Amendment 9

Part of Leasehold and Freehold Reform Bill - Report (and remaining stages) – in the House of Lords at 4:00 pm on 24 May 2024.

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Photo of Lord Howard of Rising Lord Howard of Rising Conservative 4:00, 24 May 2024

My Lords, Amendment 9 in my name would ensure that, when a building has more than 25% of commercial floorspace, the right of collective enfranchisement will not apply unless at least 50% of the participating tenants are occupying home owners. At present, for leaseholders of flats to be able to compulsorily acquire the freehold interest in a building, the amount of commercial floor area must not exceed 25%. Increasing the threshold to 50% in conjunction with compulsory lease-backs and below-market compensation will have a number of unintended consequences. This change will lead to the increased fragmentation of high streets and city centres, eroding the ability of property owners—including charities and, importantly, local authorities providing essential public services—to actively manage places.

The loss of contiguous ownership will erode the incentive that property companies have to invest beyond the buildings themselves for the needs of communities, to create attractive neighbourhoods and support broad demographics. It will also discourage investment and lead to less residential in new buildings as landlords take defensive steps to limit the impact. More broadly, it must be recognised that mixed-use buildings pose a greater management challenge than purely residential ones. Freeholders ultimately need to be active and responsive property managers, not only managing issues such as fire and building safety but responding to requests for alterations and improvements and any redevelopment of the commercial elements of the building, its common parts and residential elements. For mixed-use buildings to operate effectively, property owners must balance the continued commercial attractiveness of the offices or retail within the building with the residential occupiers’ quiet enjoyment of their homes and the attractiveness of the wider neighbourhood.

From the perspective of a freeholder looking to actively manage the commercial units within enfranchised mixed-use buildings, the key issue that arises is that the enfranchised leaseholders are held in a corporate structure, such as an offshore entity, company or trust. As many leaseholders have encountered in seeking to hold freeholders to account for building remedial works, it can be incredibly challenging to identify the ultimate decision-maker and secure consent to even modest alterations. As part of the reform, the Bill should mitigate this by introducing an additional requirement that to be a qualifying leaseholder they should be required to satisfy a residential test.

As we know, a high proportion of leasehold properties are owned by investors, including from overseas. Where leaseholders who live in their properties are likely to have regard for their surrounding neighbourhood and what happens in their building—as we have seen from other matters relevant to building management—this is not always true of investors. It is not just a case of ensuring the effective management of individual buildings but of protecting high streets of significant economic importance from being fragmented, particularly in London’s central activity zone, where we know that a high proportion of residential properties are held by investors.

The amendment would seek to pre-empt these challenges by requiring a resident test to ensure that leaseholders seeking to acquire a freehold live in the building as their main residence. It would give some assurance that they will be contactable and responsive, avoiding the negative impacts of zombie freeholders. I beg to move.