Clause 4.—(MEANING OF LOW RENT.) (Hansard, 24 October 1967)

§ Mr. Speaker
Mr. Allason.

§ Mr. Speaker
Mr. MacDermot. Point of order.

§ Mr. MacDermot
I was proposing to move the Motion, not to raise a point of order.

§ Mr. Speaker
Order. Let me help the hon. and learned Gentleman. We have an Amendment which I have selected, the Amendment to line 1. We must take Amendments to the Lords Amendment before we decide what we 1576 are to do about the Lords Amendment itself.

§ Mr. Allason
I beg to move, as an Amendment to the Lords Amendment, in line 1, leave out from 'granted' to 'otherwise' in line 2.
It might be convenient if we could discuss the other Amendments which you have selected to be discussed, which I understand to be the two Amendments to line 7, in line 7, after 'tenancy', insert 'was equal to or'; and, in line 7, leave out from 'the' to end of line 8 and insert 'the rateable value of the property on the first day of the term'.

§ Mr. Speaker
I have not selected that for separate debate but I have suggested that we discuss with the hon. Gentleman's Amendment, the second Amendment to line 7.

§ Mr. Allason
It would be best to took at the situation presented to us by the Lords Amendment before getting to the effect of the Amendment which I am moving, and the subsequent Amendment which we are discussing with it. In the course of the Bill we have pressed very consistently that there is a flaw in the definition in the Bill of ground rent as being two-thirds of the current rateable value, because it is liable to catch some genuine rack rents settled some time ago at a fairly low rent, but which now, owing to rising rateable values, will come to be defined as ground rents.
It cannot be the intention of the Government that what was once a genuine rack rent should now be defined as a ground rent. To give an example, we now have within the Bill, a rateable value limit for houses outside London of £200. Before 1963 that would have been roughly one-third. Rateable values went up by approximately three times. The rateable value before 1963 was about £70, which is the highest level of house outside London remaining in the Bill. If it was a rateable value of £70, that would be equivalent to a gross value of about £90.
But two-thirds of the current rateable value is £133. We would have the situation whereby the rack rent of a house, which some years ago had a certain gross value, which is not the letting value but is the district valuer's opinion of its letting value, would, under the definition of this Bill, become a ground rent if it 1577 was let for substantially more than that £133.
Clearly, the further one goes back the greater is the danger that a perfectly reasonable rack rent shall now be defined as a ground rent, because of the two-thirds valuation placed in the Bill. The Lords Amendment deals with these for the period from August, 1939 to April, 1963. It substitutes for this two-thirds current rateable value a new term, that is two-thirds of the letting value at the commencement of the lease.
I take it that it is intended to be at the commencement of the lease, because in the wording of the Lords Amendment it says: … if at the commencement of the tenancy the rent payable under the tenancy exceeded two-thirds of the letting value of the property (on the same terms). It is not at all clear that that means the letting value at the time when the tenancy was granted, but let us assume that it was that. This vastly improves matters, because for this period from 1939 to 1963, at least we get a different definition and there is less danger of the rack rent being misinterpreted as ground rent under the terms of the Bill. If we can discover the letting value at that time, quite clearly a lease of two-thirds of the letting value is unlikely to be a rack rent, unless the landlord is slightly off his head.
The earlier one goes back, the more likely it is that the rack rent will be low, and consequently will become confused with the ground rent now. It is not clear why this change should only operate from August, 1939 to April, 1963. Any lease granted before August, 1939, which is still existing, would tend to be in an even more anomalous position than those within the wartime and post-war period of leases.

§ Mr. Speaker
Order. It is difficult for the hon. Member to address the House against a background of sustained conversation.

§ Mr. Allason
Coming now to the Amendment. The first Amendment leaves out the dated periods so that the letting value is taken over the whole period as the method of determination. This is a fairly satisfactory solution, and I cannot see why it should not operate over the whole period instead of retaining the two-thirds rateable value provision for some other periods. The existence of two 1578 different definitions would only confuse the Bill.
7.30 p.m.
On the second Amendment, I go further in my criticism of letting value, to which I gave modified greeting, since it obviously improves the position. But the position could be much more improved by this Amendment. Instead of the letting value, we would take the rating value of the property at commencement of the lease. This known fact can be discovered simply, whereas the letting value in 1940 will be extremely difficult to discover and will be subect to much argument, with both sides employing surveyors to argue it. Rateable value will be firm and definite.
In addition, letting value varied during the war from day to day or from month to month. As the blitz increased or decreased so letting values changed. At some stages, one could not find anyone to occupy one's house and the letting value was virtually nothing. In other areas, the nice safe areas, the situation was exactly the opposite, with very high letting values. Therefore, letting value has considerable disadavantage as a basis for calculation; rateable value when the lease started is a much better proposition. I hope that the Government will accept the Amendment. We are grateful that they have taken a move in the right direction, but it is not a very wise move.

