Amendment 13

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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Lord Howard of Rising:

Moved by Lord Howard of Rising

13: Schedule 4, page 160, line 6, after “Schedule” insert “but only to the extent that the property comprised in that freehold or lease is comprised in a current lease which is held under a homeowner lease at the valuation date”Member's explanatory statementThis amendment defines a homeowner lease, to distinguish between homeowners and investors, and restricts certain benefits of the Bill to leaseholders who reside in the property as their principal home.

Photo of Lord Howard of Rising Lord Howard of Rising Conservative

My Lords, I will speak to the group of amendments in my name, Amendments 13, 15, 19, 23, 24, 25, 40, 46, 47 and 48. These amendments seek to define a home owner’s lease, which would distinguish between a home owner and investors, and therefore restrict certain benefits of the Bill to leaseholders who reside in the property as their principal residence.

I support the benefits that the Bill will bring to leaseholders. However, I believe there is a real danger that the Bill, as currently drafted, will not benefit the aspirational British home owner but instead an assortment of overseas companies and investors. In fact, the Government’s own impact assessment confirms that these proposals will result in an enormous transfer of wealth to private landlords, not the people who actually live in leasehold properties. I cannot believe that this is the Government’s intention, yet it is precisely what will happen if we pass the legislation in its current form.

Of the measures that have been looked at closely through the Government’s impact assessment, nearly 65% of the central estimate of costs—£1.9 billion out of £2.8 billion—results from transferring marriage value from freeholders to leaseholders. However, this has very little to do with improving the experience of people who live in leasehold premises. The largest transfer arises from changes to the treatment of marriage value, and the largest part of that is in flats. The Government estimate that 37% of all leasehold properties are in the private rental sector. However, 62% of all flats are in the private rental sector. Given that the transfer of marriage value primarily benefits London, and that most of the leasehold properties in London are flats, the consequence is that a significant majority of the benefits will go to landlords rather than the people who live in flats. The transfer of value to private landlords will therefore greatly exceed their 37% share of the entire leasehold market.

Similarly, the Bill’s impact assessment asserts that the beneficiaries will not be disproportionately wealthy because costs and incomes in different parts of the country will, on average, be the same. It has provided no evidence to support this statement. Factually, it misses the point that the transfer of marriage value overwhelmingly benefits the wealthiest leaseholders in society. The impact assessment is therefore wrong to suggest that the costs of paying marriage value and incomes are similarly distributed in different parts of the country by reference to income. It also demonstrates that the greatest beneficiaries of marriage value transfer will be the wealthiest. If the aim is to help mainly younger owner-occupiers of flats then this proposal is badly targeted, as it is the wealthiest in a relatively small part of the country who stand to gain the most.

His Majesty’s Government have also seemingly failed to undertake any analysis of the impact on UK residents and businesses versus those from overseas. Given the high levels of leasehold flats in the private rented sector, there is no basis for the Government to have reached their conclusion that there is no significant benefit to overseas businesses or individuals. The effects of the Bill will see a significant transfer of value from the UK to overseas interests. On the Government’s assessment of a £1.9 billion marriage value transfer, and on the basis that 69% applies to London, between 10% and 25% of this is a direct transfer to overseas owners. Using His Majesty’s Government’s statistics, this would equate to a transfer of between £130 million and £328 million from UK investors to overseas investors, with a greater propensity for that money to leave the country. This may well be an underestimate because the overall marriage value estimate is likely to be low and there is a correlation between higher-value places and higher overseas ownership, so the purported net benefit will likely be offset by a greater transfer of wealth out of the UK.

This amendment seeks to address that flaw in the legislation and ensure that the people who benefit from this Bill are those who have a home owner lease. A home owner lease means a lease of a single dwelling that is the only principal home of the tenant; in short, it is where they live. The home owner lease ensures that those who might benefit from these reforms are those who genuinely live in these properties, rather than investors who would simply be taking advantage of the expropriation of assets.

