Moved by Lord Greenhalgh
21: Clause 57, page 80, line 8, at end insert— “(3A) The different provision that may be made by the regulations by virtue of section 120A(2)(b) includes in particular different provision in relation to—(a) persons who are eligible to be members of a building industry scheme and are not members of that scheme, and(b) other persons.”Member’s explanatory statementThis amendment clarifies that regulations under this Clause may make different provision in relation to persons who are eligible, but not members, of a scheme established under Clause 128 and other persons.
My Lords, I am very pleased to speak to a group of amendments that will strengthen our solution in law to ensure that the industry pays to remediate all unsafe high-rise and medium-rise buildings for which it is responsible, and contributes to fund the remediation of all cladding on 11-metre to 18-metre buildings. As discussed during our debate in Committee, we need to take action against those unwilling to make these commitments and impose a solution in law to make sure that developers and manufacturers take responsibility for rectifying building safety defects—the polluter must pay.
Amendments 133 to 136 set out a number of changes to the definition of associated persons within the leaseholder protections provisions. Amendment 137 sets out that partnerships are captured within the definition of an associated company and Amendment 139 defines joint ventures. This will ensure that well-resourced companies cannot make use of complex corporate structures to evade their responsibilities. These amendments pierce the corporate veil.
Amendment 179 confers a power to make regulations to require landlords to provide information to a relevant tenant or other prescribed person
I will now speak to amendments we are making to Clauses 128 and 129, which I moved in Committee. As noble Lords may remember, these clauses give the Government the power to establish building industry schemes. We want to use this power to enable us to establish a scheme to distinguish between building industry actors who have committed to act responsibly and make buildings safe, and irresponsible actors who have failed to do so. The amendments tabled on
We have made it clear that we expect the industry to act now to take responsibility for fixing building safety defects, and our principal objective in establishing a scheme under this power would be to make sure that we can hold industry to account against this and other obligations. Examples of the kinds of membership conditions that may apply to members of a scheme in connection with these purposes include: the remedying of defects in buildings to which an industry actor has a connection; and making financial contributions towards remediation of defects in buildings, including by way of contribution to a general industry fund to pay for remediation.
We may also require scheme members not to use certain construction products made by prescribed manufacturers—for example, cladding and insulation products made by manufacturers who have failed to step up and commit to an industry solution by making a financial contribution to remediating unsafe buildings.
We have also made amendments to Clauses 57, 130 and 131 to clarify the relationship between the building industry scheme clause and other Bill measures. Those amendments link membership of a scheme with the powers to impose different rates of the building safety levy, to block prescribed developers commencing development for which planning permission has been granted and to block prescribed developers being able to obtain building control approval on developments. An entity which is eligible to be a member of a scheme but elects not to join it by making the necessary commitments to be a member may be subject to these measures. We have also specified that any regulations laid for these powers are to be affirmative, requiring parliamentary approval for the design of any schemes.
We hope that using these powers will not be necessary. We expect the building industry to do the right thing and step up to contribute to fixing the building safety crisis. However, if the industry fails to do the right thing to make buildings safe, we will use these powers to make sure that only responsible companies continue to benefit from government support.
Amendments 181 to 185 make changes to remediation orders. First, we are broadening the persons who can apply to the first-tier Tribunal for a remediation order to include a person with a legal or equitable interest in the relevant building or any part of it. This means that, for example, a leaseholder will be able to apply to the tribunal to require their landlord to undertake remediation work if they are not doing so. Secondly, we are clarifying that a remediation order may be made against a person who has a repairing obligation for part of a relevant building, even if they would not otherwise be classed as a relevant landlord, to allow a remediation order to be made against, for example, a managing agent. Finally, we are providing that remediation orders are enforceable by the county court.
Amendments 186 to 193 seek to improve the current provisions on remediation contribution orders. First, we are broadening the companies which can have a remediation contribution order made against them to include developers and previous landlords through Amendment 188. This will provide a potentially easier route to secure funding for remediation than through civil action, such as under the Defective Premises Act. The definition of developer is given by Amendment 189.
Following our debate in Grand Committee, we are also proposing to broaden the types of corporate body that can have an order made against them to include partnerships and limited partnerships through Amendments 186, 187 and 192. Partnership is defined as including partnerships and limited partnerships by Amendment 137 to Clause 123. The issue of limited liability partnerships under the Limited Liability Partnerships Act 2000 was also raised in Grand Committee. I am advised that such partnerships are already included in the definition of body corporate in Clause 123, so no amendment is required to bring such bodies into these provisions.
Amendments 190 and 191 extend who can apply for a remediation contribution order to include the Secretary of State and any other person prescribed through secondary legislation. This is to provide flexibility in case it becomes apparent there are further groups which should be granted the ability to apply for a remediation contribution order. Lastly, Amendment 193 provides a power to deal with self-contained buildings that are part of a wider structure.
I hope your Lordships agree that remediation contribution orders, with the changes the Government propose, are an important part of the wider leaseholder protection package and that supporting these amendments will ensure we get them right.
I now turn to Amendments 194 to 199 which make changes to the operation of Clause 127 on meeting remediation costs of insolvent landlords. Amendment 194 provides that a person acting as an insolvency practitioner in relation to the company may apply for an order under the clause. This ensures that a wider range of insolvency procedures, such as company voluntary arrangements, are in scope of this clause. Amendment 197 sets out that “insolvency practitioner” has the same meaning as in the Insolvency Act 1986. Amendment 196 makes clear that contributions made by an associated company under the clause are to be used for the purpose of meeting costs associated with relevant defects. Amendments 195 and 198 set out that an order under the clause may be made against a partnership associated with the company that is being wound up.
Amendments 227 and 228 seek to improve the clauses on building liability orders. Amendment 228 would add a new clause to the Bill to support potential claimants in understanding which companies are associated, mitigating against corporate groups employing ever-more opaque and complex structures, which claimants will struggle to unravel.
We are also altering the territorial application of Clauses 132 and 133 to include Wales as well as England. This has been agreed with the Welsh Government and aligns with the territorial extent of the Defective Premises Act and Section 38 of the Building Act.
