Lords warn government of “tidal wave of protest” at new right for freeholders to add extra floors without permission

By Harry Scoffin

Three senior peers including a former Welsh Tory leader launched a last-minute attempt last week to halt a statutory instrument they say will prevent leaseholders from buying out their landlords.

On Wednesday Lord Nick Bourne, who led the Welsh Conservatives from 1999 to 2011, told housing minister Lord Greenhalgh that permitted development right SI2020/632, which came into effect three days later, is harmful to the interests of leaseholders.

He was supported by chartered surveyor Lord Thurlow and former new Labour housing minister Baroness Andrews, who cited analysis by this charity and secured a meeting with the minister during another round of departmental questions.

Lord Bourne said that the government’s liberalisation of air rights atop existing blocks of flats would not only “inflate the price” of freeholds, but also ensure that “any appropriate windfall profit for a particular property will not help the leaseholder, only the freeholder”.

He asked whether government had examined the impacts of two-storey upward extensions on leaseholders, which would also include disruption and possible decanting of occupiers.

Speaking via video link, the Tory grandee said:

“My second concern relates to consideration of the interests of leaseholders in a block, particularly where there is building upwards. Given that this is not full ​planning permission, which I quite understand and approve of, how are we to give proper thought and attention to leaseholders’ interests? This provision gives a windfall profit, as it were, to the freeholders in added value, but for leaseholders, who might seek to purchase their [freehold] interest from the landlord, it will inflate the price. It also means that any appropriate windfall profit for a particular property will not help the leaseholder, only the freeholder. Has consideration been given to that issue? It seems something we should perhaps consider. There will also necessarily be disruption from any building work being done where conversion is to happen.”

Chartered surveyor Lord Thurlow, a crossbench hereditary peer elected to the house in a 2015 by-election and member of the APPG on leasehold reform, told Lord Greenhalgh to expect a consumer backlash similar to that seen over doubling ground rents.

Many flat owners will not be adequately protected under the new rule owing to their poorly drafted leases, he said:

“I must object to the ill-considered detail. The noble Lord, Lord Bourne, pointed out the necessary protection for existing occupiers. It will depend on the terms of their lease. Many leasers [lessees] might not enjoy the necessary protections. It is likely to create a tidal wave of protest and complaint against the Government. The leasehold ground rent scandal is an example.”

Referencing the permitted development (PD) right to allow office-to-residential conversions without planning permission, which has been criticised for producing tiny slums of the future, Lord Thurlow explained the need for official scrutiny and oversight of developers’ plans:

“The principle of the SI—to speed up planning—is good, but in this case it is much too quick. While speeding up the normal planning process is a good thing the process itself serves an important purpose. In addition to the frustrating minutiae involved, important safeguards are included: fire safety, materials, design suitability, daylighting—things that affect people’s lives. The character of neighbourhoods can be protected. We have seen the unfortunate result of the post-war concrete urban jungles that were created, with the resulting mental health consequences. This is not the same, but risks moving in the same direction.

“At a property level, we have seen the consequences of the ill thought-out PDR rules of very few years ago to allow conversion of redundant offices into residential property. While some 60,000 flats might have been created out of PDR, many have tiny rooms, lack daylighting and have other constraints allowed as a result of bypassing the normal planning process.”

He raised concern that the PD right for rooftop development could encourage housebuilders and freehold owners to put profit ahead of building safety:

“There are more practical matters. Adding floors to an existing three storey-plus building creates an engineering challenge. Developers built these buildings to efficient and economical building cost. Architects and engineers did not waste money overengineering the required brief. Will we see shortcuts attempted, such as floors added to buildings that cannot bear the weight and load, risking tragedy?”

Lord Thurlow added that he would have voted against “the ill-considered detail” in the government’s planning reforms if it had not been brought in through the parliamentary backdoor via the controversial statutory instrument procedure:

“I conclude by saying that, since we cannot amend this—we can only object—if there was to be a vote, I would vote against this PDR proposal. While there is a great deal of good in it, I do not think it has been fully and carefully thought out enough.”

In reply, Lord Greenhalgh acknowledged the work of Sir Peter Bottomley “in the other place” who, he said, was also “concerned about the impact of new permitted development rights on leaseholders’ ability to exercise their legal right to enhance their leasehold interests by buying the freehold”.

He conceded that some leaseholders would lose out, which supports the LKP analysis of government data showing that only 8,120 new flats will be created under the permitted development right after 10 years. Leaseholders are expected to be £200 million worse off because of the change.

To build 8,120 new flats: Government gifts freeholders £41bn, devalues flats by £200m … and torpedoes leasehold reform

However, the housing minister went on to reject the lords’ “windfall” characterisation, that all the benefits will flow to the freehold owners:

“It is indeed true that some leaseholders may be affected by any increase in the value of those blocks of flats but it is certainly not the windfall described by some noble Lords today. It is not a windfall for freeholders but it may affect the valuation.”

MHCLG’s own impact assessment of the reform, as reported by LKP, accepts that all qualifying leasehold blocks, so those built between 1948 and 2008 and below 30 meters, will be affected. It says:

“… leaseholders will be affected through any increases in the value of those blocks of flats which meet the criteria of, and so can benefit from, the right, where it is viable to do so. In such cases, it may become more expensive for leaseholders to enfranchise, i.e. buy the freehold of the block.”

Penthouse owners will also see property devaluation, the report admitted.

Labour leader Sir Keir Starmer is mobilising opposition to the two-storey PD right in the Commons with an early day motion, which 28 MPs have signed including shadow housing minister Mike Amesbury, ex-shadow chancellor John McDonnell and former Green Party leader Caroline Lucas.

Town and Country Planning – Early Day Motions

That an humble Address be presented to Her Majesty, praying that The Town and Country Planning (Permitted Development and Miscellaneous Amendments) (England) (Coronavirus) Regulations 2020 (S.I., 2020, No. 632), dated 23 June 2020, a copy of which was laid before this House on 24 June 2020, be annulled.