§ Order for Second Reading read.
§ 4.51 p.m.
§ The Minister for Housing and Construction (Mr. Reginald Freeson)
I beg to move, That the Bill be now read a Second time.
The Bill is narrow in scope and its subject matter is technical and difficult. But it is an important, and I would say essential, piece of legislation if we are to preserve the rights of owner-occupier leaseholders under the Leasehold Reform Act 1967.
The need for this Bill arises because a recent judicial decision in another place has shown that an ingenious landlord can effectively evade the main purpose of that Act. For that reason, the Government have moved quickly to introduce this Bill and they attach importance to its speedy passage. I need hardly remind the House that the Leasehold Reform Act is a complicated piece of legislation. On the whole, it has been very successful in achieving its main objective of enabling long leaseholders of houses to buy their freeholds. Many of them have since taken advantage of it.
The Act has not, however, rested entirely quietly on the statute book since it was enacted. As hon. Members will recall, it was necessary to amend it in the Housing Act 1969 so as to change the basis for assessing freeholders' compensation. The Act was further amended in the Housing Act 1974 to increase the rateable value limits which determine what property is within the scope of the Act.
We have also already announced a number of proposed amendments for inclusion in the forthcoming housing Bill which should remove certain anomalies and make the Act a little easier for leaseholders to use. But the loophole which has now been shown to exist in the provisions of the Act is so wide and significant that it clearly merits a separate and urgent legislative remedy.
The arrangement which has been used to exploit this loophole was both unusual and ingenious. I do not think, therefore, that anyone can be blamed for not foreseeing 1288 it. Indeed, it will tax my own ingenuity to explain it to the House with sufficient clarity. In order to do so, I must ask hon. Members to bear with me while I remind them of the principle underlying the Leasehold Reform Act and the basis of valuation which is provided in section 9 of that Act.
The principle—which was clearly stated in the White Paper announcing our original proposals in 1966—is that the land on which a house stands belongs in equity to the landowner who retains freehold and the house belongs in equity to the occupying leaseholder. The chief provision of the Act enables a long leaseholder of a house, who pays a ground rent, to buy his freehold on favourable terms. A long leaseholder also has a second option. He can extend his lease for an extra 50 years, during which time he will have to pay what is termed modern ground rent.
Of course there are a lot of ifs and buts—qualifying conditions and such like—and these are matters which we may well find ourselves discussing in the context of the housing Bill. But for today we need concern ourselves only with the basic principles—the right to have the freehold and the right to have an extension of the lease.
In order to reflect the principle that the land, but not the building, belongs to the landowner, the compensation payable to the landlord by a leaseholder buying his freehold represents the investment value of the land to the landlord at that time. This represents the value of the rent which the landlord is entitled to receive and the value of the landlord's reversion when the lease finally expires. I say "finally expires" because since the Act gives the leaseholder the right to extend his lease for 50 years it also provides that in calculating the price for the freehold it is to be assumed that he has extended his lease for 50 years.
Consequently the price to be paid by a leaseholder has three elements. The first is the present capital value of the existing ground rent for the remainder of the original term of the lease. The second is the present capital value of the new rent for the 50-year extension. The third element, which is not relevant to what we are considering today, is the 1289 present value of the landlord's reversion at the end of the 50-year extension.
So far I have talked only about a landlord and a leaseholder—the resident leaseholder. In many cases, however, there is also an intermediate landlord to be considered—there might even be more than one. This will be someone owning a lease under which he himself receives ground rent from the leaseholder immediately below him, and pays slightly less rent to the party above him. I repeat, he normally pays slightly less rent than he receives. This is a common and entirely legitimate practice, and the Act provides that the price to be paid by an enfranchising leaseholder is to be divided appropriately between all the superior interests—that is, the head landlord and any intermediate leaseholders.
Having thus refreshed—and, I hope, clarified—our minds on how the Act works, we can now look at the case of Jones v. Wentworth, which has given rise to the need for the present Bill. I shall try to put this, too, as simply as I can.
The landlord, Wentworth Securities Ltd., had granted a lease to the leaseholder in possession—a Mrs. Jones. Shortly before Mrs. Jones served notice that she wanted to buy the freehold, the landlord granted an intermediate lease to a connected company—Wrotham Park Estates Ltd.
This intermediate lease was on terms which were peculiar. Initially the intermediate landlord, Wrotham Park, was to pay a peppercorn rent, and he would of course receive the ground rent payable by Mrs. Jones. But if the intermediate landlord were to grant a new sublease of the house then under the terms of his lease, he would immediately have to pay to the head landlord—Wentworth Securities—a full occupational or rack rent.
In this case he would then be paying out a much greater rent than he would be receiving, and the House may well wonder what was the point of such an arrangement. But here it is important to recall that, in calculating the price payable on enfranchisement under the Leasehold Reform Act, one of the ingredients is the present capitalised value of the rent payable for the extension lease.
1290 Section 9 of the Leasehold Reform Act, which sets out the basis for determining the price payable, stipulates that if the tenancy has not in fact been extended for 50 years it is to be assumed that it has. It is this point which lies at the crux of this case. It was held in the judicial decision on appeal in another place that the notice which had been served by Mrs. Jones claiming to buy the freehold was sufficient to trigger off the assumption that a new tenancy, extending the original tenancy by 50 years, had been granted. This in turn triggered off the intermediate landlord's obligation to pay a full rack rent and the head landlord's right to receive it.
The result of this was that the price payable on enfranchisement had to reflect the landlord's entitlement to receive this full rack rent, instead of the ground rent currently payable. Compensation to the intermediate landlord was nil, but the price of enfranchisement to the leaseholder increased from £300 to £4,000—an enormous difference.
Therefore, as a result of the peculiar arrangement that I have described, the price is over 13 times what it should be. It is no exaggeration to say that this result largely defeats the intention of the Leasehold Reform Act. At no time during the preparation of that Act did anyone envisage that someone would be prepared to take on a lease under which in certain circumstances the financial obligation would be so much in excess of the financial benefits.
§ Mr. Donald Anderson (Swansea, East)
Is there any evidence that any other property companies, prior to this or as a result of this, set up similar arrangements, or is this a one-off case?
§ Mr. Freeson
We do not know firmly of any other specific arrangements. This situation has come to light because of the case which I have described. We cannot rely upon that and we judge that at least it is possible that there are a number of other cases. The object of the Bill is to provide for that. We know only of this specific case.
§ Mr. Hugh Rossi (Hornsey)
As this is such an unusual device—almost an ingenious device, as the Law Lords termed it—would we not be entitled to assume 1291 that, as this is the first time that the matter has troubled the courts, it is the first time that someone had the ingenuity to use this device? Surely that is a reasonably fair assumption.
§ Mr. Freeson
I am sure that such cases would have come to the attention of the Department, whatever Government were in power. But we must not assume that, because we have heard of only one case because of legal action, there are no other devices of similar nature being used in the country.
