Clause 4 - Permitted rent: general rule

Leasehold Reform (Ground Rent) Bill [Lords] – in a Public Bill Committee at 9:45 am on 7th December 2021.

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Question proposed, That the clause stand part of the Bill.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

Clause 4 introduces the general rule for regulated leases that the permitted rent is an annual rent of one peppercorn. The effect of that is that no monetary rent will be payable in respect of most leases regulated by the Bill.

Clause 4(1) provides that this general rule is subject to clauses 5 and 6, which set out special rules on permitted rent applicable to shared ownership properties and replacement leases respectively. Use of a peppercorn rent is common practice; for example, it is used in statutory lease extensions for flats. A peppercorn is simply a token or nominal rent that in practice is not collected. The purpose of clause 4 is to protect leaseholders from being charged inappropriate rents by landlords.

Photo of Jill Mortimer Jill Mortimer Conservative, Hartlepool

Does my hon. Friend agree that the Bill will help my constituents who have suffered in recent years from rising and excessive ground rents, and will help to prevent people from falling into the leasehold tenancy trap that we have also seen in recent years?

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

The Bill will help to ensure that new long leases granted subsequent to the Bill’s coming into force are set at a peppercorn rate—so, with no financial value associated with them.

Photo of Maria Eagle Maria Eagle Labour, Garston and Halewood

Does the Minister accept that none the less the Bill, welcome as it is, does not help existing tenants who have already signed leases for which ground rent is payable?

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

The hon. Lady is quite right. The intended purpose of the Bill, very tightly drafted as it is, is to ensure that we draw a line in the sand by ensuring that new leases in the future have a peppercorn rate. I commend the clause to the Committee.

Photo of Mike Amesbury Mike Amesbury Shadow Minister (Housing, Communities and Local Government)

I thank the Minister for his brief explanation. As my hon. Friend the Member for Garston and Halewood quite elaborately argued, this Bill is not about the many; it is just about the new. There are 1.5 million people who will still be in this system, many of whom write to us asking for us to advocate for them in this place. It is a particular issue in the north and north-west, and Wales. This Bill will do nothing for those people. In addition there is a plethora of complexities associated with the Bill—service charges, interesting management fees and so on—which we have spoken about at considerable length. So, while the Bill is welcome, it is narrow in scope and certainly does not deal with the situation here and now.

Photo of Maria Eagle Maria Eagle Labour, Garston and Halewood

I very much welcome the intent of the Bill, which is to replace the standard charging of ground rent of real monetary value to leaseholders with a peppercorn rent. I welcome that very much; it is an entirely good and proper reform. Anybody who has had to deal with land law over the years—whether as a lawyer, or just as an MP trying to advise constituents—knows just how complicated it is to change these ancient and difficult land law provisions, which go back to feudal times in many ways and which very much have case law behind them. As we can see from this simple Bill alone, significant provisions have to be added to do the simplest things. I have every sympathy with the Minister, who has a record of trying to grapple with the complexities of English land law since he was Back Bencher. It is by no means easy.

I welcome, generally, clause 4, which reduces to a mere peppercorn the ground rent that is chargeable for new leaseholders. That is entirely to be welcomed. However, I want to set out to the Minister the difficulties that many of my constituents have. Thousands of them have in the last few years bought leasehold houses. This is particularly an issue in the north-west. As my hon. Friend the Member for Weaver Vale rightly said, there has arisen a penchant for selling newly built, often detached houses as leasehold properties. That has, and can only have been to enable the freehold—the reversionary interest—to be turned into a financial product that, over years, often decades, provides a stream of income for whoever retains the reversionary interest, who is often not the original developer or builder of the properties. It is sold on in financial markets to those who are interested in long-term investments providing a stream of income.

Many of my constituents, trapped in such leases, had no idea when they bought the houses that that would be the case, and that they would owe obligations for decades to whoever held the reversionary interest. They had absolutely no idea that the person who held the reversionary interest could change, and that it would be traded on financial markets and bought by people who wanted to exploit to the maximum the provision for income generation over years. The Bill, unfortunately, does not help any of my constituents who are stuck in such provision.

I am entirely in favour of changing that provision by means of the Bill, which I welcome, but there is an argument to say that the Bill actually makes things startlingly worse for those already trapped in such leasehold provisions that have ground rent and sometimes accelerated ground rent. It makes starker the fact that it is anomalous. I have many constituents on a number of estates across my constituency of Garston and Halewood who are finding it difficult to sell their properties. They have suddenly realised that they do not own a house, as they thought they did, but that they are renting it.

