Clause 5 - Permitted rent: shared ownership leases

Leasehold Reform (Ground Rent) Bill [Lords] – in a Public Bill Committee at 10:15 am on 7th December 2021.

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Photo of Mike Amesbury Mike Amesbury Shadow Minister (Housing, Communities and Local Government) 10:15 am, 7th December 2021

I beg to move amendment 11, in clause 5, page 4, line 7, at end insert “, unless subsection (2A) applies”.

This is a paving amendment for Amendment 13

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

With this it will be convenient to discuss amendment 13, in clause 5, page 4, line 7, at end insert—

“(2A) Where a landlord charges a service charge more than £100 per month, the permitted rent in respect of the landlord’s share in the demised premises is a peppercorn.”

This amendment provides that a landlord of a shared ownership property may not charge ground rent in respect of the landlord’s share if service charges exceed £100 per month.

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

The amendments were tabled to raise the issue of the often sky-high service charges in shared ownership property—often with little given back in return. I could list any number of examples and am confident that other Members in the room could as well. The Minister will have heard, as I did, the many stories about the extortionate costs faced by shared owners, other leaseholders and social housing residents. The errors are often only exposed when residents, facing costs they cannot afford, lobby hard for information and transparency.

We have heard it all: service charges for shared owners in Kent tripling in one year; leaseholders in Essex being charged £4,275, plus VAT, per year for ground maintenance, when a local landscaping company quoted £660 per year for the same work—something that I discussed with my hon. Friend the Member for Garston and Halewood only this morning; and leaseholders in south London being charged over 400% more for their cleaning costs than they were in 2013. I know that inflation is increasing at the moment but—my God—not by that level. To get in the Christmas spirit, a rather festive example stood out to me in the Financial Times, which published an article over the summer about residents in central London being charged £200,000 for Christmas lights, without being consulted in advance.

Those costs impact on leaseholders, and some social housing tenants as well. For shared owners, a particular concern is being charged 100% of the service costs while only owning a small portion of the property. We have seen that up and down the country through the building safety scandal and historical remediation costs. The Opposition welcome the narrow scope of the Bill on peppercorn ground rents, but the fear is that there will be other means or opportunities to rake in the money, and to continue treating leaseholders as a cash cow.

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

Clause 5 is essential if the Bill is to avoid creating unintended consequences for future shared ownership leases. It will protect leaseholders by ensuring that they pay only a peppercorn rent on their share of the property, but it will also allow landlords to collect a monetary rent on their own share. Without the clause, landlords could not collect a monetary rent on the share of the property that is rented.

Clause 5 applies to qualifying shared ownership leases. Subsection (4) defines a qualifying shared ownership lease as one in which the tenant’s share of the premises is less than 100%. Subsection (7) clarifies that, in a situation in which a shared ownership lease does not distinguish between rent on the tenant’s share and rent on the landlord’s share, any rent payable under the lease is to be treated as payable in respect of the landlord’s share. Subsection (8) means that the clause no longer applies if clause 6 applies. For example, if the leaseholder undertakes a so-called voluntary lease extension in regard to a shared ownership lease, where the leaseholder chooses to enter into a new lease that replaces an existing lease outside the statutory lease extension process, the treatment of that is dealt with under clause 6. We will consider clause 6 shortly.

Clause 5 ensures that the shared ownership model can continue to operate for new leases.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

Order. The Minister is meant to be speaking about the amendment rather than the clause. Does he have any more comments about the amendment?

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

About the amendments, Mr Hollobone. Amendments 11 and 13, tabled by the hon. Member for Weaver Vale, seek to reduce the payment of rent on a shared ownership property. Shared owners are leaseholders of a share of their property. Most shared ownership properties fall within the terms of the Government’s shared ownership scheme, and the providers will be registered with the Regulator of Social Housing. In the Government’s existing shared ownership scheme, owners have a full repairing lease and are financially responsible for all maintenance charges and outgoings in the same way that any other homeowner is.

On 1 April, the Government confirmed the new model for shared ownership, which introduces a 10-year period during which the landlord will support the cost of repairs and maintenance on new build homes. Under the shared ownership model, landlords can collect rent on their share of the property, and I reiterate that the Bill will allow them to continue to do so. The payment of rent reflects the fact that the shared owner has purchased a share of their home, and pays rent on the remaining share, which is owned by their landlord. The rent paid is not the same as the service charge paid for repairs and maintenance previously described.

The effect of amendments 11 and 13 would be to remove the ability of a landlord to receive the rent that they are rightly due on the share of the property that the leaseholder rents in cases in which the service charge is more than £100 per month. The law is clear that service charges must be reasonable and that, where costs relate to work or services, the work or services must be of a reasonable standard.

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

I just wish to mention service charges in central London, as the hon. Member for Weaver Vale did. I am very aware of extortionate service charges in central London, particularly for private blocks. Service charges of £100,000 are not unknown, but the properties in those cases are worth around £35 million; I suggest that, if someone can afford to buy a £35 million flat, they may be able to afford a £100,000 service charge. However, the hon. Member for Weaver Vale makes an important point, and I would like the Minister to consider it. We must not put all service charges into the same pot. We have to ensure that homes within the community—rent to buy, social housing and community housing—are different from very expensive properties. We cannot put them all into the same position. We must give landlords the ability to charge a fair service charge that is in keeping with the value of the home. There has to be a balance. There is a big difference between a £35 million flat and a rent-to-buy property.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities) 10:30 am, 7th December 2021

I completely understand my hon. Friend’s point, and I appreciate the extenuating circumstances that might apply to some of the properties in her constituency. We certainly do not experience that in Walsall North.