As the device has been established, we must ensure that it is not exploited either by the company in question or by others who would wish to follow suit. Had there not been trouble on The Times, in which court cases are reported in full, we might have heard of other cases because other companies might have been tempted to follow suit.
§ Mr. Anderson
Although the case was not reported in The Times, several of the property magazines were quick to point out the implications for other property companies.
§ Mr. Freeson
That is true. Perhaps I was making an over-general point. But when newspapers publish reports of cases, they are more widely read and therefore ideas are more quickly picked up.
I have said that we do not know specifically of other cases such as this, but I should make it clear that, although we do not know of other cases, we must act on the assumption that there might be others. We are talking of one particular case in an estate where the device has been applied.
If action is not taken, one of two things could happen. There would be other cases such as that involving Mrs. Jones when, for whatever reason, people would feel that they must pay the exorbitant charge, price or compensation. Alternatively, many people would be blocked from exercising their rights under the Act because they would not be able to pay the high price. Nobody foresaw that such a device would be established.
Without the connection between the two companies involved in this case, and without the effect which these arrangements had on the Leasehold Reform Act compensation, no such leases would have 1292 been created. But in this case they were. The House must now deal with the consequences.
There is a point here which I should make quite clear so as to avoid any misunderstanding or unjustified criticism of the Lands Tribunal. There was no dispute at any time in this case about the valuation as such. When the case first went to the Lands Tribunal in 1976, both parties, the landlord and the resident leaseholder, were agreed that the price should be either £300 or £4,000, depending on whether the creation of the intermediate lease on these particular terms worked or not. The Lands Tribunal took the view that it did work and determined a price of £4,000. The Court of Appeal subsequently took the view that it did not. The court's reason for this rested on the provisions of section 23 of the Act.
Section 23 renders void any agreement relating to a tenancy in so far as it purports to exclude or modify any right to acquire the freehold or an extended lease. However, their Lordships allowed the appeal by the landlord on the grounds that, while the arrangement in this case may have modified the terms upon which the tenant may acquire the freehold, it did not modify the right itself.
Hon. Members will now be in a position to appreciate the comments made by the Lord Diplock when giving his opinion in another place:It is not for your Lordships to speculate what fiscal or other advantages Wentworth and Wrotham hoped to derive from the course they have chosen to adopt. It is evident from the care and ingenuity with which the scheme has been devised that the two companies entered into it with their eyes open to what its financial consequences to them will be if it is held to be valid.My Lords, it would seem most unlikely that either the draftsman of the Leasehold Reform Act 1967, or those members of either House of Parliament by whose votes it was passed, had envisaged the possibility that any ground landlord would enter into an intermediate lease in the precise terms adopted by Wentworth and Wrotham or in any other terms which would have the same economic consequences as between ground landlord and intermediate tenant. If it had been envisaged it seems likely that the draftsman would have done something about it to prevent its having the effect of enhancing the price payable by the resident tenant for the freehold; but how he would set about achieving this and what words he would have used to do so is a matter of pure speculation.I invite the House to put an end to such speculation and turn to the provisions 1293 in the Bill, which is designed to affirm the intention which everyone agrees lay behind the original Act. It is drafted slightly more widely than would be necessary to deal with the particular arrangement used in the Jones case to forestall the effects of any similar devices which may be used now or in the future. One must pay tribute to the ingenuity involved in creating transactions of this kind, but it would be wrong to allow their perpetrators to profit by them at the expense of ordinary home owners.
Put simply, the purpose of the Bill is to ensure that the price payable under the Leasehold Reform Act by a tenant claiming the freehold of his house is not artificially increased by transactions involving the creation, transfer or alteration in the terms of an intermediate lease. The Bill provides that any such transaction entered into since 18 February 1966 is to be disregarded if it would increase the price payable. The significance of the date 18 February 1966 is that it is the day on which the White Paper "Leasehold Reform in England and Wales" was issued, announcing the Government's intention to legislate on leasehold reform. Any transaction made since that date may be assumed to have taken place in the knowledge of that declared intention. Furthermore, the Bill will apply whether the creation of the intermediate interest took place before or after the resident leaseholder's own lease was granted.
The Bill will apply where a tenant gives notice in the future, and where he has already given notice, of his desire to have the freehold of his house, so long as the price has not already been determined before the date of the passing of the Bill. In other words, it will not reopen any agreements for the purchase of freeholds which have been concluded before the Bill comes into operation.
§ Mr. Rossi
There is a point to be clarified here in order to avoid confusion. Under the Bill, is it not possible for anyone who has had the price determined to withdraw the notice upon which the determination of price was fixed—whether by agreement or, as in the Jones case, by court decision—and, having withdrawn it, then to serve a fresh notice and start all over again, having the price fixed under the terms of the Bill?
§ Mr. Freeson
Yes, that would be the effect of clause 1(4) in the type of case with which we are for the moment concerned, the Jones type of case. It would not be of general application.
Mrs. Jones withdrew, of course, because she did not find the £4,000 acceptable, and there may be other such cases in the pipeline, for all we know. There may be those who, in the knowledge of what has transpired up till now and what will transpire as a result of the Bill, will now wish to come forward again after having withdrawn because they could not afford the price. Whereas under section 9 of the Leasehold Reform Act they would normally face a five-year bar on reopening negotiations, they will now have that bar suspended. That will apply in that kind of case, but in the generality of matters it would not apply.
§ Mr. Rossi
If that is so, is not the effect of the Bill to set aside a decision of the House of Lords which has already determined a matter between parties? In other words, Parliament is entering upon a novel constitutional practice, acting as the final court of appeal in cases already determined at law and setting a judgment aside. I understand the Minister to say that Mrs. Jones can withdraw her notice and then serve it again, the effect of her re-service entitling her then to acquire the freehold as though the case had not been decided in the House of Lords.
§ Mr. Freeson
I do not think that it is quite like that. Let us remember that the decision of the House of Lords in the case in question was given about three months ago. Under section 9 of the principal Act it is open to somebody to withdraw, and he must withdraw within one month of the price being fixed. Mrs. Jones did so and the matter did not proceed. She is now in the position of any other person, though we speak of her case because it was the one which brought the matter to light. She is in the position of any of the other people on that estate, if I may so put it, who are living under this device.
So in that light—the more correct light, I suggest—one cannot say that one is overturning a judgment, since nothing proceeded. Mrs. Jones operated her right under the principal Act to withdraw. In my view, therefore, it is right to say that Mrs. Jones is in no different position under the Bill from that of the many other people affected on that estate or 1295 elsewhere where a device such as this may have been introduced.
The Bill will apply where a tenant gives notice in the future and where he has already given notice of his desire to have the freehold of his house, as I have said, so long as the price has not already been determined before the date of the passing of the Bill. I repeat that the Bill will not reopen any agreements for the purchase of freeholds which have been concluded before it comes into operation.