In response to the remarks of the noble Lord, Lord Stunell, during Grand Committee, I confirm that we consider that the provisions on building liability orders are compatible with human rights legislation. We expect the High Court to consider a variety of factors when deciding whether to grant a building liability order, including the extent of the damages being sought and whether a fair trial can take place. We are considering whether we need to do any further work on this, such as producing guidance with the Judicial College.
The Government consider that building liability orders will be an important tool in holding to account wrongdoers—or polluters or perpetrators, if noble Lords prefer; whether we say “polluter pays” or “perpetrator pays” is their choice. We must hold them to account. I hope your Lordships will join me in supporting these amendments.
Finally, I will briefly mention Amendments 140, 176, 178 and 230, each of which makes a minor drafting change. I know that noble Lords agree that it is unfair that innocent leaseholders have had to pay thus far, and it is now time for the industry to step up, take responsibility and rectify their mistakes.
I ask your Lordships to support this significant and important set of amendments to ensure that the polluter pays.
My Lords, I welcome the amendments tabled by the Government. As my noble friend has explained, they extend the scope of liability, making it more likely that builders will be remediated. The amendments also block some loopholes, and I welcome that.
I begin with a general point about amending this part of the Bill. I understand the caution that many in your Lordships’ House have about amending a Bill at this stage of a Parliament if it has been fully scrutinised by the Commons. However, there should be no such inhibitions about amending this part of the Bill, because although the Bill started in another place, the remediation clauses were added in your Lordships’ House, and the other place has never considered them. So, as part of our role we should feel free to amend the Bill if we feel that that is the right thing to do, not least because the Government have themselves tabled several hundred amendments.
I make it clear that I welcome the amendments on remediation, and I commend my noble friend and Michael Gove on the substantial progress that they have made in beginning to address the crisis facing thousands of leaseholders trapped in unsaleable flats, facing unaffordable remediation bills and repossession as well as, in many cases, high insurance premiums and the costs of waking watches, while continuing to live in a building which is a fire risk.
My noble friend has moved the dial, and is to be commended for that, but, as today’s debate will show, the Bill as it stands falls well short of assurances that Ministers have given to leaseholders, who are the only innocent party in a scandal that has involved developers, contractors, local authorities and, indeed, as is emerging from the Grenfell inquiry, the Government, who knew about the cladding problems 15 years before Grenfell—and did nothing.
In this section of the Bill we are building on the Government’s proposals and we do so after extensive discussions with Ministers and officials, for which we are really grateful. We hope that it may still be possible, even at this late stage, to find common ground.
In particular, we seek to amend the Bill to be consistent with commitments that Ministers have made on the record. I remind my noble friend the Minister of what he told noble Lords in his letter dated
“The Secretary of State recently announced that leaseholders living in their homes should be protected from the costs of remediating historic building safety defects.”
That letter built on the Statement made by the Secretary of State, Michael Gove, on
“First, we will make sure that we provide leaseholders with statutory protection … and we will work with colleagues across the House to ensure that that statutory protection extends to all the work”— all the work—
“required to make buildings safe.”
The Statement said:
“We will take action to end the scandal and protect leaseholders.”
“We will make industry pay to fix all of the remaining problems and help to cover the range of costs facing leaseholders.”—[Official Report, Commons, 10/1/22; cols. 285-291.]
I think we would all agree with that.
However, since then these commitments have been watered down. Not all leaseholders are covered by the Bill, not all buildings are covered by the Bill, and defects have been sub-divided into those that are fully protected by qualifying leaseholders, and other defects that are not. I see no guiding principle behind these distinctions, but the consequence is protecting the contractor/taxpayer and putting more costs on to the only innocent party: the leaseholder.
Turning to Amendment 233, in my name and that of my noble friend Lord Blencathra, I appreciate that there are other proposals that have the same objective as ours, namely Amendments 221 and 234. I am in no way prescriptive about how the problem is tackled. The best way forward may be for my noble friend the Minister to say that he recognises the problem and will come up with the same solution at a later stage, so let me describe the problem.
The Government’s so-called waterfall proposal creates a pyramid of contributions, with developers at the top and leaseholders at the bottom. This is a welcome inversion of the situation under the current law, where the leaseholders are in the firing line, and the Government should be commended for it, but the waterfall does not live up to Michael Gove’s Statement, in which he said that
“leaseholders are shouldering a desperately unfair burden. They are blameless, and it is morally wrong that they should be the ones asked to pay the price. I am clear about who should pay the price for remedying failures. It should be the industries that profited, as they caused the problem, and those who have continued to profit, as they make it worse.”—[
We have been told at meetings with officials and Ministers that good progress has been made in persuading the industry to accept its responsibility and remediate the buildings for which it is responsible, doubtless incentivised by some of the provisions in the Bill. I commend Ministers for the progress they have made. However, we are left with the issue of what happens to buildings where remediation does not happen—the so-called orphaned buildings. The freeholder has no resources, there is no developer or contractor to sue, and so we reach the end of the waterfall: the leaseholders. What are they supposed to do? Are they supposed to pay for all the non-cladding costs, which they cannot afford? In many cases these are higher than the cladding costs. Should they continue to live in a dangerous building, with properties that they cannot sell and with high insurance premiums?
Let me illustrate this with an example, Northpoint in Bromley. The developer, Taylor Wimpey, a company listed on the FTSE 100, refuses to pay, I am told. The building is already in the building safety fund for cladding, so taxpayers are picking up the bill. Under the waterfall, we come to the resident management company, which is run by the leaseholders. It collects the service charge and therefore has a liability in step 2 of the Government’s waterfall, but it has no assets and does not have an interest worth £2 million, so we reach the end of the waterfall: the leaseholders. Most flats in Northpoint are worth less than £325,000, so there will be zero commitment to be collected from most leaseholders for non-cladding costs, thanks to the Government’s low-value exemption. A handful of the flats in that building are worth more than £325,000, so those few leaseholders are in the invidious position of having to pay £15,000—but they do not have to pay, because waking watches have eaten up their £15,000 caps already, so they pay nothing.
