My Lords, as noble Lords may know, I am not in the habit of making long speeches, but this group of amendments covers a huge range of issues and is arguably the most important group today. I am proposing seven amendments and I have added my name to four others. I will be as brief as I can, and the good news is that I do not propose to intervene in this debate again.
I will go through the amendments in the order in which they appear, starting with Amendment 115, moved by the noble Earl, Lord Lytton, to which I have added my name. It seeks to expand the service charge protection of Schedule 9 to buildings of all heights. At the moment, as we heard, buildings under 11 metres get no help at all from the proposed waterfall. Unless developers agree to fix those buildings voluntarily, or leaseholders are willing to engage in litigation, there is no meaningful help on offer.
As mentioned in earlier debates, buildings under 11 metres can be just as dangerous as buildings over 11 metres. The fire at Richmond House, the 9-metre
building that burned to the ground in less than 11 minutes in September 2019, shows the dangers. Buildings under 11 metres are excluded, even though they have exactly the same defects, for which leaseholders bear no responsibility at all. They suffer exactly the same consequences as those in taller buildings: unaffordable service charges, repossession and bankruptcy. I see no equity or principle behind this decision, which is there solely to save money.
When we asked about this in meetings on the Bill, we were told there was no systemic problem with cladding in these buildings—a statement that brings no consolation to leaseholders, such as this one, one of many who have written to me. The letter says:
“I am a leaseholder in a building well under 11 metres. We are three storeys high with 10 flats. We are therefore excluded from any support from the Government, yet our freeholder/managing agent is taking us to court on Friday to ask them to agree to us having to pay for the cost of remediation—a £26,000 service charge in 2022 per leaseholder. We are told the freeholder does not have the means or obligation to pay for these works that we need to reduce the annual insurance premium. We are told that the only way to pay for these works is via the leaseholder and that we will be legally responsible to fund the money and pay it upfront so that the management agent has the means to pay for works.”
The letter continues:
“I hope the Minister will see fit to bring our needs in line with leaseholders in larger properties and protect us from at least some of the costs that we currently face.”
Last week’s Sunday Times had an article showing that, despite what the Government say, buildings under 11 metres remain unsaleable and unmortgageable, as quotes from the major lenders in the article underlined.
We were also told that there were not many such buildings. That is good news, but it follows from that that the extra cost of putting this inequity right is so small that I hope the Minister can accept it.
I should have said at the beginning that I am grateful to Martin Boyd, Liam Spender and Sue Bright, who in their personal capacity have helped me with some briefing.
I turn now to Amendment 117 in my name and those of my noble friend Lord Blencathra and the noble Earl, Lord Lytton. It seeks to expand the service charge protections to enfranchised buildings and buildings where the right to manage has been exercised. This would ensure that all leaseholders are treated equally.
It has been the policy of successive Administrations to encourage leaseholders to enfranchise and buy their freeholds, and to move away from a feudal system of tenure. That process began in the 1960s, when leaseholders could buy their houses, and was extended to flats in the 1990s. Since then, there have been other measures to encourage leaseholders to buy their freeholds, with the security of the independence that goes with it, and measures to promote and enhance right to manage. We are promised legislation in the next Session to take this policy forward.
Against that background, it would be perverse if the legislation before us today put enfranchised leaseholders in a worse position than leaseholders who are not enfranchised, but that is what Clause 120 does. The Government cannot hope to succeed in encouraging more resident-owned and resident-run buildings unless
they treat all buildings affected by fire safety issues equally. As I understand the legislation, once your building is “not relevant”, it in effect becomes a second-class building in perpetuity.
I have looked at the government amendments tabled since Committee stage but they seem to make the position worse by confirming that these buildings are excluded. That means that people living in these buildings are being left to fend for themselves, either by undertaking litigation or by recovering what they can from the building safety fund. An excellent article in the recent edition of Inside Housing shows the problem with the fund:
“If the rate of remediation through the fund continues at this pace, it will be decades before all blocks receive funds—never mind see work completed.”
I hope that my noble friend will be able to confirm what he said in Committee, which appears to contradict what is in the Bill. He said:
“My noble friend Lord Young asked the very important question of whether enfranchised properties will have to pay all the costs for remediation. I want to be absolutely clear—read my lips—no, they are not. This will not apply to buildings which have exercised a right to collective enfranchisement, or to commonhold land, which in this case, admittedly, is very few buildings. New subsection (3) in government Amendment 63 is very clear on that point. I am happy to speak to my noble friend afterwards, but I am very clear that they are not expected to shoulder the burden. They are effectively leaseholders that have enfranchised as opposed to freeholders. I hope that helps.”—[Official Report, 28/2/22; col. GC 262.]