There is in the Bill further provision designed to help the tenant in these circumstances who has withdrawn his claim following an unfavourable determination. I have already said that he may, if he wishes, withdraw within one month of the determination of the price. Where a tenant withdraws or has withdrawn his claim and the price would have been lower if the Bill had applied, he will be enabled by the Bill to make a second claim without having to wait the five-year period under the principal Act before applying again.
Furthermore, where a tenant purchases his freehold as a result of serving a further notice within one year of the passing of the Bill, he will not be liable to pay the landlord compensation in respect of his previous withdrawal, so long as that withdrawal was in circumstances to which the provisions of this Bill would have applied if it had then been in force.
We have gone as far as we can in extending the benefits of this Bill to as many people as possible who may yet be, or may already have been, put at a disadvantage by arrangements of a kind similar to that in the Jones case. Where a price has been determined, however, and the tenant has not withdrawn or does not withdraw his claim in the one-month period which is allowed under the Act, he is, in effect, contractually bound to complete the purchase of his freehold at the determined price, and I do not think that it would be right for the law to intervene at that stage.
I think that it will be clear from what I have said that we are not trying to be retrospective in the sense about which the hon. Member for Hornsey (Mr. Rossi) was rightly concerned. We are seeking merely to protect those who have exercised their full rights within the proper procedures under the present major Act 1296 and who, under the device with which we are concerned, are now blocked effectively from exercising their right as leaseholders to purchase freeholds.
I commend the Bill to the House. There are those who stand to be immediately affected by it, for we know that there are about another 100 leaseholders on the same estate as Mrs. Jones, and possibly others. With the law as it stands without the Bill, those leaseholders will be unable either to buy the freeholds of their houses at a reasonable price or to sell their leases at a proper market price. There may already be other leaseholders unknown to us who are in the same position.
As long as the loophole remains open, the temptation will exist for other companies and other landlords to use it. Every long leaseholder is open to potential exploitation. That is good enough reason for me to urge the House to prevent that by supporting the speedy passage of the Bill on Second Reading and in Committee.
§ 5.22 p.m.
§ Mr. Hugh Rossi (Hornsey)
The Opposition entirely accept that Jones v. Went-worth Securities Ltd. has produced a result that was not envisaged by Parliament at the time of the passage of the Leasehold Reform Act 1967. If the result had been envisaged, I am sure that parliamentary draftsmen would have been instructed to ensure that it could not arise. To that extent, we consider that it is right that Parliament should take an opportunity of putting right an anomaly that has arisen that Parliament did not intend.
I must confess that there are certain aspects of the Bill that cause the Opposition some concern. By no means have we been satisfied by the Minister's replies. The first issue is of relatively minor importance but of some importance in practical terms. If as well as the Bill the Government introduce further amendments to this area of the law in their long-awaited housing Bill, we shall have no fewer that five Acts dealing with a relatively narrow legal subject. We shall have the 1967 Act, the Housing Act 1969, which in one of its sections amends the price formula, section 118 of the 1974 Act, the Bill now before us and the long- 1297 awaited housing Bill that will deal with section 118.
We are creating an intolerable and impossible position for legal advisers who have to inform their clients of their rights. It is so easy to overlook an important provision when legislation is dealt with in a piecemeal fashion. As a consequence, laymen are sometimes badly or inaccurately advised and they may not pursue all the remedies that Parliament may intend for them. If the Government intend shortly to introduce further amendments to the 1967 Act or other legislation, I do not understand why they have not used this opportunity to bring all the amendments together. Having spent some years in the past in private practice, I cannot condemn too strongly piecemeal legislation.
The second matter that I wish to raise is of more fundamental importance. The Bill intends to plug not only an unintended loophole in the law—with that we have no quarrel—but to operate retrospectively and to seek to set aside a judicial decision of the House of Lords. I am with the Minister when he says that he does not want the loophole to be taken up by others as that would lead to the destruction of the whole purpose of the 1967 Act. However, other considerations of some constitutional importance apply. We must ask ourselves whether it is right that private citizens should be allowed to battle through the courts from the Lands Tribunal to the Court of Appeal and finally to the House of Lords, with all the agony of indecision and expense that that entails, and at the end of the day to deprive the successful party of his rights even though Parliament did not originally intend him to have those rights.
§ Mr. Anderson
Is the hon. Gentleman seriously suggesting that the property company which employed an ingenious device for getting around the 1967 Act and managed to put that scheme into operation in respect of one of its lease-holdings agonised over the decision and agonised over it as it went through the courts? Is he saying that it would suffer, having entered into the agreement with its eyes open?
§ Mr. Rossi
The leaseholders are not entirely without remedy. They are still 1298 entitled to extend their leases for 50 years under the Act without any further difficulty or penalty. I accept that in terms of the price of the purchase of a freehold their expectations have been dashed by the decision of the House of Lords. However, we should consider whether it is right to follow the axiom that litigation should have some certainty and finality. By adopting the position advocated by the Government, we are breaching that axiom.
§ Mr. Freeson
I seek some clarification of what the hon. Gentleman is after. Surely we want to work together. The hon. Gentleman is discussing the effect of clause 1(4). Its effect would be to allow Mrs. Jones to operate a right that would otherwise be suspended for five years. The essence of that provision is to put Mrs. Jones in the same position as the other 100 or so leaseholders living on her estate who have not yet been caught up in the process of adjudication that led us to introduce the Bill. Is the hon. Gentleman saying that we should not act to put her in that position, and that alone of the 100 or so she should not be able to exercise her rights if and when the Bill becomes law?
§ Mr. Rossi
I do not wish to go over the grounds that were argued in 1967. It was considered right that there should be an interval of five years when a notice is served and then withdrawn. That has been established law for 12 or 13 years, and that should remain. I cannot agree with the right hon. Gentleman that the notice may now be withdrawn and that the compensation provisions in the 1967 Act should be annulled, which is what will happen if the Bill becomes law.
We understand and sympathise with the position of Mrs. Jones, but we must seek to act as fairly and equitably as we can between private citizens. I do not think that the Bill acts fairly and impartially between two separate classes of citizen. Parliament has make a mistake, and that has had unfortunate and unforeseen consequences, but that issue has been settled in the courts. We may draw a line and say that that will never happen again, and we may proceed from there, but to disadvantage the parties to the litigation is not conscionable. It may be that Labour Members will not agree. We must agree to differ on that outlook.
1299 Under clause 1(1) any transaction that has taken place since 18 February 1966 may be nullified as against a leaseholder in possession. That will alter the specific rights of the parties to the appeal in the House of Lords. The House of Lords unanimously decided that the legal rights were genuine and enforceable, and I take the view that they should not be set aside.
