§ The Leasehold Reform Act, 1967 shall have effect, and be deemed always to have had effect, as if in section 9(1) (which provides for the price to be paid by a tenant on an enfranchisement under the Act to be calculated on certain assumptions, by reference to a sale of the reversion in the open market by a willing seller) there had been inserted after the words a willing seller' the words '(with the tenant not buying or seeking to buy)':
§ Provided that this section shall not have effect where the price has been determined (by agreement or otherwise) before the passing of this Act.—[Mr. George Thomas.]
§ Brought up, and read the First time.
§ The Secretary of State for Wales (Mr. George Thomas)
I beg to move, That the Clause be read a Second time.
§ Mr. Speaker
I have suggested that with the new Clause we debate Amendment (a), in line 1, at beginning insert (1). and Amendment (b), in line 8, at end insert:(2) The Minister shall, for the purpose of clarification and the removal of doubt, have power by order to modify section 9(1) aforesaid by describing to what extent (if at all) the assumptions stated in the said subsection include assumptions as to the annual percentage decrease in the value of money by inflation, the taxation element in the valuation of a deferred interest, the existence of members or the tenants' family as possible successors or as 738 prospective buyers, the number of years' purchase and the rate of interest applicable thereto in the calculation of the capital value of a ground rent, the number of years and the rate of interest applicable in the calculation of the deferred value from the modern site value, the development potential of the property and the landlord's rights required by the said subsection to be taken into account.
§ Mr. Thomas
Leasehold is an emotive term to a great many of my right hon. and hon. Friends, and certainly to our people in Wales, and to the people of Birmingham and London, too, but I am the last person to want to stir up emotions in the House. The hon. Member for Crosby (Mr. Graham Page) told me last week that he welcomed the announcement that we were to put down this new Clause. It is really a corrective Clause which will be welcomed by one million householders in the country, for it removes the misunderstanding which has existed ever since the Custins decision by the Lands Tribunal, where it appeared that the Tribunal had taken into account in assessing the price of the freehold the fact that market value must be shared between the ground landlord and the tenant. We now take the tenant, the leaseholder, out of the market. He is not considered to be a bidder in the open market, and I believe that the sooner this gets to the Statute Book the better.
§ Sir Derek Walker-Smith (Hertfordshire, East)
The right hon. Gentleman referred to the new Clause as resulting 739 from a misunderstanding. That seems to be a tactful and delicate word. I should have thought it was more accurate to say that the necessity for this Clause is a further sorry but increasingly familiar instance of Government incompetence. It shows clearly that there has been either a failure of the Government to come originally to a clear conclusion as to their intention, or a failure to communicate it clearly, because the House is splendidly served by Parliamentary draftsmen and counsel and if the matter is communicated clearly to them they get it right. The fact that the right hon. Gentleman now says that it was not right is clear evidence that the Government failed to communicate it correctly, assuming that they themselves ever arrived at a clear and unequivocal conclusion.
There is therefore a failure on one or other at least of those counts, although possibly on both. Section 9 of the Leasehold Act fixed the price payable for the freehold or leasehold enfranchisement as an open market price subject to two main assumptions, first, that the freehold was subject to the existing tenancy, and secondly, that the existing tenancy is extended for 50 years at a modern ground rent. Those assumptions are written quite clearly into Section 9.
It is a rule of law and construction that where in a Statute or a contract certain matters are expressly stated, then there is a presumption against implying further matters which could equally well have been expressed but have not in fact been expressed. Applying that principle, it was clearly not possible to imply into Section 9 of the Leasehold Act a further assumption beyond the specified assumptions to the effect that the words "open market" in Section 9 mean not what they say, that is to say that the generality of purchasers includes the sitting tenant, but that they mean what they do not say, that is a market limited by the notional exclusion of the sitting tenant.
That is the principle of construction, and it was clearly properly applied by the Lands Tribunal in the case of Custins v. Hearts of Oak Benefit Society, where the tribunal had the advantage of having as its president Sir Michael Rowe, an old 740 and valued friend of mine—and probably of other hon. and learned Gentlemen—and a well-respected forensic opponent of former days. The Tribunal found:… we cannot escape from the conclusion that if Parliament meant to exclude the sitting tenant it could and would have said so in clear terms. The required assumption of an extended lease quite clearly enables a sitting tenant to buy much more cheaply than he could have done without the Act. If it had been intended to go further and eliminate the tenant from the market we think the assumptions in sub-paragraph (a) could and would have been quite different.The Government now come here to say that this is not what they meant and say that when they said in Section 9 "market value" what they really meant was something less than market value. When they said in Section 1 "a right to acquire on fair terms" they meant on something less than fair terms. At any rate that is the conclusion to which the Lands Tribunal came. In its decision it said:In our view, the expression willing seller' means no more than that the vendor cannot expect more than the market price on the sale on the statutory terms because he might be thought to be selling with reluctance; but there is no reason why he should sell below the market price. We note too that Section 1(1) of the Act requires that the acquisition should be 'on fair terms' and we do not think that the exclusion of the tenant would result in a 'fair terms' sale, because a price which was calculated on a basis which ignored the price which a tenant would be prepared to pay would not be on 'fair terms'. We have therefore come to the conclusion that the sitting tenant should not be excluded from the market.The Lands Tribunal certainly came to a correct conclusion in construing the law in that decision. Now the Government are puffing and panting in pursuit of difficulties of their own making. I doubt whether we ought to debate now the merits of leasehold enfranchisement at the capitalisation of site value, but I have three comments to make within the framework of that principle.
Assuming that the principle of the landlord being compensated at the value of site only is a just principle—and that is debateable—then one element of that value is the fact that the tenant exists in the open market to make a higher bid. There seems to be no reason, at any rate in logic, why that should be discounted. The second point is that the effect of the decision of the Tribunal in my view has clearly been exaggerated. If one looks at the cases, the Hearts 741 of Oak case and the other case, the differences between the two valuations referred to the Tribunal arise more out of differences in valuation technique and detail than from this principle of law.
It is not easy to see why the tenant's over-bid should make very much practical difference. After all, the sitting tenant will only offer very slightly more than the market price. He will just offer sufficient more by way of over-bid to beat the market. That is a very slight increase and the sort of figures that have been bandied about, of a 50 per cent. escalation, are wholly beside the point. My third comment is that this new Clause will cause injustice in the operations of the time factor. As I understand it, what is proposed is that from the date of the Royal Assent tenants will pay on the lower scale of market value, reduced by the elimination of the tenant's over-bid, but until then they will pay on the higher basis which the Lands Tribunal has found that the 1967 Act meant and intended.
Therefore, there will be this arbitrary difference between the two categories, based as far as I can see on no more solid or satisfactory ground than the incompetence of the Government in failing to get the matter in accordance with their present view when they formulated the 1967 Act. It is difficult to see that this new Clause represents anything other than a pattern of muddled intention and bungled execution. Quite apart from the broader questions of the principle by which leasehold enfranchisement should be valued it seems to be a condemnation of the efficiency of the Government through the legislation which they present to the House.