However, under Clause 20, these buildings are left to fend for themselves if the developer does not pay or if they do not have the wherewithal to engage in litigation against a well-resourced developer. They miss out on the guarantee in paragraph 8 of Schedule 9 that no leaseholder will have to pay for cladding costs, because they do not live in a relevant building. They are not treated as leaseholders but as freeholders.
My amendment does no more than achieve the ambition set out by the Secretary of State in another place on 10 January, when he said that
“we will protect leaseholders today and fix the system for the future.”—[Official Report, Commons, 10/1/22; col. 286.]
Perhaps my noble friend the Minister can confirm that, if you have not enfranchised, you are protected by the caps on what you can pay but, if you have enfranchised, there is no such protection. I hope that my noble friend will look at that again.
I turn to Amendment 123 in my name and those of my noble friends Lord Blencathra and Lady Neville-Rolfe. This would change the definition of qualifying leases so that buy-to-let landlords with interests in up to five properties, including their main home, benefit from the leaseholder cost protections in Schedule 9. While we welcome the Government’s movement on this, we would like to go a little bit further.
As I mentioned in Committee on 24 February, there are many buildings where flats are owned by buy-to-let landlords. If those landlords cannot pay their share of the bill, it will mean that not all of the money is available to do the works to the whole building and so remediation will not commence, to the disadvantage of all the residents in the block, who will continue to live in unsafe premises. Many landlords
hold their buy-to-let properties as part, or in some cases all, of their pension provision. According to data that the Government provided in July 2021 in response to the noble Lord, Lord Carrington, of the 2.2 million buy-to-let landlords paying income tax, 1.5 million—68%—fell within the basic income tax band.
This point is reinforced by the recent report on the remediation and financing of building safety work by the Levelling Up, Housing and Communities Select Committee in another place. It said:
“Buy-to-let landlords are no more to blame than other leaseholders for historic building safety defects, and landing them with potentially unaffordable bills will only slow down or prevent works to make buildings safe.”
It wanted total exemption, but we do not go quite so far. The committee rightly pointed to the kinds of landlord who will be affected:
“We heard from landlords who find themselves outside of the scope of the protections, who invested in properties to support their children, to provide income after being made redundant, to help pay for the costs of caring for relatives, or to provide for their retirement, now facing bills they cannot afford. One contributor told us they had invested in flats using compensation from the Criminal Injuries Compensation Authority ‘after the murder of my husband in the 7/7 atrocity’ and now faces ‘vast bills’”.
Our amendment would align the provisions of the Bill more closely with the Bank of England’s definition of a portfolio landlord as being one with four or more mortgaged buy-to-let properties across all lenders in aggregate. It would also ensure that most private landlords who are leaseholders would be covered by the Bill. The Government’s most recent English private landlords survey shows that 83% of private landlords rent out between one and four properties.
I understand that the Minister has indicated to the National Residential Landlords Association that he might be open to considering a formula which would enable landlords to access support under the government scheme where their portfolio of properties is valued at a certain amount, instead of simply counting how many there are. There are huge variations in the value of property for a multitude of reasons. For example, someone who has 10 other properties may have significantly less means than someone who only owns one property. Yet the government approach will penalise the individual with less means purely because of the number of properties their own. Some buy-to-let owners may have significant equity in their properties while others may be mortgaged to the hilt or in negative equity. The current approach is very crude and does not differentiate between the wealth of those affected, so I wonder whether the Government are considering that option.
I move to Amendment 126, which is a technical amendment. At the moment it is not quite clear whether the protections being given to leaseholders can be sold on to future buyers. It is important that that should be possible, in order to get the market moving again. Clause 121 defines a “qualifying lease” as one held by “a relevant tenant”. A relevant tenant must on 14 February this year meet the occupation and property ownership provisions set out in Clause 121. The Government say that this clause allows protection to be passed from
someone who qualifies on 14 February to a future buyer, but I am not sure that that is the case because the restrictions the Government are imposing on who can benefit from help, such as those owning more than four buy-to-let properties, depend on the same definition of relevant tenant.
