Clause 13 - Enforcement authorities: supplementary

Leasehold Reform (Ground Rent) Bill [Lords] – in a Public Bill Committee at 2:15 pm on 7th December 2021.

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

Photo of Julie Elliott Julie Elliott Labour, Sunderland Central

With this it will be convenient to consider the following:

Government amendment 9.

That schedule 1 be the First schedule to the Bill.

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

Clause 13 makes various supplementary provisions in relation to enforcement authorities. Importantly, it requires them to have regard to any guidance that may be issued by the Secretary of State and Welsh Ministers, depending on the location of the property. We have made it clear that the Government intend to issue guidance on various matters to ensure that enforcement authorities act with consistency. Subsection (3) amends schedule 5 to the Consumer Rights Act 2015 to ensure that enforcement authorities have the investigatory powers that they need to enforce the ground rent restrictions in the Bill.

The final subsection of clause 13 introduces the schedule, which sets out how an enforcement authority may impose a financial penalty or make a recovery order. This includes the relevant time limits, rights of appeal, the recovery of a financial penalty or an amount ordered to be paid if the landlord does not comply and retention of sums received. We will consider these details when we come to consideration of the schedule. The clause contains important supplementary provision to ensure that enforcement authorities receive the guidance necessary to perform their role properly and consistently. It gives them the powers they need to be effective and sets out procedures that are appropriate and fair.

I turn to Government amendment 9. Members will know that the Bill applies to both England and Wales. They will also know that in the other place the Government made a series of changes to give certain powers to Welsh Ministers. I would like to take this opportunity to once again thank colleagues in the Welsh Government for working constructively with us on these issues. Amendment 9 in my name is one more change in a similar spirit.

Clause 13 and paragraph 11 in the schedule allow enforcement authorities to keep the proceeds of any action to cover the cost of that action. With penalties of up to £30,000 per lease, that is vital so that local authorities or local trading standards are not left out of pocket for implementing the provisions in the legislation. To act as an effective deterrent, freeholders, landlords and managing agents need to understand that action will be taken if they charge a prohibited rent.

However, enforcement penalties have not been designed as a new income stream for the authorities. As such, any excess proceeds from a penalty beyond what is needed to cover the enforcement action in relation to the Bill and other residential leasehold enforcement cannot be kept, ensuring penalties remain proportionate to the breach and enforcement costs are still covered. In these circumstances, the Bill would see all such excess proceeds being paid to the Secretary of State. Amendment 9 would make sure that, if the penalty is imposed in relation to leases of premises in Wales, the excess proceeds would go instead to Welsh Ministers. This is a small but sensible change, and I hope it will be supported by the Committee.

The schedule sets out the procedure that an enforcement authority must follow when they wish to impose a financial penalty or make an order requiring the repayment of a prohibited rent under the legislation. This will help to ensure consistency and fairness in enforcement. Enforcement authorities must give the relevant person notice of their intention to impose a financial penalty within six years of the breach occurring and within six months of the authority having evidence that they consider justifies serving the notice. The relevant person will usually be the landlord, but where the notice relates to a recovery order it may be a former landlord or agent. The notice must contain relevant information about the reasons for imposing the penalty or making the recovery order, the amount of the penalty or the terms of the order, and the right to make representations. The landlord then has 28 days to respond.

If, after considering any representations, the enforcement authority decides to impose a penalty or make a recovery order, it must give a final notice. This must set out the amount of penalty and/or terms of the recovery order and the reasons for the penalty or order. It must address how these will be paid, the landlord’s rights of appeal and the consequences of failing to comply. An enforcement authority may at any time withdraw or amend a notice of intent or final notice by providing written notice to the relevant person. The landlord, or person acting on their behalf, has a right of appeal to the appropriate tribunal against the decision to impose the penalty or make the order, the amount of the penalty, or the terms of the order.

Any appeal must be brought within 28 days of the final notice and is to be a re-hearing of the enforcement authority’s decision. However, the appropriate tribunal may admit new evidence that was not previously before the enforcement authority. In those cases, the existing final notice is suspended until the appeal is determined or withdrawn. The appropriate tribunal may confirm, vary or quash the final notice. It may increase or decrease the penalty imposed, but it is bound by the same minimum and maximum limits as the enforcement authority.

If the landlord fails to pay all or part of the financial penalty, or to repay a prohibitive rent, the enforcement authority can seek repayment on the order of the county court as if the penalty or payment were payable under an order of the county court.