§ Mr. S. C. Silkin (Dulwich)
I would like to begin by congratulating the Government most sincerely and heartily on acceding most promptly to the representations made by hon. Members representing leasehold constituencies on this side of the House and also to the representations made by hon. and right hon. Members on this side who have much experience in these matters.
I will not follow the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) through the decision in the Custins case. That decision has never been appealed; it may be right or wrong as a matter of law. 742 I am not concerned with that, but with the fact that the effect of the decision is to break a principle enshrined in the White Paper, namely, that the bricks and mortar belongs to the lessee and the land belongs to the lessor.
It is quite evident, whatever way one construes the Custins decision, that some part at least, possibly a substantial part of the bricks and mortar value, must be enshrined in the merger element which the Lands Tribunal in Custins case decided should be a part of the compensation payable to the lessor.
Secondly, and here I touch upon a point raised by the right hon. and learned Member, it seemed that one of the mischiefs of the decision in the Custins case, and I pay full tribute to the President and members of that Tribunal, was the fact that is has stirred up considerable doubt as to what the compensation should be. It has left a large gap in the form of this merger element which enables any tribunal to have a wide discretion, not governed by any clear principles, between the highest and the lowest possible figure for compensation. For that reason, as well as the conflict with the White Paper, it seems most important that this matter should be clarified by the removal of the marriage element altogether.
The right hon. and learned Gentleman said that the decision was a correct one and referred to the methods of interpretation of which any court must make use. I quite agree that it may well be on those methods of interpretation the decision may have been a correct one, but I am certain that if the Tribunal had been enabled by the law relating to construction of Statutes to have regard to the provisions of the White Paper and what was said in this House, it would certainly have come to a very different decision. The decision it came to was obviously one taken on a balance of considerations.
It is all very well for the right hon. and learned Gentleman to criticise the Government for what he described as a failure in drafting, but throughout the whole proceedings in this House, in debates in Committee and on Report, when we have the benefit of the presence of eminent lawyers such as the right hon. and learned Gentleman, the hon. Member for Crosby (Mr. Graham Page) and others, not one hon. Member was under the impression that the compensation 743 would include the factor which the Lands Tribunal decided it ought to include on the interpretation of the Custins case.
§ Mr. Silkin
I was speaking about both the Committee and the Report stage. I was a member of the Committee, where we had great assistance from the hon. Member for Crosby and other hon. Members. No one thought for a moment that the Custins decision would do something to anticipate any future legislation.
§ Mr. Reginald Eyre (Birmingham, Hall Green)
The Report stage on that Bill, as also on the Bill dealing with the Land Commission, was taken in the early hours of the morning. These Clauses were dealt with by only very brief introductions by the Minister.
§ Mr. Silkin
I must protest. Hon. and right hon. Members had every opportunity of observing this point and putting it right, but not one of us was able to anticipate it. I do not blame any hon. Member for that, but it is a fact and the Government cannot be blamed any more than the rest of us can be.
While I congratulate the Government on the basic principle of what they are doing, which will be much appreciated in constituencies such as mine with a large leasehold element in them, I am not wholly satisfied with the existing wording. It seems most important that we should not a second time leave a loophole, the first time being an inadvertent one. It seems that the position is that when one calculates the price payable in accordance with the terms of Section 9 of the 1967 Act one has to presuppose that there is a hypothetical sale in the open market.
As I see it, the significance of the Custins decision is not merely that there is a possibility that the tenant may be the purchaser, but also and perhaps more significant there is the possibility that the purchaser will say that the sitting tenant at some time in future may wish to buy the freehold and, if so, he will pay an enhanced, price for it simply because he wants the security of the bricks and mortar. Therefore, that hypothetical purchaser in the open market will pay more and the vendor will ask more because of the possibility that the lessee may want 744 to buy. By merely confining the Amendment to the possibility of the tenant seeking to buy, one is not dealing with the whole problem. One ought also to deal with the problem of the purchaser having in mind that in future the tenant may wish to buy the freehold reversion.
The Amendment in the names of the hon. Member for Crosby and others raises the useful point that the same possibility might arise as a result of other persons with an interest, such as members of a tenant's family having the same kind of interest. This is a very difficult matter to draft. I have tried and I have reached my twelfth draft which I should be glad to hand to my right hon. Friend in case it would help him. This matter might be looked at again and perhaps in another place a form of words could be devised which would avoid any possibility of another Custins case and the need for further amendment. I congratulate the Government on taking this extremely prompt action, which will be appreciated by all leaseholders.
§ 7.45 p.m.
§ Mr. Rossi
I do not wish to congratulate the Government on bringing in this Clause—not that I do not think it should be on the Statute Book—but there is no congratulation to be given to the Government for having to bring it forward at this date, so long after the original Act was put on the Statute Book.
It is no good the hon. and learned Member for Dulwich (Mr. S. C. Silkin) saying that there was no criticism of Clause 9 when we were in Committee. Allow me to refresh his memory. I have the full OFFICIAL REPORT Of the Committee on the Leasehold Reform Bill with me. Certainly, I and a number of my hon. Friends pointed out clearly on 27th April, 1967, that unless Clause 9 was radically amended it would cause a great deal of trouble and uncertainty.
If the hon. and learned Gentleman wishes to have the reference, he will find it in column 408 onwards of the OFFICIAL REPORT for 27th April, 1967. He will find there in remarks I made—which I shall not weary the House with again nor have the impertinence to read the speech I then made, which lasted for three-quarters of an hour—dealing precisely with the kind of difficulties we would get into over Clause 9.
I said that if we left the Bill as it was drafted we would create a great deal of 745 uncertainty. Certainly, no layman would be able by looking at the Act to work out what a freehold would cost him before he served his notice. I asserted that it would be necessary for him to get professional advice to try to understand the meaning of that Clause, and even when he got it it would be very doubtful whether he would be much the wiser.
I made direct reference to Parry's Tables because the Parliamentary Secretary, in that debate, suggested that it would be very simple to work out the effect of Clause 9. He suggested that all that valuers would have to do would be to get Parry's Tables and run their fingers down the line of figures, then out would come the price. I suggested that he could not find valuers who would agree to give in any one case what the value of a particular freehold would be.
§ Mr. S. C. Silkin rose—
§ Mr. Rossi
I will not give way. I did not interrupt the hon. and learned Member, although I was tempted to do so, as I was irritated by the remarks he made and his allegation that we failed to challenge this in Committee. I wish to continue my speech.
On that occasion I went on to give an example of the way in which it was possible for valuers to vary so differently in their views, by referring to a High Court case which went to the Court of Appeal and then to an official referee, where several of the eminent valuers in London were concerned. There was a difference in price between £70,000, on the one side, and £100,000, on the other—a difference of £30,000 on one property.
The Parliamentary Secretary will remember that even after the Act had been passed I was in considerable correspondence with him and his Department, saying that Section 9 was not working, precisely for the reasons I mentioned in the Committee, that it was uncertain and incapable of clear interpretation. I wrote to him with an example of a case in which, under the Section, there was a variation between valuers, as between a freeholder and a leaseholder, of £1,500, on one side, and £5,000, on the other. I asked then, within months of the Measure being enacted, that he should introduce legislation to correct Section 9. He told me in reply that he was sorry, 746 but this must now be a matter of interpretation for the courts.
