Matthew Pennycook
MP for Greenwich and Woolwich · Labour · United Kingdom
“It is a pleasure to serve with you in the Chair, Dame Siobhain. I congratulate the right hon. and learned Member for Kenilworth and Southam (Sir Jeremy Wright) on securing this debate.”
“I will address the right hon. and learned Gentleman’s specific question in due course. Before I do so, I want to put on the record the policy in relation to villages. He can rest assured that I will address the point; if he is unsatisfied, he is more than welcome to intervene again. A number of hon. Members mentioned villages.”
“I will say two things in respect to that, and I will come on to detail how the approach works in relation to decision making very shortly. In general terms, developers can make whatever claims they like about any particular site across the country; it is for the local authority to assess whether, in its view, that site constitutes grey be…”
“and learned Gentleman’s point about what is likely to constitute grey-belt land. Let me directly address his other two specific points. Is this a significant policy? Absolutely, and it has been judged as much by the Office for Budget Responsibility and other external commentators. Is it deliberate? Absolutely. We want, as the right hon.”
“Where authorities may wish to restrict development in villages for other reasons, a range of tools are available, such as conservation areas or normal development management policies. On the right hon.”
“We have to put in place policies that, through the decision-making route, allow homes still to be brought forward in that interregnum, but then we have to push heavily to drive towards universal plan coverage. At that point, the protections are in place.”
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“Amendment 150 was a probing amendment. I take on board the Minister’s statement that the Government are looking at the issue and that they do not believe that this legislation is the appropriate vehicle to deal with it. If the Minister is willing to respond again, I would like a bit more clarity on precisely why in many cases amenities on estates are not being built to an adoptable standard. I think we all agree that we would like to see such a system. The Minister introduced a different problem, namely circumstances in which residents might not want their amenities adopted; I think that that would be a relatively small number of estates, but we would have to account for them. In general, we want to reduce the prevalence of arrangements and see adoption becoming mandatory in most circumstances.”
“I make this series of points because the Homeowners Rights Network, among others, has questioned the logic of extending to privately managed estates a regime that is not always effective in protecting residential leaseholders from unreasonable charges associated with major works.”
“Furthermore, if the clause is indeed intended to mirror the operation of the existing section 20 consultation process, I urge the Minister to consider what might be done to address the known deficiencies of the process, including the fact that a leaseholder’s sole means of redress if they take issue with the landlord’s decision is the tribunal, and that there is no statutory meaning of what “have regard to” means in the context of the consultation. While he does so, I encourage him to take the opportunity to overturn, or at least modify, the decision of the Supreme Court in the 2013 Daejan Investments Limited v . Benson case, which has proved so detrimental to the consultation rights of leaseholders.”
“If that is the intention, can the Minister confirm that the new requirements provided for by the clause will include requiring estate managers to have regard to written observations from residential freeholders on charges in excess of the to-be-determined appropriate amount, and where necessary to justify in writing the reasons why they awarded a contract to a tenderer that neither submitted the lowest estimate nor was nominated by a resident?”
“I wish to probe the Minister a little further on the clause. As he said, it introduces requirements for estate managers to consult managed owners if the costs of any works to be charged as an estate management charge exceed an appropriate amount, which will be set out in regulations. Overall, the Government’s aim in this part of the Bill is clearly to introduce statutory protections for residential freeholders equivalent to those enjoyed by long leaseholders with regard to service charges. If I understood the Minister correctly, he has confirmed that the Government’s intention with the clause is to establish for residential freeholders an equivalent to section 20 of the Landlord and Tenant Act 1985.”
“I rise to support the amendment. We discussed litigation costs in relation to clause 34; we strongly argued for a general prohibition with very limited exceptions. The hon. Gentleman is right to draw attention to the fact, which applies to part 4 as a whole, that we should not replicate the flaws of the leasehold system in the newer system of estate management charges. Our arguments in relation to the leasehold regime therefore apply equally here, and the hon. Gentleman is right to raise the point.”