I would be grateful if the Minister could inform the House what thought the Government have given to ensuring that the scope of the Bill will reach only to genuine occupiers, and how they intend to protect against this massive wealth transfer from UK plc to overseas companies. I ask the Government to consider my amendment, which seeks to introduce this change and ensure that the beneficiaries of this legislation are those whom the Government originally intended. I beg to move.

Photo of Lord Robathan Lord Robathan Conservative 4:15, 24 May 2024

My Lords, this is the first time I have taken part in the debates on this Bill so I should state, for the avoidance of doubt, that I have no leasehold interest whatever. With the leave of the House, I will be slightly far-reaching; there are several amendments here. This is a far-reaching Bill, but it has not been properly scrutinised. Indeed, my noble friend the Minister admitted some confusion in his remarks. The noble Lord, Lord Kennedy, said that this way of doing legislation is “just wrong”, and the noble Baroness, Lady Fox, said that we need some clarity. We need clarity and clear legislation because otherwise—we have all seen this—there will be further confusion.

I can certainly support the end of freeholds in the future; I have no problem with that at all. Yet we have heard that the Bill will not do that; it will not happen yet. Furthermore, this legislation is retrospective for existing freeholds and leaseholds. Retrospective legislation is always deemed unwise. I will not go into too much detail about marriage value or foreign investors because we need to look at this better, but proper scrutiny has not taken place.

The first point is that there is a huge possibility of challenge in the courts—everybody must see that—because we are taking people’s property away. The rulings on confiscation of property and investment will certainly be subject to challenge. We would all challenge it if we had investments that were diminished by the Government. Of course, this could drive some freeholders, who have perhaps invested in just one or two leasehold flats, into bankruptcy. If it did, would the Government be subject to demands for compensation? I have no idea, but nor does anybody else because this has not been properly scrutinised.

What will happen, for instance, if a freeholder in a large building with several flats suddenly finds that he cannot pay the interest rates, goes bust and the flats are left without a freeholder or, indeed, anything to run the freehold? My noble friend Lord Bailey talked about commonhold, which is a very sensible way forward, but it is not properly addressed in this Bill.

Yesterday, I went to very moving memorial—one or two other noble Lords were there but not, I think, anyone here in the Chamber—for Lord Brown of Eaton-under-Heywood. Stressed in that was his adherence to the rule of law and, indeed, to decency and fairness. We in this Chamber should all be looking at decency and fairness in any law we pass. I have to say that this Bill, as has been pointed out by my noble friend Lord Howard, is not decent or fair. It is half-baked and half-thought-out, and there will be huge problems in the future.

I agree that there are problems in leasehold, but this Bill does not necessarily address them. In fact, in my opinion, it will make for chaos. I do not wish to detain the House further, except to say: we must make proper, well-scrutinised legislation. This House, for goodness’ sake, is always claimed to scrutinise legislation properly, yet here we are on a late afternoon when not many people are around, dashing for a wash-up. This is the worst way to pass legislation.

Photo of Lord Moylan Lord Moylan Chair, Built Environment Committee, Chair, Built Environment Committee

My Lords, I say in support of my noble friend Lord Robathan, having once lived in a flat where the landlord was bankrupt, that you do not want to have a bankrupt landlord. It is not good for leaseholders if the landlord cannot exercise their functions—well or badly. So I ask my noble friend the Minister: what assessment have the Government made of the likely effects of this in inducing insolvency on the part of various landlords? There is too much passion behind this Bill, but the passion seems to be predicated on the idea that landlords are all rich private equity characters who can be mulcted for endless amounts of money, when the truth is that in many cases, freehold interests are owned by families, and sometimes small investors, and the effects of this on them, especially if their investment is leveraged, can be very great.

Turning to the remarks made by my noble friend Lord Howard of Rising, and the amendment, I acknowledge that we are in danger of straying into the next group, which is specifically about marriage value, and I will save my remarks on that until the next group. But on the general principle, the Government have presented the Bill in a way that seems to me to confuse the concepts of leaseholders and tenants. They presented this as something that would be good for home owners but, in practice, as we know, a very large number of leasehold flats are sublet, quite properly and quite lawfully, to people who pay rent for them. The benefit will not go to the home occupier; it will go to the person who holds the lease.