We have all seen the way in which the Lands Tribunal has interpreted the language the Government chose to use, against the advice of hon. Members on this side. This is not a matter for congratulation. When we are told that thousands upon thousands of leaseholders will now be delighted, I suggest to hon. Members opposite that they consider the uncertainty and anxieties that they have created in the minds of leaseholders up to now because they would not accept our advice.
Our arguments were not purely negative. We did not simply say that the Clause would not work, that it was vague and would cause difficulties, and that laymen and valuers alike would not be able to understand it. We said all that, but we also said a bit more. We tabled two Amendments setting out an alternative method of valuation—
§ Sir Barnett Janner (Leicestetr, North-West)
On a point of order. Is the hon. Gentleman really dealing with the Amendment? He is talking about valuations, but he is not directing his remarks to the one question about valuations with which we are now dealing. He is talking about an entirely different subject, as he knows very well.
§ Mr. Deputy Speaker (Mr. Sydney Irving)
Order. I think that the hon. Gentleman is seeking to illustrate his point. He is going rather wide of the Amendment, but I shall allow him to continue.
§ Mr. Graham Page
The Amendment deals with the valuation of leaseholds. I thought that my hon. Friend was sticking strictly to the point, in discussing that valuation. He had been accused by the hon. and learned Member for Dulwich (Mr. S. C. Silkin) of not having raised the matter in Committee, and he is entitled to answer that accusation.
§ Mr. Deputy Speaker
Order. I have not ruled the hon. Gentleman out of order. It will be better if the debate continues and I am allowed to determine whether the hon. Gentleman continues to be in order.
§ The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. Arthur Skeffington)
I would be grateful if the hon. Gentleman could show which of the Amendments, which I do not recall, went to the issue of the marriage of the interests, which is the substance of the Amendment.
§ Mr. Rossi
The hon. Gentleman well knows that the Amendments were based on an entirely different principle, which he accepted at the time. They were based on equity and would have worked fairly if he could have conceived an administratively convenient way of introducing the principle.
The debate ranged purely on such matters of detail. Each of the administrative obstacles the hon. Gentleman set In the way of that very simple proposition was dealt with and answered fully, and at the end of the debate it became quite clear that the minds of Ministers and hon. Members opposite were shut tight. They were not prepared to be receptive of new ideas. They were obsessed with their principle and fondly believed that their wording would carry the principle into effect. We told them that it would not, and time has proved this.
If they had not been blinded by their own bias in the matter and were prepared to act equitably between the freeholder and the leaseholder they would have listened a little more carefully to what we were then proposing, and they would not be in the present mess. Our proposal was that essentially the interest of a freeholder in a house let on a long lease is purely that of investment. What one must do is to find where one can the price the freeholder originally paid for his interest. In most cases this is possible. One then multiplies it by the extent to which money has depreciated since he paid his money. In that way he would get his money back in tax, and the leaseholder would pay a fair price for his property, paying the immediate investment value.
This principle was accepted as equitable and fair. We were congratulated then by hon. Members opposite for striving hard to find a formula that would be equitable. But because they were so obsessed by their own ideas and were determined to press forward with them, and could not see the difficulties in the 748 way of implementing them, they would not listen to any alternative.
Therefore, they are not to be congratulated. They are to be condemned for their pig-headedness, stubbornness and inability to understand what they are doing when they are legislating. That is the beginning and end of the whole lamentable history of the new Clause.
§ Sir B. Janner
I listened with considerable interest to the hon. Member for Hornsey (Mr. Rossi). He is a lawyer, and I suppose that, like me, he has a considerable number of cases of this kind to deal with daily. I was trying to see how he managed to evade the point at issue. The same criticism applies to his right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith).
We are dealing with an element in the assessment, not with the manner in which various surveyors come to a conclusion on the values. We are here concerned with the fact that the interest or bidding of the sitting tenant must have an effect on the value, however the value is arrived at. We all know that different surveyors have different views as to the assessment that should be made in other respects. I interrupted the hon. Gentleman because I could not understand how he was talking about the point.
The question is whether it was ever intended that the sitting tenant should be one of those entitled to be taken into consideration when a bid was made for the freehold of the property. That is the beginning and end of it. Of course, this is difficult. Laymen realise perhaps even more than lawyers that no Act of Parliament is so perfect that its intention is not disputed in the courts time and again. The Government, in this case, are already seeking a method whereby Parliament's intention shall be taken into consideration in arriving at a decision. Yet the hon. Member for Hornsey (Mr. Rossi) has the effrontery to attack the Government over their action in this complicated matter, which has been made the more complicated because of the attitude of the Opposition.
§ Mr. Graham Page
I do not recall that the hon. Member for Leicester, North-West (Sir B. Janner) was a member of 749 the Standing Committee. Nor do I recollect his studying constructive Amendments put forward from this side in Committee or on Report.
§ Sir B. Janner
I have watched this process very closely and I have dealt with leasehold matters for 30 years and more. The hon. Gentleman, who is a lawyer, knows that what his colleagues have been saying is sheer nonsense. Let them ask those of my hon. Friends who are from South Wales what people thought they would have to pay for the ground rent. It was never contemplated that they would have to pay the sums of money at issue here.
People whose families have been living in the house for 99 years thought that the freehold would automatically come to them on payment of a certain number of years' purchase price of the ground rent which they had been paying throughout that time. To say that the Act ever intended that the tenant should be taken into consideration in assessing the amount he himself would have to pay is sheer nonsense.
It has transpired that a tribunal has interpreted the Act in that way, however. What have the Government done? They have acted immediately. The Opposition cannot complain that the Government are guilty of delay. This Clause is intended to make the situation clear as was originally intended under the Act.
I would like to say something about the assessment of the amount that has to be paid but that is irrelevant at present. I do not recall an Amendment from this side or from the other on the question of whether the sitting tenant should have to be taken into consideration in the assessment. We all agree on this subject, so what is the difficulty? Instead of taking their present attitude, the Opposition should be on their knees and thanking the Government for bringing in something to clarify a situation which we both intended to be clear.
§ Mr. Maddan
It would be a pity if the debate were confined to lawyers and Welshmen. Since I am neither, I thought that I would intervene. The hon. and learned Member for Dulwich (Mr. S. C. Silkin) has told us that he thinks the new Clause also will give rise to difficulty 750 in interpretation. I wonder whether the basis on which the Government have been dealing with the problem of leasehold is the right one.
I want to animadvert to a principle, much contested by the hon. and learned Gentleman, which I put forward in a certain context during various stages of the passage of the Leasehold Reform Act. It is that, if measures are to be taken to relieve a leaseholder, at the time his leasehold comes to an end, of having to pay for the bricks and mortar he has already paid for, there is a much better principle on which it could be done. It has been practised in Letchworth, the first garden city, for virtually the whole of this century so far.