“Briefly, when we discussed the regulation of service charges in clauses 26 to 30, we made a number of specific arguments about how those clauses might be tightened and strengthened. Can the Minister give us a commitment that if the Government determine to amend those clauses in any way, they will seek to read across the equivalent changes to this part of the Bill or, if they do not think that they apply, to justify where wider deviations between the two regimes are necessary? As I said, we are mirroring broadly the statutory protections in place for long leaseholders here, but where they differ, the Committee would certainly welcome clarification as to why.”
“Without rehashing the debate on clause 30, I rise briefly to put on record that the Opposition think that the point the amendment is driving at is well made. We need equivalence between the two regimes, but we were concerned, notwithstanding damages versus penalties and all the rest, that the proposed financial penalty is too low to act as a serious deterrent to the type of behaviour that we are trying to do away with.”
“We need to look at how we can simplify some of the management structures that companies use, which could cause huge amounts of confusion for residential leaseholders, and, as I say, put the onus on them to try to work through different sets of accounts in a way that they might find difficult to do. Question put and agreed to. Clause 51 accordingly ordered to stand part of the Bill. Clause 52 ordered to stand part of the Bill. Clause 53 Limitation of administration charges Question proposed, That the clause stand part of the Bill.”
“I rise briefly to support the argument made by the hon. Member for North East Bedfordshire. There is a specific problem on privately managed estates, which I referred to when speaking to clause 41, relating to the fragmentation of multiple estate management companies. I share his concern, which partly speaks to whether the penalties are appropriate in terms of enforcement. On some estates, residential leaseholders will face a situation where, yes, there may be a requirement for an annual report and there may be a degree of transparency, but the onus will be on them to go through six or seven sets of accounts from the different subsidiaries.”
“This is a clarificatory amendment, and we do not take issue with it. I will speak on our concerns about rentcharges in relation to clause 59. Question put and agreed to. Clause 58 accordingly ordered to stand part of the Bill. Clause 59 Regulation of remedies for arrears of rentcharges Question proposed, That the clause stand part of the Bill.”
“No one disputes that there might be a need for legitimate and reasonable rentcharges. Indeed, if and when the Government finally deliver on the pledge to require all new houses in England and Wales to be sold as freehold properties, such charges will become even more important as a means to ensure that freehold houses contribute towards communal estate services. However, the threat of their being enforced by means of the draconian remedies in section 121 of the 1925 Act must, in our view, be removed.”
“As the Minister has set out, clause 59, in place of the existing two remedies for rentcharge non-payment under the Act, proposes requiring the third party or rent owner to issue an appropriate demand before they can seek to recover or compel payment, and gives the Secretary of State the power by regulation to limit the amount payable by the freehold homeowner in respect of rentcharge arrears or to provide that no amount is repayable. Although we appreciate that the intent of the clause is to better protect freehold homeowners from the existing disproportionate remedies that are available to rentcharge holders when rentcharges go unpaid, we believe it is an overly complicated and onerous attempt to make more palatable the methods of enforcing rentcharges provided for by the 1925 Act that are simply not justifiable in any form.”
“Rentcharges are therefore an area of law in respect of which legislative reform is long overdue, and the need to protect rent payers from what amounts, essentially, to a particularly severe form of freehold forfeiture as a result of the relevant remedies provided for by the 1925 Act is pressing. With clause 58 having amended the definition of estate rentcharge, clause 59 seeks to provide for revised remedies for arrears by amending the 1925 Act.”
“In short, the 1925 Act provides for the power to seize freehold houses for non-payment of a rentcharge, even if the arrears are merely a few pounds, and allows the rentcharge holder to retain possession or render it in effect worthless by means of maintaining a 99-year lease over it, even if, as demonstrated by the 2016 case of Roberts v. Lawton, the rentcharge is redeemed or the underlying debt cleared. In our view, the remedies provided for by the 1925 Act are a wholly disproportionate and draconian legacy of Victorian-era property law. As I have said, the 1977 Act prohibited the creation of new rentcharges and provided for existing rentcharges to be abolished in 2037, but 13 years from now is still a long time away and any lease granted prior to the abolition will remain in force.”
“First, unless excluded by the terms of the rentcharge itself, there is a right for the rentcharge holder to take possession of the charged land in question and retain any income associated with it so long as the money owed, whether demanded or not, is unpaid for 40 days. Secondly, unless prohibited by the terms of the rentcharge, and assuming that the money owed is outstanding for at least 40 days, there is a power to demise the land to a trustee by way of a lease in order to raise the funds necessary to pay the arrears and costs.”
