EXCLUSION OF SHARED OWNERSHIP TENANCIES FROM LEASEHOLD REFORM ACT 1967

HC Deb 19 May 1980 vol 985 cc95-8

' (1) Where, after the commencement of this section, a tenancy of a house is created by the grant of a lease at a premium and either—

1. (a) the lease is granted by a body mentioned in subsection (2) below and complies with the conditions set out in subsection (3) below; or
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2. (b) the lease is granted by a registered housing association and complies with the conditions set out in subsection (4) below; the tenancy shall not be treated for the purposes of Part I of the Leasehold Reform Act 1967 (enfranchisement and extension of long leaseholds) as being a long tenancy at a low rent at any time when the interest of the landlord belongs to such a body or, as the case may be, to a registered housing association.

(2) The bodies referred to in subsection (1) (a) above are—

1. (a) the council of a district, the Greater London Council, the council of a London borough, the Common Council of the City of London or the Council of the Isles of Scilly;
2. (b) a development corporation established by an order made, or having effect as if made, under the New Towns Act 1965;
3. (c) the Commission for the New Towns;
4. (d) the Development Board for rural Wales.

(3) The conditions mentioned in subsection (1)(a) above are—

1. (a) that the lease provides for the tenant to acquire the freehold, whether under an option to purchase or otherwise, for a consideration which is to be calculated in accordance with the terms of the lease and which is reasonable, having regard to the premium or premiums paid by the tenant under the lease; and
2. (b) that it states the landlord's opinion that by virtue of this section the tenancy will not be a long tenancy at a low rent for the purposes of the Leasehold Reform Act 1967 at any time when the interests of the landlord belongs to a body mentioned in subsection (2) above.

(4) The conditions mentioned in subsection (1)(b) above are—

1. (a) that the lease is granted at a premium which is calculated by reference to a percentage of the value of the house or of the cost of providing it;
2. (b) that at the time when it is granted it complies with the requirements of regulations made by the Secretary of State for the purpose of this section; and
3. (c) that it states the landlord's opinion that by virtue of this section the tenancy will not be a long tenancy at a low rent for the purposes of the Leasehold Reform Act 1967 at any time when the interest of the landlord belongs to a registered housing association.

(5) If, in any proceedings in which it falls to be determined whether a lease complies with the condition in subsection (3)(a) above, the question arises whether the consideration payable by the tenant on acquiring the freehold is reasonable, it is for the landlord to show that it is.

(6) In this section "registered housing association" means an association registered under section 13 of the 1974 Act.'.—[Mr. Wyn Roberts.]

Brought up, and read the First time.

The Under-Secretary of State for Wales (Mr. Wyn Roberts)

I beg to move, That the clause be read a Second time.

The new clause is part and parcel of the Government's proposals for making shared ownership more practical and attractive. When the advantages of home ownership are so considerable, and when many people find the difficulty of bridging the financial gap between owning and renting so great, more must be done to create a half-way house between the two. A person could initially part own and part rent, and would later be able to take up the right to buy into full home ownership.

We want to encourage landlord authorities to go beyond the traditional 50–50 shared ownership scheme, under which the purchaser has to buy the equity of his property in two equal instalments. Additional flexibility is possible, if a landlord's shared ownership scheme contains an element of "staircasing", or of progressive purchase. Under such an arrangement, a shared owner could buy successive slices of his equity in, for example, 25 per cent. tranches. He would then move gradually towards exercising the option to acquire the freehold.

A shared ownership lease can come into conflict with the Leasehold Reform Act 1967. Under that Act, a lessee with a long lease of a house can enfranchise—purchase a freehold reversion to his property—under favourable terms once his rent falls below two-thirds of its rateable value, and after five years' residence—or three years if the House approves amendment No. 106. This can happen in a shared ownership scheme when successive slices of equity are bought and the part on which rent is payable correspondingly diminishes.

If the rent falls below two-thirds of the rateable value, the owner can buy the freehold reversion under the Leasehold Reform Act on terms that may be more favourable than allowed under the shared ownership scheme into which he had entered. It would not be in the spirit of shared ownership if a shared owner were to enter into a lease that provided for terms on which he could purchase the freehold reversion and if he were then to switch to enfranchisement under the Leasehold Reform Act 1967. The clause will exclude from the operation of part I of the Leasehold Reform Act 1967 shared ownership leases that have been granted by local authorities and new towns.

We felt it necessary to deal with housing associations differently. Their shared ownership leases do not always contain an option to purchase the freehold. We do not wish to cause problems for interesting experimental schemes, such as community leasehold and leasehold for the elderly. The amendment provides a power to set out in regulations the main principles of those leases to be excluded.

The exemption is closely defined and tightly controlled. It is not a loophole through which public sector landlords—who are not granting shared ownership leases—will be able to evade the operation of the 1967 Act. In contrast, it will encourage the development of a wider range of shared ownership schemes. I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.