The other aspects of the Bill that I must say we view with great doubt are the provisions in subsections (3), (4) and (5) of clause 1. From answers to interventions, it is clear that the only evidence that the Minister has of instances in which these subsections may operate is that of the parties to the Jones case or other tenants on that estate. There is no evidence that this device has been used in any other case. The Minister is unable to produce any evidence of that kind. Therefore, it is clear that only Wentworth Securities can be affected by these provisions, and nobody else.
If that be the case—as it seems to be, in the light of what the Minister said—there are two possible consequences that the House should have drawn to its attention. First, the Bill might be considered, on the face of it, to be an infringement of article 1 of the first protocol, 1952, to the European Convention of Human Rights, which provides that no one shall be deprived of his possessions except in the public interest. There can be no public interest where the rights of only one person are concerned. Therefore, I feel that to pass the Bill with its retrospective provisions unamended will serve as an invitation to have this House arraigned before the European Court of Justice. That is a matter we must consider.
In the second place—this is a procedural matter for the House, and in particular for the Chair—we must consider whether, as it affects private rights in particular, as well as dealing with public matters, the Bill should be more properly dealt with as a Hybrid Bill and the special procedures of Parliament related to it. If the Bill had had no retrospective provisions in it, it would be clearly a Public Bill, as there is no question that it is in the public interest to close this loophole, which Parliament clearly did not intend.
However, the moment there is this retrospective element, the question must be asked "Who will be affected retrospectively?" 1300 In this case, who served notices before the passing of the Bill? Who had the price determined before the passing of the Bill? Who have withdrawn their notices before the passing of the Bill? On the facts as known to us, it is only Mrs. Jones in all these circumstances, and possibly some of the other tenants on the same estate in some of the circumstances.
The only person who can be adversely affected by this retrospective legislation is the freeholder who discovered the loophole and fought it through the courts to the House of Lords to prove his point. Until then, it is reasonable to infer that no other freeholder would have known of this device or considered using it. The Minister appeared to concede that point when I raised the matter with him. It was not used by anyone else until the House of Lords pronounced judgment. Therefore, we must say that, as particular private interests are affected by the Bill, we must consider whether we should refer this to the Examiners or ask the Chair to have the Bill referred at some appropriate stage to Examiners to consider whether the hybrid procedure applies.
I specifically ask the Chair, if I may, to make note of the point and arguments I have raised. Indeed, I draw some support in this contention from the opinion of Lord Diplock in the case that we are discussing. At the end of the judgment, the learned Law Lord stated:The notion that…covenants in an intermediate lease in the precise terms of those in the lease by Wentworth to Wrotham should alone be ignored in assessing the price of the freehold is fanciful; and might indeed have converted the Bill into a hybrid Bill for which a special procedure must be followed in Parliament.It would seem from the way in which the Minister addressed the House, and in particular from the way in which he answered interventions, that the Bill is directed, as to some of its clauses, specifically against the covenants contained in the Wentworth and Wrotham lease.
I therefore ask the Chair to consider at some appropriate stage whether the hybrid procedure should be applied and the Bill proceed in that way. I am not seeking, on behalf of the Opposition, to frustrate the Bill. I shall not invite my right hon. and hon. Friends to oppose the Bill or vote against it today. It has merit inasmuch as it seeks to close this 1301 loophole that has suddenly appeared in the law.
However, we must reserve the right to move amendments in Committee to deal with the objectionable constitutional aspects of the matter. I leave it there at this stage.
§ 5.37 p.m.
§ Mr. Neil Kinnock (Bedwellty)
I apologise to you, Mr. Speaker, and to the Minister for my late arrival. I was engaged in a constituency case and therefore missed some of what the Minister said.
I welcome the Bill and recognise its specific purpose as an emergency measure to plug a specific gap which was made in the leasehold legislation by section 118 of the 1974 Act. However, a problem arises. Several thousand people are concerned about the application of leasehold reform legislation, and specifically in large numbers in South Wales. When they heard that a leasehold reform Bill was to be presented—I am sure that the Minister is familiar with this problem—they thought that a great trumpet blast of reform was again blowing and that there would be better facilities made available for the enfranchisement of those seeking their freeholds.
Regrettably, that is not the case on the basis of this Bill. Whatever else it does, and however commendable its specific purposes are, it is a squeak rather than a blast. As it is a Bill which, according to the Minister's press release of last November, was intended to correct the anomaly under section 118 of the Housing Act 1974 and to improve the working of the Leasehold Reform Act 1967, I hope that an opportunity will arise in the consideration of the Bill to make it a real House of Commons Bill and to present amendments within the competence of the Minister and the legislation so that we may remove some of the difficulties experienced even now by people who seek to enfranchise themselves.
I am the first to recognise that the work accomplished as a result of the Leasehold Reform Act 1967 has been monumental and that many thousands of people are living more secure and happier lives as a consequence of the assistance available and the reform accomplished 1302 by that Act. However, there remain several difficulties and deficiencies which have become apparent in the operation of the Act. I think that this is an appropriate time to deal with them.
I am aware that there are proposals under the forthcoming housing Bill to deal with some of the difficulties experienced by people who wish to secure enfranchisement, but, on the basis of the information that I have been able to gather, even the provisions in that Bill could not yet be described as comprehensive and do not meet many of the objections and many of the problems experienced by people in South Wales.
I want to use this opportunity, within the general ambit of the Bill, to bring to the attention of my right hon. Friend the need for a more extensive measure of reform. I also hope, on the subsequent consideration of the Bill, to be able to table amendments to it which will go some way towards accomplishing that reform.
There is a need for a new price formula which will operate in favour of the leaseholder. There is a need to end the requirement of the Leasehold Reform Act 1967 of a five-year ownership of a property before a person is able to take advantage of the Leasehold Reform Act or any other subsequent legislation. There is a need to ensure that leaseholders on extended leases qualify for any improved provision which will enable them to purchase their freeholds. There is a need to remove the requirement whereby a landlord can serve a dilapidation notice on persons requiring to enfranchise themselves.
There is also a need to ensure that rights to secure enfranchisement, or to notify a landlord of a desire to buy a freehold, are not lost for a period of five years if the initial application fails, for whatever reason. There is a need to ensure that both leaseholder and freeholder are responsible for bearing only their own costs in any proceedings. There is a need to ensure, most of all, and most specifically in my constituency, that landlords are not allowed to prevaricate or avoid their responsibilities under the Act, thereby delaying for infinity the prospect of persons being able to accomplish the enfranchisement that they desire.