The next fallacy from the Government—who seem to have difficulty, for a Conservative Government, in understanding markets—is that this benefit will somehow trickle down to future leaseholders. That is not true either. What is happening is a transfer of wealth from one group of persons to another. That second group, having been enriched by this movement, will seek to achieve and will achieve higher prices when they sell later on. It is not the case that flats, or even houses, will become generally cheaper as a result of this. The benefit is a one-off transfer to existing leaseholders, many of whom have a profound interest in seeing this happen because they are going to be the direct beneficiary of the expropriation.

The next fallacy that the Government have been peddling is ignoring the fact that so much property, especially in London, is owned by foreign investors. There are reasons for that, which I think deserve exploration, although this is not the time. But property is, as a matter of fact, as I think everyone will acknowledge, owned by foreign investors. We all know about these new blocks of flats that were pre-marketed in Singapore, Hong Kong and all sorts of places, not to mention the Gulf. Those who still hold those leases will be the direct beneficiaries, not the persons to whom they let their flats. But the Government seem to have made no assessment of what the effect of this is going to be. I am to some extent reinforcing the points made by my noble friend Lord Howard of Rising. I ask, seriously, my noble friend on the Front Bench: where is the assessment of this? Is it credible, and will he give an account of it?

I will make a final point: the biggest beneficiaries of this transfer are going to be people who have short leases and expensive properties. I mentioned in Committee that in Kensington there are many people salivating at the prospect of this Bill being passed. This is not about poor people living in remoter parts of the country. This is about the benefit, as a matter of mathematics, that will go to those with shorter leases and larger properties.

What assessment has my noble friend the Minister made of how much business has gone on in the last year and six months of investors cannily buying up short leases, specifically in anticipation of this Bill passing because of the windfall profit they expect to accrue as a result? It is remarkable that the Government seem to think that this measure will benefit ordinary people. It will not.

Photo of Lord Hacking Lord Hacking Labour 4:30, 24 May 2024

My Lords, perhaps I might get up for just a moment to express extreme disquiet about this Bill and the whole wash-up procedure. I have listened with great care to the speeches from the noble Lords, Lord Howard, Lord Moylan, Lord Bailey of Paddington and Lord Robathan, and from the noble Baroness, Lady Fox. This Bill is not being properly considered. I need to say that from these Benches. I also need to say that the wash-up procedure that has been adopted here today—I have been in the House almost all of today and I have listened to the wash-up procedure—is leaving a lot of dirty clothing in the washing machine which has not been properly attended to. It is too late to redress things now, but at least a word of protest should be given.

Photo of Lord Hintze Lord Hintze Conservative

My Lords, given the fact I have not spoken before on this matter, I again draw attention to my registered interests. I want to add my disquiet at what I am seeing here. This is an attack on property rights. That is an issue for both sides of the House. Why? Because it attacks us—our country—as a good place to invest. There are issues that need to be talked through but, to be very clear, the bankruptcy point that the noble Lord, Lord Moylan, raised is absolutely not trivial. The legal issues around this are quite serious. I ask the Minister: have the Government looked at that in any detail?

The other thing I would like to ask Government is: why the rush? Why now? There are issues that both sides of the House want to address, whether now or in the next Parliament. I seriously think we should wait. What really makes me quite hot under the collar, if you do not mind my saying so, is: why make it retrospective? In my view, this goes against all sorts of natural justice. Unless something terrible is being done, why make it retrospective? Anyway, that is my word that I would like to share with the House.

Photo of Baroness Fox of Buckley Baroness Fox of Buckley Non-affiliated

My Lords, the noble Lords, Lord Hintze and Lord Robathan, both made the point that there had not been enough scrutiny of leasehold in this Bill. They also both said, “I’m sorry I haven’t spoken on this before”. I will just point out that there has been a fair bit of scrutiny on this Bill. There has also been a whole range of debates on leasehold since I have been in the House—for only three and a half years. If they had been in previous discussions on the Bill, they would have heard in boring detail, which we do not have time for now, how many inquiries and investigations from all political parties have gone into every aspect, detail and legal and financial implication of what would happen if we got rid of leasehold—every detail of it. The criticism is that the Government are not going far enough, but the notion that you can wander in and say, “You lot have not thought about this; you’ve not considered it”, is wrong.