I am aware that concerns have been raised about the resources of local authorities to enforce the legislation. I trust the fact that the schedule enables an enforcement authority to retain the proceeds of any financial penalty for future residential and leasehold enforcement is very welcome. My officials have discussed with national trading standards and the Local Government Association what further options can be considered to support the Bill’s implementation. Furthermore, we are producing guidance to which enforcement authorities must have regard and which will support those authorities in fulfilling their enforcement responsibilities under the legislation, as called for by my hon. Friend the Member for Cities of London and Westminster.

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

With regard to the excess that could be generated, and terms of the clause and the amendments, there could be a transfer to the Welsh Secretary. Does the Minister envisage that happening in reality, given the situation that many local authority trading standards have faced over the past 11 years? That point has been echoed across the Committee today. Could the Minister elaborate on the discussions that he has had with the Welsh Government, because there are elements of a tidying up exercise here? The Minister said that he had further discussions of other mechanisms that would help trading standards effectively conduct and resource their enforcement role. What are those mechanisms and sources of other potential income?

Photo of Maria Eagle Maria Eagle Labour, Garston and Halewood

I have a couple of probing questions. There is no doubt that it is good to see some enforcement provisions. Given the range of penalties from £500 to £30,000 and given that trading standards have to effectively obtain their costs from the proceeds when undertaking the enforcement activity, is the Minister concerned that that might offer an incentive to trading standards—the enforcement authority—to pitch their fine or notice at a higher level than perhaps might otherwise be the case? Does he agree that going through this administrative fining arrangements, with all the appeals that we see in the schedule, would probably not be worth it for an enforcement authority if it were only going to get £500 at the end of the day, given the difficulty of understanding all the nuance of landlord and tenant law and leases? Is it therefore much more likely that there will not be much enforcement activity?

One of the other concerns for such an officer and an enforcement authority, might be that if there is an appeal to the administrative tribunal by the landlord against the amount being levied by way of penalty, that might be reduced from what the authority originally set out to cover its costs, say, to a much lower figure, closer to £500, which would perhaps most certainly not cover its costs. Is there an incentive in part for the enforcement authority to pitch the fine high, but any tribunal that considers an appeal may cut the fine to such a level that the enforcement authority might not be able to obtain its costs back from the proceeds? Perhaps, therefore, the overall impact will be that the enforcement authority thinks better of engaging in enforcement if it does not have resources it can guarantee will be used to do that. I would be interested to know what the Minister and his Department have considered in respect of the incentives built into the system in the Bill.

Photo of Eddie Hughes Eddie Hughes Parliamentary Under Secretary of State (Department for Levelling Up, Housing and Communities) 2:30 pm, 7th December 2021

In answer to both those points, there could be some confusion as to the motivation behind the level at which the fine is imposed. Our intention is to impose fines at a level that is a deterrent, and that is why the maximum limit has been lifted; however, as I said, the fines are not intended to be an income stream for the relevant authorities. The hon. Member for Garston and Halewood suggests that there might be a perverse incentive for authorities to impose fines at a higher level in order to increase their income. However, as the hon. Member for Weaver Vale said, how often would I expect money to be returned to the Secretary of State? The intention is to pitch the fine at the appropriate level, which is commensurate with the level of crime—let us put it that way—rather than associating it with the income that needs to be covered.

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

I think it would be helpful if I conclude my contribution, and then the hon. Lady can come back in. [Interruption.] Well, it might be helpful if the hon. Lady let me respond to the points she made first. As I said, if the fine is set at a level that is appropriate to the crime, that might be in excess of what is necessary in order to cover the costs incurred by the authority. In that case, as it is not meant to generate revenue, the money would go back to the Secretary of State or the Welsh Minister, as appropriate.

The natural equilibrium of things will be reached by ensuring that the money generated covers the costs of administering the programme. If it does not, the Government will need to be mindful of that. As I have said, we are in conversation with the Local Government Association and we will see how that progresses. The hon. Lady is wise to raise that point. We do not want to see anything that disincentivises authorities from prosecutions because they do not think their costs will be covered. That is a really important point, and we will need to be mindful of it.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Amendment made: 9, in schedule 1, page 19, line 16, leave out from “paid” to end of line 17 and insert—

“(a) where the penalty was imposed in relation to a lease of premises in England, to the Secretary of State, and

(b) where the penalty was imposed in relation to a lease of premises in Wales, to the Welsh Ministers.”—

This amendment provides that penalty proceeds not used by the enforcement authority to meet enforcement costs must be paid to the Secretary of State, if the penalty was imposed in relation to premises in England, and the Welsh Ministers, if the penalty was imposed in relation to premises in Wales.

Schedule 1, as amended, agreed to.