At Northpoint, the non-cladding works are not covered by the building safety fund, so who will pay? The only option for the moment is to ask the leaseholders to pay, wearing their hats as shareholders in the resident management company, but that defeats the point of the caps the Government have proposed for leaseholders. There are many other examples of no liability on someone with assets to pay—the so-called orphaned buildings. It is unacceptable that dangerous buildings, part of this country’s housing stock, should remain in this condition either indefinitely or until prolonged litigation has been completed.
The amendment creates a remediator of last resort. It requires that local authorities compile a list of all relevant buildings in their area within three months. If the landlords of those buildings have not started to remediate them three months after the list is completed, then the provision is activated. The amendment allows the Secretary of State to step in to undertake the work if the local authority does not want to or is not able to. I have to say that I have been a little disappointed by the response of the LGA and the GLA to my proposal. The local authority or Secretary of State could pursue the responsible developer, if there is one, with debt claims to recover the money laid out on remedial works. If the local authority chose to do the work, the amendment provides that it should be reimbursed by the Secretary of State.
This ensures that there is a fail-safe mechanism in law. The Government’s legislative proposals do not tell us what will happen if remedial works are simply not started or cannot be completed as a result of the effect of the caps and the restrictions on buy-to-let landlords. This duty would fill that gap. Where this amendment differs from other approaches is that they require the money to be provided upfront before work can commence, through funds that do not exist at the moment and which will not have money in them for some time to come. This amendment provides bridging finance from the Government.
I do not think we can simply sit and wait. If the Government cannot accept this amendment, they must come up with an alternative proposal that ticks the box. Without such an assurance, this Bill simply will not live up to its name.
My Lords, as it is my first contribution in this part of the Bill, I must necessarily declare my interests as a practising chartered surveyor, a member of the RICS and a patron of the Charted Association of Building Engineers. I am also a member of the Built Environment Select Committee, chaired by the doughty noble Baroness, Lady Neville-Rolfe, who keeps us all in order. I think she is splendid and I do not say that for want of any favours. I also own residential rented property: no flats, no high-rise, thank goodness.
I pay tribute to the Minister for the meetings he has arranged, the dialogue in which he has been willing to engage and his untiring efforts and those of his Bill team. It is fair to say that we have come an enormous way in this Bill and that is in large part, if not solely, because of the drive the Minister has put into this. I am pleased that he has clarified the limited partnerships and provided the other clarifications in the amendments he has introduced. I also pay tribute to all noble Lords around the House who have stuck with the principle that the innocent should not be made to pay for the mistakes of the developers and constructors.
I will just deal, if I may, with Amendments 201 and 202, which are in my name and on which I will not be seeking the opinion of the House. They relate to a matter I referred to in Committee, which is insolvent landlords and their interests being escheated to the Crown. That means that potentially, there is no landlord as such to organise remediation work, leaving remediation in limbo and responsibility for costs uncertain. That follows on from what the noble Lord, Lord Young of Cookham, set out with, I may say, a degree of piercing clarity which I found unchallengeable. I will outline the differences between my further amendments and his, but not on these ones.
The sole purpose of my Amendment 201 is to clarify the Crown responsibility. Amendment 202 covers where a superior leaseholder defaults and as a result the liability potentially passes to others. This amendment would serve to prevent a lease being disclaimed, thereby creating another loophole and another piece of loose liability floating around the system.
Amendment 229 in my name is another probing amendment; I hope it is self-explanatory. It attempts to deal with a perceived problem of delay by landlords and agents in accepting first funding agreements for remediation. The matter was highlighted in a recent edition of Inside Housing. Reference was made to the logjam created because managing agents were reluctant to sign off on remediation contracts without knowing who would be paying for the work or, indeed, when. That effectively stalled the first funding offer acceptance.
It was thought that the matter had been resolved; according to the Inside Housing article, the Minister confirmed in December that the logjam had been cleared. Notwithstanding this, the article said, the problems persist. It reported cases in St Albans, London and Manchester; in other words, all over the country. It is known that there are few enough contractors ready and willing to take on the—quite demanding in some cases—work of remediation, which this Bill addresses. Delay will simply cause contractors to go elsewhere and opportunities to be lost. This prejudices both leaseholder and, ultimately, I suspect, freeholder. It makes no sense. There may be many reasons for this—usually, I suspect, surrounding the landlord’s own tactical and financial advantage—but none can justify the excessive delay that this amendment seeks to avoid.
There seems to be a bit of a blame game going on between the department on the one hand and block management interests on the other. I am reluctant to take sides on that. This amendment intends to treat the symptoms by setting a time limit on acceptance of the offer so that things cannot be spun out. I hope that it will have the effect of concentrating minds and will be conducive to good order for that reason.
I now turn to Amendments 234 to 237 in my name. I make it clear that, subject to what I may hear from the Minister, I may need to test the opinion of the House on these amendments. They would have a similar effect to Amendment 233 in the name of the noble Lord, Lord Young; namely, to relieve leaseholders and freeholders of what many of us feel is an unjust imposition. Much of what we have been discussing arises because the Government believe, as I do, that, given the 30 years during which certain bad practices have taken root in construction quality, not every defect will have an identifiable perpetrator or associate currently in existence, solvent and with sufficient assets to make a claim a practical possibility. The Government seek to ensure that, if a construction defect exists which does not fall within their scheme of financial support for remediation and there is no perpetrator to be found, the public interest that buildings are made safe will persist. In their view, the only other possible sources of remediation funding are the freeholders and leaseholders.
I think it is fair to say that the noble Lords, Lord Young and Lord Blencathra, and I have been in a sort of huddle since Grand Committee. We all believe that the fallback should be the perpetrator of the situation. The amendment in the name of the noble Lord, Lord Young, proposes falling back on the local authority or the Secretary of State—AKA the taxpayer. I am aware that the Treasury has said, in fairly blunt terms, “We have made an allocation of £5.1 billion and that is it.” That means no more money unless it comes out of the departmental budget, impinging on other important work that the department might wish to take place. I take it that this is one reason, among many, why the Secretary of State has taken the initiative to protect the departmental budget by seeking voluntary contributions from the construction industry for a further £4 billion for other defects—good on the Secretary of State for doing that.