The amendments proposed by the hon. Member for Weaver Vale would be unfair to shared ownership landlords and would therefore undermine confidence in the sector. I urge the hon. Member to withdraw his amendment.

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

The evidence out there grows by the week. There is a genuine fear that landlords, freeholders and developers will look for other opportunities in response to the legislation. We already see those service charges up and down the country. I know it is a particular issue in London and the south-east, but every city across the country has seen some interesting non-transparent service charges—that includes estates and houses.

Photo of Maria Eagle Maria Eagle Labour, Garston and Halewood

Does my hon. Friend agree that it is important that the Committee prevents the inclusion of loopholes in the Bill that could be widened by clever lawyers and then exploited by developers and those with a financial interest in keeping things as they are? His proposals are trying to prevent loopholes from being left in this admirable but small piece of legislation.

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

I concur. That is exactly my point. I know that a similar amendment was tabled in the other place, as the Minister will be aware. We certainly need reassurance. There are lots of good intentions from the Minister and his Department with regard to this legislation, but we need to look at every opportunity to close those loopholes. I would like to have further discussions as the Bill continues its parliamentary journey—it is a conversation we need to continue. However, in that spirit, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

I beg to move amendment 12, in clause 5, page 4, line 7, at end insert “, unless subsection (2B) applies”.

This is a paving amendment for Amendment 14.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

With this it will be convenient to discuss amendment 14, in clause 5, page 4, line 7, at end insert—

“(2B) Where a landlord charges any remedial costs during the course of the lease, the permitted rent in respect of the landlord’s share in the demised premises is a peppercorn.”

This amendment provides that a landlord of a shared ownership property may not charge ground rent in respect of the landlord’s share if any remedial costs are charged.

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

Taken together, the amendments revisit a question that I have posed to Ministers many a time in previous debates in Committee, on Second Reading and so forth: what about the costs of remediation for leaseholders? It is something we are all familiar with—here in Committee and well beyond—in particular for leaseholders caught in the scandal. We are of course waiting for the next stage of the Building Safety Bill—Report—in the Commons after spending many weeks in Committee. I see the Minister and some other familiar faces. While we wait, hundreds of thousands of leaseholders are receiving bills for astronomical amounts of money to remediate dangerously cladded housing. The cost is for more than cladding, as many people know—there are missing fire breaks, wooden balconies and so forth. Some of the bills top £100,000. I know my hon. Friend the Member for Salford and Eccles—a not too far distant neighbour—is very familiar with those kinds of bills in her constituency.

The cost of remediation on shared owners’ shoulders can equal the value of their share of the property. Again, shared ownership leaseholders are too often charged 100% of the remediation cost for properties that they own only a small proportion of. Meanwhile, the associated costs of the building safety crisis, such as waking watch and insurance premiums continue to go up—we have examples of 1,000% and 1,400% right across the country. Despite repeated promises from Ministers—at my last count we were at 19 if I include the new Secretary of State—the issue is very much ongoing.

The amendment will not solve the problem. The Opposition have repeatedly set out a plan to get the building safety crisis fixed and ensure that developers, not leaseholders, bear the brunt of the costs. I am interested in the recent language from the Secretary of State in that regard. He seems to say some of the right things—there are some warm words—but we are now desperate for action. The amendment would at least ensure that shared ownership leaseholders cannot be charged for ground rents while they are also being charged for remediation work, taking one of the many costs of the crisis off their shoulders. I look forward to the Minister’s response.

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

I certainly recognise the situation that my hon. Friend describes. I have a large number of constituents living in flats and being asked to pay astronomical costs for the remediation of their properties for which they bear no responsibility. Will he clarify whether the amendment would apply only where remediation costs are unfairly distributed between the freeholder and leaseholder, or would it apply in all situations where leaseholders are being asked to pay remediation costs?

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

My hon. Friend makes a very good point. This is about historical remediation costs, but it is a good point to raise. I look forward to the Minister’s response.

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

Amendments 12 and 14, proposed by the hon. Member for Weaver Vale, seek to reduce the payment of rent on a shared ownership property in different circumstances. As I have said, in the Government’s existing shared ownership scheme, owners have a full repairing lease and pay rent on the landlord’s share of the property. The role of ensuring that the fabric of the building is maintained and safe for residents is an essential part of the relationship between landlord, leaseholder and, in some cases, a managing agent. Reasonable service charges remain the proper and accountable way through which landlords should recover costs for maintaining a building and provision of services.

I reiterate that the Bill is focused entirely on the issue of ground rents, so remediation costs are outside its scope. The Building Safety Bill is the appropriate legislative mechanism for addressing remediation, as it contains the appropriately detailed legislation for a complex issue of this nature. I ask the hon. Member to withdraw the amendment.

Question put, That the amendment be made.

Division number 0 Leasehold Reform (Ground Rent) Bill [Lords] — Clause 5 - Permitted rent: shared ownership leases

Aye: 7 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

The Committee divided: Ayes 7, Noes 9.

Question accordingly negatived.

Clause 5 ordered to stand part of the Bill.