1303 These are all substantial needs, and needs which are articulated by many respected bodies. These bodies include the Welsh Consumer Council, district groups such as the Cardiff Leasehold Reform Group, and groups of residents in my constituency such as the Pandy Road residents, who serve as an example of the kinds of difficulties experienced by people under the current legislation. This is a group of people in a street of about 160 houses, all of which were originally leasehold properties. These are all residents requiring to enfranchise themselves. Twelve years after the passage of the 1967 legislation, the secretary of that organisation, Mr. John Davies, is writing to me saying that there are still 16 householders seeking enfranchisement. He wrote to me to that effect a fortnight ago. That is after a campaign lasting 12 years
In those circumstances, a reforming Government, such as the one we have the good fortune to have at the moment, should be responsible enough to make legislative provision so that these anomalies and difficulties are removed. I he opportunity therefore exists for us to make those changes between the Front and Back Benches. I am sure that there is enough comprehension and care on the Front Bench to ensure that the amendments that I hope to table—if I am fortunate enough to be on the Committee—will receive proper consideration. I realise that there is a massive queue of earnest and active Members hoping to be on the Committee. I am simply trying to shove myself to the front of the queue.
§ Mr. Anderson
I wonder whether my hon. Friend has noticed the enthusiasm of the Welsh nationalists to get on to the Committee.
§ Mr. Kinnock
I am absolutely sure that the only thing that will exceed the enthusiasm of those phantom Members will be the audacity with which they will claim credit for this reform.
I should like to know why we have to wait for the proposed housing Bill before we can discover precisely what are the Government's proposals for the replacement of the Lands Tribunal by a system of valuation tribunals, or at least the introduction of a system of valuation tribunals as a first stage in the arbitration of any dispute between a leaseholder and a freeholder. I hope that my hon. 1304 Friend the Under-Secretary will be able to deal with that in his reply.
It seems to me that the opportunity presented to include such provisions in a short Bill of this relatively uncontentious nature would be greater than the opportunity presented by a large Bill which would probably be the subject of rather more contention. I hope that there will be a reasonable response to this question, as this is one of the most desirable reforms in the present system and we wish to acknowledge the sensitivity of the Government to the demands made upon them. Given the rather stringent time scale in which we have to operate for the remainder of this Parliament, it might have been a good idea to include it in this brief Bill.
There is a need also for an administrative provision—although I recognise that it is not entirely the preserve of my right hon. Friends in the Department of the Environment or the Welsh Office—for the effective extension of legal aid to persons requiring to seek legal assistance in pursuit of the purchase of a freehold.
I have a letter from a solicitor in my constituency. In his letter, Mr. Gareth Griffiths, of Wannen and Jenkins, who has been involved for 35 years in the campaign for leasehold reform, says:I have in mind that, so far as an extension of legal aid to the Lands Tribunal is concerned—this point would also apply to any valuation tribunal—nothing more than administrative (i.e. not legislative) action is required—and the whole legal profession led by the Law Society has been pressing year in and year out for this, certainly for the last eight years.If that is the case, and if people are inhibited from securing enfranchisement, as indeed they are, by the prohibitive costs, surely there should be at least an administrative response in this respect.
With regard to the price formula, it would appear to me to be both more simple and more just to tear up the rather complicated formula of the Leasehold Reform Act 1967 and replace it with one which installed the simple multiple of a ground rent, took into account the number of years remaining on a lease, and ensured that a ceiling was fixed at no more than 10 per cent. of the market value of the property.
1305 This would deal with the problem that we find especially in Cardiff, and to a lesser extent in Swansea, where properly companies and pension trust funds are now asking persons who have lived in the same house for many years, who are approaching old age and are on very limited incomes, for between £3,000 and £5,000 as the price for enfranchisement. That is both unjust and ridiculously inflated in any market terms. I am sure that it must be within the capacity of the Government to introduce a formula to ensure that cases of that sort will not occur.
There are many other areas in which changes are necessary. The areas are specific and easily identified. They have been the subject of a great deal of assessment and research, notably by the Welsh Consumer Council, which has published an excellent booklet entitled "Whose home is it?" There is a great deal of interest in this matter. The Welsh Consumer Council has informed me that in the first three weeks after the publication of its booklet, no fewer than 700 copies were sold. To secure a sale of 700 copies of a book—even a book by the former Conservative Prime Minister, the right hon. Member for Sidcup (Mr. Heath)—is something of an accomplishment. But to sell a pamphlet on leasehold reform, 12 years after we are supposed to have secured a great change in this direction, is also something of an accomplishment.
The five-year qualification period causes great difficulties in areas like mine, especially with the increased mobility of the working population. People are buying houses, particularly old houses, in greater numbers, and difficulties have been encountered. For example, one of my constituents had to change his job because of a pit closure and move to England for new employment. He could not sell his house because he could not sell it freehold, and no one could raise the mortgage on his leasehold property. That immobilised him. In this case the landlord, the National Coal Board, insisted on the stringent application of legal provisions. The Board could have used extra discretion, and I am glad to say that at the end of protracted negotiations it did so. It was relatively easy to deal with a major public corporation of that kind, certainly easier than dealing with 1306 some private landlords. There seems to be no justifiable basis for insisting upon the five-year qualification period, and any reforms should take account of that.
The injustice which could arise with any progressive changes in current leasehold provisions should not be extended to those who were obliged, mainly for economic reasons, to extend their leases instead of buying their freeholds. Although there is an element of retrospection in this—I take note of what the hon. Member for Hornsey (Mr. Rossi) said earlier about the general undesirability of retrospection in law—the fact is that it would be most undesirable if people who, because of economic circumstances, were forced into extension rather than enfranchisement during the last 12 years were denied the opportunity of benefiting from changes in the law.
The other matter to which I wish to refer is of particular concern in my constituency. I believe that it could have been easily dealt with in this Bill. Under the 1967 Act and the consequent statutory instrument No. 1879 there were provisions to try to ensure that landlords responded with alacrity to the notification by leaseholders of the desire to purchase a freehold. However, there is no means of enforcing that requirement and there is no penalty imposed, and no penalty that can be imposed in law, on landlords who deliberately prevaricate or avoid their obligations.
In my constituency I have encountered a man whom I can most fairly describe as an eccentric—a Joseph Thomas Davies. He is a recluse, and a man who keeps his own counsel. To the embarrassment of his agent, and the great misery and frustration of his ground tenants over the last 12 years, he has set records in delay. In order to deal with people like Mr. Davies, we require some procedure which will ensure that penalties will be imposed on landlords who fail to reply or respond to their ground tenants within two months of a notification of a desire to purchase and who fail to conclude the transaction within six months.
Mr. Davies and others like him have developed to the finest art the various means of delay and dodge. They are assisted in this by the reluctance of legal representatives and ground tenants to go through the expensive, exhausting and risky procedures of the Lands Tribunal. 1307 This situation could be relieved by the proposals which we hear will be included in the forthcoming housing Bill. But it would have been clearer, simpler and speedier to have included the proposals for such a tribunal in this Bill.
§ Mr. Rossi
I have been listening with great interest to the hon. Member's constituency problems. It is some time since I have looked at this aspect, but I wonder whether section 20 of the Leasehold Reform Act 1967 would help his constituents. This section provides a right, where there is a reluctant freeholder, to go straight to the county court, and legal aid applies to that. One can get a very quick answer from the county court compelling the freeholder to transfer the legal interest.