The first question I have for the Minister is: can he update us on how things are progressing on that voluntary scheme? Certainly, the industry’s initial response was not very fulsome, and the Secretary of State made what one might describe as a somewhat sterner demand— and very rightly too. The Minister’s answer is pivotal to how likely it is that property owners will have to fork out for these defects and thus require the protections he seeks to build into this Bill.
If the perpetrator, as defined, cannot be found, then it becomes a test of what is “just and equitable”—to use the words in the Bill—in apportioning the orphaned responsibility and cost between two groups of property owners, who, in the main, are likely to be completely innocent of the construction-related defects and for whom arguably it is neither just nor equitable that they should bear that responsibility and cost at all. Of course, that circumvents what I understand to be meant by the perpetrator pays principle, and results in the passing back of both responsibility and cost—the two are not exactly the same—to the innocent.
Given the Government’s insistence on this approach, I conclude that the deficit between what can be claimed from extant, solvent and legally liable developers on the one hand, and the true remediation cost on the other, is likely to be significant; otherwise, why would we be here? Meanwhile, I sense the industry is telling us, in the blunt cant of the trade, that we can whistle for it.
The Government’s remediation model of liabilities, exemptions, cost controls, means testing, tiered contributions by property value, appeals to courts and much chasing of tails withal is certainly not straight-forward. Any one of the procedural steps is contestable to some degree and contested they will undoubtedly be. So, while the many leaseholder protections are welcome, such as cladding on buildings over 11 metres, building safety levy backstops on cladding costs, exemptions for sub-£175,000—or £325,000 in London—properties, and non-cladding remediation where the landlord is or was connected to developer.
These are very welcome, but the model is incomplete and there remain significant exclusions. Properties under 11 metres are certainly one of them, but we will have to wait until we get to Amendment 115 in a later group to discuss that. There is also the question of buy-to-let landlords with more than three properties, but we will have to wait until we get to Amendment 123 to consider that. There is no backstop for non-cladding remediation costs. Leaseholders in enfranchised or commonhold blocks, as discussed in Amendment 117, may get some support for cladding remediation from the building safety fund, but I question whether they will get everything they are due under a true perpetrator pays principle.
Some issues have not necessarily been eliminated, despite what the Government claim. The noble Lord, Lord Young, referred to the waterfall, so I can skip my explanation as he has explained it much better than I would. Establishing cost liability does not of itself generate funds for remediation if those liable to pay are broke. It is a very important principle, because if the guys made responsible have no assets or cannot get at their assets because they are mortgaged up to the hilt and there is no equity, then what is the purpose of placing this onus on them in the first place?
The Government are taking a substantial risk in leaving it to the courts to decide whether it would be “just and equitable” as regards their various proposed orders. That seems to be tantamount to an invitation for further litigation, delay, uncertainty, risks, and so on. There will be applications for remediation orders, remediation cost orders, building liability orders, and litigation under the Defective Premises Act—my mind freezes over when I see that list.
There is no bridging funding facility in any of this, so unless the Secretary of State steps in or some other funding is levered in, remediation cannot take place. People cannot simply buy in on spec some large amount of a contractor’s time and substance; it is just not going to happen. Some of those who might, I suppose, be in line to be contributors to this just and equitable approach to splitting it between innocent parties—and I am sorry to go on about that—are not going to be there. Some buy-to-let investors will be denied any protections, and some landlords will fail the cost contribution test; I tried to make that clear when we were dealing with this in Committee. If you multiply the number of properties that they hold by £2 million per property, you will very often find that the total figure is greater than their capitalised worth—ergo, they drop out of responsibility.
A landlord—bless ’em—cannot, at risk perhaps even of insolvency, proceed to take legal action against third parties willy-nilly; that is not going to happen. If the developer is not in existence any more, and the landlord is in a similar, not particularly flush position, what funds will they have to underwrite the risks of pursuing other options? I do not think that it will bring certainty to the mortgage market or necessarily improve insurance risk in the short term. The real point is that it is just basically unjust. A substantial part of the costs will fall on innocent parties, with no connection to the developer; blameless buy-to-let landlords will be hit simply because they happen to own several properties. That looks a bit more like someone looking for a deep pocket, wherever they might find it, than the just deserts of those who gave rise to these problems in the first place.
The waterfall is incomplete—and if anybody wishes to cast doubt on what I am saying, they should not just listen to me but look at the analysis by Liam Spender of the Leasehold Knowledge Partnership, who produced a wonderful chart setting this out. I have a copy somewhere here—it used up most of the coloured ink in my printer, but never mind that. Then there are also the comments of the Mayor of London and the scores of emails that I have received, begging me to get this fixed.
The Government suggested that my earlier “perpetrator pays” approach would produce precisely the undesirable outcomes that independent commentators now say beset the Government’s own proposals. However, there has been a bit of a misunderstanding here. Landlords are already required by the department to undertake building-by-building assessments to ensure resident safety for the purposes of building safety fund applications. If a relevant and material construction fault has not been established by technical examination, clearly there is no claim that you can make, and no liability arises.
When I am told that my proposals would require a building-by-building assessment, I say yes, but how do you propose to establish any liability or any causation unless you get in and make an inspection? It just does not happen. I have not spent all these decades as a chartered surveyor without understanding that principle. It may be that the cost of the initial inspection to find out what is the problem is large, and that might be something that leaseholders and freeholders have to bear—but, I say again, if developers cannot verify that the work was correctly done, I do not see that that gets them off the hook. That must be part of what they should be responsible for paying. In effect, they have implicitly warranted that a building has complied. It is an industry that has given rise to the problem.
My Amendments 234 to 237 aim to address this issue. Effectively, they would require a Secretary of State to set up a fund financed from a wide industry levy, leaving the Secretary of State free to make the necessary regulatory arrangements for which powers in the Bill already exist. The basic premise is that the Government set up a building safety cost panel, funded out of an industry levy, to address the funding shortfall that I have referred to.
