Clause 6 - Permitted rent: leases replacing pre-commencement leases

Leasehold Reform (Ground Rent) Bill [Lords] – in a Public Bill Committee at 10:30 am on 7th December 2021.

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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 beg to move amendment 3, in clause 6, page 4, line 30, after first ‘of’ insert ‘premises which consist of, or include,’.

This amendment clarifies that clause 6 can apply to a replacement lease which includes some premises not demised by the pre-commencement lease.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

With this it will be convenient to discuss the following:

Government amendment 4.

Government amendment 5.

Clause stand part.

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

Earlier, we considered amendments 1 and 2, which relate to disapplying the premium requirement for a lease where there is deemed surrender and regrant. This set of amendments is also connected to the deemed surrender and regrant process, but more specifically, they clarify the matter raised by Lord Etherton with regard to a lease variation.

As currently drafted, it was not clear, where there was a pre-commencement lease where a demise was changed, whether such leases would be captured by clause 6. It was raised in the other place that, if not, any existing ground rent in those leases would be reduced to a peppercorn. We recognise that that might make some landlords reluctant to agree to such changes, thereby disadvantaging their leaseholders, which is not the Bill’s intention. The amendments make clear that the demise of a lease can be changed and the resulting surrender and regrant will not reduce the ground rent on the balance of the term of the pre-commencement lease to a peppercorn.

Any extension to the term of the pre-commencement lease will be required to be a peppercorn, in the same way as for voluntary lease extension. By clarifying that ground rent in pre-commencement leases can continue in this way, the amendment ensures that freeholders need not withhold consent for a lease variation unnecessarily. It also ensures that there is a consistent approach towards existing leaseholders throughout the Bill. As with amendments 1 and 2, the amendments are designed to avoid unintended consequences.

Photo of Maria Eagle Maria Eagle Labour, Garston and Halewood

I just want a little clarity from the Minister about the circumstances in which this extensive clause would apply. Is the amendment seeking to exclude just the issue of a voluntary lease variation? One might argue, quite plausibly, that any kind of leasehold is entirely voluntary, because the parties to the lease voluntarily sign it—caveat emptor and all that. One can say that any signature of a lease is voluntary in that sense.

The Minister says that a particular issue was raised in the other place about variations not happening if the landlord, in granting one, therefore lost the ground rent he was getting on an existing lease. I think that is the issue that the Minister raised in his succinct manner. However, I worry slightly about the word “voluntary” when it attaches to leases, because one might say that any signature of a lease is voluntary, on the basis that a party has, without being forced, signed it. I just wonder whether he is clear that his amendments will not create the potential for a wider loophole than one would wish in seeking to keep it tight.

I hope the Minister understands the minor point I am trying to make. I am very anxious that we do not inadvertently create broader loopholes in the Bill as a consequence of this. When one uses “voluntary” in relation to signing a lease, one can easily argue that any signature of any variation or lease is voluntary.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities) 10:45 am, 7th December 2021

I am incredibly concerned that the hon. Lady has me at a disadvantage with regard to her legal expertise. However, I think we understand and accept the distinction between voluntary and statutory when it comes to lease extensions. This principle is well understood within the legal profession. I understand the concern she raises, but I feel it is misplaced, or at least should be assuaged. The intention of the measures is to close a loophole so that people are not deterred in any way from granting a lease extension because they feel they will be disadvantaged as a result.

I beg your indulgence, Chair, to say that, on the hon. Lady’s previous concern about how far back people could go when making a claim if a leasehold has been sold, my understanding is that the statute of limitations will apply, which is generally within six years.

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

To pick up on the point of my hon. Friend the Member for Garston and Halewood on “voluntary”, a freeholder might offer a seemingly reasonable deal to voluntarily and formally extend a lease, but there is a real risk that elements of that could have a premium applied and ground rent could continue. What reassurance is there that that cannot happen? We have seen lots of examples of that. The mis-selling of leasehold properties was mentioned, which the Competition and Markets Authority has investigated and seen evidence of, and which we are all familiar with from constituents. If there is any possibility of a loophole here to do that, unfortunately there are people in this field who will do it, so again it is about that reassurance that the measure closes down those potential loopholes.

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

I think the hon. Member should be reassured. However, to ensure that that is the case, the Government will communicate regularly and frequently with professional legal bodies to ensure that they understand the case completely. No matter what legislation we introduce, it will not be possible to get away from the fact that, in seeking to enter into a legal contract, members of the public should engage good, independent legal advice. Unfortunately, some people will not and will be disadvantaged as a result.

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

That goes back to the point that, at the end, people seemed to seek legal advice, which they thought was independent and objective, but clearly it was not. This is about that reassurance. On behalf of our constituents, many of whom are trapped in that situation and still somewhat nervous, I seek that reassurance.

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

I feel that the clause strikes the right balance between, first, ensuring that the loophole is closed and, secondly, landlords feeling reassured that they will not be disadvantaged in any way by granting a lease extension. I think that both the points that the hon. Gentleman made are covered.

Amendment 3 agreed to.

Amendments made: 4, in clause 6, page 4, line 39, after “period” insert “(if any)”.

This amendment clarifies that clause 6 can apply to a replacement lease for a term that does not extend beyond the end of the term of the pre-commencement lease.

Amendment 5, in clause 6, page 5, line 7, after first “of” insert—

“premises which consist of, or include,”.—(Eddie Hughes.)

This amendment clarifies that clause 6(5) can apply to a new lease which includes some premises not demised by the lease to which subsection (2) applied.

Clause 6, as amended, ordered to stand part of the Bill.