HC Deb 24 October 1967 vol 751 cc1598-604

Lords Amendment No. 21: In page 21, line 9, at end insert: Provided that this subsection shall not have effect in relation to a charge in favour of trustees for debenture holders which at the date of the conveyance to the tenant is (as regards the house and premises) a specific and not a floating charge.

Mr. MacDermot

I beg to move, That this House doth agree with the Lords in the said Amendment.

Clause 12 provides in general for the automatic discharge of mortgages and such other charges on the landlord's estate by the conveyance itself of the freehold to the leaseholder, subject to the tenant's applying the price payable in the first instance in or towards the redemption of the mortgage.

Subsection (5) of the Clause contains an exception to this general rule in that it excludes all charges which are secured by a series of debentures, and in the result the tenant is not required to pay the price for enfranchisement to the debenture holders as he would otherwise have to do.

What the Amendment does is to refine this exception by restricting it to debentures which create a floating charge, leaving any fixed charge on the assets of the company to be dealt with by the general rule. The point is that debentures

Clause 14.—(OBLIGATION TO GRANT EXTENDED LEASE.)
Lords Amendment No. 22: In page 24,1ine 33, at end insert—
"(5A) Where under a lease executed to give effect to this section the new tenancy takes effect subject to a subsisting charge on the existing tenancy, and at the time of its execution the person having the charge is by reason thereof entitled to possession of the documents of title relating to the existing tenancy, then he shall be similarly entitled to possession of the documents of title relating to the new tenancy and the tenant shall within one month of the execution of the lease deliver it to him, and the instrument creating or evidencing the charge shall apply in the event of the tenant failing to deliver the lease in accordance with this subsection as if the obligation to do so were included in the terms of the charge as set out in that instrument."

Read a second time.

Mr. Allason

I beg to move, as an Amendment to the Lords Amendment, in line 7, to leave out from second 'the' to 'and' in line 8 and to insert: 'landlord shall deliver to that person the instrument creating the new tenancy'.

Mr. Deputy Speaker

We can discuss at the same time the following Amendment to the Amendment, also standing in the name of the hon. Member for Hemel Hempstead (Mr. Allason)—in line 10, leave out 'deliver' and insert 'secure the delivery of'.

Mr. Clegg

The noble Lord, Lord Kennet, in another place, introducing the Government's Amendment, said that the motive was the concern expressed by building societies which had taken retail property as a security that they should get their hands on the new and extended lease, and we welcome in general this new provision in that it seeks to protect the mortgagee.

bentures in the form of a fixed charge are for all practical purposes indistinguishable from an ordinary mortgage, and it is, therefore, sensible that they should be dealt with under the general rule.

Mr. Rossi

On behalf of my right hon. and hon. Friends, I thank the hon. and learned Gentleman for this concession. The matter was pressed hard in Committee and again on Report stage and we were given an undertaking that it would be remedied in another place. We are grateful that the Government have made this small but valuable concession to this side of the House.

Question put and agreed to.

However, we are concerned about the position. As I understand the new provision, there is an obligation on the tenant to hand over the new lease within one month of its execution by the landlord but what happens if the tenant fails to do this and, having failed to do so, should sell the extended lease, which would be assigned to a purchaser without notice of the mortgage? What would be the position of the mortgagee in these circumstances? Is his only remedy then to sue the mortgagor under the covenant contained in the original mortgage?

If the mortgage were protected by the deposit of the original lease, there would be no registration and any purchaser from the tenant of the extended lease would not know of the legal charge affecting it. In these circumstances, it would seem that the mortgagee would be left with very poor remedy if his only remedy lay under the covenant contained in the original deed.

This is why we suggest that the new document should be handed over to the mortgagee, not by the tenant but by the landlord. This would mean that there would be no possibility of the tenant disposing of his new lease since, of course, he would not have the document in his possession to make title. We would appreciate it if the Government would tell us whether there are sanctions other than those contained in the new provision contained in the Lords Amendment.

Mr. Skeffington

In replying to the hon. Gentleman, perhaps I can relate my comments also to the Lords Amendment which, in due course, I shall ask the House to agree to. The position under this Clause is well known to hon. Members who served on the Standing Committee and certainly to those who practice in this branch of the law. The building societies were concerned that a leaseholder whose lease was subject to a mortgage might obtain an extended lease without the mortgagee being brought into the matter and fail perhaps to hand over the new lease to the mortgagee. This could make for difficulty if the mortgagee subsequently had to foreclose or sell the house.

The new subsection makes it clear that whenever a mortgagee has possession of the title deeds relating to the original tenancy he is to be similarly entitled to the deeds relating to the new tenancy, and imposes upon the leaseholder a duty to hand over the new lease to the mortgagee within one month of its being executed. That is the clear obligation which is placed upon the leaseholder.

It can be regarded as a corollary to subsection (5) which already makes a similar provision—[Interruption.]