There, when a lease comes to an end or is renewed, it is done on the basis of the site value only, clear of all bricks and mortar on it. That deals simply with the problem which the Government have been trying to deal with and which hon. Members representing Wales have been concerned about. Indeed, hon. Members from Birmingham, London and elsewhere have some sympathy with them. The root of the trouble in which we find ourselves is that, in deciding to tackle this problem, the Government opted for the wrong solution.
§ Mr. E. Rowlands (Cardiff, North)
I am sorry that the hon. Member for Hornsey (Mr. Rossi) has disappeared, because I wanted to take him up on some of the fundamental points he tried to make. In Committee, we had so-called "constructive" Amendments from the Opposition—constructively aimed to increase the amount that the leaseholder would have to pay. They reckon that the valuation we thought we had written into the Act was nothing less than legal confiscation and that the prices would be too low. Let us be clear about this. What the hon. Member for Hornsey and others were proposing would have increased substantially the prices to the leaseholder. That is the simple construction that one can put on their proposals.
I do not recall that the question of tenants' overbid came into discussion in Committee. I am sure that, if the hon. Gentleman had had such evidence, he would have brought it up. I accept the criticism that there are ambiguities and anomalies in the Act and there is no 751 better explanation for this Clause than that given by Sir Michael Roe:Alas, both Houses of Parliament underestimated the ingenuity of lawyers and surveyors.That is why the new Clause has been brought forward.
This should be put not only in the context of the two Tribunal cases, but in the context of what has happened since the Act was passed, particularly in South Wales. The great landlords gathered with their valuers to decide that, on no account, would they be reasonable, although one or two were. It was expected that, under the Act; a price would be offered by the landlord, reasonable negotiation would follow and in most cases an amicable settlement would be reached.
That has not happened. The direct opposite happened instead. Landlords put in exorbitant prices, using fanciful methods of valuation which many of the profession have had to disown and discount. They said to the leaseholder, "We will not negotiate or even suggest a price." There things have stood. The leaseholders were put into a difficult position when they were told that they could take the matter to the Lands Tribunal, because they could be faced with high legal costs. That was stage one.
Stage two was to take a couple of test cases to the Lands Tribunal. Hon. Members opposite praised the decision of the Tribunal as if it were a remarkable piece of logic and a careful, thoughtful valuation of the whole situation. But the Tribunal confused the issue even further. That is why the new Clause has been brought forward.
The Financial Times dealt with this matter on 16th January. It said that in assessing the final stage of the valuation the Tribunal cut the rate of interest from 8 per cent. to 6¼ per cent. to allow for the tenant's over-bid and then reduced it to 4 per cent. The newspaper article said:This somewhat cryptic and esoteric last adjustment has baffled many experts …".Certainly, many valuers are baffled by the Lands Tribunal decision. I welcome the speed and urgency with which the Government have brought forward this new Clause to help leaseholders who are in a state of confusion.
752 I should like to ask one or two questions about the new Clause. Hon. Members opposite are suggesting that a definite rate percentage should be fixed so that a clearer and simpler system of valuation can emerge. Could my hon. Friend the Parliamentary Secretary spell out more clearly the system of valuation which will emerge with the Clause? Valuers should be given a clear idea of the situation in advising leaseholders who are faced with exorbitant demands. Could he also say a word about the inflationary theory? The two test cases appear to have discounted the inflationary theory, but there is no harm in the Government going on record that it is not a responsible and reasonable basis of valuation in terms of this legislation or any other.
If there is to be a reasonable basis of valuation in order to work out the prices of freeholds, appeals ought not necessarily to go before the Lands Tribunal. The Tribunal is not a people's court. It is an expensive tribunal for individuals to go to. The fundamental quarrel between leaseholder and landlord will turn on the valuation of sites. This could be determined by the local valuation tribunal or even by the county court, but certainly not by the Lands Tribunal, which in no sense is a people's court.
§ Mr. S. C. Silkin
My hon. Friend may be aware that in the Custins case the members of the Lands Tribunal in dealing with a matter involving a few hundred pounds visited a large number of comparable properties in North London. To visit properties in South Wales or in Newcastle they would need to travel long distances, at very great expense.
§ 8.15 p.m.
§ Mr. Rowlands
That strengthens the case for the local valuation court or county court dealing with the average case of a difference of opinion between landlord and leaseholder.
It is imperative that it is made clear in all outstanding cases which have not yet been agreed that leaseholders can receive the benefit of the Clause and that it will not exclude people who are now in process of negotiation or in a position of stalemate. We do not want to exclude people whose agreements have not been finally and clearly determined. 753 I wholeheartedly thank the Government for acting so speedily in a matter which has perplexed many thousands of people in South Wales and caused them great anxiety.
Hon. Members opposite have talked a good deal—and I have sympathy with their view—about the owner-occupier, the small man who is suffering from some of the anomalies of the betterment levy. But there has been not one Adjournment debate, not a single question, not one comment from hon. Members opposite about the difficulties and hardships caused to the leaseholder. The leaseholder has suffered not at the hands of the Government, but at the hands of powerful vested interests. It is a pity that hon. Members opposite carry out double standards when it comes to the reform of land and leaseholds.
I hope that this new Clause and the forceful publicity given to the matter of the prices of freeholds in South Wales will lead to the end of the leasehold system and bring justice to many leaseholders in many parts of the country.
§ Mr. Hawkins
I have very few leaseholds in my constituency, I am not a Welshman and I am not a lawyer; I am a valuer. I want to mention the matter of the principle of valuation. As one who has appeared before the Lands Tribunal, I wish to make it clear that the tribunal is composed of exceptionally able men who are doing a first-class job. It is not expensive to appear before the Tribunal, and in most of these cases one does not want to clutter up the county court or other courts. The hon. Member for Cardiff, North (Mr. Rowlands) referred to people's courts. I do not know what they are.
§ Mr. E. Rowlands
May I correct the hon. Member? I did not say that there was a court called a people's court. I said that the Lands Tribunal in no sense of the word could be described as a people's court, whereas many people think of the county court and the local valuation tribunal as a popular court before which they can go for a decision.
§ Mr. Hawkins
I have never heard of people's courts outside Russia. But that is beside the point. The Lands Tribunal is doing a first-class job, and it is reason- 754 ably cheap to appear before it, as I myself have done.
The hon. Member for Leicester, North-West (Sir B. Janner)—I may have misunderstood him—made the point on the Custins decision that the tenant was a bidder in the open market and that it was not a matter of the principle of valuation.
§ Sir B. Janner
The hon. Member has misunderstood what I was saying. I was saying that we are today discussing whether or not the tenant should be considered as a bidder. Whatever conclusion they came to, the position obviously needs remedying.
§ Mr. Hawkins
I understood the hon. Gentleman to say that the tenant should not be considered.
This principle is enshrined in other legislation. It is enshrined in agricultural legislation—and the Secretary of State for Wales can confirm this point with his Welsh colleague the Minister of Agriculture—whereby the arbitrator must take into account the sitting tenants bidding in the open market against other tenants. In the case of a farm protected by security of tenure, the valuer must take into account the fact that the sitting tenant will be a bidder against other people in the open market. He will not pay as much as he would pay for vacant possession, but he will pay something between investors' value and vacant possession value. I should have thought that no valuer would believe that Parliament wished to enshrine some other principle.