“In some cases, the charge relates to the provision of a service; in others it is, in effect, simply a profit stream for the interested third party. All rentcharges, as the Minister made clear, are covered by the Rentcharges Act 1977, which prohibited the creation of new so-called income-only rentcharges and provided that all such rentcharges will be extinguished in 2037. The 1977 Act does not detail the remedies available to a rentcharge holder whose rentcharge is not paid, although any can simply sue for a money judgment. It is section 121 of the Law of Property Act 1925 that creates two additional remedies for rentcharge non-payment.”
“I was slightly surprised, in a welcome way, by the Minister’s response, in that he seemed to indicate that the Government are open to considering the abolition of section 121 of the 1925 Act all together, notwithstanding the need to ensure that there are no unintended consequences, but we are debating clause 59 as it stands, which does not propose that, so I hope to convert the Minister’s sympathy into agreement with our position if I can. Part 5 of the Bill concerns rentcharges, which in general terms can be understood as an indefinite, periodic payment made in respect of freehold land by the current freeholder to a third party or “rent owner” who has no reversionary interest in the charged land in question.”
“I thank the Minister for that answer. I am tempted to not move the new clause, but I can only deal with the piece of legislation in front of me. What is in front of me is not a placeholder clause that says, “We will review the 1925 Act”; it is a clause that puts in place an amended version of the remedies. We feel so strongly about this point that we will vote against clause stand part, but I will take the Minister up on his offer to discuss a more sensible way of dealing with the types of contraventions that we have discussed. Question put, That the clause stand part of the Bill.”
“Given that some of the provisions in clause 59—I am thinking particularly of new subsection 120D(4)—bring the relevant provision into force on First Reading on 27 November 2023, why is there a two-month delay after Royal Assent? Why not bring the measures into force on Royal Assent?”
“I have two brief points. On the general commencement provisions, the Minister just made it perfectly clear that there are no firm dates for commencement on all the issues that require regulations. I take on board what he said about not seeking any unnecessary delay, and that is welcome. However, I push him to go slightly further to give us a sense of the timetabling of some of the more important provisions in the Bill, because leaseholders watching our proceedings will want to know when the rights provided for by the Bill can be enjoyed. I have a point specifically on subsection (2), which specifies that clause 59 comes into force at the end of a period of two months, as I understand it—the Minister said “two days”, and I think it is two months.”
“The current laws of forfeiture render it entirely possible, for example, for a tenant to lose possession of a £500,000 flat or house for a debt of as little as £351, or even £15 if unpaid for more than three years, with the landlord keeping the entire difference between the value of the property and the debt owed.”
“To remind the Committee, the law of forfeiture gives the landlord the right, following a breach of a clause in the lease or an unpaid debt of £350, or a lesser sum if it has been outstanding for more than three years, to terminate the lease, regain possession of the property and pocket the unmerited windfall gain that would accrue from its sale. Not all forfeiture actions relate to trivial breaches—some are made in response to serious transgressions of a covenant in a lease, such as instances of persistent and egregious antisocial behaviour—but many are initiated for entirely trivial breaches, such as nominal ground rent or service charge arrears.”
“I beg to move, That the clause be read a Second time. It is a pleasure to continue our line-by-line proceedings with you in the Chair, Sir Edward. For the sake of probity, simply because I will make reference to the organisation’s work, I once again declare that my wife is the joint chief executive of the Law Commission. The reason for tabling the new clause is simple: forfeiture is a wholly disproportionate and horrifically draconian mechanism for ensuring compliance with a lease agreement, and it needs to be abolished through the Bill.”
“I thank the hon. Gentleman for that helpful intervention. I hope that I do have that effect, and that he can use his good offices to persuade the Minister of the merits of adopting new clause 1.”
“I believe there is a broad consensus across the House—indeed across this Committee —that we should consign it to history, even if there is a debate about precisely what replace it with. Following the point made by the hon. Member for Walsall North, I sincerely hope that the Minister will not disappoint us and the many thousands of leaseholders who support the abolition of forfeiture by resisting this new clause out of hand. I very much look forward to his response.”
