Amendment 12

Leasehold and Freehold Reform Bill - Committee (1st Day) – in the House of Lords at 4:15 pm on 22 April 2024.

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Baroness Taylor of Stevenage:

Moved by Baroness Taylor of Stevenage

12: After Clause 25, insert following new Clause— “Report on providing leaseholders in flats with a share of the freehold(1) The Secretary of State must publish a report outlining legislative options to ensure that all qualifying tenants in newly-constructed residential properties containing two or more flats have a proportionate share of the freehold of their property.(2) The report must be laid before Parliament within three months of the commencement of this Act.”Member’s explanatory statementThis new Clause would require the Secretary of State to publish a report outlining legislative options to provide leaseholders in flats with a share of the freehold.

Photo of Baroness Taylor of Stevenage Baroness Taylor of Stevenage Opposition Whip (Lords), Shadow Spokesperson (Levelling Up, Housing, Communities and Local Government)

My Lords, just before I move my amendment, I should say that I omitted to thank the Minister for her collaborative approach to the Bill in advance of it coming before the Committee. I now do so and rectify that omission. I also thank the Law Commission, as she did, and the many groups that have a leasehold interest and met us in recent weeks. I hope the Committee will forgive me for not mentioning that earlier on.

Amendment 12 requires the Secretary of State to publish a report outlining legislative options to provide leaseholders in flats with a share of the freehold. I shall resist the temptation to go over the ground again of why the Government did not include flats in their ban on new leases, although it would be helpful to know from the Minister what level of consideration was given to enacting the recommendations of the Law Commission in full in regard to this matter, particularly as it was the stated intention of the Secretary of State—that is what he wanted to do. There has been a commitment to this ban on leasehold at least since 2017. One would think that there has been plenty of time to get the work done. Indeed, the Law Commission has done much of the heavy lifting on what would be needed.

Our later amendments seek to determine the Government’s appetite to move in due course to a more widespread system of commonhold as the default tenure. The successful adoption and implementation of this in other jurisdictions has been well debated and discussed in your Lordships’ House. It is certainly the clear intent of my party to move as quickly as possible to that tenure. However, that would be a policy decision, as distinct from the implementation of the Law Commission’s recommendations, and would necessarily have to follow the legal scheme that those recommendations would introduce. As that is not proposed in the Bill but follows the Secretary of State’s intent to do away with the archaic system of leasehold altogether, there is a strong case to make a start with a transitional regime.

The introduction of a mandatory share of freehold in all new blocks of flats, as proposed in our amendment and that of the noble Lord, Lord Bailey of Paddington, alongside the requirement to establish and operate an RMC—a right to manage company—with each leaseholder given a share, would be a sensible staging post on a path towards a commonhold future. It would make conversion to commonhold at a later date a far simpler process. We urge the Government to accept these amendments as they would ensure that we have started on the path to confining leasehold to the dustbin of history, which is where we believe it belongs, and would make it clear that the Bill is not ruling in one set of homes and home owners to the ban and ruling out another. That other is affecting by far the greatest number of leaseholders, with 70% of leaseholders occupying flats. To be clear, this is not an alternative to leasehold. If such a measure were brought into force, any leaseholder resident in a new block of flats would own both the lease and a share of the freehold. It would ensure, in effect, that all new blocks of flats were collectively enfranchised by default, without the need for leaseholders in them to go through the process of acquiring the freehold.

The advantage of having a default share in the freehold is that it would give the leaseholder a direct say on what happens in their building, as is the case with those who have already been collectively enfranchised. It would also provide additional valuable rights, such as the right to a long lease extension on the basis of a peppercorn rent; in other words, the rights that will be accorded to existing leaseholders but without the cost of paying a premium to the freeholder that is still required to exercise that modified right.

We know that flat owners having a share of the freehold can cause tensions; for example, in agreeing how to proceed on crucial decisions, such as whether to cover the cost of major works through service charges. That is why it is essential that proper management arrangements are in place as a matter of course, to reduce the likelihood of damaging disputes between neighbours. That is why we propose mandatory RMCs on new blocks of flats as a corollary to the new clause.

Labour is unequivocal about the fact that commonhold is a preferable tenure to leasehold, in that it gives the benefits of freehold ownership to the owners of flats without the burdensome shortcomings of leasehold ownership. As we have heard, the Law Commission made 121 recommendations on commonhold, designed to provide a legal scheme that would enable commonhold to work more flexibly, and in all contexts. It is vital that if commonhold is to be the default tenure, it is enacted fully and properly, with full account of the Law Commission recommendations.