If Parliament wants to give something to the leaseholder, I do not mind. But, as a matter of principle of valuation, it goes contrary to a lot of legislation in which this principle is enshrined. The Lands Tribunal is the right court to deal with these difficult matters. We should not clutter up other courts, which have so much work to do, with difficult technical matters of this sort.
§ Mr. Roland Moyle (Lewisham, North)
I confess that I am a Welshman, although I have not lived in Wales for a number of years. I must also confess that I am a lawyer, but I have not practised law for a number of years. I therefore hope that the House will forgive me if I dilute the somewhat heady brew on which it was fed earlier.
755 I add my congratulations to the Government on seeing fit to introduce the new Clause. It is fair to point out, however, that this subject was first raised with the Government by a number of my hon. Friends and myself. I am only too happy that the Government have seen fit to realise the wisdom of our representations and to act in this way.
This amendment of the Leasehold Reform Act is needed to ensure that justice is done in a number of cases. The principle of allowing leaseholders to buy their freeholds is important only in so far as the right price can be arrived at, because with the pressures of land speculators on property markets it is conceivable that unless we watch this problem with particular care we could concede the principle of leasehold enfranchisement and find it frustrated in practice because prices are too high as a result of market pressures. Therefore, the new Clause is important.
The new Clause is necessary also because justice must be done to a number of other interests. The Government are not to be blamed for overlooking the point about the marriage value in the assessment of the freehold price. They were not alone in this. The Crown Estates Commissioners, who have a large number of leasehold estates and a considerable amount of legal advice at their disposal, have been endeavouring to operate the principle of leasehold reform. They are not bound directly by the Act and have sought only to apply its spirit. The result of their operations in my part of London was that they did not include the element of marriage value in the prices at which they offered their freeholds during the pre-Custins sales which they were making. It is important to bear this in mind.
§ Mr. Moyle
My hon. Friend is correct in referring to St. John's College, Oxford.
Another point is that before the Custins case, in attempting to apply the spirit of the Act, the Crown Estates Commissioners were not including the marriage value element in the sale of the freehold. After the Custins case, unless a proposal of this sort were accepted, 756 they would probably have to include that element. There is a large Crown Estates Commission estate in my area in South-East London which has been divided by the Commission into four areas for the purposes of enfranchisement. They started in the constituency of my hon. Friend the Member for Woolwich, West (Mr. Hamling) and they enfranchised a number of freeholds there. By the time they got to my constituency they would have been enfranchising on the basis of the marriage value. From that point of view, this Amendment is essential and the activities of the Commissioners point to the artificial element in the Lands Tribunal's decision in the Custins case.
Justice must be done in other cases. First, there was a tremendous amount of uncertainty. Given the approach which the Commissioners had been making, the only advice which I could give to leaseholders when the Custins decision was reached was, "I must see the Government to find out whether we can get this decision amended out of the valuation of freehold. You must take no action until you hear from me". They took my advice, but they have waited for five or six months in considerable uncertainty. Uncertainty is not justice. The new Clause will remove the uncertainty.
The right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith)—I regret he is not present—begged leave to doubt whether the removal of the marriage value in the purchase of the freehold would do very much in terms of price to alleviate any financial commitments into which enfranchising leaseholders might have to enter. We have carried out an exercise in my area and amounts of £200 or £300 on small terraced and semidetached suburban houses are the normal variation as a result of the Custins decision. The valuers of the various estates approached the freeholders and negotiated prices for the freehold in the London area before the Custins case.
After the Custins decision, they had to go through the exercise of valuing the freeholds in the post-Custins era. In every case there was a difference of £150 to £300 in respect of small suburban semidetached and terraced houses. Perhaps the right hon. and learned Member for Hertfordshire, East, thinks that this is 757 not an important financial problem, but when one has reached the stage of finding it difficult to take out a mortgage and pay it off before retirement, sums of this order are of considerable importance. For this reason, too, I welcome the new Clause.
We had a very rumbustious contribution from the hon. Member for Hornsey (Mr. Rossi). I do not know whether he thought that the fame of his contribution would be carried to the delegates to the Conservative women's conference, but it was sauced by a certain amount of political passion which entertained us greatly. He greatly entertained us by quoting from the proceedings of the Leasehold Reform Bill in Committee. We on this side of the House know what the hon. Member for Hornsey was doing; he was going through the routine opposition noises which are uttered whenever new legislation is introduced on technical matters, and particularly technical matters relating to land law.
The Opposition have a battle drill, in which they talk about the complexities and difficulties which the profession and laymen will have in understanding the legislation. On such an occasion this sort of generality serves as good ammunition. If he thought that his fame would carry back to the delegates of the Conservative women's conference, I am happy to say that he has earned his bread and butter on this occasion.
The hon. Member made other points about the valuation of the freehold which were perfectly valid, but he knows as well as we do that valuation is an inexact science—
§ Mr. Moyle
I quite agree; it is not a science, but we all know that valuers of good will sitting down with Section 9(1), as amended or unamended, can in most cases arrive at figures which are sufficiently close to allow a certain amount of horse trading to take place over the final £200.
My hon. Friend the Member for Cardiff, North (Mr. E. Rowlands) urged the Government to make it clear to valuers what was required, and my hon. and learned Friend the Member for Dulwich (Mr. 758 S. C. Silkin) said that he was still not happy about the wording of the Amendment. Let us try to get the wording correct. If I remember the text books on the construction of statutes, deeds and documents over which I pored in my youth, debates in the House of Commons are not a source from which evidence can be adduced on the construction of Acts of Parliament. The advice of my hon. Friend the Member for Cardiff, North, therefore, even if it is followed, will not solve the problem. If there is the slightest doubt about the wording, I urge the Government between now and the time when the Bill goes through another place to make sure that the wording is watertight.
§ Mr. J. Silverman
May I briefly add my congratulation and commendation to the Government on yielding to the representations which have been made on this matter by many hon. Members including myself.
The debate has taken a rather curious course. It has not been a debate on the necessity for the new Clause, but on whether it has been correctly drafted. The whole weight of the discussion has been on the drafting and not on the merits of the new Clause. Hon. Gentlemen opposite who oppose the Bill and the whole principle of compensation have been arguing simply on the draftsmanship. I do not think that it matters very much. Mistakes of drafting are made. Governments obtain the best information available from valuers, lawyers and draftsmen but may nevertheless make drafting mistakes.
Many people thought that the decision in Hearts of Oak v. Custins was a most extraordinary decision and one which could not be and was not anticipated. Leasehold is not a matter exclusively for Wales. In many places in my constituency and in London sales have been made.
My hon. Friends have mentioned the Crown Estates Commissioners and St. John's College, Oxford, but leaving them aside many sales have been made by substantial estate agents in anticipation of statutory notice which had not been served, and prices were offered which were not upon the basis of the Hearts of Oak v. Custins decision, that is, upon the basis of marriage value. The moment the Custins decision was made there was 759 a reversal of attitude, a complete log jam and negotiations did not proceed, therefore welcome the new Clause, which will put this matter right.
