RECOVERY OF DISCOUNT ON EARLYRE-SALE

HC Deb 11 June 1980 vol 986 cc680-4

Mr. Rifkind

I beg to move amendment No. 87, in page 11, line 33 after ' dwelling-house ', insert '(otherwise than under the will of the owner or on his intestacy or as a result of an order for compulsory purchase)'.

Mr. Deputy Speaker

With this, we may take Government amendment No. 89 and amendment No. 90, in page 11, line 37 at end insert— '(1A) Subsection (1) above applies to the disposal of part of a dwelling-house except in a case where it is a disposal by one of the parties to the original sale to one of the other parties.'.

Mr. Rifkind

The effect of the Government's amendments is to provide a clear definition of the term "disposal" as used in the Bill in relation to the circumstances in which a proportion of the discount would fall to be repaid.

Amendment No. 87 makes clear that, as was always intended, the discount repayment obligation will not apply when a house passes by inheritance. It is fair and proper that that should be so.

Amendment No. 89 makes clear that a disposal of part of a house will trigger off the discount repayment obligation. That clarification is intended to close a potential loophole that would have allowed a purchaser to evade the obligation to repay a discount by the simple device of selling the house less a small fraction of the property originally sold to him—for example, a small part of the garden or garage.

However, it is not intended that the discount repayment obligation should apply where the position is reversed and the purchaser wishes to sell a relatively small part of the original property—for example, part of the garden, if it were to be sold to a local authority, or a garage being sold to someone else.

The clause is deliberately drafted in such a way that if the owner of the house is, in effect, to remain the resident of that house and is simply selling a small part of it, there should be no discount repayment. If, however, the position is the other way round, it is only right and proper that discount should be repaid.

Mr. Millan

I have no comments to make on amendment No. 87, but I am not completely happy about amendment No. 89. Amendment No. 90 is in rather different terms. The point of amendment No. 89 with regard to paragraph (a) is perfectly valid. Obviously, if there is, as it were, a redistribution of the house among the parties originally concerned, I would accept that that is not a disposal in any proper sense of the term and, therefore, there should be no question of the recovery of the discount. But paragraph (b) is rather a different proposition, because then one has the disposal of part of the house but with the person concerned continuing to stay in the house.

I gather from what the Minister has just said that the part in which the owner remains could not be just a garden shed or something like that, and I would accept that. But I am not sure why, in those circumstances—for example, where the house was divided, as could conceivably happen—there should not be at least the repayment of part of the discount proportionate to the part of the house that was sold, as distinct from the part of the house that was maintained by the person concerned.

The Minister will see that our amendment No. 90 picks up exactly the wording of his amendment No. 89 in relation to paragraph (a) but omits paragraph (b). Although I do not object in principle to what the Government are doing here, there could be cases in which it would be perfectly legitimate to recover discount in circumstances that would be precluded by the terms of amendment No. 89.

Mr. Rifkind

I take the right hon. Gentleman's point. My response is that, because we are concerned here simply with council houses, there are very few council houses which could be subdivided in such a manner as to provide two principal residences for the two succeeding occupiers. But even if there were a small number of such cases, and the house were such as to be capable of subdivision in this way, I do not think that we should wish to create any disincentive to the efficient use of large property.

The abuse that we were anxious to avoid—I know that the right hon. Gentleman agrees with this—would be where a person, by simply retaining a garage but selling the rest of the house, could claim that, because he had not disposed of all of the property, he should not have to repay discount. The reverse would be equally unfair. If he were continuing to live in the house but simply selling off a garage, it would be wrong that he should not have to repay the whole discount.

It is unlikely that we could find legislative wording that would more appropriately meet our mutual objective. I think that the circumstances of a subdivision with two principal homes resulting from it are very unlikely to be found in the case of council houses. Most council houses are not of a size that would make this a real problem. I think that our objectives are identical. We feel that the wording is the closest that we are likely to get to meeting the problem.

Mr. McQuarrie

Will the Minister clarify the point about the local authority houses? There are cases where, because of the size of a family, two local authority houses are made into one. Once the family members left the principal home that had been theirs and the house was then converted into two smaller houses, would the person who remained in the principal home be able to gain the benefit, or would there have to be a repayment of part of the deposit?

Mr. Rifkind

The obligation to repay the discount expires after a relatively short period. We are dealing with only a small number of subdivisions in the first few years after large families have chosen to purchase houses. If a single dwelling house is divided, there will be no obligation to repay the discount as long as the person selling it remains in it in the sense that it is his principal or only home.

Amendment agreed to.

Mr. Rifkind

I beg to move amendment No. 88 in page 11, line 34, leave out from first ' of ' to ' shall ' in line 35 and insert 'service of a notice of acceptance by the tenant under section 2(6) of this Act'.

Mr. Deputy Speaker

With this it will be convenient to discuss Government amendment No. 91.

Mr. Rifkind

These amendments relate to a change in the starting date for which the five-year period of the obligation to repay a share of discount in the event of resale is to be counted. At present the starting date is the date of conveyance of the property in question. The effect of the amendment is to change that to the date on which the tenant serves notice of acceptance in response to his landlord's offer to sell. As the Bill provides that the service by the tenant of a notice of acceptance constitutes a binding contract, it is logical that that should be the date from which the provision provisions flow.

Amendment agreed to.

Amendments made: No. 89, in page 11, line 37, at end insert— '(1A) Subsection (1) above applies to the disposal of part of a dwelling-house except in a case where—

1. (a) it is a disposal by one of the parties to the original sale to one of the other parties ; or
2. (b) the remainder of the dwelling-house continues to be the only or principal home of the person disposing of the part.'.

No. 91, in page 11, line 40, leave out ' conveyance ' and insert ' service of notice'.—[Mr. Rifkind.]

Mr. Rifkind

I beg to move amendment No. 93, in page 11, line 46, at end add— '(4) Where a landlord secures an obligation to repay a proportion of the discount under subsection (1) above the security shall, nothwith-standing section 13 of the Conveyancing and Feudal Reform (Scotland) Act 1970, have priority immediately after—

1. (a) a standard security granted in security of a loan for the purchase of the dwelling-house and any interest present or future due thereon (including any such interest which has accrued or may accrue, and any expenses or outlays (including interest thereon) which may be, or may have been, reasonably in- 684 curred in the exercise of any power conferred on the lender by the deed expressing the security ; and
2. (b) if the landlord consents, a standard security over the dwelling-house granted in security of any further loan, and in relation thereto any such interest, expenses or outlays as aforesaid.

(5) The liability to repay a proportion of discount under this section shall not be imposed as a real burden in a disposition of any interest in the dwelling-house.'. The amendment meets a point of practical concern to building societies about the rival calls on the proceeds of a house resold within five years, stemming from the repayment of a loan to a building society and the repayment of a proportion of discount to the former landlord.

The main point of the amendment is to provide that a building society or other lender shall have first claim on the money, which is the effect of the new subsection. The vast majority of local authorities have experienced no problem with the existing general consent. One or two authorities have felt it necessary to make the payment of discount the first charge on the property. That has led to building societies being unwilling to make any provision themselves.

It seems sensible that the normal practice for the vast majority of local authorities should be regularised. It is in the interests of local authorities that building societies should not be discouraged from participating.

Amendment agreed to.