We have not sought to persuade the Government to incorporate any subset of the Law Commission commonhold recommendations into the Bill, but we need to reform the legal regime for commonhold in one go. Labour is committed to doing so if the British people give us the opportunity to serve after the next general election. In the meantime, it would be good to give current leaseholders a share in the management of their properties. I beg to move.

Photo of Lord Bailey of Paddington Lord Bailey of Paddington Conservative

My Lords, it is a pleasure to follow the noble Baroness, Lady Taylor of Stevenage. I do not want to rehearse the reasons why I think that a mandatory share of the freehold is necessary, in the way that the noble Baroness laid out. I want to speak more to the contact that I have had with so many different groups and individuals who feel that they are trapped in their leasehold.

The number one thing that comes up is, of course, service charge abuse. Which? did a study in 2011 which suggested that £700 million in service charges had been overcharged. The market for that has grown now to £7.6 billion, so we can only assume that this overcharging has grown along with it.

The challenge becomes: how do we make this market fair? How do we make sure that these abuses are washed away? That is to give the people paying the bills control, and not to lock them into the monopoly that leaseholders are currently locked into. Ultimately, the answer would be commonhold, but while commonhold is not on the table, we need to look at a share of the freehold. It should be mandatory, and it should happen straightaway. The noble Baroness laid out very eloquently the benefits that this would give to leaseholders.

We must understand that leaseholders do not want a landlord; that is why they have left the private rented sector—to avoid landlords. These amendments should stand. They really give leaseholders what they want. I have tabled an amendment which asks the Government to retain the power to bring forward a share of the freehold on new flats. That is the most important thing going on here.

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

My Lords, we on these Benches far prefer a move to commonhold. The journey towards commonhold is a solution to the leasehold/freehold issue.

I understand why the noble Baroness, Lady Taylor of Stevenage, and the noble Lord, Lord Bailey, have proposed a share of freehold as a route towards commonhold as being the ideal solution, as recommended by the detailed report from the Law Commission in 2020. However, it is only a small step, and it is an option that is already being exercised by some flat owners.

It seems to me that the disadvantage of share of freehold is that, in practice, it will be possible only for blocks of flats with a small number of units. Where there is a large number of units in a single block, it would be very difficult to have a share of freehold for some but not others. It will be interesting to hear what the Minister and the noble Baroness, Lady Taylor of Stevenage, think.

We on these Benches support any move that enables leaseholders to gain some full ownership rights over the home in which they live. However, I am not yet convinced that this is the route to go down. If this is accepted by the Government, it will probably be seen as a further barrier to the promotion and reinvigoration of the option of commonhold, which, after all, has been in existence since 2002. This alternative was investigated by the Law Commission, which came down in favour of commonhold—that is the subject of the next group, for which I will move the lead amendment. It is a small step in the right direction, but whether it is the step that will lead to commonhold has yet to be seen.

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities) 4:30, 22 April 2024

My Lords, I thank the noble Baroness, Lady Taylor of Stevenage, and my noble friend Lord Bailey of Paddington for their amendments.

Amendment 12 would require the Secretary of State to publish a report, within three months of the commencement of the Act, into the legislative options for mandating that new-build flats be sold to leaseholders with a proportionate share of the freehold. We appreciate the benefits that share-of-freehold arrangements have over ordinary leasehold arrangements with third-party landlords, which is why we are making it simpler and cheaper for leaseholders of flats to enfranchise collectively and, therefore, achieve share-of-freehold arrangements. However, the commonhold framework has already been designed as the optimal legal vehicle for the collective ownership of flats. As such, the Government want to see the widespread take-up of commonhold, and for it to be the future preferred tenure for owners of flats, rather than share of freehold.

The noble Baroness, Lady Taylor of Stevenage, asked why the legal framework was so complex. We need to determine precisely what property the mandate is applied to, exemptions, the processes for phased developments, the enforcement of developer liabilities for remedial works and so on. We would also need to prescribe the constitution for resident management companies—since they are presently unregulated—and to consider how the management functions are to be exercised by such companies, resident participation in decision-making, and the procedures and jurisdictions for dispute resolution. It is a complex issue, but one that we are working on—the Law Commission has worked on it for us for a number of years—and we feel that it is important that we continue with moving to commonhold rather than mandate share of freehold.