I have spoken at meetings of hundreds of people in Birmingham, not merely my own constituents, and they welcome the provisions of the Act and look forward to being part of the property-owning democracy which we hear so much about from the other side. The Custins decision came as a blow to them.
I hope that the Government will listen carefully to my hon. Friends who have said that the wording should be looked at closely, and that they will not underestimate what was called in the Custins case the ingenuity of lawyers and surveyors to subvert the intentions of Parliament. It is our job to pass legislation, and a decision which does not carry out the intentions of Parliament should be altered.
I hope that the Government will seriously consider introducing a local lands tribunal. There are still many landlords who are trying to be obstructive. There are many obstacles in the path of a tenant if he does not get his lease by negotiation. When the statutory notice is served under the Regulations he can be requested to pay a deposit of £25 before any price is agreed, before he knows whether the landlord is prepared to sell. That is obstacle number one. Then, if the landlord asks a completely unreasonable price, the only remedy he has is to go to the Lands Tribunal, a prospect of expense most formidable for a man of modest means. In most cases we are dealing with such men. He will hesitate for a long time before challenging the landlord.
My hon. Friend should seriously consider the suggestion that has been made. Perhaps the county courts, sitting with an assessor could do something about valuation, but after this I am a little doubtful about whether a county court judge might not be better off without an assessor who is a valuer. Maybe a valuation panel could deal with it. At any rate, a local tribunal is needed. It is important to hundreds of thousands of people that this should work.
§ Mr. Graham Page
I agree with the hon. Member for Birmingham, Aston 760 (Mr. Julius Silverman) in his plea for a simpler court to deal with these sort of cases. The Lands Tribunal is a very fine court. It studies the cases which come before it with great care, but there is no doubt that Custins case took a very long time to come before the court and it was a long time before a decision was reached. What is more, such cases have to come before the court without any legal aid. The application of legal aid to the Lands Tribunal might be of some assistance, but I would like to see perhaps a lesser tribunal with an appeal to the Lands Tribunal. That would be some protection against a wrong decision. Perhaps a more junior tribunal is required.
This new Clause shows up this point very strongly. It has taken all this time for a decision to be reached by the Lands Tribunal, and many of us have almost been sitting on the doorstep of the Lands Tribunal waiting for a decision so that we knew how to advise our clients. It is humbug to say that this was due to a misunderstanding, that it is just a little correction which has to be made. I totted up the number of columns of discussion on Clause 9. There were 94 in Committee and 19 on Report. Altogether something like six or seven hours of discussion were taken up on Clause 9.
The Government cannot say that the rules as to compensation under Clause 9 were not fully debated and that there was not full opportunity for the Government and their advisers to consider that part of the Bill word by word. For that reason I dislike being classed with the Government in the comment in Custins case by the Lands Tribunal:Presumably someone persuaded the majority of both Houses of Parliament that these pro-visions"—this is referring to Section 9—provided a reasonably clear basis of valuation.We said again and again from this side that they did not provide a clear basis of valuation.
It cannot be said that the sitting tenant was not fully considered in those debates. It confuses the issue slightly to talk about the marriage value. This is not clearly understood by everyone. It is understood by those of us who have to deal with this sort of thing; we are talking about the value of freehold and leasehold-interests combined. The two are worth 761 more together than if each one were taken separately and their values added together. All that Custins case said was that as Section 9 is drawn we have to consider what the freehold is worth to the tenant. I would ask some of those who have spoken to read the Report stage of that Bill, because the Amendment which I moved then was exactly on this point.
I wanted the valuation on the basis of what the property was worth to the tenant. I will not argue that again now. I lost the argument then, and I thought that the value to the tenant would not be considered. I did not think that Custins case would be decided as it has been because I thought that I had lost my argument. But I feel considerable resentment that the hon. and learned Member for Dulwich (Mr. S. C. Silkin) and the hon. Member for Leicester, North-West (Sir B. Janner) should say that this was not considered at any stage in the Bill. On Report I moved an Amendment which sought to value on the basis of Section 5 of the Land Compensation Act, 1961.
Surely it is common knowledge that when one values on that basis one takes into account what a property is worth to the tenant, even what it is worth to a neighbour. In a little booklet issued by "Justice" recently this was drawn attention to as being common knowledge. It said:We have in mind cases where additional value is given to land because a neighbour might be prepared to pay more than others for that land in order to extend his premises. We believe that the rule should not apply to this sort of situation, and to others where a market for the land, however limited, could be shown to exist outside the needs of the acquiring authority. We consider that a rewording of the rule is necessary in order to remove any doubts.
§ Mr. S. C. Silkin
The hon. Gentleman misunderstood what I was saying, and therefore his resentment is unwarranted. I thought that I had made it plain that no one in this House anticipated that the Bill, as it was drafted, would lead to the result in Custins case. I understood that the hon. Gentleman said the same thing and that that was why he moved his Amendment.
§ Mr. Page
Yes, but it is the responsibility of the Government, when this sort 762 of circumstance has been drawn to their attention, to see that the Act is right.
The Secretary of State for Wales has put forward the Amendment as if the principle was not considered at all. I am not prone to quoting my own speeches, but after the accusations which have been made I feel that I must. In moving the Amendment, where I wanted the House to look at what the tenant was getting and not what the landlord was selling and that the compensation should be based on what it was worth to the tenant, I said:It is not fair even on that principle, because it considers only what is being taken from the landlord and not the asset which is being acquired by the tenant.Then I said, as regards the tenant:He gets the freehold of the land and the bricks and mortar with it. He is put in the position, if he so wishes, to let that property on a further long-lease and at a modern ground rent … We are looking to the point that the tenant is acquiring something by taking the freehold; we are not looking to the value of the asset which the landlord is losing so much as the value of the asset the tenant acquires."—[OFFICIAL, REPORT, 20th June, 1967; Vol. 748, c. 1481.]I turned it round in various different ways. I drew the Government's attention to the fact that that Amendment would have obliged the tenant to pay what it was worth to him. That having been drawn to the attention of the Government, they should have realised that perhaps there was something which ought to be corrected in the Clause as it stood.
It is not the responsibility of the Opposition to put the Government's Clauses right. But now that we have got them all wrong in this legislation, the Amendment draws attention to a number of other matters which are in doubt as the Clause is drawn. If the Government had chosen to use the law as it stands instead of drawing a new Section 9, we would not have had this trouble. Having drawn it, they left all these doubts and if it is wrong in one respect it may be wrong in others.
We do not want the Government to come back with a new Bill every time. As a consequence, we are being generous and saying in the Amendment, "If you find more doubts, bring them forward on a Statutory Instrument". These are the sorts of doubts which one can clearly see from reading Custins case. In the Custins case the Lands Tribunal seized out of the air various figures, percentages 763 and so on. Nobody knows whether those are going to be applied in other cases, so it might be as well if the Government thought about whether they should a few more assumptions to Section 9 to make certain in the future; for example, the assumption as to the annual percentage decrease in the value of money by inflation. In Custins case, they refused to take inflation into account, but at the end of the case they said that the case must be taken only on the facts of that particular case and that it was not a precedent; so what are we to take into account in future for inflation? This would make a very big difference in value. The taxation element was partly taken into account in Custins case. In other cases is it going to be taken fully or partly into account or not at all?