Amendment 234 sets in place provision for a building safety cost order made by a panel. The only trigger required is that the application to the panel must be made by an interested person, as defined. It covers the effects of the building safety cost order and guides the regulations to be made as to the form of order, service, enforcement, appeals, interim payments and so on. It is essentially facilitative, and it is for Secretary of State by regulation to decide the detail.
The definition of “relevant building” is deliberately wider than that in Clause 120 of the Bill, in including all buildings and not just those over 11 metres. This is because bad construction does not recognise height limits. The dreadful effects on those living in buildings with defects are not made any better by being nearer to the ground.
Amendment 235 sets up the membership of the building safety cost panel. It does not require this to be a government body or that money has to be channelled through government. Provisionally, I envisage that membership might include a fire-risk assessor or fire engineer, a building-control specialist and an actuary. The amendment sets in place certain administrative details relating to the functions, powers and obligations towards the panel, with default offences for non-co-operation.
Amendment 236 covers liabilities and how the panel is to determine those, including whether the fund should meet the remediation cost, as opposed to some other person or body. Proposed new subsection (4) covers situations where there is a form of warranty in the leases granted by the developer—namely, that there was compliance with the statutory standards. I believe that Royal Artillery Quays is one area where such clauses exist in leases. That would be a matter for this body to deal with.
Amendment 237 sets up the building safety cost fund itself, secured by a levy on the industry. Again, this is not prescriptive as to the detail and it does not say precisely how the levy shall be imposed. There are all sorts of possibilities. It might be, as the Mayor of London suggests, a development charge, or it might be a charge—ha!—on all those consented but long unbuilt residential plots that we keep hearing about. Would that not be a good thing? It might be a larger-developer turnover levy, or a specific charge on those whose poor standards have already been shown to have caused loss, in addition to direct remediation responsibility where proven. I happen to think that putting this on the statute book might be an encouragement for the industry to take greater voluntary steps pursuant to the exhortation from the Secretary of State. In other words, it is putting the Secretary of State’s voluntary scheme into a mandatory form.
I am advised on good authority of parliamentary counsel that there is nothing about this approach that is inconsistent with the other powers of the Secretary of State proposed in the Bill. Together these would procure some material changes.
First, they would pass the otherwise unattached responsibility for meeting remediation cost in those cases where a perpetrator or an associate no longer exists to the industry whose practices gave rise to the problem. Secondly, they would provide delivery on protecting innocent owners from unfair impositions, promised by the Government and demanded by all noble Lords in debates on previous stages of the Bill. Thirdly, they would set in place a clear line of funding without taxpayer burdens. Fourthly, they would not encounter the complex exclusions, conditionality and potential for cost and delay of the Government’s own waterfall approach, and could be designed to make early and substantial contributions towards remediation costs. Finally, they would be an ongoing reminder that bad commercial practices in construction will be called out by government and Parliament, thus providing a disincentive to further perpetuation of careless practice and passing the devastating outcomes on to wider society for the future.
It is necessary for me to invite the Minister to explain why the Bill provides for the innocent to bear the responsibilities properly attributable to the developer and the construction sector, and more particularly, why putting that onus back onto the industry is unjust, unacceptable or wrong in policy terms.
My Lords, there are 70 amendments in this group, but, on a positive note, they are all seeking to protect leaseholders. We have been very fortunate in having such a clear exposition of the issues which remain from the noble Lord, Lord Young of Cookham, who has demonstrated that there is still a gap in what the Government have set out. Who pays when there is literally no one left to pay? This relates to the orphan buildings, as the noble Lord has described them. That must be resolved. The noble Earl, Lord Lytton, has just shared his expertise on the matter. I admit that I have not quite understood every part of what he said, except that I know that it is based on knowledge and experience. I am very grateful to him for sharing it with the rest of the House and trying to find solutions to the problems which remain.
I have my name on four amendments. I will speak particularly to two of these which are, in a rather more straightforward way, seeking to achieve the same ends. Amendment 200, in my name and that of my noble friend Lord Stunell, presents another way by which leaseholders will be protected from any payment which results from the approach which the Government are taking—and which we will discuss in group 7—regarding who pays and how much leaseholders should be expected to pay. It also helps to solve the problem outlined particularly by the noble Lord, Lord Young of Cookham, about what happens to these orphan buildings when the waterfall runs out of people to fall on. I have suggested in Amendment 200 that we establish a leaseholder protection fund. I do so because, as noble Lords across the House know, there is an absolute determination on the part of all noble Lords who have spoken so far that, whatever else happens, the leaseholders will not, and should not, be the ones who pick up the bill for the errors of others—errors which are sometimes deliberate.
Amendment 200 takes a slice of the building safety fund which the developers are providing, and it establishes a fund for leaseholders who are left carrying the can, either through the orphan building situation—as described by the two previous speakers—or if the cap which we will discuss in group 7 remains. In both cases, it achieves the same end: there is a fund to which leaseholders can apply for funding to offset the bills they are presented with for work for which they have no responsibility and should never be asked to pay. This is the aim of Amendment 200, and I hope that one of the other amendments deals with this because, as far as I am concerned, this is a backstop. I assume that one of the other amendments will get the majority support of your Lordships’ House, and I will therefore not press this particular amendment.
Amendment 221, in my name and that of my noble friend Lord Stunell, captures our concerns that, despite the best endeavours of the Government—I recognise and welcome the considerable, positive change in their approach—there is a problem that needs to be addressed. The noble Lord, Lord Young of Cookham, has explained what may happen. We have already read in the mainstream press but also in publications to do with housing such as Inside Housing that developers are already turning to law to challenge the Government’s approach. The amendment would take as a starting point the dateline of
Five years is a very generous period in my view, because these folk have been living in a situation since 2017, after the dreadful Grenfell tragedy, where their homes are of no value, where they are fearful of the risks of fire, and where they know that there is huge remediation to be done and are very concerned about when and how it will be done and what happens. We have all seen it reported where a block of flats—I think it was in Salford—had the cladding removed and sheeting put up over Christmas, and it was still there. In all the storms we had post Christmas, those poor folk were in those buildings with that sort of protection. That is not acceptable. If we can do something about it, then we should, and this is an opportunity.
