HL Deb 25 June 2004 vol 662 cc1514-8

2.21 p.m.

Lord Evans of Temple Guiting rose to move, That the draft regulations laid before the House on 7 June be approved [21st Report from the Joint Committee].

The noble Lord said: My Lords, the draft Rights of Re-entry and Forfeiture (Prescribed Sum and Period) (England) Regulations 2004 are, subject to the approval of this House and another place, to be made under Section 167 of the Commonhold and Leasehold Reform Act 2002. Section 167 of the 2002 Act gave the power to prescribe that more than a specified minimum sum should remain unpaid before forfeiture will be available unless any part of that sum has been outstanding for more than a specified minimum period. That specified minimum sum could not exceed £500. These regulations prescribe, for the purposes of that section, that the sum should be £350 and the period should be three years.

It will mean that the use of forfeiture by landlords will be restricted in respect of unpaid sums of ground rent, service charges and administration charges, but only against long leaseholders of dwellings. A long lease is one which was originally granted for more than 21 years.

Its effect will be that forfeiture will not be available against a long leaseholder owing £350 or less, unless any part of that sum has been outstanding for more than three years. Therefore, if, for example, a ground rent of £50 is owed, a landlord will not be able to take forfeiture proceedings until that sum has been overdue for three years. A landlord can still take civil debt proceedings to recover sums that are caught by this provision and so it does not mean that a long leaseholder simply does not have to pay the sums which are caught by this provision.

The measure will provide an element of protection to those leaseholders who have bought an interest in a property which will generally be the residue of a lease originally granted for 99 years. Indeed, almost all flats will be bought on this basis.

Most leases give the landlord a right to forfeit or repossess a lease in the event of a breach of one of its conditions by the leaseholder. Although a court from whom a landlord must seek an order to forfeit will usually grant relief to the leaseholder, this will generally be on the terms that he remedies the breach and meets the landlord's full costs in the proceedings.

Some landlords misuse the threat of forfeiture in order to extract additional sums from tenants. They do that by demanding extortionate recovery costs in addition to the unpaid sum. Those are often wholly disproportionate to the landlord's costs of, for example, sending out a reminder letter, but they are not sufficiently high that leaseholders are willing to challenge them in court or at a tribunal.

In such cases, the demand for payment will be accompanied by threats of further costs and, ultimately, proceedings to evict the leaseholder in order to intimidate him into paying. Even though the reasonableness of such charges can now be challenged before a leasehold valuation tribunal, the cost and effort of doing so may be disproportionate to the sum involved.

The measure attempts to strike a fair balance between protecting leaseholders from oppressive landlords who use threatening and bullying tactics against leaseholders and protecting landlords and leaseholders who are prepared to pay their fair share. We recognise that managers need some way to deal with leaseholders who fail to observe the terms of their leases, but it is widely known that forfeiture can be abused by a minority of landlords.

During the passage of the Act, we gave assurances to both Houses that the Government would consult widely on the regulations that were to be made under the 2002 Act. A consultation paper was issued in October 2002, seeking views on proposals which would strengthen the protection given to long leaseholders against forfeiture.

There was wide consultation on the sum and period that we are now proposing to include in these regulations. Those who were consulted included local authorities and housing associations, together with landlords and leaseholder representative groups. There was widespread support among respondents for the proposals.

This is part of a package of provisions within the 2002 Act which will introduce further restrictions against the use of forfeiture by landlords. If these draft regulations are approved, we intend to make them later this year. We also intend that their coming into force will coincide with the coming into force of other provisions of, and instruments under, the 2002 Act that relate to forfeiture.

The overall objective of all these provisions is to reduce the scope for landlords to abuse the forfeiture procedures as a means of threatening leaseholders. We need to strike a better balance between allowing the landlord to take action where a lease has been breached and protecting the leaseholder against unwarranted threats of action where the sanction is disproportionate to the offence. Forfeiture should operate as a sanction of last resort against leaseholders who wilfully refuse to pay money to landlords who are lawfully entitled to it. I beg to move.

Moved, That the draft regulations laid before the House on 7 June be approved [21st Report from the Joint Committee].—(Lord Evans of Temple Guiting.)