A point which arises, not out of the Custins case but on the new Clause itself, is one which the Government should put right right away—the existence of members of the tenant's family as possible successors or as prospective buyers; because all one is doing in the new Clause is excluding the tenant himself. It may be very valuable for his wife to be in the market or not in the market. We have to consider that. The number of years' purchase and the rate of interest applicable thereto in the calculation of the capital value of the ground rent, the number of years and the rate of interest applied to the deferred value calculated from modern site value—these are figures for which some percentages were taken in the Custins case, but whether these are to be precedents in future cases we do not know. Next, there is the development potential of the property and landlords' rights required by the section to be taken into account; the right of the landlord to take the property back for development purposes when there is a long lease. All these things should be settled.
I am not wedded to the wording of this Amendment, but I believe that the Government should take power to amend Section 9 by order, proving that order comes before the House for debate, because there may be hardship again in other cases.
Finally, I want to draw attention to the fact that these mistakes in legislation do cause not so much hardship as in- 764 justice and unfairness between citizen and citizen. One never knows whether or not to make these provisions retrospective. Where does one draw the line? Someone has had to pay something in the past which, if it happened now they would not pay in the future. It is extremely difficult to know where to draw the line. In the Custins case the figures were not large. The landlord claimed £650 and the tenant said the right figure was £206. The Lands Tribunal said it should be £500.
Those are not big figures, but there will be some resentment, by Mr. Custins himself, for example, and others who have paid on the basis of the Custins case on finding that in future anyone under the same circumstances is getting away with it for £206 instead of £500. I do not know whether the Parliamentary Secretary could give us any assurance on how retrospective this is to be. It would be helpful if he could, and it would be a very great help if he could tell us whether the Government will take powers to amend Section 9 in other respects as well.
§ Mr. Skeffington
We have had a very interesting debate and I would like to thank the hon. Member for Crosby (Mr. Graham Page) for the very moderate way in which he has moved his Amendment and greeted the Government's new Clause. He was not exactly enthusiastic for it but he seems to see that there is a definite need for something to be done. He was more generous on this occasion than the hon. Member for Hornsey (Mr. Rossi), who damned the Clause and endeavoured to suggest that he had foreseen this decision when he moved his own ingenious proposals in Committee on 27th April.
Because I always like to heap coals of fire if I can, I welcomed the hon. Member's attempt on that occasion to put the matter right, although I note that I then said, and he agreed with me, that in many ways his proposals would make the assessment of the enfranchisement price even more complicated than would the process of normal valuation. It involved trying to find out what was the original ground rent and its circumstances 70 or 100 years ago, or whenever it may have been.
The hon. Member also had to admit that his ingenious scheme—and it was 765 ingenious—would have been on a quite different basis and the tenant would have paid a good deal in most cases—would still have left many enfranchisement cases which could not come within the ambit of his proposals.
I put it to the Committee, and I must put it on record again, that if we are trying to have the simplest form of valuation—and these valuation points are not simple—it does not help to have two different bases of valuation in the one Bill dealing with the one point. It was for that reason, and not on doctrinaire grounds or because we were not prepared to look at other solutions, that I recommended the Committee to reject the proposal.
The right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith), who apologised for having to leave, said that it had either been the failure of the Government to communicate their intention, or the intention in the legislation was wrong. That is a point which can always be made by any hon. Member in opposition about any change which the Government propose to make in anything. The right hon. and learned Gentleman was wrong. What Parliament can do, as any Government can, is to frame its legislation as carefully as it can, but, as I have said again and again, these valuation points are very difficult and the courts or the Tribunal must be left to interpret them, and the principle often cannot be interpreted until there is a precise case.
It would make life much simpler for all of us if we did not have to do this—if we could foresee all the many interests connected with the relationship of landlord and tenant in leasehold law, and if we could foresee all the cases and, in a Schedule, cover every possible contingency, which is what the hon. Member for Crosby is suggesting. If that could be done, life would be simple, but it cannot be done and we have to abide by the practical test of these matters when particular cases come to be decided.
Secondly, the right hon. and learned Gentleman and one or two other hon. Members opposite assumed that what the Lands Tribunal decided in this case was obvious and clearly followed. The Tribunal did not say that. It hesitated for a long time before finally deciding that the tenant should be considered as a bidder in the market. It said that the able advocate for the tenant had made a formidable argument. What Mr. Fay 766 said on that occasion was that while there was a reference to a willing seller the fact that there was not a reference to a willing buyer was a clear indication that the tenant was to be excluded. The landlord's advocate took the other view.
If the matter had gone elsewhere, there might have been a different decision. It was by no means certain, and it could not have been certain after the arguments, that the Tribunal would come to whichever decision? In the end, it decided that on the whole, as the provision was not clear enough in its view, it would give the benefit, as it were, to the landlord. The decision could easily have gone the other way, so it does not very much help to suggest that it was something that could have been foreseen.
Like many other hon. Members, I was very surprised at the decision because in paragraph 12 of the White Paper we have stated very clearly that the basis should be that the house belonged to the tenant, who had bought it or paid for it, and that the land belonged to the landlord. Paragraph 12 states:It follows … that … the fair price for enfranchisement will be the value of the freehold interest of the site, subject to the lease and its extension of 50 years. This will completely"—completely—disregard the value of the buildings on reversion.As far as we could, and with the help of our advisers and others, we constructed Section 9 of the Act in that belief.
The very fact that the Act itself gives a compulsory right of enfranchisement is bound to affect the market concept. We have the market concept because, as most technical people agree, it is the easiest and fairest way of getting the interest of the landlord assessed in the land. Nevertheless, the Act is bound to affect the concept. It therefore seemed odd to many of us that this decision should be arrived at since a compulsory right was given to the tenant, thus making him secure even if he did nothing else, because he would still get a 50-year extension.
What has been argued by many technical people and specialists, with whom I respectfully agree, is that the tenant might well be willing to pay less for his freehold because he has security. It is said that the main reason for getting the 767 freehold is to gain security, but that the Act gives him that security even if he does nothing, because he gets the extension. In those circumstances, the decision came as a great surprise to many people. Although I followed with considerable admiration the reasons given for the decision, I know that it did come as a great surprise, that within the context of the Act, the tenant should be considered to be a bidder in the market, and should pay so much more.
I do not wish to say more on the valuation point, though it is important, but it seems very difficult to admit the principle of the tenant being a bidder in the market and there thus being an extra value without bringing in bricks and mortar. But bricks and mortar were the things that were to be excluded on the basis of the White Paper and of the legislation.
The hon. Member for Hornsey spoke of two valuers reaching different figures. All valuers always reach different figures when they start—and each has to do the best he can for his client. As one very distinguished valuer, and an ex-Member, once said. "Broadly speaking, this is common sense buttered up with hunch and hearsay". But it makes it very difficult for parliamentary draftsmen, the Government and all concerned to frame in precise statutory form the particular circumstances that have to be taken into account in reaching a decision.