The purpose of Amendment 221 is to say, “Right, you developers, you’re responsible. You’ve already had nearly five years to get your act together and have failed. We are going to give you another five. Get the work done. If you don’t, we are going to resort to this amazing provision, which the Government have put into the Bill, which says, ‘If developers don’t pay up’”—and I am saying, if the developers do not do the work—“‘then there will be no planning consents able to be implemented.’” That is very draconian, but the Minister explained in Committee that the Government were so insistent that this work be done that that clause is there, and they will implement it. It would be an additional use of that clause to force action by those who have put leaseholders and tenants into this dreadful situation.
I have explained the amendment. I feel very strongly about it, and so do my colleagues on these Benches. If the Minister fails to say, “Yes, that’s great: we’ll attach your amendment to the necessary clause”, I will test the opinion of the House, because we have to try to protect leaseholders from another decade or more of living in homes that have no value.
I want briefly to mention Amendments 231 and 232, to which I have added my name. Amendment 231 is tabled by the noble Baroness, Lady Hayman of Ullock, and is about social landlords not using the income from rents or service charges to rectify defects. It is wholly admirable, and it has our support.
Amendment 232 is a “Let’s find out what’s going on here” type of amendment—a probing amendment is what we like to call it. Again, because we have so many new amendments from the Government, it was not entirely clear to me and my noble friend Lord Stunell that the increase in the service charges or ground rents could be a way of disguising increases that the leaseholders have to pay in order to pay for fire safety defects. I hope that the Minister will be able to tell us that that is covered in one of his many amendments. With those few words, I look forward to others speaking and the Minister’s reply.
My Lords, it is a pleasure to follow the noble Baroness. I particularly like her slogan, “Get the work done.” Somehow it reminds me of a similar slogan we heard rather successfully a couple of years ago: Get Brexit done. I am glad that the Liberal Democrats are picking up some Conservative slogans.
I support Amendment 233, so ably moved by my noble friend Lord Young of Cookham in his usual erudite way; he had the detail but was still succinct. Because he set it out so well, I can be commendably brief, for a change.
I start from the position of my right honourable friend Michael Gove, and I totally support what he has said and done. I usually support what he says and does, except when he was Conservative Chief Whip and was a bit cuddly, caring and too kind. But apart from that, I liked it when he said that
“leaseholders are shouldering a desperately unfair burden. They are blameless, and it is morally wrong that they should be the ones asked to pay the price. I am clear about who should pay the price for remedying failures. It should be the industries that profited, as they caused the "problem, and those who have continued to profit, as they make it worse.”—[
You cannot say better than that. So I am rather sympathetic to any amendments, including the one moved by the noble Earl, Lord Lytton, trying to make sure that developers or perpetrators pay every penny. It should not be leaseholders and, ideally, it should not be the taxpayer.
However, this amendment creates a remediator of last resort and allows the Secretary of State to step in and undertake the works. In either case, it would allow the Secretary of State or the local authority to pursue the responsible developer with debt claims to recover the money laid out on remedial works. As my noble friend so ably said, that ensures that there is a failsafe mechanism in the law. The Government’s legislative proposals do not tell us what will happen if remedial works are simply not started or cannot be completed as a result of the effect of the caps imposed in the Bill and the restrictions on buy-to-let landlords.
The duty in this amendment would fill the gap. The Government’s proposals would require some sort of remediator of last resort. Because they are imposing caps on what can be collected toward non-cladding costs, the Government are creating a gap in funding, which will have to be plugged somehow. Ultimately, someone is going to have to pay; otherwise, as my noble friend said, buildings will never be fixed. This amendment allows building work to be started and buildings to be fixed, with the taxpayer providing a form of bridging finance—but they must get that money back from the building safety fund; this is not carte blanche to make the taxpayer pay for these things.
As I said, I am sympathetic to the amendment from the noble Earl, Lord Lytton. I just worry that if we adopted these four or five new clauses, we might be tearing the guts out of the Bill and would have to rewrite a lot of it. But I think his heart is in the right place in where he is aiming to go. I understand that my noble friend might be worried about the legal position under the ECHR. This is another area where the noble Earl’s amendments might technically fall foul of the ECHR. Some of us have seen legal advice circulated from Daniel Greenberg, who is well known to everyone in this House. He says:
“On the basis of this analysis, l am satisfied that the draft clauses are compatible with the Convention rights and that Ministers will be able to comply with Section 6 of the Human Rights Act 1998 (Acts of public authorities: duty not to act incompatibly with ECHR) when they come to perform the functions conferred by the draft clauses”— referring to draft Clauses 234 to 237.
I am not capable of suggesting whether Daniel Greenberg QC is correct or not, but I would love to hear what the Minister has to say about that. If the amendments from the noble Earl, Lord Lytton, are not right, it would be helpful to hear from my noble friend how far they can go towards what the noble Earl is trying to achieve. If he is going to reject them, I would love to hear how far he can push to get as close as possible to the noble Earl’s position. With those words, I am content to support my noble friend’s Amendment 233, and I would love to hear explanations on the noble Earl’s amendments.
My Lords, I apologise for a brief Committee-style intervention, given the novel nature of the group of amendments we are looking at. I have two points.
First, I am very grateful for the agreement earlier to the amendment from the noble Lord, Lord Best. I thank my noble friend for that but, as he knows, I am concerned about the position of leaseholders who are also involved in the hard task of managing even a small development as an enfranchised leaseholder. I have a family member with an interest in that area. What happens if a cladding or other building safety issue arises? I know that such leaseholders may face big bills and responsibilities. Amendments 186 to 193 appear to make enfranchised leaseholders of this kind liable even if they have ceased to act or sold out and become previous landlords. Have I understood this correctly? If I have, then it undermines the case for enfranchisement that has been encouraged by successive Governments to get rid of excess service charges.
Secondly, a strong case has been made for the non-government amendments in this group. I too have received many worrying letters from leaseholders. Do we have a feel for the cost, especially the net cost, of these Back-Bench amendments we are debating? I feel this is a matter that will be of concern in the other place, given current fiscal pressures, and might therefore determine what is eventually agreed in this important and urgent Bill.
