the central provisions of the Bill. I look forward to clarification from the Minister in this area, and on the questions raised by Amendments 22 and 23, tabled by the noble Lord, Lord Young. I understand that the purpose of the amendments is to give time to prepare for all involved parties, but we should consider that the Bill’s proposals have been discussed for some time already. None the less, I trust the Minister will respond to the points made by the noble Lord.
I turn to the specific amendments before us today that deal with existing leaseholders. My noble friend Lord Blencathra has tabled Amendments 1 and 2. The whole House will have been left in no doubt as to his views of ground rents and the leasehold system following his barnstorming speech at Second Reading. His two amendments both aim to extend this Bill so as to reduce ground rent for existing leaseholders, and we can all understand his reasons for laying them.
I am grateful to colleagues from across the House for their close examination of the issues facing existing leaseholders. However, the decision to focus this legislation tightly on new leases was a very deliberate one. We are working to make the leasehold system fairer and more transparent for leaseholders, but we also need to ensure that we are fair to freeholders. Setting existing leases to a peppercorn raises complex issues and could have negative consequences that may extend beyond the leasehold sector. As just one example of these consequences, your Lordships will be aware that there are pension providers who hold existing investments dependent on ground rent income that were entered into some years ago. These are long-term financial commitments that service the needs of many of our elderly citizens.
I note again that we are in the throes of planning to bring forward further legislation on leasehold reform, and the changes to the valuation process will make a real difference for many existing leaseholders, especially those with fewer than 80 years remaining on their lease.
I come to the six amendments tabled by my noble friend Lord Young of Cookham regarding the right to buy out ground rent in pre-commencement leases, Amendments 7, 8, 12, 17, 22 and 23. As noble Lords will know, there is already statutory provision for leaseholders of flats to reduce the ground rent they pay to a peppercorn on payment of a premium when they extend their lease, and leaseholders of houses can buy their freehold and so extinguish ground rent liability that way under existing legislation. The Government are aware that for some leaseholders this may be prohibitively expensive. This is why we have announced forthcoming changes to the valuation process that will cap how ground rent is treated, reducing the premium to be paid for leaseholders with onerous ground rents.
In addition, the Law Commission has recommended that leaseholders should be able to choose to pay to extinguish their ground rent without extending their lease, as my noble friend Lord Young mentioned. I can confirm that the reforms we will bring forward in future leasehold legislation will enable leaseholders, where they already have a long lease, to buy out the ground rent without the need to extend the term of the lease. We are considering the remainder of the Law Commission’s recommendations and will respond in due course.
I know that my noble friend Lord Blencathra has asked me to be a latter-day Caesar Augustus, but I point out that we have not addressed this in this legislation because reform of enfranchisement and historical ground rents is complex and interlinked. It is important to address these issues together in the forthcoming legislation. The cost of enfranchisement is directly related to ground rents and other components, such as the length of the lease. That is why we are looking to do that in a second tranche of reforms in the third Session of this Parliament. That is the plan.
These planned changes will directly address the issue underpinning the amendments from my noble friends Lord Blencathra and Lord Young. Future leasehold reforms will allow existing leaseholders to pay a more affordable premium and buy out their ground rent when they extend their lease or purchase their freehold. This will be less costly for leaseholders than under the current approach to enfranchisement valuation. I hope that noble Lords will agree that these changes mean that the amendments are not needed, as their effect is being achieved through work beyond the Bill.