“We can debate precisely what alternative arrangements are needed to deal with breaches of the covenant or unpaid arrears, whether orders of some kind are necessary to sell a property when a debt is not paid, and what kind of measured method is appropriate to removing problem tenants from a building—we heard about that in our oral evidence sessions. The starting point, however, must be that we finally grasp the nettle and abolish forfeiture, and the windfall it provides, once and for all. It operates to the prejudice of leaseholders and it cannot be justified. The Secretary of State made clear on Second Reading that he was open to this Committee looking at how we end the abuse of forfeiture.”
“Members may know that in 2006 the Law Commission proposed abolishing the current law of forfeiture and replacing it with a statutory scheme for the termination of tenancies. It even drafted legislation, the Termination of Tenancies Bill, to implement that proposal. Yet nothing has been done. Indeed, the relevant section of the Law Commission’s website states—this amused me—that, 18 years on, “We are awaiting the Government’s response to our recommendations”— eighteen years and counting. There is, of course, a need to carefully balance the rights and responsibilities of landlords and leaseholders, and there must be effective means of ensuring compliance with a lease agreement, but those means must be appropriate and proportionate to the breach in question.”
“However, although termination of a lease under forfeiture may be relatively rare—I deliberately use the word “may”, because His Majesty’s Courts and Tribunals Service does not track the number of cases—evidence from across the country shows hundreds of cases and scores of outright forfeitures on average each year. As I said, the threat is as damaging as the use of the power, because it puts landlords in a nearly unassailable position of strength in disputes vis-à-vis leaseholders, which is why forfeiture is routinely threatened in money disputes. Because the law of forfeiture remains so manifestly unjust, despite successive attempts to render it more palatable, there have been many calls over recent decades for more wholesale reform. For example, hon.”
“Those were not the first attempts to constrain the laws of forfeiture. History shows that Parliament has returned to the matter every few decades in an attempt to mitigate forfeiture’s manifest injustices. Despite the laws of forfeiture being made stricter, a great many freeholders and managing agents still routinely use forfeiture powers as a first resort when seeking to recover alleged arrears of payments from leaseholders, and they rely—this is in some ways the more important point—on the mere threat of forfeiture, and the financial risks it presents, to deter leaseholders from disputing any unreasonable costs and defending claims. Those who advocate retaining forfeiture often argue that it is a minor issue that does not affect many leaseholders.”
“The leaseholder might then attempt to pay, but they also have to find the money to cover large legal costs. If there is a mortgage, the bank is often drawn in to secure its interest, so a compulsory loan is added to the leaseholder’s account. In our view, it is the lack of any proportionate relationship between a breach of a lease and its consequences that makes forfeiture so unjust. Since 1925, this House has regularly taken steps to make it more difficult for a freeholder to successfully forfeit a lease. For example, the Housing Act 1996 and the Commonhold and Leasehold Reform Act 2002 introduced prohibitions on the serving of a section 146 notice under the Law of Property Act 1925 in relation to service charges and breach of a covenant, respectively, in instances in which the amount payable has not been determined.”
“I thank the hon. Gentleman. If he allows me to develop my case, I will address that very point, which was well made. Not only is the potential penalty for a breach incredibly draconian in the circumstances in which it is used, but even in instances in which a lease is not terminated, with the landlord gaining the financial benefit of any capital loans attached to it, the laws of forfeiture can lead to a significant financial loss for leaseholders. Take the following scenario. For whatever reason, a leaseholder accumulates a small arrears—perhaps a demand has not been received—and the freeholder or managing agent issues reminders, which add to the initial debt. That debt is then handed over to a debt collector, whose means of remuneration incentivise them to pursue it aggressively.”
“What I did not get from the Minister, but had hoped for, was a clear indication that that is the Government’s intent, at whatever stage of the Bill. I suspect this is one of those new clauses that the Minister has resisted—perhaps not out of hand, but resisted none the less—but that we may see back in a different form at a later stage with the Government’s seal of approval. However, I would like to make very clear our strength of feeling on the matter, and I will therefore press the clause to a vote. Question put, That the clause be read a Second time.”