I am extremely anxious that the Minister does not rest on his laurels, having got this complicated piece of simple legislation through the House and on to the statute book, but that he realises that there is so much more to do to assist those who are stuck—particularly in my constituency and in the north-west—in newly built houses that they now find they do not really own. They are being financially exploited by remote owners of a reversionary interest that will endure for perhaps 99 or 999 years.

Photo of Lilian Greenwood Lilian Greenwood Opposition Deputy Chief Whip (Commons)

Does my hon. Friend agree that the Bill, by doing the right thing for new houses, will actually make the situation even worse for those who are in existing houses, because potential entrants into the housing market will choose to buy a new leasehold house that is covered by these provisions, rather than a house that her constituent may wish to sell that is under the existing provision?

Photo of Maria Eagle Maria Eagle Labour, Garston and Halewood

That is the very concern that I have. It not only shines a light on the dilemma and the problems of current leaseholders, who will not be covered by these provisions, but sets theirs up as an anomalous set of arrangements. Until the Minister comes back with legislation to change more thoroughly what has happened in existing cases, which I know will be difficult, these people will be in a more difficult position than they currently are. Not only will they have the ongoing financial burden of the exploitative provisions that have grown up, particularly in the north-west of England, but they will find themselves left behind. The danger is that the Minister may have to move on to other legislation of concern in his Department, and may find that doing something for existing leaseholders is very difficult in land law terms. I know it is difficult to change existing leases by statute.

Photo of Mike Amesbury Mike Amesbury Shadow Minister (Housing, Communities and Local Government) 10:00 am, 7th December 2021

On Second Reading, my right hon. Friend Mark Tami highlighted the issue that could arise where, within a single development, on one side of the road would be properties built in its first phase, under the current arrangements, and on the other side of the road properties built in the next phase, under the new arrangements. It is simply inequitable. When people come to market, which property will they purchase? The Minister is familiar with these issues, and my hon. Friend the Member for Garston and Halewood is right that they need tackling, despite the difficulty.

Photo of Maria Eagle Maria Eagle Labour, Garston and Halewood

I have every sympathy with that point because I know of examples in my constituency. In the past few years, as these egregious excesses were coming to light and before legislation could be drafted, the Government have tried to impress upon developers that they should not do this kind of thing, and there have been voluntary arrangements. House builders have made voluntary arrangements, sometimes midway through the completion of a phased development, such that some buyers of properties built in the early phases of a development have had to pay ground rent, or accelerating ground rent, service charges and some of the other things that have not been dealt with in this legislation, but in later phases that has not been the case; so there is a difference between properties—even those built to the same design in different phases of one development.

One could say that caveat emptor is the basis of land law in England. It is indeed: “Let the buyer beware.” However, I have a lot of sympathy with constituents of mine who were rushed into buying a property so that they could access Help to Buy, who were first-time buyers, who had not done a degree in English land law before they sought to become homeowners—which, let us face it, is most people—and who relied upon the advice they were given. I have many criticisms of the legal profession and the solicitors—even conveyancers—who advised some of my constituents, because it seems to me that there has been a potential failing, in some cases, there.

In any case, the Minister has come to this, wanting to do something about it—indeed he has drawn a line in the sand, as he said—but he must not forget those individuals that, in drawing the line, he has not helped, and who may in fact find their predicament more starkly highlighted, and may find it more difficult to move on and sell the property that they now have than they would have done without this legislation.

Photo of Margaret Greenwood Margaret Greenwood Labour, Wirral West

My hon. Friend is making excellent points. Does she agree that there is a real human cost to this? I know of people living in my constituency who have properties elsewhere in the country, predominantly in the south, who decided to move back to Wirral because that is where they are from, only to discover that they are struggling to sell their properties. Quite often such moves are to look after an elderly family member or for similar reasons, so time is of the essence. Does she agree that we have to remember the human cost?

Photo of Maria Eagle Maria Eagle Labour, Garston and Halewood

I very much agree with my hon. Friend. I have come across many instances myself. Perhaps a young couple, just starting out in life and on the housing ladder, wanting to be able to trade up in time when they start their family, suddenly find that they cannot because their home—their leasehold home—is of pariah status and they find it difficult to persuade somebody else to buy it. I worry that this legislation, welcome though it is—it is a good step: I emphasise that to the Minister—shines a starker light on the predicament that these people are in. It is therefore incumbent upon the Minister and the Government, who have been talking about this issue for a number of years—I am trying to be kind, Mr Hollobone—to come back swiftly with effective and challenging legislation that will do something for the people who are already stuck in this mess.

What we cannot do is say, “Oh, it’s all too difficult.” It is difficult, but as lawmakers, we are here to solve these problems. I will give every support to the Minister if he can come back, ignoring the lawyers who tell him that it is all too terribly difficult and nothing can possibly be done that would not tear up our entire English land law system of trading land. Something can and must be done. He will have my support if he comes back with much fuller legislation to deal with the existing problems of those who are already caught in this situation. Peppercorns are great. Perhaps we can have retrospective peppercornery.

