Amendment 27

Leasehold Reform (Ground Rent) Bill [HL] - Report – in the House of Lords at 4:24 pm on 20th July 2021.

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Baroness Pinnock:

Moved by Baroness Pinnock

27: After Clause 18, insert the following new Clause—“Review of the financial impact of the Act(1) Within 6 months of the day on which this Act is passed the Secretary of State must carry out a review of the financial impact of this Act on leaseholders.(2) The review must make a recommendation as to whether further legislation should be introduced to extend the ban on ground rents to existing long leases.(3) The recommendation in subsection (2) must take into account the potential financial impact of an extension of the ban on ground rents on those leaseholders and tenants who have been charged for the cost of fire remediation work.”Member’s explanatory statementThis amendment would require a review of the financial impact of this Act and make a recommendation as to whether a further extension of the ground rents ban could benefit existing leaseholders, especially those facing bills for fire remediation work.

Photo of Baroness Pinnock Baroness Pinnock Liberal Democrat Lords Spokesperson (Communities and Local Government)

My Lords, I speak to Amendment 27 in my name and those of my noble friends Lady Grender and Lord Stunell. I draw the attention of the House to my relevant interests in the register as a member of Kirklees Council and a vice-president of the Local Government Association.

Amendment 27 asks that:

“Within 6 months of the day on which this Act is passed” the Government

“carry out a review of the financial impact” on leaseholders. Reviewing the impact of legislation is important, especially in instances such as these, where changes to an already complex situation are likely to result in unforeseen consequences—despite many noble Lords and the Minister doing their utmost to ensure that all aspects are fully considered. The amendment then goes further to ask that the review actively considers and makes a recommendation about “further legislation” —either for or against it.

Subsection (3) of the proposed new clause makes specific reference to those leaseholders and tenants who have been charged for “fire remediation work” consequent to the Grenfell tragedy. Noble Lords will notice that I am taking the opportunity provided by this Bill to raise again very grave concerns many of us have for those leaseholders and tenants who are, through no fault of theirs, at the heart of the cladding scandal.

The fact that up to 1.3 million households are at a very considerable risk of bankruptcy as a direct result of serious construction failings must never be allowed by decision-makers to remain unresolved. Leaseholders have done everything right and nothing wrong, yet they are being expected to pay for the failures of construction, developers and materials manufacturers.

I recognise that the Government have provided over £5 billion towards remediation but the total cost is anticipated to be over £15 billion—the vast proportion of which is being passed via so-called service charges to leaseholders. We are not talking about charges that are in any way affordable. For example, Pippa in Leeds has a bill for £140,000. The highest bill I have seen was reported in the latest article on this issue in the Sunday Times: a staggering £204,000.

Perhaps the Minister will be able to provide advice on how these leaseholders are to pay the bills that have landed on their doormats. He will be aware that a leaseholder’s major asset is their flat and that, currently, has no value. It is not only the costs of remediation that are pressing down on leaseholders, there are service charge increases—consequent, again, to the cladding scandal.

I have heard from a leaseholder today, who says: “I am knee-deep in service charge admin. I am being harassed with bills that I know are inflated and incorrect, and with huge penalties for late payment. No one should have to live like this. It takes a toll on every aspect of your life, and that is before consideration of planning bills.”

It is not only leaseholders who fear the worst. The Investors Chronicle has reported in the last two weeks that this may become the next PPI scandal. Flat sales are in decline. They affected flats are neither sellable nor mortgageable. Before long, the Government will have to take action to save leaseholders from bankruptcy and homelessness and the housing market in flats from collapse. This amendment simply asks the Government to take stock within six months and, in doing so, to be cognisant of the leaseholders whose dreadful plight I have described. The leaseholders have done everything right and nothing wrong, which is a phrase I cannot attribute to developers, constructors, material manufacturers or the Government, as the final regulator. Between them, they have responsibility for this absolute scandal.

I will listen carefully to the Minister’s response. However, if he is not inclined to accept this simple amendment, I give notice of my intention to seek the opinion of the House. I beg to move.