“That was a slightly frustrating response from the Minister. I had hoped for a little more. I am glad that he thinks the new clause is well intentioned and sympathises with some of its objectives. From the Opposition’s point of view, as with rent charges, another example of draconian and wholly disproportionate Victorian-era property law, we need to cut the knot and get rid of these provisions entirely. As I said, we can have a debate on what we replace them with. We are very clear that there must be a replacement. There must be an effective means of ensuring compliance with a lease agreement, but it must be appropriate and proportionate to the breach in question. We all agree that forfeiture is not proportionate or appropriate to the breach, so why retain it?”
“Let me be clear with the Committee: we do not pretend that this is a perfect solution. It would obviously not help those leaseholders who have already purchased their flats and who do not currently have an RMC. We will need other solutions, building on the measures already in the Bill, to address the challenges that they will continue to face. However, if the Committee believes —as I think it does—that commonhold is the ideal form of tenure, and that reinvigorating it is the solution for blocks of flats, we should take practical steps to pave the way for that to happen. New clause 2 is one of the ways we can do so, and I urge the Minister to consider it.”
“In facilitating leaseholder control of the operation of a site and giving them responsibility for everything covered by a service charge, new clause 2 would also further undermine freehold by depriving unscrupulous landlords of the ability to extract income from leaseholders using opaque and potentially unlawful practices such as appointing managing agents that are just related companies and using captive insurance brokers. Lastly, if enacted in conjunction with leaseholders being given a mandatory share of freehold, as provided for by new clause 29, mandatory RMCs in new blocks of flats would ensure that we have a standardised management model and an agreed set of rules for those new blocks of flats where the freehold is collectively owned, making the process of converting buildings to commonhold at scale far easier.”
“New clause 2, even if it is in operation for only a few years prior to commonhold being made the default tenure for new blocks of flats, as is our intention, would facilitate the reinvigoration of that tenure by creating a cohort of leaseholders who, of necessity, have experience in running their building as they would under a commonhold arrangement, even if that experience extends only to appointing and overseeing a managing agent—hopefully one properly regulated as a result of the Government’s accepting our new clause 25.”
“Each leaseholder in the block would own a share of the RMC and it would be under their exclusive control, giving them full responsibility for services, repairs, maintenance, improvements, insurance and the cost of managing their building, and thereby enabling them to control how their money was spent. Their share of the company and ability to influence the management of their building would be theirs by right and at no additional cost. The importance of this proposed measure lies not only in the greater control it would give to leaseholders over the maintenance and management of their buildings, but in it being one of several ways by which we can lay the groundwork for a future in which leasehold has been rendered obsolete and commonhold is the norm.”
“The second is that the rights that this House has chosen to give leaseholders to empower them to exercise a degree of control over the management of their buildings—for example, the right to make an application to the first-tier tribunal, to appoint a manager under section 24 of the Landlord and Tenant Act 1987 or to acquire the right to manage under the Commonhold and Leasehold Reform Act 2002—can be exercised only following what is often an arduous and costly legal process. New clause 2 would go some way to remedying both of those problems. It would mean that, where a new residential block of flats was constructed and its units sold, the development would have to be a tripartite lease between the freeholder, leaseholder and a new residents’ management company.”
“The new clause seeks to remedy two significant flaws in the current leasehold system. The first is that unless leaseholders in blocks of flats either take it upon themselves to acquire the right to manage, collectively enfranchise and then establish an RMC or buy a property on a development where an RMC has been set up, they find that despite being the people who pay all the costs associated with maintaining and managing their building, they have no control whatever over how their money is spent.”
“I beg to move, That the clause be read a Second time. As I made clear at the outset of our line-by-line consideration of the Bill, while we have no intention of trying to convince this Government to radically overhaul this limited piece of legislation to enact the Law Commission’s recommendations on enfranchisement, right to manage and commonhold in full, we do want to make the case for a limited number of new measures that would give future leaseholders greater control and strengthen the foundations on which bolder reform will be enacted. New clause 2 seeks to incorporate one of those measures into the Bill—namely, that all leases on new flats should include a requirement to establish and operate a residents’ management company responsible for all service charge matters, with each leaseholder given a share.”
“Given our strength of feeling on this issue, as with the previous new clause, I will press this one to a vote. Question put, That the clause be read a second time.”
