FURTHER PROVISIONS WITH RESPECT TO SHARED OWNERSHIP LEASES (Hansard, 3 November 1986)

Mr. Deputy Speaker
With this, it will be convenient to take Lords amendment No. 186.

§ Mr. John Fraser
Amendment No. 48 and the associated schedule take shared ownership leases out of the protection of the Rent Act. As I understand it, they have never had the protection of the Rent Act, so the provision is declaratory to help building societies that have doubts about whether they are affected by the Act. A private landlord cannot grant a shared ownership lease, effectively because of the operation of the Rent Act. Such leases can be granted only where the landlord could create a secure tenancy, but shared ownership leases are defined in the Housing Act 1985 as not being secure tenancies. I should like to make one query. I cannot find any reference to the determination of the major rent element under a shared ownership tenancy, under fair rent procedures. I understand that with local authorities the rental element 747 under the shared ownership lease is determined by the local authority. That is not right, because it is far too open to abuse. Be that as it may, it has to be comparable with other rents charged by the local authority, so there is a standard of comparison.
I cannot find any reference to the fair rent being determined for a shared ownership housing association shared ownership lease. It is important to have the assurance that the tenant can look to that arrangement for two reasons — first, so that the tenant under a shared ownership lease is not overcharged the rent element and, secondly, so that there is an element in the rent on which the tenant can apply for housing benefit. Normally the rental element under the lease is eligible for housing benefit, if, for instance, the tenant has a low income or becomes unemployed. Will the Minister give me an assurance on that?

§ Mr. Simon Hughes
I underline and endorse the valid request that has been made by the hon. Member for Norwood (Mr. Fraser).
I do not know whether the Minister can give answers immediately, but there appears to be a form of tenure that falls outside the protection that I should have thought he would accept people need so that they know that they have security of financial planning if they go into what for many of them will be a new form of shared ownership. We welcome the form of ownership, but there does not seem to be the ring fencing in the protection that they would otherwise get in rent control.

§ Mr. John Patten
I hope that what I shall say will reassure the hon. Members for Norwood (Mr. Fraser) and for Southwark and Bermondsey (Mr. Hughes).
Neither the Rent Act nor the Leasehold Reform Act 1967 was drafted with the possibility of shared ownership in mind. Shared ownership was not around when they were drafted. To a certain extent, that is that. The protection and the rights that those Acts confer on tenants are, for the most part, not relevant or not appropriate to shared owners. The hon. Member for Norwood, with his legal expertise on housing issues, will appreciate that, I am sure.
The measures that we have introduced in the Bill were explicitly welcomed by the National Federation of Housing Associations and the Housing Corporation. Indeed, I was subject to heavy lobbying by those bodies. They regard the moves that we are making as necessary. They will enable housing associations to expand their shared ownership activities by offering privately financed schemes in addition to publicly subsidised schemes.
Under the Bill, the shared owner has to be offered a long lease with a minimum 99-year term, so he or she does not need Rent Act security, nor is the Rent Act necessary to ensure that shared ownership rents are kept under effective control. Let me explain. With a shared ownership lease, the shared owner will know from the outset what his or her rent will be and how it will be reviewed because it will have to be set out in the lease that the prospective tenant has to decide whether to sign. There has been the closest consultation with the Housing Corporation, which wants the changes to be made so that they have more money for their activities.
Furthermore, those offering shared ownership will have every incentive to keep the rent as low as possible to make 748 the overall cost competitive with outright owner occupation; otherwise there is no point in the building society and housing association involved going into the business at all. Unless they keep the rent low, no one will be remotely interested in shared ownership. People would be mad to go into it; they would be better to buy outright. Therefore, all the commercial pressures, even though they are within a carefully constrained and generally institutional framework with building societies and housing associations, are to keep the rents as low as possible.
With the recent availability of funding from the building societies on index-linked terms — it is those terms which will make the schemes go—the cost to the shared owner of the rented share will be low at the start and should not be much higher than it would be under a fair rent. However, it will not necessarily be exactly the same as the fair rent. Therefore, there is an inbuilt safeguard on rents, and our proposals contain other safeguards to protect the position of shared owners. It is only future shared owners who will be excluded from the Rent Acts in that way. It will be only those who decide that they cannot afford or do not wish to buy but wish to take advantage of the scheme operated by a housing association with building society finance because that suits their circumstances. Existing shared owners who have the right to have a fair rent registered will retain that right. I give that pledge to the House. Furthermore, the lease must be granted by housing associations, which are non-profit-making organisations. I am not sure what else we can do to guarantee the position of tenants because the inbuilt drive must be for the housing association, investing institutions and others to keep the rented portion at the lowest possible level; otherwise they will not be in business.

§ Mr. John Fraser
People want to know the criteria that will have to be followed for increasing the initial rent. If it is to be removed from the control of the rent officer, who will control it?

§ Mr. Patten
The timing of the rent reviews will be set out in the lease, which will be for 99 years. This is a new hybrid form of mixed tenure occupation, part-owned, part-rented. All the way through, it must be incumbent on the lending institutions and housing associations involved, which are non-profit making, to keep the rent down to a reasonable level.
Finally, there is a safeguard that the leases will have to comply with prescribed conditions which define precisely the sort of shared ownership arrangements which will be permitted to operate outside the present legislative controls. Senores priores.

§ Mr. Fraser
We are told that there will be regular rent reviews in the lease. However, we want to know the formula by which the rent will be increased. We understand the formula at the moment because the rent is fixed by the rent officer. However, if the rent to be paid under the shared ownership lease is linked to an index-linked mortage from a building society, that may provide the formula. The point about Rent Act protection for tenants is that in a situation of desperate housing shortage people sometimes sign documents which they may afterwards judge to be unwise. It is for the House to intervene and protect people. That is why we want to know what the formula will be.

§ Mr. Patten
I welcome the hon. Gentleman's intervention. It is important to get this clear. I thought that I had made it clear in Committee. I apologise for not doing so. Index linking provides a formula, and the concept of shared ownership provides an in-built safeguard because no one would wish to put the rents up to more than a reasonable level. Otherwise shared ownership would not take off. The biggest safeguard is provided by the housing associations which will be operating the schemes. I cannot imagine a housing association wishing to let anyone into a shared ownership scheme, funded from whatever source, whom they thought did not fully understand what he was doing. We are dealing with someone who is not a tenant, but only partly a tenant. We are dealing with someone who has decided to go into a scheme involving part-ownership and part-tenancy. I think that we are chasing a red herring.

§ Mr. Simon Hughes
I accept the points made by the Minister about the automatic control mechanisms within that sector. He knows that I and my colleagues welcome the expansion of shared ownership. We have argued for that for many years. It would be helpful, so that we can see how things develop, if, within the Department and its requests to local authorities, backed up by enforcement if necessary, we do the same sort of monitoring as the Minister wants in relation to homelessness. In that way we will be able to see the pace of growth, the proportion of rent increases and other variables as they develop and as the sector grows. It will be a new development for many people, and it is important that the House and the Government watch it carefully so that we can learn from experience.

§ Mr. Patten
I do not think that I can give any assurances other than that we will monitor what we do with the housing association movement. The House exists, as the hon. Member for Norwood was implying, to ensure that the undreamable does not turn out to be true. However, I cannot imagine how a combination of the Abbey National and North housing would wish, under any circumstances, to affect adversely the tenants in the rented part of shared ownership schemes. I hope that the House will accept my assurances.