Baroness Pinnock:

Moved by Baroness Pinnock

63: After Clause 50, insert the following new Clause—“Report: restrictions around ground rent investments(1) Within six months of the day on which this Act is passed the Secretary of State must lay before Parliament a report outlining the impact of this Act on ground rent investments.(2) The report in subsection (1) must also make an assessment of the impact of—(a) prohibiting future ground rent investments, and(b) encouraging divestment from existing ground rent investmentson leaseholders and freeholders.(3) In this section “ground rent investment” means investment by a pension fund or other type of fund in leaseholds for the purpose of collecting ground rent.”Member’s explanatory statementThis is a probing Amendment that would require the Government report on the impact of this Act on ground rent investments, and the impact of prohibiting future ground rent investments and encouraging divestment from existing ground rent investments on leaseholders and freeholders.

My Lords, Amendment 63 in my name was tabled to probe the impact of the proposals in the Bill on ground rent investments, and the effect of prohibiting future ground rent investments, and encouraging divestment from existing ground rent investments, on leaseholders and freeholders. The Government’s intentions appeared to be clear. In 2022, the Leasehold Reform (Ground Rent) Act effectively set the ground rent on new leases at zero, so the direction of travel seemed set. Further, last November, the Government launched a consultation on ground rents, which included capping the charge at a peppercorn rate for existing leaseholders.

The Secretary of State said at the time that the aim was to help protect those leaseholders who

“can be faced with ground rent clauses in their leases which result in spiralling payments with no benefit in return”.

Now, apparently, the Government have backed off from a fundamental reform and seem set on phasing out ground rents over a period of 20 years and setting a cap on ground rents at £250 per annum.

The fundamental question we have to ask is: what benefit do leaseholders accrue from paying a ground rent of, for example, £250 a year? The answer, is, of course, that ground rents really are a something-for-nothing payment—I bet you would not get away with this in Yorkshire. If the Government are determined, as they initially said they were, to bring fairness to leaseholders, then ground rents would be consigned to history.

However, on the other hand, ground rents provide a steady income for institutions as well as individual freeholders. It seems that the pressure on the Government to row back from abolition or peppercorn was sufficient to cause considerable backpedalling.

The Society of Pension Professionals—which the noble Lord, Lord Truscott, referred to six hours ago—has examined this issue as a result of much being made about the potential impact on pension funds of reducing ground rents to either £250 or zero. The following is a statement from the Society of Pension Professionals:

“Freeholders are already prevented from charging ground rents on new long leases (of more than 21 years), so it’s perhaps understandable that the government wants something similar for existing long leaseholders. The government estimates that capping ground rents at £250 a year would decrease the value of affected property assets by £14.6 bn or £27.3 bn if rents are reduced to a peppercorn. If these proposals become law, there may be some short-term impact on pension fund investors through asset values being written down. Certain pension funds may also be impacted where they own freehold titles directly, although that will be less common. The effect of these proposed adjustments is likely to be more significant for such investors than the loss of annual ground rent income over the term of the lease”—

I emphasise this next part—

“but the scale relative to total assets is probably not that significant for most in the long-run”

That is an authoritative statement, and I would like to hear a full response from the Minister—probably in writing given the late stage of the evening—as this reform is a critical part of leasehold reform. Before Report, we need to see the detailed proposals from the Government and a full explanation of their reasons.

In conclusion, these Benches want the iniquitous system of ground rents to be abolished or at least reduced by introducing a peppercorn as the set fee. I beg to move.

My Lords, at this late stage of the evening, I will be brief in speaking to Amendment 65 in the name of my noble friend Lady Taylor of Stevenage. The amendment would require the Government to publish their response to their consultation on a cap on ground rents and set out its implementation within a month of the Bill passing. It is a pleasure to follow the noble Baroness, Lady Pinnock. She described ground rent as something for nothing and something that you would not get away with in Yorkshire. Let me assure her that the noble Lord opposite can confirm that you would not get away with it in Lancashire either.

In the past five or six days we have seen a lot of press in relation to the new £250 yearly ground rent cap for 20 years. However, we still have not had confirmation here at this stage of the Bill from the Government. I want to press the Minister on the comments of the Secretary of State, who said in November that the

“consultation was launched to help protect those leaseholders who can be faced with ground rent clauses in their leases, which result in spiralling payments with no benefit in return”.

How are those press announcements happening, when we have not had a consultation analysis and we have not had feedback on the findings of the consultation? We find out in the media what the Government are thinking, and that is not right; we challenge that operation and procedure as a way of working, whereby we find in the media numerous reports about the Government’s intentions.

After my Second Reading speech, I was approached by a young man called Mike, from Manchester, who told me that his first year of ground rent went up from £250 to £350. At that rate, his 115-year lease would mean that, by the end of it, he would pay over £100,000. More importantly, he said that three buyers had pulled out from buying his house as a result of that system. I share that with the Committee, and I am sure that noble Lords have shared many other examples and have many others in their inboxes.

To finish, the 2019 Conservative Party manifesto said:

“We will continue with our reforms to leasehold including implementing our ban on the sale of new leasehold homes, restricting ground rents to a peppercorn”— as mentioned by the noble Baroness, Lady Pinnock—

“and providing necessary mechanisms of redress for tenants”.

Even though the news that is floating about in the media is welcome, it seems that the Government have gone backwards. I would like to press the Minister on the transition period and how that will play out in future. I look forward to her response.