Photo of Nickie Aiken Nickie Aiken Conservative, Cities of London and Westminster

It is a pleasure to have you as Chair of the Committee, Mr Hollobone. I welcome the Bill and the Government’s obvious determination to ensure that buyers of new developments will be protected from what I can only describe as dodgy practices.

Having looked into the issue before coming to Committee, and knowing bits and pieces from the media coverage of this story in recent years, I find it shocking that property developers and renowned house builders have thought it acceptable to expect families or individuals buying a property—we all know how expensive that can be; people save for years to have enough for a deposit—to be hit with a ground rent that they do not know is going to double and double over the years. I absolutely welcome the Minister’s determination to stop that practice.

I call on house builders across the nation to think about the consequences of such practices on their customers, and their future customers. I know that a number of house builders have taken steps to stop this practice. I believe that the Competition and Markets Authority is carrying out an investigation and that some, but not enough, house builders have stopped the practice voluntarily. That is why I am glad that the Bill will protect us in the future.

I was taken aback by the fact that the chief executive of Redrow, a renowned house builder, said in a letter to the then Select Committee on Housing, Communities and Local Government that ground rent of £400 per year would not always necessarily double over 10 years, but in fact could reach £12,800 a year. For the average family, the idea of trying to find that amount of money is eye-watering. Even people on good salaries would find that amount punitive. I absolutely welcome the Bill. We must regulate to safeguard hard-working families who want to invest in homes.

Photo of Mike Amesbury Mike Amesbury Shadow Minister (Housing, Communities and Local Government)

I have no doubt that members across the Committee agree with much of what the hon. Lady says, but these measures are for the future, not for the here and now. The CMA investigation is very welcome, as is the work by the Select Committee and all the campaigners who have helped to force the issue, but many people are still applying these practices. Welcome though they are, these are baby steps.

Photo of Nickie Aiken Nickie Aiken Conservative, Cities of London and Westminster

I thank the hon. Member for his intervention; I was coming to that point. In my constituency—the Cities of London and Westminster—many leaseholders live in properties with much older tenancies that involve ground rent. I believe the vast majority are on peppercorn. I have lived in the two Cities for 25 years, as a leaseholder and now, I am glad to say, as a freeholder. There is a massive benefit to being a freeholder, even though I own a flat.

The hon. Gentleman is right, and I am sure that this Government and this Minister will be looking at legislation that can protect all leaseholders, no matter what kind of tenancy they have. I understand that the renters reform Bill will be coming through, which will be a massive step towards creating a balance between tenants and landlords. This Bill and any further legislation that the Government consider on leasehold are about balance and fairness. I welcome the Minister’s taking forward this Bill and future legislation to protect leaseholders.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

The hon. Member for Garston and Halewood referred to my previous interest in this subject as a Back-Bench MP. It is an incredible privilege to have championed changes in this area and now to be the Minister responsible for it. I can assure her that my enthusiasm for greater reform is not diminished in any way by my having the opportunity to, at least, begin the legislative process now.

I have a huge degree of sympathy with the cases that have been raised by hon. Members on both sides of the room. It is incumbent upon us, as a Government, to ensure that we do not rest on our laurels, but continue to push and be bold with legislation in the future. Certainly, that has been the case with regard to things that have been said by our previous and current Secretaries of State. The current Secretary of State is determined to be bold and ambitious in all things for which he has responsibility, and I would like to think that we will have further discussions about this subject early in the new year.

Photo of Maria Eagle Maria Eagle Labour, Garston and Halewood

I am glad to hear it. Does the Minister expect more legislation in this Session?

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

It is above my pay grade to make those sorts of decisions, but I will be working very closely—

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

Perhaps one day they will make me Secretary of State and I will be able to make those decisions myself, Mr Hollobone—don’t laugh. As I said, it is our intention to come forward with proposals, so we will be talking again in the new year and discussing this in detail.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

We will hear first from Mr Amesbury and then Dr Hudson.

Photo of Mike Amesbury Mike Amesbury Shadow Minister (Housing, Communities and Local Government)

On a point of clarity, will the legislation apply to properties that are currently being built, whether they are in Birmingham, Westminster or Manchester? Will the narrow scope of the one peppercorn policy apply to properties that are being built, but are not yet completed?