§ Mr. MacDermot
I am grateful for the general welcome which the hon. Member for Hemel Hempstead (Mr. Allason) gave the Amendments to which these two Amendments are proposed. I also find it difficult to discuss these two Amendments except against the background of the Government Amendments. These Amendments are an attempt to meet a point which worried both sides in Committee and on Report. My hon. and learned Friend the Member for Dulwich (Mr. S. C. Silkin) first drew the attention of the Committee to the fact that the two-thirds rateable value rule could be unfair to some landlords in view of the practice in the immediate post-war years of granting rack rent tenancies for longer terms than 21 years.
Because of the decline in the value of money, some of those rack rent tenancies are now at rents less than two-thirds of the rateable value, following the revision of the rating system which took effect 1579 in 1963. All the evidence is that this practice began immediately after the war. It is not a continuing problem, partly because of the revision of the system and partly because the practice now is for anyone who grants a long lease on rack rent terms to include rent revision clauses in the agreement to ensure that he will not be caught as were some owners under those kinds of agreement.
It was not, of course, the intention of anyone who has been campaigning, as many of us have for many years, for leasehold enfranchisement that it should apply to rack rent tenancies. Consequently, when I found how both sides had been disturbed by this problem, I was anxious to solve it. I am glad to hear that the hon. Gentleman thinks that we have gone some way to meet the problem.
His two Amendments propose variations of our proposal. First, he does not want it confined to leases granted between August 1939 and the date when the new rating system came into force—1st April, 1963—but wants it to be at large. My answer to that is twofold. First, we have no evidence of any practice of granting leases of that kind, except starting in the immediate post-war years. We have allowed a margin of error here by going back to 1939, and, since we know of no practical reason for going back further, we are not inclined to, especially as we see a very good practical reason why we should not.
The hon. Gentleman himself said that it might be very difficult for a landlord to produce evidence of letting values in 1940, and I suggest that it would be even more difficult if the year were 1840, which might be the result of the Amendment. It might be argued that the rent of a tenancy granted in the last century was less than two-thirds of the letting value at the date of the grant. I confirm that that is the meaning of the words in the Amendment. That is the date which must be considered both to the letting value and to the actual rent under the agreement. This is a severely practical reason for going back no further.
The cut-off date of 1st April is necessary, anyway, to avoid a clash with the transitional provisions in Clause 35—certainly no later than 8th December, 1964. In any event, that was the date when the rating system was brought up 1580 to date and obviated the problem. There is also the practice of rent revision Clauses. On reflection, I think that the House will agree that a date limit to this special provision is wise.

§ Mr. Allason
Would the hon. and learned Gentleman not agree that if he accepted both Amendments, this difficulty would be obviated?

§ Mr. MacDermot
If the hon. Member will be patient, I will tell him a good reason why the House should not accept the second Amendment. It goes back to one of the solutions tried and probed and found wanting in Committee. When the House tried to solve this problem, the first thing was to see whether the rent under the agreement could be related to the rateable value at the time of the agreement instead of to the rateable value in 1963. The difficulty about that is that the rateable values in the period with which we are most concerned—the immediate post-war years—were 1939 rateable values. As the hon. Member will know from his experience, because we did not then have a unified rating system the result was that there were ludicrously low rating assessments in particular areas. It did not matter for one of those areas, because they secured the tone of the list in their own area and aimed at the same treatment for all lettings in the area.
One knows, and one need not repeat, the reasons why there was a temptation to value low. The fact is, however, that they were valued very low. I am assured that there are examples of genuine ground leases with ground rents of the order of £10 a year, which would be excluded if one took the current rateable value, because rateable values were as low as about £15. The suggested solution would, therefore, be quite unworkable and would exclude an enormous number of genuine ground leases.
It was for the same reason that we had to advise the rejection of a provision, which was written in at one stage in the other place, to take one-third instead of two-thirds of the rateable value. When we come to the other end of the time scale, we encounter the problem that genuine ground leases are created at the present time when the ground rent is more than one-third of the rateable value. Again, therefore, that would not give the right result.
1581 It was for those reasons that we put forward the Lords Amendments in this way. They will help to provide a workable solution to the problem, and I must advise the House to reject both Amendments to them.