My Lords, I support Amendments 63 and 65 in the names of the noble Baronesses, Lady Taylor of Stevenage and Lady Pinnock, who outlined again the position on pension funds. I wanted to support what has been said by the noble Baroness, Lady Pinnock, and the noble Lord, Lord Khan of Burnley. There has been a lot of scaremongering recently about the impact on pension funds, and I wanted to reinforce that with the Minister. Quite frankly, all this talk of pension funds and pensioners being hammered by low or peppercorn ground rents is rubbish, and it should be called out for what it is.

My Lords, I shall take Amendments 63 and 65 together, if noble Lords do not mind, as they both concern ground rents. Amendment 63 would require a report to be laid before Parliament, and Amendment 65 would require the publication of the Government’s response to the recent ground rent consultation and the laying of a Statement before Parliament. Before I move into what I am going to say, I want to say that I am not making any comment on any media speculation, as I said on Monday.

These amendments relate to the issues considered in the Government’s recent consultation entitled Modern Leasehold: Restricting Ground Rent for Existing Leases, which was published on 9 November 2023 and closed on 17 January this year. It sought views on limiting the level of ground rent that residential leaseholders can be required to pay in England and Wales. Noble Lords will be aware that the Government do not believe that it is appropriate that many leaseholders face unregulated ground rents for no clear service in return. There is no requirement for ground rents to be reasonable, and they can cause problems when people want to sell, buy or mortgage their properties.

The Government have already legislated to put an end to ground rents for most new residential properties in England and Wales through the Leasehold Reform (Ground Rent) Act 2022. We have also encouraged work, led by the Competition and Markets Authority, to investigate abuses of the system such as mis-sold “doubling” ground rent leases, securing commitments from freeholders to remove these costly terms, benefitting more than 20,000 leaseholders.

It is not right that many existing leaseholders are still facing these charges for no discernible service in return, which is why we have just consulted on a range of options to cap ground rents for existing residential leases. The Government are currently considering the responses to the consultation and we will set out our policy in due course. I hope noble Lords will understand that it would be inappropriate for me at this point to comment on or pre-empt any decision of the Government before a formal response to the consultation has been published, and that, given where we are, it would be premature to impose the requirements proposed in these two amendments.

The noble Lord, Lord Truscott, is right: we do not think it is appropriate that many leaseholders face these unregulated ground rents for no clear service in return. We recognise that our proposals would have some impact on the freehold market and explored this impact through our consultation. This impact is obviously being factored into the considerations of the options and is being taken into account in reaching our final policy position. The noble Lord has some very clear views on this, which I think we agree with.

At this late hour, I therefore ask the noble Baronesses, Lady Pinnock and Lady Taylor, for their continued patience as we consider what is a very complex issue. I trust that, in the light of the assurances I have given, they will be content not to press their amendments.

I am sure the Minister understands that this has dragged on and on, and we are now at a very late stage of a Bill that has already gone all the way through the Commons. Quite frankly, the degree of uncertainty and instability that is being caused to leaseholders—and to freeholders, to be fair to them—is unacceptable. Yet again in this Chamber, we hear the phrase, “in due course”. I do not know what that means; it can mean anything from tomorrow to in three years’ time when we get round to sorting it out. That is not acceptable either.

We had a very detailed report from the Competition and Markets Authority, which roundly condemned the use of ground rents as a mechanism. We have heard in this Chamber over and again that this is money for nothing and that it has resulted in the most dreadful exploitation. The example I gave in Committee on Monday of an elderly couple virtually being held to ransom by the freeholder is absolutely shocking. That will be going on in millions of homes across the country. This is just not acceptable any longer. I hope that the Secretary of State will very rapidly make up his mind as to what he is going to do about this, stop being bulldozed by freeholder interests in his own party, make a decision and get rid of ground rents, once and for all. This would let people sleep easy in their beds, which they have not been able to do while this debate has been going on.

I think there was a question there, and my response is that we went out, quite rightly, to consult, and the consultation did not finish until towards the end of January. This is a complex issue. If we do it badly or wrong then we will make mistakes and these people will potentially be in a more difficult situation. From the end of January to April is not a long time. We are doing it as fast as we can, and we will come back to the House with further details.

I understand the response the Minister has given, but she has to understand that this consultation has its own process and in due course we will look at the analysis. I do not know whether I am accidentally calling for another meeting here, but how did we end up with reports in the newspapers? That causes more uncertainty and instability for people in their homes who are getting their information from the media. Surely there needs to be a statement or some clarification through the next stages of the Bill, so that, very early on, we can look at getting a clear, certain message out to the millions of leaseholders who have been adversely affected by the ground rent situation.

The Government have no control over what goes into the media, and it is something that the Government have to accept.

Let us end on a positive. I thank the Minister for her response. There is agreement that unregulated ground rents are unacceptable, and that some freeholders are unscrupulous and exploit their leaseholders, holding them to ransom, as the noble Baroness, Lady Taylor of Stevenage, said.

However, it would be really helpful if, as we complete the various stages of the Bill, the Minister could confirm that the Government will be able to bring forward a detailed Amendment regarding ground rents before Report; otherwise, those of us who raised this issue in Committee will raise it again on Report. Unfortunately, this will put the Minister in a difficult position, one in which she has to say, “In due course, something is going to turn up”. Let us send a message to the department that “in due course” means “before Report”.

Amendment 63 withdrawn.

House resumed.

House adjourned at 9.57 pm.