The other thing that I want immediately to come back on—undoubtedly the noble Lord, Lord Moylan, will think that I am being too passionate, but anyway—is that everybody is suddenly now concerned about bankruptcy. It is true that nobody wants to drive anyone into bankruptcy, but the notion that this Bill is about driving people into bankruptcy is wrong because it is actually designed as a way of dealing with the fact that many people face bankruptcy because of the service charges that they face.

Photo of Lord Robathan Lord Robathan Conservative

I am grateful to the noble Baroness for giving way, but she said in her earlier speech that she wanted clarity. It may have been discussed before, but she wanted clarity, I want clarity, and I think we all want clarity in legislation.

Photo of Baroness Fox of Buckley Baroness Fox of Buckley Non-affiliated

The context of my point about clarity was slightly different.

Anyway, the final thing is that the bankruptcy many leaseholders face, because of service charges and some of the things this Bill tries to deal with, is just being ignored.

The final thing is that I object to this notion that it is an attack on property rights and to this idea that people do not understand. People who buy leasehold flats are entering into the property market. They think they are property owners and they are being done over and ripped off by people who sell them the myth that they are buying into a property-owning democracy—something which has been sold by the Conservative Party many times. They have been mis-sold and misled. This cry for commonhold is all about giving them the right to own their property and manage their own affairs and not, suddenly out of nowhere, to have people in control of their homes ripping them off. It is as simple as that. We are trying to give them autonomy. This Bill does not go far enough. However, these arguments are a complete distraction from the limitations of this Bill. They are irrelevant to this Bill. We should be let it go through as quickly as possible.

Photo of Lord Moylan Lord Moylan Chair, Built Environment Committee, Chair, Built Environment Committee

Before the noble Baroness sits down, I hope she can appreciate that it is perfectly possible to agree with every word she said—that there are abusers, as I said in Committee, that the Bill should address the abuses and that commonhold or something of that character is undoubtedly the way forward and could be legislated for even now—and still be concerned about the retrospective seizure of assets from one party to be transferred to another and to ask how many of those are actually overseas investors, how many are domestic investors and how many are the real people she wants to speak up for who live in their homes. It is perfectly possible to ask those questions.

This Bill is a sledgehammer to attack a nut. It is rare that something as arcane as property law could excite such passion, but we need less passion and more focus on the detail of property law and getting it right if it is to work and not produce worse outcomes for people who live in their own homes, for whom she has so passionately and properly argued.

Photo of Baroness Fox of Buckley Baroness Fox of Buckley Non-affiliated

It is very fashionable to say “I am not a lawyer”, but lots of lawyers who work in property and housing support this Bill but think it does not go far enough. It is not just all bluster and passion. That is misleading.

My final retort to come back is that I am defending people who buy a property to live in. People who buy a property that they then rent out are, as far as I know, not the devil incarnate. I am surprised that people on the Conservative Benches have decided that, if you happen to buy a leasehold property and you want to rent it out, you are doing something malign and malicious. This is not about poor people versus rich people. It is about impoverishing people who buy a house, thinking they are buying a house, only to find out that they have no control or autonomy and that somebody else from a rentier class that has become lazy about innovation in terms of construction, building and housing, is living off easy gains by ripping off leaseholders.

Photo of Lord Gascoigne Lord Gascoigne Lord in Waiting (HM Household) (Whip)

I thank my noble friends Lord Howard of Rising and Lord Moylan for their amendments, and all who have spoken in this group. As we have already discussed on the previous group, residency is difficult to establish, can change quickly over time and could be manipulated, as previous residency requirements have been. The fact remains that a residency test would complicate the system overall, contrary to the aims of the Bill, leading to an uptick in disputes and litigation. Therefore, we oppose the introduction of any form of residency test which would treat leaseholders differently under these reforms. I assure my noble friends that I completely understand and hear what their aim is, here and in the previous group, but it would complicate the system and create a two-tier system.