§ Mr. Graham Page
This is an example of our difficulties in dealing with the Bill, which has been brought to the House only the day after Third Reading in another place when the Lords Amendment was introduced. The unfairness of including property of which the rent is as much as two-thirds of the rateable value or just under was mentioned on Second Reading in this House. It was debated in Committee and on Report and at each stage in another place.
Although the Minister of State has said that hon. Members on both sides of the Committee were worried, they may have been worried from the back benches on the Government side but there appeared to be no worry about it until this stage from the Government Front Bench. We are, therefore, faced with trying to understand a difficult Amendment of this nature only a few hours after it was passed in another place yesterday.
I have tried to work out how the Lords Amendment would operate and what would be the effect of our Amendment to it. There are various permutations that can be used for examples, but to use figures is probably confusing. Two points are involved in the Amendments. By our Amendment to line 1 of the Lords Amendment, we say that if it is right for the Lords Amendment to be applied for the 1939–1963 period, it is right for it to be applied at all This should always be the alternative for the landlord if the property is near the margin of the rateable value limit. There will, of course, be occasions when it would be impossible for either party to prove one way or the other what was the letting value at any one time, what was the letting value on the first day of the term of the lease or, if it is a 99-year lease, the letting value in the last century. That could not be proved. Therefore, the alternative could not he used. That, however, is no reason why it should not be an alternative at all times.
1582 7.45 p.m.
I am puzzled by the Minister of State's remark that the Ministry has no evidence of a practice of rack rent leases for more than 21 years prior to the war. I do not know why the Ministry should have any evidence of it or how it could get evidence one way or the other. I am surprised to learn that there is no such evidence. I cannot think of any occasion in my practice when I have had one, but, equally, I cannot think that rack rent leases were extraordinary at that time. For scores of years, landlords and tenants have agreed between each other a premium as opposed to a rent, a rent as opposed to a premium. I am sure that this happened with residential property for many years before 1939.
The purpose of our Amendment to line 7 of the Lords Amendment is to return to rateable value instead of letting value but to return to it as it exists at the time when the lease is granted. This seems to be the most fair way of deciding what is a low rent. One is then looking at the intention of the parties when the lease was created. If it is possible to compare the ground rent with the rateable value at the time the lease was granted, one gets the intention of the parties as to whether it should be a lease at a low rent.

§ Mr. S. C. Silkin
I have been following this part of the hon. Member's argument. Can he explain why he puts it that way? Surely, the Lords Amendment gives a considerable leeway between the true rack rent and the position which is covered by the Clause. It gives virtually one-third of the rack rent as a leeway. Surely, that is much safer than relying on a rateable value which may be purely artificial.

§ Mr. Page
That brings me to the point of asking what is meant by "letting value". It seems to me that we are still basing our calculations on rateable value, because I anticipate that what will be said to be rateable value is the gross value. That is merely worked out from the rateable value. Perhaps, however, it is better to deal with this when the Lords Amendment is being debated and I will ask the question then.
In putting forward our Amendment to substitute rateable value for letting value, it seemed to me to be a much 1583 fairer way as between the parties of ascertaining their intentions concerning the rent and whether they meant it to be a ground lease if we consider the rateable value at the time when the lease was granted.

§ Mr. MacDermot
Are you inviting hon. Member's opposite to put formally the second of their Amendments, Mr. Deputy Speaker, before we discuss the Lords Amendments themselves?

§ Mr. Deputy Speaker (Sir Eric Fletcher)
The second Amendment in the name of the hon. Member for Crosby (Mr. Graham Page), in line 7, of the Lords Amendment, is not selected. I understand that the hon. Member's third Amendment, also in line 7, has been discussed with the first Amendment. Therefore, I was not proposing to put it. The hon. Member's fourth Amendment, in line 8, of the Lords Amendment, is not selected. I therefore invite the Government to move a proposal with regard to Lords Amendment No.11.

§ Mr. Graham Page
On a point of order. We understood from Mr. Speaker's statement about the Amendments that he had selected the second Opposition Amendment to this Lords Amendment; that is, the first Amendment in line 7. He said that the second Amendment in line 7 would be discussed with the Amendment in line 1. I understood that the first three Amendments were selected in that way, while the fourth was not.

§ Mr. MacDermot
I am not sure whether or not the hon. Gentleman was in the House, but I recall that when these Amendments were called, Mr. Speaker made it clear that he was selecting the second Amendment in line 7 for debate.

§ Mr. Allason
With my hon. Friend the Member for Crosby (Mr. Graham Page). I was in the House and understood Mr. Speaker to say that he would call the second Amendment in line 7, whereupon the Minister intervened to say that he surely meant the third Amendment.

§ Mr. MacDermot
At the time this question was asked of Mr. Speaker it was made clear that Mr. Speaker was selecting the second Amendment in line 7.

§ Mr. Deputy Speaker
The position seems clear. The first Amendment in line 1584 I has been disposed of. The first Amendment in line 7 is not selected. The second Amendment in line 7 has been discussed with the Amendment in line 1, and now falls. The Amendment in line 8 is not selected. I now invite the Government to move a Motion in regard to Lords Amendment No. 11.

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

§ Mr. Deputy Speaker
Would it be convenient to discuss, at the same time, Lords Amendments Nos. 12, 13, 14 and 16?

