HC Deb 09 January 1985 vol 70 cc840-7

'Where the Commission disposes of land which is or is likely to be used for commercial or industrial purposes:

  1. (1) It shall obtain from the transferee and its successors in title an undertaking that the transferee shall:
    1. (a) act reasonably and fairly towards any person who is a tenant of such land; and
    2. (b) That in particular the transferee will not:
      1. (i) seek to enforce any covenant to repair where the repair involves the reparation of an inherent defect in the construction of the building erected by the Commission or its predecessor in title;
      2. (ii) impose or enforce any rent review clause in such a way as to demand a greater amount of rent than would be awarded by a court on the renewal of lease under Part II of the Landlord and Tenant Act 1954.
      3. (iii) enforce any liability against an original lessee who has assigned his interest with the consent of the reversioner;
      4. (iv) unreasonably refuse consent for alterations or a change of user;
      5. (v) seek any new direct covenant from an assignee as a condition of a licence to assign;
      6. (vi) seek from any tenant an undertaking to be responsible for the lessor's costs whether a matter proceeds to completion or not.
  2. (2) It shall first offer to dispose of the land to the tenant.'.
[Mr. John Fraser.]

Brought up, and read the First time.

7.42 pm
Mr. John Fraser (Norwood)

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

This Administration's aim is to achieve the naked state. When I say "naked state", I do not mean something that is like the Garden of Eden. I mean the naked state that is more appropriate to the Government's lack of any sense of shame. I mean it in the sense that it is stripped of any public assets. The Bill is part of a striptease process, because it facilitates the disposal by the Commission for the New Towns of its public assets.

The new clause addresses itself to the way in which the Commission for the New Towns disposes of its industrial and commercial land and to whom. One great difference between public and private ownership is accountability. If the Commission for the New Towns, or any other public landowner, abuses its position or power it can ultimately be called to account in the House of Commons, it can be examined by a Select Committee, and Ministers can be questioned and have to justify their decisions to the House of Commons. A local authority has to justify its decision to its electors. However, a private owner—the Bill talks about handing over commercial land to private owners—of commercial, industrial or residential land is under no obligation to consider any kind of public accountability. His obligations are towards his shareholders or investors and not to the tenant, the community or any wider industrial or commercial interests.

A good example of that point is St. George's hospital. When St. George's hospital at Hyde park corner was owned by the National Health Service, we could ask questions in the House about the use of that land and its value to the community. When the lease lapsed and it went into the hands of the Duke of Westminster and the Grosvenor estate, there was no longer any opportunity for Members to ask in the House about a valuable public asset in the centre of London which remains empty and unused. That is a good example of the difference between public accountability and private ownership. The lack of accountability of the private landlord and the institutional investor needs to be counterbalanced by legal obligations.

There are three dangers inherent in the Commission for the New Towns handing over its commercial land to private hands. First, there is the danger that properties will be sold over the heads of those tenants who wish to buy. The Government are in favour of the right to buy for residential tenants. We shall not go into that issue this evening. I am in favour, as are many other hon. Members, of the right of the commercial tenant, whether he is a small shopkeeper, a factory owner or large institution, to have the first offer to buy his reversion from the Commission for the New Towns before the land is sold to a property company or anyone else.

If it is the judgment of the commercial tenant that his business or the production of goods or services is better served by the industrial or service producer owning the freehold, I believe that his judgment should be paramount, provided that he can find the money and pay the market value, and that there is no loss to public funds. He should have first option of buying his reversion before it passes into any private landlord's hands. Part of the new clause deals with that issue.

The country's future does not lie in property companies owning land; it lies in the production of wealth by way of goods and services. If the private tenant, whether he is a small shopkeeper, industrialist, professional or provider of services, wants to buy and believes that that is in the interests of production, he should be allowed to exercise that right.

Mr. Warren Hawksley (The Wrekin)

I do not see anything in the new clause to say that the sale should be at market value. Perhaps we can have clarification of how the valuation should be arrived at for a tenant to purchase.

Mr. Fraser

I thought for a moment that the hon. Gentleman was afraid that the Government might do another British Telecom with the commission's land. It is implicit in the new clause that the land will be sold at market value. There is no deviation from that general principle.

If the commercial tenant wishes to be free of the tedious supervision, restrictions and extraction of fees, charges and rent by his landlord, he should have the opportunity to buy his reversion. If a commercial tenant in a new town wants a private landlord off his back, and if he is prepared to pay good money for that purpose, he should be allowed to do so. I hope that when he replies to the debate the Minister will give an undertaking—this matter can be achieved by an undertaking—that he will require the commission, before it disposes of its commercial land assets, to give first offer at market value to the commercial tenants who occupy the land. That would deal with the danger of the land being sold over the heads of private tenants.