A number of points were raised which I will seek to address. First, I shall cover the points raised by my noble friends Lord Howard and Lord Moylan about analysis, impact studies and foreign investment as a group. My noble friend Lord Howard asked about analysis. While it might be the case that marriage-value savings are concentrated in London and the south-east, this is because of the large number of flats in London, the region where leasehold property prices are highest.

Further to that, my noble friend asked about our analysis. I assure him that it is robust, as is demonstrated by our impact assessment being noted as fit for purpose and green-rated by the Regulatory Policy Committee—RPC.

My noble friend Lord Moylan raised a point about foreign investors. The Bill will fulfil the Government’s aims to make it cheaper and easier for leaseholders to extend their lease or buy their freehold. It will apply to leaseholders whether they live in their property or elsewhere. Attempting to limit the rights of non-resident leaseholders would complicate the system that we aim to simplify and restrict access where we wish to improve it.

My noble friend also talked about a lack of proper scrutiny. This has had proper scrutiny. In 2018, the Law Commission’s legal experts began their report into enfranchisement. In 2019, the Law Commission reported, including options on marriage values, which we accepted. In 2021, the Government confirmed that these recommendations were policy. In 2023, the King’s Speech set out the Bill, which has had scrutiny in both Houses.

That leads me neatly on to my noble friend Lord Robathan and the noble Lord, Lord Hacking, who raised the impact of wash-up. The noble Baroness, Lady Fox—maybe I should say my noble friend on this occasion—got this right, but I appreciate the point about the impact of wash-up. The suggestion is that the Bill has not been scrutinised but, in my brief time as a Government Minister, I have sat through many debates on this and it has been through both Houses of Parliament. We are talking about it today; it is being scrutinised. Many noble Lords and others have had to tolerate sitting in meetings with me, alongside my noble friend the Minister, to talk about it. We have engaged. I appreciate the point being made that this is not the way to do it, but it is because of wash-up. The Chief Whip raised this earlier today and the Leader addressed it yesterday.

Photo of Lord Robathan Lord Robathan Conservative

Could the Minister just respond to what my noble friend Lord Howard of Rising said? Supposing I am a foreign investor and I buy 100 flats. After the marriage value is put down, I get, say, £100,000 for each flat as a bonus. I think that is an underestimate. Would he defend that?

Photo of Lord Gascoigne Lord Gascoigne Lord in Waiting (HM Household) (Whip)

I would certainly be happy to defend this Bill and what it does. I therefore ask my noble friend to withdraw his amendment.

Photo of Lord Howard of Rising Lord Howard of Rising Conservative

I thank all those who were kind enough to support this amendment. The Minister talked about adequate examination. I have great respect for the Minister and especially for his integrity: when he borrowed my house, I got the key back. It took some months, but it came and it is a very special key, because they stopped making them 50 years ago. I had to have them specially made, so I thought, “Oh, no, I have to go through that expense again, because I could not possibly stick a poor young politician with the cost of a key like that”. Suddenly, like magic, it flopped through the door one day.

But what credence can we give to the legal advice the Minister has had, which he referred to earlier, when the Government’s own advisers have said that the legality of this is a very fine argument? The truth of the matter is, as has already been mentioned today, that one of the main planks of the Human Rights Act is the right of property. The Government are gaily switching around bits of property at a Minister’s whim. I cannot believe that that can have been passed as solid by so many august legal entities unless they themselves had an axe to grind. Of course, there is also, as has been mentioned, the retrospective angle of the legislation.

The Minister has made a very good attempt at short notice, and needs to be admired for that. It is a pity; people talk about whether a Bill has been supervised properly—we have not even got the Minister who has taken the Bill through the House here to answer it. As I said, I am a great admirer of the noble Lord, Lord Gascoigne, but he has been pitched in because this Bill is being dashed through. It is a very complicated Bill; it is not something simple. There are all sorts of complexities that will come through during this debate. I feel that the Minister needs to think carefully about some of the answers he is giving, even though I appreciate the difficulty that he has, having been lumbered with it, in trying to give adequate answers to the points being made. Having said that, I beg leave to withdraw the amendment.

Amendment 13 withdrawn.