§ Mr. Kinnock
I understand what the hon. Member says. This has been attempted by solicitors and lawyers acting on behalf of my constituents and there have been occasions on which cases have been successfully fought. But I am sure the hon. Member will understand the inhibition that working-class people feel and the risk that they think they are taking in cases like this, especially when their financial resources are extremely limited.
I have a quotation here from a chartered surveyor who is particularly interested in this matter—Mr. Davies of Clark and Company, chartered surveyors, of Barry, in South Glamorgan. He says:As I am sure you are aware, when acting for tenants in Leasehold Reform Act cases, it is often difficult to obtain a good settlement because the amount outstanding does not warrant the risk of a Tribunal hearing, quite apart from the average person's reluctance to get involved in major Court proceedings.The scrupulous and energetic application of section 20 of the 1967 Act would clear up the problems, but that does not take account of either the financial resources of the ground tenants and the fact that they are engaged in expense in the whole business of purchase, and are usually working on a limited cash basis, or the fact that they cannot be totally reassured that their cases will be successfully concluded. That is the difficulty, and that is why we need a more direct and risk-free route to securing enfranchisement, whether it is through the valuation tribunals, with appeal to the Lands Tribunal, or through the county 1308 court. The feeling of risk and reluctance exists on a wide scale.
Unless we get comprehensive treatment of these various areas of grievance in the next couple of months either through this Bill or through the new Housing Bill, we shall see over the next few years a continual dribble of minor legislation amending and adjusting the major 1967 Act. It is better to move as far and as fast as we can to meet these grievances now rather than go through this almost every year.
It is not just a matter of inconvenience to this House by the continual repetition of amending legislation. There is the much more serious fact of the insecurity which many ground tenants feel legitimately and the great misery that is caused to many of them, especially to those who are relatively poor or old and most especially to those who are both poor and old. This must be dealt with as quickly as possible.
The Government have very sensibly given themselves the opportunity to make extensive and important changes in the Leasehold Reform Act. These will be of direct benefit to many thousands of people. I only wish that they had taken this opportunity to go even further.
§ Mr. Ernest G. Perry (Battersea, South)
My hon. Friend's remarks have centred on a loophole in the Act, but he should remember that as a result of the 1967 Act—and I was a member of the Committee which considered that Bill—hundreds of thousands of leaseholders have been able to take advantage of its provisions and buy their freeholds. Will my hon. Friend note that, although there may be a few exceptions, in the main more than 90 per cent. of leaseholders have been able to obtain their freeholds?
§ Mr. Kinnock
Yes. My hon. Friend's intervention gives me the opportunity to repeat the words that I used at the beginning of my speech. As someone who is a product of a leasehold home, I warmly acknowledge that the Act brought great benefits to many people. Having read the reports of the Committee proceedings, I am also aware that, even during the course of those proceedings, some of the problems and deficiencies were anticipated. I am seeking, while thanking my 1309 hon. Friend for his efforts with his colleagues in 1966 and 1967, to supplement and strengthen the job that they tried to accomplish.
I hope that in Committee we shall see a willingness by Ministers, who understand the problems, to make the Bill more comprehensible. I hope that a co-operative attitude will develop between Front Bench and Back Bench Members and that favourable consideration will be given to the amendments that I hope to move.
§ 6 p.m.
§ Mr. Donald Anderson (Swansea, East)
I adopt the approach of my hon. Friend the Member for Bedwellty (Mr. Kinnock) in saying that we in Wales welcomed the passage of the 1967 Act, which came about largely in response to pressure from Welsh Members. However, as a result of the experience of the workings of the Act, defects have come to light and, after 12 years, they need to be remedied. I echo the view of my hon. Friend that the scope of the Bill should be extended to take account—even before the new housing Bill—of some of the defects.
It is good to return to the House after campaigning for a week on the same platform as my hon. Friend the Member for Bedwellty.
§ Mr. Anderson
Indeed. For three and a half years we have been up a constitutional cul-de-sac and have been unable to discuss matters such as the Bill which are of more importance to the ordinary people of Wales, unlike the other matter which we discusssed for such a long time and with so little outcome.
I am glad that the hon. Member for Hornsey (Mr. Rossi) did not applaud the ingenious device that we are concerned about and that he said that he joins the Government in seeking to put an end to the loophole devised by the clever legal advisers behind the property company—in this case the Wrotham Park Estates Ltd. It is difficult for anyone to justify that device.
The hon. Member referred to the wrongness in principle of overriding a decision of the House of Lords after private citizens had "agonised" their way 1310 through the courts. I found that opinion hard to reconcile with the realities of the case where one private citizen, a Mrs. Jones—a person not, apparently, of great substance, judging by the value of the freehold of her property—was embattled against a property company. That company had, by the stroke of a pen, made a bogus arrangement with another interlocking company and thus managed to increase the value of its interest by the factor of 13 to 1—from £300 to £4,000.
That property company could have entered into a series of similar bogus arrangements as a result of which the value for it, and therefore the price that the unfortunate Mrs. Jones would have had to pay, could have increased by an even greater factor than 13 to 1. Presumably, other superior interests could have been created. Each interest could have increased the end price and it would have been put wholly out of reach of Mrs. Jones.
§ Mr. Rossi
We envisaged that point during the passage of the 1967 Act. It was suggested by the Tory Opposition that Parliament should insist upon a price being found for the total freehold interest and that the price should then be divided between the subsequent subsidiary interests. Parliament in its wisdom, following the guidance of the Government, decided that there should be a separate valuation for each of the subsidiary interests. That gave rise to the problem, as stated by one of the Law Lords in the House of Lords decision.
§ Mr. Anderson
I am surprised to hear that. I had been led to understand that the problem had not been envisaged during the pasasge of the 1967 Act. I see no objection to apportionment between the several interests, as long as the end price to the tenant is not thereby increased. That would appear to be a fair, normal and reasonable procedure. However, this case was a wholly artificial transaction. The hon. Member for Hornsey did not quite say that he worshipped the sacred rights of property, although he got close to it by appearing to shed tears for the property company—
§ Mr. Rossi
I am sorry to intervene again. However, I should not like my motivation to be misunderstood. What 1311 troubles me is the constitutional principle and the nature of retrospective legislation. Once the principle is established, we should consider where it takes us.
Finance Acts are passed every year. Time and again the courts have decided that a private citizen may arrange his affairs to get the best advantage for himself. Even though the citizen may find a device that Parliament did not intend, if that device is upheld by the court he is entitled to take advantage of it. Parliament can then close the loophole by a subsequent Finance Act but cannot—and never does—set aside the judgment of the court. We are casting doubt on that principle. That could have constitutional implications that we should not like to ensue.
§ Mr. Anderson
I ask the hon. Gentleman to think seriously about the road along which he is inviting us to travel. This subject is not on all fours with Revenue legislation, where, traditionally, the courts have said that the Government are fair game and that a private citizen can arrange his financial affairs to emerge with the best financial result. One can distinguish there between the private citizen—the taxpayer—and the Government.