There is a second danger inherent in the sale of new towns land. There is a risk that new towns could become private company towns, with one or two private landlords only wielding monopolistic powers. Once again the Minister could deal with that problem by giving an undertaking that under no circumstances will a few private landlords be allowed to purchase the commercial assets of any new town.

We understand from a cutting from the Birmingham Evening Mail of 28 December 1984 that the Government have prevented or persuaded Redditch development corporation not to sell its commercial assets to one or two companies only. There is a fear that a great many commercial assets could be put into the hands of one or two small property companies. I hope that the Minister will give an undertaking that that danger will be avoided.

Mr. Eric Forth (Mid-Worcestershire)

The hon. Gentleman may not be aware that Redditch is in my constituency and that I have taken a close interest in the matter to which he has referred. The Government's position, as I understand it, is that there is no objection in principle to the disposal of assets at an acceptable price and valuation to one, two or however many bidders. It is up to the individual bidders to make acceptable, reasonable and fair bids for assets in new towns for them to be accepted. Therefore, I do not believe that the result of the transaction referred to by the hon. Gentleman is as he suggested.

Mr. Fraser

If that is not the case, I am giving too much credit to the Government. There ought to be other considerations, apart from price. It is wrong that the predominant amount of land in a new town should be in the hands of one or two private companies. I am not in favour, in principle, of selling off the land, but if it is to be sold it is wrong that there should be a single, private, unaccountable company controlling the commercial land in that area. It would be very much better, if the land is to be sold, for the Commission for the New Towns to wait for bids for different parcels of land, so that there is at least a variety of private landlords and some degree of choice as between one commercial letting and another. It should not be put into the hands of one single estate. One knows of the risk of abuse which has arisen in the past as a result of large land ownerships by, for example, the Church Commissioners or the Grosvenor estate.

Mr. Forth

May I also clarify this point. In Redditch, the example which has been taken, the shopping centre has already been disposed of at a fair and agreed price to a different set of landlords. The development corporation has had a disposals programme under way for many years. Large parts of the town are already owned by many different holders. I ask the hon. Member to clarify how he defines the parameters of what he is suggesting—one, or a few, or not too many, the whole town or part of the town. I do not believe that what the hon. Gentleman says has any meaning, because Redditch is a good example of the approach which he has suggested.

Mr. Fraser

In such a short space of time I cannot lay down a universal rule, but what I am arguing is that there should not be a sale by the Commission for the New Towns of the land in any new town to a small number of landlords. If the hon. Gentleman says that in Redditch there is a wide variety of landlords, one welcomes that, but what one is trying to do is to continue to have a choice and, if it exists, some degree of competition among the commercial landlords. That is the point that I am making. I believe that our future lies in having, not a nation of landlords, but a nation of people who are producing goods.

I deal next with the third danger that flows from the disposal of lands by the Commission for the New Towns. This is the way in which commercial tenants will be exposed to the abuse of power inherent in ownership by large property companies, including the insurance companies, investment trusts and other trust funds — what I call, in shorthand terms, the institutional landlord. The new clause would protect tenants from some abuses by institutional landlords. I believe that the balance between the commercial landlord and the commercial tenant is unfairly weighted in favour of the landlord and that landlords are sometimes—though not universally so—arrogant and insensitive and abuse the imbalance of power which exists between an institutional landlord and a commercial tenant. Incidentally, I am not dealing with the transfer of residential land which would normally be passed to local authorities.

The whole purpose of an intitutional, commercial landlord is to squeeze every possible penny which he can get out of his tenant. The process of production has nothing very much to do with the commercial landlord. Indeed, people could go to shareholders' meetings or to meetings of a pension fund and complain that the institutional landlord had not extracted the last possible advantage out of his tenants. That is the whole purpose of his existence. A landlord could be accused of dereliction of duty by not extracting the greatest amount that he could get from his tenants.

I believe it is wrong that institutions in Britain prefer to invest only in the safest and most secure factor of production, instead of putting their money into all factors of production. We see more and more money going into the ownership of land and buildings, instead of the institutions taking the whole spread of risks involved in the production of goods and services.