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

As I referred to in the discussions about previous clauses, I believe that the legislation will apply once it has been enacted following Royal Assent, so it will apply to new contracts that come into force once the Act is in force. It would not necessarily apply to a property that is being bought today. It will apply only once the law has been enacted. We will have Royal Assent, legislation will be provided and then it will be enacted.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

Minister, you have the floor and you decide who you give way to.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

Sorry, Mr Hollobone. I thought you had already decided that you were going to call my hon. Friend Dr Hudson next.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

As the Chair, it is not for me to call people but for the person who has the floor to decide who they will give way to.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I defer to you in all things, Mr Hollobone, and I feel better educated. I give way to my hon. Friend the Member for Penrith and The Border.

Photo of Neil Hudson Neil Hudson Conservative, Penrith and The Border

It is great privilege to serve under your chairmanship, Mr Hollobone. I welcome the Minister’s comments and the Bill, as well as the constructive comments from the Opposition. We are all on the same page and think that this constructive Bill is a small step towards correcting future injustices.

I take on board the complexities for people in the existing system, but in respect of the comments made by my hon. Friend the Member for Cities of London and Westminster, does the Minister agree that if we can get the Bill through, it will shine a spotlight on developers that have existing leaseholders and they may well reflect, so this Bill for new leaseholders might create some retrospective good will? It is a start, and I welcome the comment from the Minister that we can try to address things moving forward. I very much welcome the Bill, and I hope that it will start to address some of the retrospective issues indirectly.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities) 10:15 am, 7th December 2021

My hon. Friend makes an important point. The Government are signalling strong intent by virtue of introducing the Bill, which backs up the suggestions we have made previously about our intent. With regards to other pronouncements that the Government have made, I think people will rightly expect that legislation will follow in due course. My hon. Friend is completely right.

Photo of Lilian Greenwood Lilian Greenwood Opposition Deputy Chief Whip (Commons)

I wish to follow up on the question asked by my hon. Friend the Member for Garston and Halewood. Clearly, the Bill will apply only from the date that it receives Royal Assent. Is the Minister concerned that some developers that have acted in unscrupulous ways that the Bill is designed to prevent will see the deadline of Royal Assent as an opportunity to place more people in the position that has been outlined by my hon. Friends and Government Members? Developers might try to get in before the deadline of Royal Assent, rather than taking the message that these sorts of leaseholds should not be offered and are inappropriate. What discussions has the Minister had with developers, and what sense does he have of whether people will act opportunistically?

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I thank the hon. Lady for her contribution but, fortunately, the evidence does not back up the concern she has voiced. We saw a prevalence of this type of construction. That has peaked, and now its popularity is decreasing, so we already see that developers understand that, effectively, the game is up and the world has moved on. I would like to think that, thanks to the efforts of hon. Members in this room, we are publicising the Bill and our constituents will become better informed as a result of our contributions to the debate. Hopefully, that will serve to protect them.

Photo of Mike Amesbury Mike Amesbury Shadow Minister (Housing, Communities and Local Government)

Some developers have responded to the change in landscape and enforcement action with strong encouragement, but others out there have not done so. My hon. Friend the Member for Nottingham South is correct to say that this is another opportunity to get developments erected as soon as possible. We need only look at the skylines across our cities to see that happening, and some developers will want to continue with that cash cow at the expense of leaseholders. It is a real fear, and I would certainly welcome a Government assessment of the impact in that transitional period.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

As I said in answer to the previous question, we can already see—not just now, but over the previous few years—that there has been a rapid decrease in the number of properties being constructed and subsequently sold in this way, so the hon. Gentleman should feel reassured that the Government’s intended legislation is already having an incredibly positive effect.

Photo of Nickie Aiken Nickie Aiken Conservative, Cities of London and Westminster

Following the previous point, does the Minister agree that the conduct of house builders such as Countryside Properties, which has voluntarily agreed to remove the doubling of ground rents from its leasehold contracts, is a step forward? The Home Builders Federation or another trade body should be working with its members to take that forward, as Countryside Properties and others have done, but too many house builders are still not doing so. Perhaps the CMA review will help, but perhaps the Bill will send a clear message to house builders that, actually, they should be looking at their own practices before they are made to do so by the legislation.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities)

I can say nothing other than that I completely agree with my hon. Friend’s comments.

Photo of Maria Eagle Maria Eagle Labour, Garston and Halewood

We have to have proper scrutiny. There has been a general hope expressed by the hon. Members for Penrith and The Border and for Cities of London and Westminster that this legislation, rather than highlighting the difficulties existing leaseholders have and putting them in a more difficult position, may promote better behaviour towards existing leaseholders from those who are in a position to exploit them. We hope that that will be the case. Do the Government collect any figures that they might publish to enable us to see whether there is the positive impact hoped for by Conservative Members? Does the Minister have any figures that show that is the case—or are we just crossing our fingers and hoping?

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.