Mr. Deputy Speaker

Order. I do not want to interrupt the hon. Member, but I should point out that if he is proposing now to deal with the Lords Amendment as well as the Amendment moved by the hon. Member I do not think we can have a second debate on the Lords Amendment. It might well be for the convenience of the House if the two were discussed at the same time and if that is the wish of the House, so be it.

Mr. Skeffington

I have virtually finished this part of the explanation. I will come to the hon. Gentleman's Amendment and then, if there is any further point, perhaps, with leave, I could speak again. However, I have virtually come to the hub of my explanation as to why the Opposition Amendment would not do. What we have done may be regarded as a corollary to subsection (5), with which the House is familiar. The Amendments proposed to line 7 and line 10 will not do, because the landlord may not know that the lease is subject to a mortgage and he has no means of finding out except by inquiry of the tenant, who will not disclose the charge to the landlord if he intends to conceal it in dealings with other people. It would, therefore, be unfair to expose the landlord to an action for damages by the mortgagee for a breach of this duty. If it is not intended that the landlord should be so exposed, there is no point in imposing the duty on him in addition to the duty on the tenant. The same objections apply to putting a duty on the landlord to draw the lease subject to a subsisting charge about which he may be ignorant. In view of the clear obligation which the new subsection puts upon a tenant, we feel that this is an adequate safeguard and we would be exposing the landlord to a peril which would be most unfair, because in many cases he would not have any means of checking the facts.

Mr. Graham Page

Surely the tenant will have to disclose the title to his existing tenancy to the landlord when he applies for the extended tenancy. Without being able to put my finger on it in the Bill, I thought it was the obligation of the tenant to disclose encumbrances on his existing tenancy so that the surrender of that and the granting of the new tenancy would be made. If not, I imagine that such a thing will be included in the Lord Chancellor's conditions which are to be made by Regulation. At any rate, it would be the normal thing for the tenant to disclose the encumbrances on the existing lease, including perhaps the mortgage which takes effect upon the new lease.

This is the background to the Amendments which my hon. Friend has moved: that there is an existing tenancy, the tenant has given notice that he requires an extended lease instead of taking the freehold, and the existing tenancy is subject to a mortgage. In the very first few lines of the Lords Amendment that we are seeking to agree here there is reference to the new tenancy taking effect subject to a subsisting charge on the existing tenancy. The normal thing would be that when that transaction is completed, the landlord's solicitor hands over the new lease to the tenant or the tenant's solicitor.

The only obligation placed on the tenant under the Lords Amendment is that within a month he shall deliver that document of title to his mortgagee. But what may he do with it in that month? This is our difficulty. The normal practice would be for the landlord when granting a new lease when another has been surrendered to hand over to the mortgagee who is entitled to this document of title. All we are proposing in the Amendment is that the normal practice should be observed and that the possibility of the fraudulent tenant avoiding handing his deeds to his mortgagee should be short circuited by saying that the landlord shall do it on completion of the transaction.

9.0 p.m.

Mr. Rossi

What would be the position of a tenant who acted fraudulently in the intervening period of one month? If he had the new lease in his possession, apparently uncharged, could he not seek to borrow money from another person? Would there not then be a terrible conflict between a person who lent on the old lease which had expired and which was still subject to the charge and the new person who had unwittingly lent money on the new lease? What would be the security and who would have the security for the prospective sums borrowed?

Another situation could be for the tenant to sell his lease very quickly. The purchaser would get a good title and the money would pass into the pocket of the fraudulent tenant and the mortgagee could be left whistling for his money. These are practical difficulties which could arise and one would want the Bill to be sewn up so that we do not give opportunities of that kind.

Mr. Skeffington

I do not think that the hon. Member for Crosby (Mr. Graham Page) is correct in saying that there is an obligation in the Bill in relation to encumbrances.

One appreciates the difficulties and the existing practice and one has discussed this matter with the building societies and others to see whether any further obligation could be placed. They were satisfied that the new Clause 5(a) met the difficulty in placing this obligation. Of course it is always possible for any one not to comply with the obligations of the law, but it was felt that now that we have made it clear that whenever a mortgagor has possesison of the title deeds relating to the original tenancy he is similarly entitled to the deeds relating to the new tenancy and imposing on the leaseholder the strict obligation to hand over within one month of a new lease being executed covered the position. No doubt those advising will see that this is done, because the position of the leaseholder could obviously be extremely precarious if this obligation were not complied with.

It was suggested that the time might be too short, but it was felt that this was adequate time and that if the period were made too long, that would lead to further difficulties. Furthermore, this period is in parallel with that in the main provision to which the House has agreed previously.

Mr. Rossi

What is the sanction? If this is not done within one month, what is the sanction of law imposed on the tenant? I do not recall seeing a penalty spelled out in some other provision. How can this requirement be enforced?

Mr. Skeffington

The whole of the leaseholder's position would be at stake if he had not complied with this provision and that is a very powerful sanction.

Amendment negatived.

Lords Amendment agreed to.