We are talking about the relationship between one private citizen and another. In almost every conceivable case, that is likely to be a property company or someone financially more comfortable than the individual who is applying to purchase the freehold. That is the difference. As a matter of public policy, the courts and the Government should take into account the balance of strength of the parties. I do not accept the basis of the hon. Gentleman's speech that Parliament has made a mistake and that we should accept that the property company in its ingenuity should be allowed to get away with it, having expended its money to achieve that result.
I adopt the commentary on this case of Mr. John Parris, the legal correspondent of the Estates Times. He expressed astonishment that the artificial arrangement was sanctioned by the courts when it was clearly designed to frustrate the express will of Parliament. One cried out for the robust common sense of the Master of the Rolls.
I deprecate the narrow legalism which was adopted. That can only add substance 1312 to the claims of those who say that the courts are wholly out of touch with the needs of ordinary people. It was a narrow legalistic decision and I am sure that no hon. Member would seek to defend it. It is difficult to justify on any terms. The only parallel case that I can think of is that of Somma v. Hazelhurst, where the courts similarly accepted the driving of a coach and horses through the Rent Acts by a landlord who granted licences and reserved the right to use rooms for herself. That was an artificial arrangement sanctioned by the courts. I hope that we shall eventually put an end to it.
It is clear that the device with which the Bill seeks to deal is not widespread, but the Government have properly said that they must stop it in order to ensure that the original intentions of the 1967 Act are put into effect. By the passage of the Bill we shall plug only one small gap. As my hon. Friend the Member for Bedwellty said, we shall catch only a gnat, I wish that we had gone for the camel and taken advantage of the Bill to include a number of other matters that need to be dealt with.
I am sure that the Minister will say that the forthcoming housing Bill will take care of the concerns of my hon. Friend the Member for Bedwellty and myself, but we have not yet seen the Bill and we are towards the end of a Session in which there is considerable congestion in Committee. With the best will in the world, there is considerable doubt about whether a major housing Bill will see the light of day.
There is, therefore, even greater reason for including in this Bill non-contentious aspects of leasehold reform that have a reasonable chance of being accepted by the House. Many of my hon. Friends wish that we had included matters of importance to our constituents in earlier Sessions. We should have dealt with aspects of the tenants' charter, which we have been pressing for over many Sessions but for which there is no room because of the major constitutional issues that were put before the House. We should have spent that time dealing with matters that are of far greater importance and interest to our constituents.
I echo what my hon. Friend the Member for Bedwellty said about missed opportunities. We like to think that it 1313 was largely pressure from Labour Members in South Wales which brought about the 1967 Act, a welcome measure which has reduced misery and brought considerable contentment to our people. The problems that remain are those of expense and delay.
We believe that there should be a specific formula on the basis of that in, say, the Rentcharges Act—though perhaps not a simple mutiplier—to ensure that the value of the freehold is no more than the fixed market price of a property. Otherwise, we could have the ridiculous position outlined by my hon. Friend the Member for Bedwellty where the price demanded for a freehold is as much as several thousand pounds, even for smaller properties, in South Wales.
There should be limited costs for the leaseholder in purchasing his freehold and a means of ensuring that delaying devices of ground landlords are no longer available. We know about the possibilities for actions in the county courts but know also of the inhibitions of so many ordinary people in South Wales. Why cannot the Government proceed as speedily as possible with these more informal local valuation courts which would get away from some of the legalism and roguery and some of the expense and delay which bedevil so many of the attempts to purchase leaseholds?
We regret the absence of a Bill with wider scope. We understand some of the legislative reasons for that, the congestion in Committee, and so on, and we appreciate that the Government have chosen to deal immediately with what appears to be the most urgent matter, namely, closing the loophole exposed by one case. However, many other urgent matters affect our constituents and we hope that the Government will note them.
In 1967, a Labour Government began the process of leasehold enfranchisement and met a real demand in South Wales. We hope that, in the light of experience of the 1967 Act, it will be a Labour Government that will continue the process.
§ 6.17 p.m.
§ Mr. Fred Evans (Caerphilly)
I welcome the Bill and accept the careful outline given by the Minister and his 1314 strictures, stated and implied, over the Jones case and anything that savours of similar practices.
However, I must say that, in terms of what we in South Wales are concerned about, the Bill is a mouse. My hon. Friend the Member for Bedwellty (Mr. Kinnock) and I are members of the Cardiff Leasehold Reform Group, and I am glad that my hon. Friend put forward many of the views of that organisation. It was set up in Cardiff, but it has grown spontaneously in many parts of the Welsh valleys since 1969 because people found out early the weaknesses in the 1967 Act. I also recommend all hon. Members to read the excellent report of the Welsh Consumer Council under the able chairmanship of Mrs. Beata Lipman. Any television companies which wish to do a spot on the work of the council may be interested to know that she is also a television personality.
A crying sense of injustice remains in Wales because the cost of translating a freehold into a leasehold is still very high. There are still many cases that could be classified almost as extortion. Friends of mine who are reputable estate agents continually send me examples of such cases. That is the sort of thing that the 1967 Act was supposed to stop.
Many of us tried to influence hon. Members at that time and we said that it was no good telling people that they could acquire a freehold after five years as owner-occupiers if they were to be thrown back on to the open market in order to reach a price for the translation of a leasehold to a freehold.
There have been, and still are, some shocking cases, in spite of all the achievements. Where there were reasonable landlords, the 1967 Act achieved great things, but there are still large areas of weakness.
The pressures for the 1967 Act came very strongly from South Wales, because there we have the peculiar problem of the 99-year lease, which has not operated in most of England. It was our present Speaker who took that measure through the House.
The abuses of the system have been highlighted by the figures we have been given for the sales of the Welsh Consumer Council's pamphlet. People are concerned because the home is their first 1315 item of expenditure. Hon. Members may think that there are more important matters, but for the average person that is the first consideration.
Although I speak as one of the gang of six allegedly opposed to devolution, even as long ago as 1966 I could not see why every district council should not be made an agent of the Lands Tribunal and use its legal resources to handle matters on the spot for the people concerned. It could facilitate the passage of an appeal to the final decision by the tribunal. The legal expertise and facilities are available in the councils, and that would be an admirable thing.
When it was my privilege to pilot the Rentcharges Act 1977 through the House, careful attention was paid to this. It could be an almost over-the-counter matter for the local authorities concerned. All the information is lodged with them, and they could handle the cases.
There is also the question of doing something about the price system. Section 10 of my Act contained a simple arithmetical formula for the redemption of rentcharges. By law, one cannot play about with that. Yet in the matter of leasehold reform we find that people are being told that they have the residential entitlement and so on to acquire the freehold but are then thrown back on to the open market. Those two different attitudes do not add up in anyone's arithmetic.