If I may say so, the hon. Member for Norfolk, South-West (Mr. Hawkins) was wrong in his reference to agricultural tenants. In those cases, as far as my memory serves, the tenant is never a bidder for the freehold: he is a bidder for the lease. The parallel drawn by the hon. Gentleman does not seem to be right in this case.
Faced with this situation, the Government have introduced the new Clause. I have taken careful note of what was said about the wording by my hon. and learned Friend the Member for Dulwich (Mr. S. C. Silkin). I am sorry that he should think that it is still defective, but I agree, as does the hon. Member for Crosby, that between now and the Bill's progress through another place we must do what we can to get this point right. Tremendous care has already been taken, and, as one always does, we have had a 768 good deal of advice on the subject both inside and outside the House. I give the assurance that we will look most carefully at this even now to see that it will do what we want to do, namely, to exclude the tenant from being considered a bidder in the market for a house for which he has paid for or inherited.
My hon. Friend the Member for Cardiff, North (Mr. E. Rowlands) made a number of interesting points, to some of which I should like to reply. I have already mentioned the difficulty about these valuation points. If this were relatively simple we would not have the valuation point in rating Act after rating Act. By the Amendment we shall, under Section 9 of the Act, add merely two elements which the court will have to consider. First, the value of the existing ground rent reserved under the original lease for the balance of the unexpired term. Secondly, the value of the site at the expiration of the original term, subject to the right of the tenant to his 50-year extension.
The value of the existing ground rent is normally found by capitalising the annual payment. There are a number of factors that can be taken into account. The value of the site is decided by the Tribunal on current market value basis suitably deferred. If there is a period of 40 years before one can get on the site, that factor must be taken into account in making the value of the site less valuable and the purchase price to the tenant less high than it would be. Those two elements are clearer than before, and they will be the main elements which the Tribunal will have to consider.
Others of my hon. Friends mentioned inflation and tax. In Custins case the Tribunal was firm in its opinion that most valuers agreed that it was impossible to make calculations which would take into account the value of money 30 or 40 years ahead. In the same way, the Tribunal turned its face carefully against the factor of allowing for taxation.
§ Mr. E. Rowlands
Would my hon. Friend say that the key point, other than the stages which he has outlined, is the rate per cent. at which one comes into the calculation? This seems the all-important question. Will my hon. Friend advise the House on this matter?
§ Mr. Skeffington
This is a factor which is and always must be taken into account. Whether the Minister ought to take powers under the proposed Amendment, by Order to specify these and then presumably to alter them from time to time is a major question to which I should like to devote a good deal more thought. This point is apposite to my hon. Friend's intervention.
This is a most unusual Amendment coming from the Opposition, and particularly from the hon. Member for Crosby, because he is always so fussy and careful about giving no power to the Minister to do anything. Yet he apparently gives him power to alter the rate of interest, the period, and the way in which it is calculated. It is the most comprehensive power ever given to a Minister about anything, and it is to be done by Order.
§ Mr. Skeffington
If we have to add any further qualifications to the new Clause in another place, I hope that the hon. Gentleman will prevail upon his hon. Friends to support any Amendment we may make to avoid any mischief which, sarcastically or otherwise, might arise.
I think that it would be very difficult for the Minister to have this power. With the framework that we have, and because of the experience that it has, we think that the Tribunal is particularly apposite to deal with this matter. That being so, this becomes a far less important factor than it would have been. I was asked when the new Clause would bite. The answer is that it will bite on all cases which are not settled by the time the Bill becomes law. That is as far as we can go now.
The great difficulty which arose from Custins was not that the leaseholder paid more than everyone intended he should pay. He has got a very good bargain, even so. The mischief—and I have evidence of this from a number of sources, some of it provided by hon. Members on both sides—is that landlords are holding out for higher prices—as my hon. Friend the Member for Cardiff, North said, in some cases this amounts to about £200—ever since the Custins case.
My hon. Friend the Member for Lewisham, North (Mr. Moyle) said that 770 47 cases had been prepared by a valuer, and that in each case there was a substantial addition to the price merely because of the Custins decision. But, what is worse, not only was more being asked for than was thought to be a fair value—the value in the Act and in the White Paper was the value of the site with the house on it, with the unexpired term—but there was no inducement to settle cases because a landlord could say, "If you do not like it, go to the Lands Tribunal".
Several remedies will be open to the lessee in these circumstances, but they may expose him to certain legal risks and costs, and I am sure that nobody would want that. Whatever may be the disagreements about the calculation, the principle of enfranchisement has been accepted by both sides, and having got that agreement, surely what we want to do is to make this as simple as possible and speed up as much as possible the settlement of these cases.
Several hon. Members asked why this work could not be done by the county courts. We examined this very carefully. There would be enormous advantages if the county courts could take on this work. There are a number of these courts, they are well spread, there would be shorter distances to travel, and the expenses involved would be reduced. The expense factor in connection with the Lands Tribunal has been grossly exaggerated in a number of instances but, even so, there would be merit if this work could be done by the county courts.
The fact is, however, that the Tribunal was specially set up about 20 years ago to deal with these matters of valuation in considerable detail, and it has built up great expertise and specialised knowledge over the years. It would be a big departure to say that these valuation points could be dealt with adequately in the county courts.
I think that the suggestion put forward by the hon. Member for Crosby about there being a right of appeal might be a way of considering this matter. I am not making any firm commitment. There can be no such change in this legislation, but perhaps we can consider whether simple valuation points could be dealt with by the county courts with a right of appeal to the Lands Tribunal. It will be understood that I am undertaking no 771 commitment. All I am saying is that these are valid points.
§ Mr. S. C. Silkin
The hon. Gentleman will be aware that the county court is the statutory tribunal for dealing with Landlord and Tenant Act cases and the rent payable for a new lease. There is surely precisely the same kind of compensation action in cases of this kind. The county courts are perfectly familiar with this problem. Is it really such a departure that these matters should go to them, particularly now that the main lines about how these questions should be resolved have already been decided in the two cases before the Lands Tribunal?
§ Mr. Skeffington
I agree with what my hon. and learned Friend says. It might have been better, from the Government's point of view, if those two cases could have been decided by the county court, but when one looks at the arguments and details of them, one realises the expertise of the tribunal, and appreciates that it is something one could not lightly thrust aside. Of course, county courts deal with some of the matters entering into some of the calculations, and do so extraordinarily well.
This is something we will have to look at again in view of the problem which has arisen. The Lands Tribunal occasionally meets outside of London, the Secretary of State for Wales will know about the position there. It does not mean that parties always have to come to London. This is an important point of principle and I would like to think further about it. I hope, as a result of this new Clause, which with one or two exceptions has been well received, will remove what has been an impediment, and that landlords who have been holding up the price of enfranchisement in the hope of getting more will realise now that this calculation is no longer a valid one and that the question of the outstanding cases will be soon settled.
§ Question put and agreed to.
§ Clause read a second time and added to the Bill.