Photo of The Earl of Lytton The Earl of Lytton Crossbench 4:30 pm, 20th July 2021

My Lords, I welcome the opportunity to speak to the amendment just moved by the noble Baroness, Lady Pinnock.

I am a fan of what I see as post-occupation evaluation. I welcome the amendment for that alone. I would more comfortable if it did not just refer to leaseholders, because the whole dynamic—as regards the ongoing interaction between leaseholders, freeholders, management and so on—is ever moving. That needs to be seen in the round. It should include not just the financial matters referred to in the amendment but a more holistic measure in terms of the sense of place, security, ability to control or influence outcomes and user contentment. I suspect that the Government have a system anyway for reviewing the effects of legislation, but I ask whether that is frequent enough to meet the noble Baroness’s objectives. In general, I support the other amendments in this group.

The noble Baroness referred to the driver behind this being the tragedy of Grenfell. Although the process of evaluation and what has come out of it may be seen, in government terms, to be moving at lightning speed, it has not been nearly fast enough for leaseholders and those who pay service charges. The consequences of that have been amply exposed by the noble Baroness and are ongoing. This is truly a tragedy for many households, which have walked unknowingly into a situation created by the neglect of others. The auguries are not particularly good. The proposal, as I interpret it, to leave the power in the hands of leaseholders to claim—admittedly on a longer timeframe—against those who did not observe basic construction standards creates an almost insuperable hurdle.

It is appropriate that I pay tribute to those outside the House who have promoted the polluter pays principle. I know that this matter has been brought to the attention of the Government, and it would place the basic strict liability on those who failed to make the grade in construction standards. My question is: when are the Government going to act on it? I consider the matter of such importance that if the noble Baroness decides to test the opinion of the House, I shall be voting with her.

Photo of Lord Stunell Lord Stunell Liberal Democrat

My Lords, this is a devastating case, again, of unfinished business. We have talked several times about unfinished business in respect of reforming the whole leasehold system. The noble Baroness, Lady Pinnock, has spoken with great passion about the need to deal with the unfinished business of getting the damaged blocks discovered since the Grenfell fire put back in a safe and workmanlike position. That is a terrible story, which is still unravelling and still producing—I think we can say—shock and amazement as the evidence comes out of the inquiry at Grenfell. As the noble Baroness, Lady Pinnock, said, it is not an isolated failure. I ought to have started by reminding the House that I was the Minister with responsibility for building regulations between 2010 and 2012, which was well before this but is nevertheless relevant.

There was a failure of regulation, a failure at every level of the supply chain, a failure of the designers and a failure of those responsible for monitoring progress. Of course, the fallout is not simply that one building was found to be dangerous and defective and burned at the cost of 72 lives, but that more than 400 other buildings have been found to be equally defective or worse. As is so often the case, once you begin to look, you see plenty else. The British Woodworking Federation estimates that 600,000 defective fire doors are installed in buildings in this country. In that context, it is good to know that the Government have come forward with a compensation scheme, allocating £5 billion. Perhaps the Minister can tell us whether the guidelines for applying for that compensation have yet been published. My last understanding is that they have not, but maybe he can bring some information to your Lordships’ House today.

It has to be right that this House considers the situation facing those leaseholders and, in so far as we can, safeguards their position. This is actually a very modest amendment; it calls only for a review within six months, not for the spending of government money, so there is nothing for Ministers to shy away from. It would simply make sure that this legislation, relevant to the ongoing tragedy of Grenfell and the ongoing battle that hundreds of thousands of leaseholders are facing with enormous bills—which the noble Baroness, Lady Pinnock, eloquently spelled out—cannot be passed by your Lordships’ House without serious consideration.

I know that the Minister has repeatedly found himself at the Dispatch Box having to say essentially the same thing: “This is not the time; this is not the place; this is not the right legislation.” We have to reply to him: “Well, when is the time? Where is the place? Where is the legislation?” We need to see some answers. Certainly, this is a matter we wish to press in the oncoming vote.