“We need the legal changes that are recommended by the Law Commission, and we need to do those as one process, not in a partial way. However, there are other non-legislative policy changes that we need to make if we are to pave the way for commonhold. This new clause is one of them, and we feel quite strongly that it should be included in the Bill. The Minister argued that there may be limited cases in which a mandatory RMC is not appropriate. If the Government want to bring forward their own amendment to provide for general RMCs across the board with limited exceptions, they are more than welcome to do so. However, we feel strongly, on a point of principle, that we should take this step alongside providing a share of the freehold, which I will argue for when I speak to new clause 29.”
“I am disappointed by that response from the Minister, as he would expect. We very much agree that the Bill is moving in the right direction, but we do not think it goes far enough for two reasons, which I will reiterate to help the Committee to understand why we feel strongly about this issue. Yes, the right to manage is an established right. The Bill makes provisions to enhance and expand access to RTM, but the RTM application process comes after an arduous and costly legal process. We are saying that, as a matter of right, residents in new build blocks of flats would have an RMC put in place and a share of it, without that cost. That is one point. There is a more fundamental difference of principle, which is that if we are serious about reinvigorating commonhold, we need a number of steps.”
“The Secretary of State made it clear on Second Reading that this Committee should look at the issue, as well as the issue of the abuse of forfeiture. On that occasion, the hon. Member for Redditch went even further. She stated: “I know that the Government intend to introduce a right to manage for freeholders”. —[ Official Report , 11 December 2023; Vol. 742, c. 677.] We hope that she is right and that that remains the Government’s intent, but there are no Government amendments that would incorporate the power to establish a right to manage regime for freeholders on privately managed estates. New clause 5 would do so, and I hope the Minister will accept it.”
“We believe that there is evidence of an appetite among residential freeholders not only to be able to change a poorly performing or exploitative estate manager, for which part 4 provides, but to have more direct control of the management of their estates. We also believe that it is right in principle that there is parity between residential leaseholders and freeholders when it comes to the right to manage. New clause 5 simply seeks to provide them with that right. In their June 2019 response to the 2018 consultation on reforms to the leasehold system in England, the Government committed to considering the implications of introducing a right to manage for residential freeholders, as part of their wider commitment to ensuring that leaseholders and residential freeholders enjoy equivalent rights.”
“I beg to move, That the clause be read a Second time. I will be relatively brief in speaking to the new clause, because I trust that it is self-explanatory, and we believe that the case for it is robust and well understood. Part 4 of the Bill, which we have already considered, will give residential freeholders on private and mixed-tenure estates rights to challenge the reasonableness of estate management charges and to hold estate management companies to account that are equivalent to those of leaseholders, but it does not give those same residential freeholders the right to take over the management functions on their estate. We appreciate the concern among some that the right to manage would be too complex and onerous in a freehold estate setting, but it is only a right; it is not a requirement that it be exercised.”
“If he had given one, I would have withdrawn the new clause, but he has not. All he has said is, “We’re looking and listening but won’t be able to do everything”—despite the fact that the Government are dumping hundreds of amendments into the Bill at the last minute and no doubt will dump hundreds more. If we want to put these important measures in the Bill, we can, and we think we should. We feel strongly about this issue and I am going to press the new clause to the vote.”
“I think I quote the Minister accurately when I say that he said, “Let me see how to get out of this one.” He is developing a reputation not just for reasonableness but for undue honesty. This is one of those features of the parliamentary process that I think anyone watching our proceedings will struggle to understand: there is clearly agreement here, and there is clearly a high chance that the Government are going to introduce a right to manage on privately managed estates, yet the Minister cannot accept the new clause. I take the point about the particular drafting of the new clause. It was done to put the onus on the Government, who have the resources to bring forward the necessary amendments, given that it is a complex area. I did not hear a clear commitment from the Minister to bring forward those provisions.”
“In the case of newly empowered leaseholders involved in either an RMC or an RTM company, there will be managing agents they have to take advice from and instruct. The ultimate success of many of the provisions in the Bill, and the extent to which leaseholders experience a tangible improvement in the quality of the services they receive, is dependent on the performance of those managing agents.”