We understand the reasons why we do not have a composite set of amendments such as the hon. Member for Hornsey (Mr. Rossi) suggested in his opening speech for the Opposition. Such amendments might have presented the Government with difficulties, and they have enough difficulties at present.
Joking aside, we are at the fag end of a Session and of a Parliament. Therefore, to attempt overall leasehold reform would be a losing battle, although we should have been able to say that this Parliament had made the attempt before it ended.
Similarly, the new housing Bill has little or no chance of reaching the statute book, because of the time element. Therefore, I join in the plea made by my hon. Friend the Member for Bedwellty that we should do in Committee whatever is 1316 possible on the Bill before us to carry out some of the reforms that we have said are desirable. Then, at least something will have been accomplished. Instead of the Bill's plugging a particular loophole and being a very specialised measure, perhaps ways and means can be found to make it much better in the sense of giving benefits to the people.
§ Mr. Rossi
I listened with interest to what the hon. Gentleman said about extending the scope of leasehold reform. I deliberately refrained from making any remarks about that, because I thought from reading the long title that it would not be possible to introduce the kind of amendments that the hon. Gentleman and his hon. Friends have advocated. I do not believe that that would be possible in Committee. But if it were they would find that a number of Conservative Members would like to remove altogether the rateable value limits, because it it felt that if enfranchisement is an acceptable principle it should be available to all and not be restricted by an artificial level. We tried to do this in 1967. We were defeated by the Government, who threw out our amendment on Report, but the concept still remains.
§ 6.27 p.m.
§ The Under-Secretary of State for the Environment (Mr. Ernest Armstrong)
In a brief reply to an interesting and important debate I shall deal with some of the points that have been raised.
I welcome the statement by the hon. Member for Hornsey (Mr. Rossi) that he accepts the overall aim of the Bill, which is to close a loophole, and does not seek to frustrate the Government's intentions on that matter.
I well understand why three of my hon. Friends from Wales should have taken part in the debate. Their interest in the peculiar position in Wales and their pressure played a large part in the introduction of the 1967 Act. We have carefully noted their detailed points, but it would be wrong for me to go into them and to anticipate the contents of the housing Bill. I take it that my hon. Friend the Member for Bedwellty (Mr. Kinnock) was volunteering to be a member of the Committees considering both Bills.
§ Mr. Armstrong
In spite of the comments of my hon. Friend the Member for Caerphilly (Mr. Evans), we intend to introduce the housing Bill, and it will be discussed in the House. I am surprised that he should feel that something will intervene to prevent its becoming an Act.
§ Mr. Fred Evans
I did not say that the Bill would not be brought before the House. I was referring to its chances of reaching the statute book.
§ Mr. Armstrong
I assure my hon. Friend that we have every intention of seeing the Bill through. I take the point that was made about the five Acts of Parliament. The truth is that the reason for the Bill is not that the Session is coming to an end but that we want to close a loophole. We want nothing to stand in the way of that.
I remind the House that what we are dealing with is a measure which is designed to make the state of the law what everyone seems agreed was the intention of Parliament that it should have been all along. With that in mind, I should like to read an extract from the judgment of Lord Salmon. He began his speech by making it clear that he agreed that the appeal must be allowed only "with some reluctance". After some factual observations, he went on to say:This somewhat odd, possibly unique and certainly ingenious transaction was not a sham; it was a reality. It was, however, admittedly a device to discourage the tenants from acquiring the freehold of their homes by exercising their rights under the Leasehold Reform Act 1967.Lord Salmon concluded his short speech with the following words, which are relevant to the arguments we have heard today:I have no doubt that if it had ever occurred to the legislature that a transaction such as the present might have been devised and put into operation, clear words would have been introduced into the Act, which would preclude such a transaction from affecting the market price which the tenant would have to pay for the freehold of his home. As it is, no such words appear in the Act; and accordingly it contains a gap. It is well settled, however, that the courts have no power to fill in any gap in an Act, even if satisfied that, had the legislature been aware of the gap, it would have filled it in. Accordingly, there is nothing to be done by this House, sitting in its judicial capacity, other than to allow the appeal. It may, however, perhaps be worth consideration in other quarters as to whether the Act should be amended.1318 The House will agree that Lord Salmon's speech demonstrates, first, a reluctance to allow the appeal, secondly, an acknowledgment that the transaction in question was a device for evading the Act, and, thirdly, the view that the law on this subject might need to be changed.
Those three points are important and relevant, I believe, in considering those aspects of this Bill which could be said to be retrospective. The provisions involved are those which enable leaseholders to reapply to have their freeholds, having already withdrawn one application. The detailed way in which they will operate is not a matter for Second Reading, but the principles involved are.
What we have here is not a Bill which seeks to impose retrospectively a new policy devised for some political reasons. Nor does it attempt, as my right hon. Friend made clear, to interfere with any transactions which have already been completed or require any sums of money to be repaid which have already been paid. All it says is that from the time of coming into operation of this Bill, transactions will take place on the basis on which it was always the intention that they should take place. We are allowing those who have withdrawn their applications because they have been frustrated by this device to make fresh ones, within the five years normally required in such cases, so as to take advantage of the provisions of this Bill.
It took more than five years from the time Mrs. Jones first applied to buy her freehold to the time when the judicial decision in another place finally brought the process of litigation to an end. I am sure that Mrs. Jones suffered a great deal of anxiety during that time, to say nothing of the expense. Therefore, I am sure that it will be agreed that the Government are acting properly in confining this Bill to this issue, because we want to close the loophole.
I hope that the hon. Member for Horney, who quite properly put forward his points of view, will recognise that any delay would put at risk the end of what has been a time of great uncertainty for Mrs. Jones and anyone else in a similar position. In the light of Mrs. Jones's case we decided to act, and we have brought forward this Bill 1319 quickly to remedy the defect in the law as it now exists. In the Government's view, it would be wrong to deprive Mrs. Jones and those in a similar position from the chance of taking advantage of these provisions.
I shall read carefully what the hon. Member for Hornsey said. However, perhaps I might make a quick reply to what he said about the European Convention on Human Rights. The Bill will not deprive anyone of his possession. It will, of course, affect the compensation received for it.
With regard to hybridity, I do not know whether there are any other cases. My hon. Friend the Minister for Housing and Construction was straight with the House about that. But, if there are, obviously the Bill will apply to them. The litigation giving rise to this Bill has gone on for some three years, reports of the judgment will have been seen by many people, and it is quite likely that others will have tried to create arrangements of a similar kind, although my Department has no details at present.
Those are the reasons why the Bill takes the form that it does. I do not believe that it makes any kind of unfortunate constitutional precedent to introduce a Bill of this kind to deal with the effect on the law of one decision in the courts or to make it apply to all transactions which have not been concluded by the date of enactment.
I conclude by commending this measure to the House as embodying a useful and timely reform.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).