Photo of Lord Lennie Lord Lennie Opposition Whip (Lords), Shadow Spokesperson (Business, Energy and Industrial Strategy and International Trade)

My Lords, I will speak to Amendments 28 and 29, in my name, and welcome Amendment 27, moved by the noble Baroness, Lady Pinnock, and also in the name of the noble Lord, Lord Stunell.

Amendment 28 is intended to raise four issues, which I have focused on at previous stages of the Bill: lease forfeiture, transfer fees, redress schemes and enfranchisement. This amendment is intended to probe, and, while I will not introduce each issue again, I hope that the Minister can provide clarification in the following areas. On lease forfeiture, can the Minister confirm that legislation will be forthcoming to prevent possession being taken over small debts? On transfer fees, has the Minister made an estimate of how many freeholders are placing charges on the sale of properties? On redress schemes, will the Minister consider a trial for the most serious of leasehold abuses? Finally, on enfranchisement, what assessment have the Government made of the obstacles currently in place?

The intention of Amendment 29 is to raise the need for the Government to champion commonhold arrangements. The House will be aware that the Mayor of London is committed to furthering commonhold, and his manifesto pledged to trial the arrangements in London. Can the Minister confirm what support will be offered to the mayor as part of these pilots? Will he make a statement on the Government’s policy on commonhold?

Finally, I turn to Amendment 27, which calls for a review of the relationship between the Bill and those facing bills for “fire remediation work”. Unfortunately, the Government have again ignored those people during the drafting of this legislation. This Government’s continued mismanagement of the remediation work is one of their most shameful aspects. I hope that the Minister will use this opportunity to finally change track and at last deal with the issues of remediation costs being charged to leaseholders for building safety faults. Rather than another betrayal of their promises to leaseholders, we need legal protections to ensure that millions of pounds of building safety remediation costs are not passed on to innocent home owners and tenants.

Photo of Lord Greenhalgh Lord Greenhalgh Minister of State (Housing, Communities and Local Government), The Minister of State, Home Department

My Lords, this group of amendments calls for a variety of impact assessments to be produced. It is, of course, very important that we understand the impact that this legislation will have. That is why we have already produced an impact assessment, which I would encourage all noble Lords to read.

Amendments 27 and 28 would both require impact assessments relating to how this legislation would impact on issues facing existing leaseholders. As throughout the passage of the Bill, I understand noble Lords’ desire to assist existing leaseholders. Noble Lords will be well aware by this point that this is just the first of a two-part legislative programme, with further leasehold reform due later in this Parliament.

We have considered the impact of the Bill on existing leaseholders, and this is informing the process of policy development, ahead of future legislation. This is within the broader context of the important work being done by the Competition and Markets Authority to address unfair terms and mis-selling. As discussed previously, we are committed to measures to help existing leaseholders through significant changes to the enfranchisement valuation calculation, making it cheaper for many leaseholders to extend their lease, buy their freehold or buy out their ground rents.

Noble Lords can rest assured that my officials have been listening very carefully to all of the points that have been raised during the debates on the Bill. However, producing detailed impact assessments is likely only to distract from the important work that is being done on leasehold reform.

The noble Baroness, Lady Pinnock, again raised historic fire and building safety remediation costs. I was struck by the very high bill of around £204,000 per leaseholder that was quoted. This may be a building in Manchester, but I would be very keen to know further details and to understand the approach that has been taken. Very often, when I have inquired and understood the situation, I have found that the most proportionate response is not necessarily considered by the building owner—but I would be very interested to look into that case in more detail.

In response to the noble Lord, Lord Stunell, I say that we are very aware of the polluter pays Bill and the work that is being led by Steve Day of RAQ. We are looking at it very carefully to see whether it could further enhance the proposed Building Safety Bill. Of course, we have already looked at strengthening redress by extending the statutory limitation period in the Defective Premises Act 1972 from six to 15 years, applied retrospectively. This could provide further support to ensure that it is the polluter who pays. We are looking at that very carefully, as I said.

Also in response to the noble Lord, Lord Stunell, on the Building Safety Bill, I say that the first £1 billion of this has of course been in play and spent. In fact, the fund is very much overcommitted. Further details around the further £3.5 billion will be published in September, but works are not being delayed because of that. I am happy to provide assurance that the further expenditure will therefore be outlined at that stage.