Baroness Hanham

My Lords, I am interested in the Minister's comments because, as I understand it, and I should be grateful if the noble Lord would nod his head, this is the first of a number of regulatory processes which will be coming forward.

So far as I can tell, these regulations do nothing to protect tenants. Rather, they bring forward a matter that was discussed during the passage of the Commonhold and Leasehold Reform Bill 2002—that is, the tendentious problem of whether forfeiture rights should be continued with at all. I know that this matter has been taken very seriously and has obviously been the result of consultation. But, as I read the regulations, they set the base at which a landlord may set forward on the path of forfeiture at £350, which is rather lower than £500. I understand that the number of responses to the consultation process was remarkably small. According to my notes, there were 24 replies, which seems rather few as a basis on which to proceed with this order.

I have a few short questions for the Minister. First, is it correct that there were only 24 replies to the consultation? Secondly, the Minister rather suggested that the £350 was a concession. I cannot understand how a lower figure of £350 compared to £500 is a concession. It seems rather the other way round. I am sure that the noble Baroness, Lady Hamwee, who is a lawyer, will prick up her ears and try to do something about that. However, I should be grateful if the Minister could respond.

Thirdly, can the Minister explain when the other regulations, which provide protection to tenants from such forfeiture claims, will be introduced? If they are to be put forward as a package it would be helpful to know when they are due to come into force. I see that these regulations are not due to come into being until 2004, so it would be helpful if the Minister could say. Normally we have an indication of when they are likely to come into force, but that is not on the draft statutory instrument.

2.30 p.m.

Baroness Hamwee

My Lords, my questions relate to consultation. The Explanatory Memorandum, which accompanies the draft regulations, refers to the consultation paper which was issued and to which there were 77 responses, but only those where there were two votes are reported in the Explanatory Memorandum. Certainly, the great majority, 24, voted—perhaps that term should be in quotes—for £350.

There were 38 responses reported in the memorandum, or, if we include the two which expressed preferences for more than £500, which would not be possible given the primary legislation, 40 in all. As I said, there seem to have been 77 responses. So, we know what was said by only around half—40 out of the 77. What this boils down to as a question—I apologise; I forgot to give the Minister notice of this but I am sure that his officials will have anticipated it—is where the other 37 lie in the spectrum. We are asked to make a decision based on responses to a consultation of which we know what was said by only half the people who responded. The table in the memorandum could give a rather skewed picture. The other 37 might have said £499 running down to about £450, or they could all have asked for different sums under £100.

Similarly, with regard to the period of three years, again, 40 of the 77 were reported. Where in the spectrum are the other 37? In my view, three years seems a rather long time, especially as a debt of rather more than £350 could be involved. Is the Minister able at this point—perhaps not—to amplify the Government's thinking on why three years is right? It may be that a fair response from the Dispatch Box will be that we have to consider the two parts of this, the amount and the period, which together feel about right. It may not be easy to put it in detailed terms, but in general we want to encourage private sector landlords to rent, so in general from these Benches we would support measures that may persuade more private sector landlords to do so without inappropriately threatening tenants.

Lord Evans of Temple Guiting

My Lords, I am grateful yet again for the comments of the noble Baronesses, Lady Hanham and Lady Hamwee. Many of their questions centre around the analysis of the results from the consultation process. Rather than deal with a five-page document here, probably it would be best for me to pass on copies of the results.

We have a table of respondents. That shows we were genuine in our consultation. The majority voted for the sum of £350. One person went for £3,500. It went down the spectrum to £350. I think these matters are probably best dealt with by my passing copies of these results to the noble Baronesses.

I have no idea at the moment why the prescribed period is three years, but I shall be happy to deal with that later.

On the question of other orders, there will be a commencement order in November to come into effect three months later, so that will probably be the beginning of January next year. Again, I shall look at Hansard and if questions have been asked that I have not answered, I will be happy to answer them.

Baroness Hamwee

My Lords, before the Minister sits down, he has offered, and I am grateful for it, to give the Front Benches more information. As I understand it, these regulations require the approval of both Houses of Parliament. I believe that the other House has not yet considered them. Could he ensure that his office passes the information to the Front Benches in the Commons before they have to consider the matter so that the Government are not faced with answering the same questions?

Lord Evans of Temple Guiting

My Lords, I am happy to give that undertaking.

On Question, Motion agreed to.