We understand the desire to offer leaseholders a share of freehold in the interim between leasehold and commonhold while the Government consider the Law Commission report and work on commonhold. However, we do not believe that mandating share-of-freehold sales would be a simple and quick undertaking. We also have concerns about using share of freehold across the whole housing market. It is not an optimum product for managing all types of shared properties, such as large and complex buildings—as we have heard—or buildings with extensive shared spaces. That is why the Government are committed to commonhold instead. We would prefer to work on one widespread take-up of a new tenure, and for that new tenure to be commonhold.

Photo of Baroness Taylor of Stevenage Baroness Taylor of Stevenage Opposition Whip (Lords), Shadow Spokesperson (Levelling Up, Housing, Communities and Local Government)

I will ask for some clarification, then. The policy was originally announced in 2017. The Law Commission did a great deal of work on what needed to be done to enact commonhold, and yet it is not in this Bill. The Minister has just reaffirmed the Government’s commitment to move to commonhold, so can she say how much longer it will take to get us to a situation where we have it?

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I reiterate that the Government remain absolutely committed to widespread take-up of commonhold for flats. We have reviewed the Law Commissioners’ recommendations to reinvigorate commonhold as a workable alternative to leasehold, and I can assure noble Lords that we will set out next steps in due course.

Amendment 15B from my noble friend Lord Bailey of Paddington would require mandatory share-of-freehold arrangements to be made for block of flats in instances where flats are subject to long leases or collective enfranchisement. I thank him for this amendment and for his interest in this specific instance. We are aware of the interest in this and appreciate the desire to ensure that more leaseholders can obtain control or ownership of their building. Although we understand the benefits that share-of-freehold arrangements can have over ordinary leasehold arrangements with third-party landlords, we are also conscious that mandating share-of-freehold sales on new builds would require a complex legal framework to be constructed and to accommodate the mandate. As I have said, we do not believe that mandating share of freehold would be a quick or easy fix for leaseholders. The Government consider that the best option, as I have also said before, is to continue to work towards the widespread use of commonhold in future, rather than mandating share of freehold.

My noble friend Lord Bailey of Paddington was particularly keen on service charges. The Government will bring forward, through this Bill, a number of measures to require landlords to provide further information to leaseholders on a very proactive basis and to increase the transparency of their service charges and administration charges, as well as providing more information to leaseholders on a reactive basis. Those measures include the introduction of a standardised service charge demand form to standardise the information that freeholders are required to provide to leaseholders. We will mandate the provision of an annual report that sets out key information of importance to leaseholders. We will compel landlords to provide more relevant information to leaseholders on request. We will ensure that service charge accounts are provided within six months of the end of the previous accounting period that they cover, regardless of the lease terms, and this will be subject to a number of exemptions. We will require freeholders to proactively disclose—

Photo of Lord Bailey of Paddington Lord Bailey of Paddington Conservative

Can my noble friend the Minister let me know how many of the 121 recommendations that the Law Commission made around commonhold will be adopted?

Photo of Baroness Scott of Bybrook Baroness Scott of Bybrook Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

All I can say to my noble friend is that that is exactly what the Government are working on and that further details will come forward in due course.

A number of things in this Bill will affect the transparency and accountability of freeholders to leaseholders, particularly on service charges, which is the one thing that my noble friend brought up. For these reasons, I hope that the noble Baroness and my noble friend will not press their amendments.

Photo of Baroness Taylor of Stevenage Baroness Taylor of Stevenage Opposition Whip (Lords), Shadow Spokesperson (Levelling Up, Housing, Communities and Local Government)

I thank all noble Lords who have taken part in the debate. I found it a bit of a frustrating debate in many ways. As I said, this policy was announced in 2017; we have had a very detailed Law Commission review and endless discussions in this House about how we move to commonhold. In a sense, my amendment was set out to probe whether we could have some route map towards commonhold, and this might be a first step towards that, to provide leaseholders with at least a share of freehold with a view to moving towards commonhold in the future. It seems that the Government want neither to set out what their route map to commonhold is or what the steps on it might be, nor to give us a timescale for that route map towards commonhold. Now we are faced with an indefinite timescale to get there and a Bill which could have enacted it but has not. I wonder how much longer we will have to wait. The seven years we have already waited is quite long enough.

It has been frustrating to unlock that but worth probing the Government’s intentions. I am grateful for the reassurance that commonhold is still the aim, but I would like to know how long it will take. However, in view of the discussions here today, I will for the moment withdraw the amendment.

Amendment 12 withdrawn.