Obviously and clearly, the Bill is about future leases and applying ground rent at the peppercorn level. It is not about existing leaseholders and the bills that some of them are facing with regard to historic fire safety costs. Opportunities to address fire safety and related issues will be plentiful, as the Building Safety Bill makes its way through this House.

I will move on to Amendment 29, in the name of the noble Lord, Lord Lennie, which would require an impact assessment on the levels of commonhold ownership within 60 days of the Bill passing. Noble Lords will know that levels of commonhold ownership are currently very low. Despite being introduced almost 20 years ago, there are fewer than 20 common- hold developments across England and Wales. This Government are committed to increasing the take-up of commonhold so that more home owners can enjoy the benefits of freehold ownership. We have established a Commonhold Council—a partnership of industry, leaseholders and government—to prepare consumers and the market for the widespread take-up of full-throated commonhold.

Under the commonhold tenure, it is already the case that ground rents cannot be charged. However, commonhold has struggled to compete with leasehold because it does not generate additional income streams for developers or landlords through ground rents. Therefore, the Bill will help to level the playing field for commonhold. There are other challenges that include some legal shortcomings or ambiguity, and we are considering the Law Commission’s recommendations on how we can improve the law to strengthen the commonhold tenure.

While the market adjusts to an increase in commonhold properties, the vast majority of flats are likely to continue to be developed and sold on a leasehold basis. This legislation will ensure that owners of new long residential leasehold properties will not have to pay a monetary ground rent and will share this important feature with the owners of commonhold properties. As such, the Bill and our work on commonhold share the common objective of providing future home owners with more fairness and transparency. Having carefully considered the impact that this legislation will have on our policy towards commonhold, we have concluded that both should be pursued together. It is also worth noting that the benefits of commonhold go far beyond the issue of ground rents.

While I sympathise with the good intentions behind all three of these amendments, and thank the noble Lords for tabling them, I remain of the view that the benefits of any of these impact assessments would not be proportionate to the time and resource needed to satisfy all the requirements in these amendments. Both in this Chamber and in various meetings, noble Lords have impressed upon me, time and again, the need to introduce our leasehold reforms at speed, and I agree with them. These amendments would inevitably slow down the pace of reform, with little, if any, tangible gain for leaseholders to make up for this. It is for that reason that I ask noble Lords not to press their amendments.

Photo of Baroness Pinnock Baroness Pinnock Liberal Democrat Lords Spokesperson (Communities and Local Government) 4:45 pm, 20th July 2021

My Lords, I thank all noble Lords for their contributions and support on the very important issue I have raised again today. I particularly thank the noble Earl, Lord Lytton, for his supportive contribution. He is a recognised expert on these issues, and he expanded on my points. He has raised them before, and I certainly think the Government need to listen carefully to what he has to say.

The Minister has been handed the impossible task of defending the indefensible. Unfortunately, he always has to rely on the fact that future Bills will help solve this problem—but the future will never come soon enough for leaseholders struggling now. They have these bills now and will have to pay them by the end of the year.

As my noble friend Lord Stunell said, this is just a modest amendment. All it seeks is a review of the Bill’s impact in six months, with special reference to leaseholders who have been adversely and gravely affected by the consequences of the Grenfell tragedy.

I apologise to the House for not having moved my amendment formally at the end of my initial speech. I beg to move it now, but I also have to say that, having heard what the Minister said, I wish to seek the opinion of the House on this matter.

Ayes 245, Noes 256.

Division number 6 Leasehold Reform (Ground Rent) Bill [HL] - Report — Amendment 27

Aye: 245 Members of the House of Lords

No: 256 Members of the House of Lords

Ayes: A-Z by last name

Nos: A-Z by last name

Division conducted remotely on Amendment 27

Amendment 27 disagreed.

Amendments 28 to 30 not moved.

Clause 20: Consequential amendments

Amendments 31 to 34 not moved.

Clause 21: Regulations