The new clause tries to deal with some of the abuses, which, in my view, are on the increase. For instance, it will impose upon an institutional landlord or upon anybody who acquires land from the Commission for the New Towns the duty to act fairly and reasonably towards any tenant of that land. I believe that that ought to be the overriding obligation of a landlord. He needs a return on his capital, but he ought to have regard to general standards of fairness and equity as between the landlord and the tenant. Therefore, there should not be a fastidious enforcement of repairing covenants, which often amount to little more than a surveyor's bonanza to obtain money out of the tenant of commercial premises.

Secondly, when the Commission for the New Towns sells its commercial land it should obtain an undertaking from the purchaser not to seek to enforce any covenant to repair where the repair involves reparation of an inherent defect. Let me give the House an idea of the abuses that take place. There have been a number of cases where a commercial landlord has built office buildings or other industrial buildings with external cladding, so the reponsibility for the erection of the building is solely that of the institutional landlord. The premises are then let on a full repairing lease to a commercial tenant. After a while the cladding begins to fall off. Sometimes the cost of reparation will amount to millions of pounds, yet the courts have decided that because of the way in which our property law works the obligation to repair belongs not to the landlord who built an inherently unstable structure but to the tenant.

There have been other cases where institutional landlords have erected buildings with unsafe heating systems. They have contained asbestos fibres. Despite the fact that the landlord has not delivered the goods, the consequences of that failure are then visited upon the tenant. I feel strongly about this, because I assisted the passage through the House of what is now the Unfair Contract Terms Act 1977. Under that Act, if one is dealing with goods rather than with land and buildings, one has to deliver one's promise. It is not possible, with some limitations, to contract out of one's basic liability that the goods supplied should be of merchantable quality and reasonably fit for the purpose for which they are required.

With landlords, it is a different matter. Institutional landlords—indeed, landlords generally—have escaped almost entirely from their obligations, without tenants having any recourse to law. As between those who are trying to produce goods or services in this country and who are having a pretty hard time of it during a world recession, and those who have a vast amount of money to invest in reversions to industrial properties, the balance of advantage ought to lie with the tenant who takes the risk rather than with the landlord who takes very little risk. The most extreme case is the one where the landlord is responsible for an inherent defect in a building and yet visits the consequences of his own neglect upon the tenant. Part of the new clause would prevent that from happening—at any rate in those cases where property had been acquired from the commission.

Another abuse is when a landlord introduces a rent review clause into a commercial lease. Even though the lease may have only three or four years to run at the time of the rent review, the landlord insists upon having the rent fixed by an arbitrator on the assumption that the period of the lease will be 21 years, whereas in reality the unexpired period of the lease is only three or four years. When the lease comes to its complete end, the tenant is able, by way of arbitration, to go to the county court to have the rent fixed at a fair market value under the Landlord and Tenant Act 1954. I see no reason why rent review clauses as they are now being developed should circumvent the will of the House as laid down in the Landlord and Tenant Act 1954. That is the reason for a further limb of the new clause.

Another unfair abuse, is the visiting of a liability upon an original lessee. For example, there may be a small business man who, perhaps 20 years ago, took a workshop on an industrial estate on a 21-year lease and set up in business as a small business man, and was successful. As a result of that success, perhaps after three or four years, he assigned his lease to another industrialist and went into bigger premises because his business had grown. Yet 21 years later, if the final occupant of the premises defaults on his obligations, either by non-payment of rent or by failure to repair, the liability that accrues 21 years after the lease was granted and 17 years after the original lessee has left the building can nevertheless be visited on the original lessee. That is an unfair balance between the landlord and the tenant.

The rule that an original lessee is liable throughout the whole lease for payment of rent and observance of performance of the covenants should be swept away. We have an opportunity to do that at least in respect of land that is disposed of by the commission.

8 pm

In a society where industrial processes are changing and public taste changes more rapidly than ever, there is no reason why a landlord should unreasonably refuse a change of use or an alteration to premises. There might be justifiable reasons, but if a man who has been manufacturing, say, manual calculating machines finds that the market for them has declined and he wants to develop another product, there is no reason why the institutional landlord should be able to hold him to ransom and demand a premium as a condition of agreeing to a change of use of the premises or the making of an alteration.

There is also no reason why there should be a bonanza in professional fees following licences to assign becoming unduly lengthy and fees being demanded from tenants who are allowed to assign leases.

Those are all general abuses and I should like to see all of them removed. We should right the balance between the commercial tenant and the commercial landlord.