My Lords, this has been a very interesting debate so far. In the interests of time, I will just speak to the two amendments I have in this group, and then I will be very interested to hear the Minister’s response to the broader debate and issues that have been raised, that were clearly also debated in Committee.
Amendment 231 is about a registered social landlord not being able to
“use the income from rents or service charges to rectify defects relating to external wall systems or compartmentations where those defects result from the construction of the property or the installation of the external wall systems.”
The amendment would prevent local authorities using rental income or service charges to pay to remediate dangerous cladding or other fire safety defects. The aim is to give social housing tenants the same protection as leaseholders. While we support the Government’s efforts to protect leaseholders from the cost of remediation, the arrangements currently being considered by Ministers will mean that the cost of remediating social housing blocks falls on housing associations and council housing revenue accounts.
In the case of council housing, the main sources of income within the HRA are from tenants, in the form of rent and service charges. If the cost of fixing council housing falls on the HRA, then either rents, service charges, or potentially both, will need to increase, or maintenance improvement of social housing as well as new social housing delivery will need to be cut back. That is our concern. We clearly support the protection of leaseholders, but the protection of home owners who will eventually make a profit from the sale of their property, cannot and must not come at the expense of social housing tenants. Our proposal would prevent that outcome and instead require the Government to protect tenants such as leaseholders by requiring the industry to pay, with the taxpayer as a fallback provider of funds in recognition of any failings that created this crisis in the first place.
We discussed my Amendment 22 in Committee. It states:
“The regulations must exempt any relevant application made by or on behalf of a registered social landlord for the provision of social housing as defined under section 68 of the Housing and Regeneration Act 2008.”
The purpose behind this is to make social housing providers exempt from the additional financial burden of the Government’s proposed levy in order to prevent council tenants effectively subsidising the failures of private developers. Clause 57 of the Building Safety Bill gives the Secretary of State powers to impose a new building safety levy in England. This will contribute to government costs for remediating historical building safety defects and will apply to developers making application to the building safety regulator for building control approval. This is the new gateway 2 system, which will be introduced in building regulations.
The levy is also going to be imposed on councils, which are already facing additional financial pressures because of the last two years of the pandemic. Our concern is that as a result of this levy being imposed on councils, council tenants will effectively be subsidising the failures of private developers and paying the cost of remediating both private housing and council housing. If the levy is imposed on councils, it will increase the cost of building or refurbishing social housing, or it will increase rents. Yet the benefits of the funds will not be available to the tenants who would otherwise have benefited from lower rents or improved housing. We are asking the Minister if he will recognise the impact of the levy on social housing supply and not pit the objective of providing for those in housing need against the objective of making buildings safe, when we believe both those objectives need to be delivered by this Bill.
We know that the sector already faces huge cost pressures, not least because of the general maintenance costs associated with our ageing social housing stock. If social landlords have limited access to government funding, they will have to divert their own strained resources for maintenance and new build supply into building safety remediation, thus undermining the sector. It does concern us that if this is not taken into account, there will be a negative impact on those in housing need and particularly on the quality of housing for some of the poorest people in our country, for whom we know social housing needs a lot of improvement. This is very important to us; we believe it is a knock-on effect that must be avoided. I will listen very carefully to what the Minister has to say, but if we do not have a reply that we feel is substantive, we will be looking to divide the House on this matter.
I thank noble Lords who have spoken in this long—a little over an hour on one group—but important debate on ensuring that the polluter pays. I thank the noble Baronesses, Lady Hayman and Lady Pinnock, for Amendment 22, on the levy on social housing. The noble Baroness, Lady Hayman, raised the issues of exemptions from the building safety levy for social housing providers and who the details of the buildings levy will apply to in secondary legislation.
I am pleased to inform the noble Baroness that we are considering an exemption from the levy for affordable housing as a whole, including social housing, housing for rent or sale at least 20% below market rent or sales rates, and shared ownership. The Government recognise that applying a levy to affordable housing would increase the cost of developing affordable housing and would therefore be likely to disincentivise supply, as the noble Baroness said. We consulted on this exemption for affordable housing in our consultation on the levy, which ran from July to October last year.
I hope the noble Baroness understands that her suggestion is under careful consideration and will be addressed in secondary legislation. I will probably have to roughly translate: she should be reassured that the building safety levy will not apply to public housing. That probably makes it a little easier for her to decide what she wants to do.
I turn now to Amendment 200, on the leaseholder protection fund, tabled by the noble Baroness, Lady Pinnock, and the noble Lord, Lord Stunell, which would require the Government to use funds raised by the levy to refund leaseholders who have already paid for safety works. While a noble thing to do, the Government’s primary aim is and should be to protect leaseholders from building safety risks and enable work to be undertaken to ensure this. For this reason, we will not be able to accept the amendment.
On Amendment 221, I thank the noble Baroness, Lady Pinnock, for this amendment. We share her determination to make sure that the industry acts now to take responsibility for fixing building safety defects and that the burden should not fall on leaseholders or taxpayers. The whole tone of the amendment is to get on with remediation and I have great sympathy for that. The principal objective of Clauses 128 and 129 is to make sure that responsible parties pay and to enable us to hold the industry to account. The further amendment I spoke to earlier will make it clear that we can link the scheme to the planning system.
Together, these powers will allow us to monitor compliance of members of the responsible actors scheme and make sure that members take responsibility and act promptly to make buildings safe. We do not believe a 5-year deadline needs to be inserted into the Bill. Our intention is for the measure to achieve its objectives much more quickly. Those that do not meet the scheme conditions may lose scheme membership and may immediately be subject to the planning prohibition, as our amendments make clear. A focus on pace is already built into the Government’s approach. I hope this reassures the noble Baroness that her intention has been more than met by the Government through this Bill, just in another way.
I turn now to Amendment 231 on social landlords and defects, tabled by the noble Baronesses, Lady Hayman and Lady Pinnock. The Bill already makes provision to protect leaseholders from unreasonable costs and allow guilty parties to be pursued. It contains a requirement on landlords to take reasonable steps to pursue other cost recovery avenues before seeking to recover the costs of remediation works from leaseholders. They need to provide evidence to the leaseholders of the steps taken. Social landlords will have to undertake these measures, including pursuing construction companies or installers where applicable.