If the Government’s view of Clause 121 is correct and the existing wording allows leases with protection to be sold on, the Government may have made a drafting error. If the lease can be sold and the protections passed to a buyer, the characteristics of the buyer are irrelevant. If so, it means someone with 10 flats—six more than the four allowed—could come in, buy up a lease and still get protection. I do not think that is what the Government intend. It is important that we get the market moving, but also that we do not give opportunistic cash buyers the chance to buy up these leases and benefit from protections that other buy-to-let landlords will not get.
Amendment 153, which amends government Amendment 152, is technical. Given the passage of time and the fact my notes are in very small print, I think I will pass over that.
I turn now to Amendments 157 to 160 and 163, which are really important. They deal with the amount leaseholders have to pay for non-cladding costs. On this, my preference is for Amendments 155 and 156, which mean zero liability; the leaseholder pays nothing. The Government say these caps are necessary because of legal advice. The claim is that to impose measures on developers and landlords, it is necessary for leaseholders to contribute in some cases.
As with all legal matters, there appears to be a diversity of opinion among professional lawyers on the Government's judgment that Article 1, Protocol 1 requires leaseholders to contribute anything. But if my noble friend the Minister advises your Lordships that those two amendments—the ones with zero cost—mean that he can no longer assert that the legislation is compatible with the ECHR, then Amendments 157 to 160 come into play and limit the liability. My noble friend Lord Blencathra will speak to Amendment 158.
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Let me remind the Minister what he told noble Lords in his letter dated 20 January, entitled “Introduction of the Building Safety Bill”:
“The Secretary of State … announced that leaseholders living in their homes should be protected from the costs of remediating historic building … defects.”
The Government’s proposals require leaseholders in properties worth more than £175,000 and up to £1 million outside London to pay £10,000 towards non-cladding remedial works, if the money cannot be found from developers or landlords. In London, leaseholders in properties worth more than £325,000 and up to £1 million may have to pay £15,000, again if the money cannot be found from developers or landlords. Higher caps of £50,000 and £100,000 apply inside and outside London for properties worth more than £1 million or £2 million.
What is not in doubt is that £10,000 and £15,000 are material amounts of money for most people in this country. Even if the payments are spread over 10 years, as the Government propose, £15,000 works out at
£125 per month. That extra monthly outlay may be the difference between someone getting a mortgage or not. It is widely acknowledged that people are facing a cost-of-living crisis, rising inflation, rising fuel prices and the rest. Is it wise to impose a further burden of £125 per month on stretched household budgets? Alternatively, as the amendments in my noble friend’s name and mine propose, should the cap be lowered, particularly when the leaseholders are not responsible for the defects?
Amendment 157, in my name and that of my noble friend Lord Blencathra, asks the Government to consider an alternative to the caps. Every leaseholder would then pay the same 1% of the value. That approach would avoid, for example, someone in a modest studio apartment worth £175,000 in Manchester paying as much as someone with a three-bedroom penthouse, and potentially in the same building. The percentage-based approach would avoid the huge cliff edges in the Government’s proposals. For example, someone with a flat worth £174,999 in Leeds pays nothing, while someone next door with a flat worth £176,000 must pay £10,000. I hope that, if the Government insist that zero liability is in contravention of the ECHR, they will consider these alternatives.
Finally, and briefly, Amendment 165 proposes that the value for all purposes in the Bill is the last sale price. The Government have not made clear how they intend to assess the value of properties bought before 2022, as most will have been. There is a risk that, where a property is valued by adding inflation, this may produce a value which cannot actually be achieved on the open market. In cases where leaseholders live in a property which is worth less than they paid for it, this inflation-linked approach may lead to leaseholders being penalised twice over: once in the value lost, and again when they have to pay a capped contribution based on a value imputed by law which has no basis in reality. This amendment avoids the risk.
I am picking up the page with very small print because it raises a very important issue: leaseholders being exempt from paying a service charge for remediation if the landlord’s “net worth” is “more than” £2 million. If a freeholder must remediate a building and the building costs are substantial and the whole cost falls on him, I wonder how the Minister is going to value that building. It may have negative value because of the liability which goes with it to pay the full cost of remediation. Also, it is not absolutely clear from the Government’s amendment, in working out the £2 million value, whether it is based on the property or associated persons. For example, individual directors of the company which owns the freehold could also be caught in, as it were, the means test.
I am conscious that I have taken up a lot of time and raised a lot of issues. I hope that the Minister is able to give a sympathetic reply. I feel particularly strongly about the enfranchised freeholders who I do not believe get the right protection, and I feel very strongly about my noble friend’s amendment on height. I also feel quite strongly about the current cap on leaseholders which is too high.