At least we can deal with some of the abuses in the sale of public land covered by the Bill, where the Government have the power to set a higher standard. If the Government reject the new clause, they will show that their sympathies lie not with commercial tenants or those who are trying to innovate and produce to increase the wealth of the country, but with the commercial landlords who play a much smaller part in the process of production than do those who have the hard job of paying the rent and trying to run a business.

The Minister for Housing and Construction (Mr. Ian Gow)

It may be convenient if I comment first on what the hon. Member for Norwood (Mr. Fraser) said about Redditch. He was correct in saying that the Government have decided that the sale that had been suggested should not be proceeded with in the way proposed.

My hon. Friend the Under-Secretary of State for the Environment wrote to the chairman of the Redditch development corporation on 13 December: The Government attaches great importance to ensuring that tenants have the opportunity to buy the property which they rent … in spite of what the prospective purchasers said, a risk must remain that this opportunity would be less than would be offered by an agency under direct Government control. I also remind the House of what my hon. Friend said on Second Reading. I repeat the assurance that he gave: there are several safeguards for which Ministers would look before they gave their consent. For example, existing tenants of industrial and commercial property would want to continue to have good opportunities to buy their premises. We would insist on that. The hon. Member for Norwood expressed anxiety about the possibility of a single purchaser being able to acquire substantial blocks of property from the commission. That has not happened. Since 1979, about £500 million of commercial and industrial assets have been sold. About £300 million of the sales were made by the commission and the other £200 million were made by the development corporations. Those sales have involved many individual transactions. The £50 million realised by the commission in 1983–84 was the product of about 180 separate sales, two thirds of which were to sitting tenants or other local interests. Five of the sales were to consortia of tenants, involving about 50 tenants.

The hon. Member for Norwood will have read the report of the commission for 1983–84 which said that if properties are to be offered to the investment market, the commissioners, as a matter of policy, ensure that their tenants are informed three months in advance, with an indication of the approximate sum expected by the commission's agents, so that they have a reasonable opportunity to negotiate finance or consortium arrangements and to seek to reach agreement with the commission.

We are bringing into the property market the forces of a true market place. On Second Reading, Opposition Members criticised my phrase magic of the market place"—[Official Report, 20 November 1984, Vol. 68, c. 163–230.] but it is that magic, within the framework of the general law, which will provide the best protection for present tenants of the commission. I repeat that the Government have required the commission to give tenants the first opportunity to buy the freehold of their properties. Alternatively, they can remain as tenants under existing leases, and if they remain as tenants and the freehold is sold, the landlord will have a clear incentive to continue to let on reasonable and fair terms. The investor will want to ensure that his investment keeps its value. Much of the value depends on having a thriving tenant who is able and willing to pay the rent. No purchaser wants to buy a series of law suits with unwilling tenants. Therefore, it is in the purchaser's interests to make sure that the tenant receives fair treatment.

The intention of the new clause is misconceived. Rather than attempt to fetter the discretion of the commission in realising the assets, we should recognise that the general law on landlords and commercial tenants, and the forces of the market, apply in new towns as much as they do elsewhere. There is no reason to single out former tenants of the Commission for the New Towns for special treatment.

The new clause ignores the truth that every tenancy is the result of a separate commercial negotiation. The lease records the bargain struck by the two parties in the light of all the circumstances. Neither party can alter that agreement unilaterally. If the commission sells a property subject to a lease, the tenant remains entitled to the protection of the lease into which he has entered or to which he is the assignee. In particular, he will be able to take advantage of independent arbitration to settle the level of any rent review that cannot be agreed, since that is the normal basis of the commission's leases. It is not sensible to attempt to rewrite those leases with a few words of statute, because the leases reflect a vast variety of circumstances.

Even if there were no other objection to the new clause, it would not achieve the objective of its supporters. My hon. Friend the Member for Mid-Worcestershire (Mr. Forth) mentioned subsection (2): It shall first offer to dispose of the land to the tenant. There is nothing there about open market value. The clause also says: the transferee shall … act reasonably and fairly towards any person who is a tenant of such land". That is an invitation — which the hon. Member for Norwood and I should not be the first to complain about—for more work to be put the way of the lawyers.

The new clause would require the commission to obtain undertakings from any purchasers of property. No doubt the commission would be able to enforce such undertakings, at least against the original purchaser, but tenants would not be parties to the agreement. Consequently, their locus to enforce such undertakings would be extremely doubtful. We should not change the normal law simply in the case of purchasers from the commission.

For those reasons, I cannot advise the House to accept the new clause.

Question put and negatived.

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