To help all landlords, including social landlords, the Government are bringing forward an ambitious toolkit of other measures to allow those responsible to be pursued. This includes extending the limitation period under Section 1 of the Defective Premises Act 1972 to apply retrospectively for 30 years. We are also allowing the High Courts to extend the reach of civil liability to associated companies and creating a new cause of action. This will allow manufacturers, distributors and sellers of construction products to be pursued where defective or mis-sold products have been used in the construction of a dwelling, or where further works are carried out to that dwelling, rendering it unfit for habitation. These amendments make it easier for those affected to force those responsible for defective buildings—developers and construction products manufacturers—to pay.
While we are making it easier to pursue third parties, in parallel, we continue to protect leaseholders, so they are not paying for unreasonable remediation costs. The Bill introduces new statutory provisions which provide that cladding remediation costs cannot be passed on to qualifying leaseholders in buildings over 11 metres. The law is already clear that service charges and any increase in cost must be reasonable. Finally, the Government set a rent policy for social housing which determines the maximum amount of rent that social tenants may be charged and the maximum amount by which rents may increase each year. The rent standard prevents unforeseen hikes to tenants’ rents and is enforced by the Regulator of Social Housing.
Turning now to Amendment 232 in the name of the noble Baroness, Lady Pinnock, and the noble Lord, Lord Stunell, the service charge is the means by which fire safety costs would be recovered and the leaseholder protections measures already prevent costs being passed to leaseholders above the permitted maximum.
I now turn to Amendment 233, tabled by my noble friends Lord Young of Cookham and Lord Blencathra, which seeks to impose a duty on local authorities to pursue responsible developers. It imposes requirements on local authorities to remediate buildings with defects and to recover funds from responsible parties. If no funds can be recovered, the Secretary of State would be required to reimburse the local authority.
We have been clear that industry is responsible for remediating defective buildings. We expect developers to remediate buildings they had a role in developing or refurbishing. Where this does not happen, building owners and landlords will have new powers to pursue those responsible. Local authorities will also have powers under our new remediation orders and remediation contribution orders, as will other regulatory bodies. However, to impose a duty on local authorities to fix buildings or pursue responsible parties is not the right approach. This would absolve industry of its duty to resolve the crisis and building owners and landlords of their responsibilities to make buildings safe. It would also place an unacceptable burden on the taxpayer.
The amendment seeks to create a taxpayer backstop by requiring the Secretary of State to reimburse local authorities for costs they cannot recover. We have been very clear that it is wrong to look to the taxpayer for further funding to fix defective buildings. For these reasons, we will not be able to accept the amendment. I want to deal with the specific issue of the remediator of last resort. I understand where my noble friend Lord Young is coming from. We have asked the industry to provide a fully funded solution for both the cladding and non-cladding costs, including fixing their own buildings and contributing to a fund for the very orphan buildings he has highlighted of between 11 and 18 metres that need cladding remediation. The focus of the industry is on fixing its own buildings, and therefore we can begin to be more focused on where we apply taxpayer funds.
Finally, I address Amendments 201, 202, 229, 234, 235, 236 and 237 in the name of the noble Earl, Lord Lytton. Amendments 201 and 202 would hold the Crown liable where properties escheat—that is probably not the right pronunciation—and would prevent liquidators and trustees in bankruptcy renouncing the leases of buildings with fire safety defects. The Bill already prevents freeholders evading liability by simply escheating their properties where they do not want to pay. It also makes provisions in relation to insolvency and bankruptcy. Freeholders will still be liable where they were, or were connected to, the developer, or had a net worth over £2 million per in-scope building on
I turn to the important Amendments 234 to 237. These cover building safety cost orders, providing powers to make regulations, stipulating liability and establishing a building safety cost fund. Liability for remediation costs is already set out in the Bill, as are provisions for building owners and landlords to go after associated developers, companies and manufacturers of defective products. For this reason, I will not be able to accept these amendments.
My noble friends Lady Neville-Rolfe and Lord Young of Cookham raised the position of enfranchised leaseholders and asked whether we have made life harder for them via Amendments 186 to 193. I want to be absolutely clear that nothing in the amendments increases liabilities for enfranchised leaseholders. No leaseholder will be worse off; all are measures to make the polluter pays principle apply to enfranchised leaseholders.
I hope that I have gone some way to provide assurances on the Government’s approach.
Before my noble friend sits down, I am really grateful to him for the explanation he has set out but can he tell the House what happens where there is a building and no one has any money— the leaseholders cannot afford it, there is no freeholder and there is no developer or contractor to pursue? Who then puts that building right?
My Lords, in practical terms, we have a £5.1 billion fund, of which we have committed the first stage of £1 billion. We have an additional £4.1 billion for buildings over 18 metres and an additional £4 billion for cladding remediation, yet we are asking industry to fix its own buildings. That gives us the ability to focus on the few buildings my noble friend is talking about, because we have got the developers that built these buildings to go on and fix them in a proportionate way and we do not have to use the core of money that we already have. Noble Lords can test the opinion of the House, but that is a practical way of dealing with the problems—focusing the current funds on those few buildings where that scenario applies.
Before the Minister sits down, I thank him very much for his response to my Amendment 22. Could he just clarify something, so that I am completely clear on it? Was he saying that the Government will exempt social housing from the levy and that an SI will be brought in? If I am correct in my understanding, I would be grateful for a meeting to discuss the detail of what he proposes will happen.
My Lords, I thank the noble Baroness, Lady Hayman of Ullock, for the opportunity to clarify what I meant. In simple terms, the exemption applies to social housing. With regard to how that is implemented and the means by which we do that, I will be happy to meet the noble Baroness to set out formally how we intend to bring that forward. I have already made that comment in meetings before Report, so it has been made in public. I am happy to make that commitment on the Floor of the House and to work on how we implement that and set it out, either in writing or in a further meeting.
Amendment 21 agreed.