§ Mr. MacDermot
Yes, Mr. Deputy Speaker.
I can deal with this Amendment briefly because we discussed the general effect of it and of the other Amendments being taken with it in our debate on the last Amendment. There appears to be general agreement on the desirability of the Amendment.
Only one point has not been clearly brought out. I wish to make it clear that the provision in this series of Amendments is something of which the landlord can, if he wishes, avail himself, but the initiative will have to lie with him and the onus of proof will lie upon him. In other words, it will not be necessary for enfranchising leaseholders to go to all the pains of trying to produce negative evidence to defeat this possibility—which would, of course, only be an exceptional case—and in such an exceptional case the evidence is likely to lie much more in the hands of the landlord than in those of the tenant. We therefore think it right, if the landlord wishes to avail himself of it, that the burden of proof in this matter should lie on him.

§ Mr. Allason
This shows the extreme difficulty in which one finds oneself when asked to consider Amendments of this kind at such short notice. Only a very short period of warning has been given to us and I have not had time to check through the procedure.
My recollection of the procedure under Clause 5 is that once a tenant has given notice to a landlord of his wish to have the freehold, he is entitled to work on the supposition that he will get it and that he is even entitled to assign his right. 1585 In other words, he can sell the freehold that will come to him.
This arrangement is highly unsatisfactory in the light of Amendment No. 14, with its proviso about when this process should start to operate. Surely it should work the other way; that if a landlord says, "I do not agree that your notice is valid because I shall claim that it is not a ground lease because of the proviso", then at that stage this fact should operate against the tenant. If not—if I am correct in what I believe is meant by Clause 5, Schedule 1 and the other provisions relating to this matter—the tenant can proceed on the basis that he will succeed.
This is a hopeless proposition, particularly if at a much later stage the landlord must provide all the proof. Obviously he cannot do that on the first day. It will take a considerable time before he is able to prove to the court or tribunal that it is not a ground lease. We have heard that there will be a considerable argument on this score and therefore, at the earliest stage, the proviso should operate so that a stop is put on the tenant acquiring the freehold—that is, until the matter has been sorted out.

§ Mr. Graham Page
I thought that we would be given an answer to our questions on this Amendment. In addition to the points raised by my hon. Friend the Member for Hemel Hempstead (Mr. Allason) there are some general matters which I must put before the House. We are told in the Amendment that the rent shall not exceed two-thirds. In Clause 4, where this is referred to by reference to the rateable value, the phrase is: … equal to or more than two-thirds of the rateable value … We are, therefore, taking a different standard when judging it against the rateable value compared with the rent value. This is an unnecessary complication and it would have been better to have used the same standard in each case.
What is "letting value"? It is not defined in the Bill and it seems that merely to use the words … the letting value of the property … is an invitation to litigation. I can imagine endless cases over what is the letting value of property and when it is to be judged. I agree that the Amendment states that we are dealing with 1586 … rent … at the commentment of the tenancy … but those words are not repeated after the phrase "letting value". Will the Minister give an assurance that the proper interpretation of this provision as drafted is that the letting value is to be taken at the commencement of the tenancy? Why not spell this out in the Bill?
I trust that we will be told, first, why the phrase "equal to" has not been used, as it is used in Clause 4, secondly, the definition of "letting value", and, thirdly, at what date the letting value is to be estimated.

§ Mr. MacDermot
I to some extent anticipated the hon. Gentleman's question about the onus of proof when moving the Amendment; when I said, and gave reasons why, it is sensible to put the onus of proof on the landlord rather than on the tenant.
To answer his question about the need for a stop, the landlord can claim the benefit of this proviso, and I would expect him to do so, in his notice in reply, which must be given within two months of the application being made by the tenant. That would then put the enfranchishing tenant on warning that this issue is to be raised—and if the matter cannot be resolved, it would eventually have to be determined in litigation.
8.0 p.m.
I do not think that there is any particular intention behind the reference to two-thirds. We are here not dealing with a formula in relation to rating, where no doubt the precise wording would have been used. I should have thought that it made very little difference in practice.
The letting value is a term that already appears in Clause 15(2), and the meaning of the term here would be the same as it is there. What the Amendment makes clear is that it is letting value on the terms of the tenancy. It does not mean the artificial letting value for rating purposes which, as I pointed out, was applied in a very unrealistic way in earlier rating practice. It would be the actual market value of the lease on the terms of the lease at the time when the lease was granted.
That leaves me to the point about time raised by the hon. Member for Crosby (Mr. Graham Page). I think that the 1587 wording of the Amendment is quite clear. It says that it … shall not be regarded as a tenancy at a low rent if at the commencement of the tenancy the rent payable under the tenancy exceeded two-thirds of the letting value …". It is at the commencement of the tenancy that one has to compare the two factors. One could only do that by taking the letting value at that date, and I am satisfied that that is what the words mean.