§ Mr. Dudley Fishburn (Kensington)
I beg to move,That this House believes that the law of leasehold as a method of providing residential tenure in flats or houses is in need of widespread reform.I am delighted to have the chance to kick off a full-scale debate on leasehold reform, a subject in which I have taken an interest since entering the House. I am somewhat fearful, because this morning I shall probably speak for longer in one speech than I have in all debates put together over the two and a half years that I have been in the House. I am somewhat fearful also, because I recognise that English property law is about as complicated as it could be. There are good reasons for that. The development of English property law over the past centuries has been inextricably linked with the development of our political institutions and the evolution of our democracy.
I am pleased that the debate is taking place and to know that there are hon. Members representing a wide range of interests who realise that leasehold law as a means of residential tenure needs to be reformed throughout the country. Well over 1 million people live in leasehold accommodation. The Department of the Environment says that 1.5 million live in flats. If someone lives in a flat, almost by definition he lives under a leasehold arrangement. Although most of the leases are in and around London, many are in Wales, the north of England, on the south coast and in our grand Victorian cities. The Building Societies Association puts the number of people living under leasehold arrangements as high as 3 million.
It is good that so many hon. Members, doubtless stunned by the ever-increasing number of complaints about the leasehold system, wish to contribute to the debate. One, alas, is here in spirit only. My distinguished predecessor, Sir Brandon Rhys Williams, made leasehold reform one of his many lively campaigns. Although a far better parliamentarian than I shall ever be, he never had the good fortune, as I have, to have his name pulled out as No. 1 in the ballot for private Members' motions. If you see a shadowy figure trying to catch your eye, Mr. Deputy Speaker, I am sure that it will be Brandon's ghost come hot foot from heaven.
I have the good fortune to be the Parliamentary I'rivate Secretary of my hon. Friend the Member for Hove (Mr. Sainsbury), the Minister for Trade, who in his early days had a keen interest—which he still maintains—in leasehold reform.
The law of leasehold, as it applies to residential housing in England and Wales, is essentially a Victorian 19th-century innovation. However, unlike most Victorian innovations, it has had little following elsewhere in the world. No other European country—with the single exception, on a small scale, of Denmark—has found it 578 necessary to employ such a system to provide flats or houses for its home-owning citizens. I make that my first point so that we can be quite clear that there is nothing essential about leasehold law to the existence of a thriving housing market.
If we choose to be lumbered with a leasehold law, that is fine, but it is purely a burden of our own choosing. Do the citizens of Paris, Frankfurt, Madrid or Amsterdam miss out on some vital right? Are their housing policies less adequate than ours because they do not have leasehold law? Not a bit of it. Indeed, each and every one of those countries that inherited leasehold law from their common law past—America, Australia, Canada, and New Zealand—have found the working of the principle of leasehold cumbersome, unsatisfactory and inefficient. What did they do? They reformed the law and abandoned the principle.
In Sydney, Boston, Vancouver and Hobart, flats and houses used to change hands on leasehold; now, each has introduced a system under which individual flats can be owned on freehold. So, too, has that best run of little countries, Singapore. As those countries cleared out the clutter of their colonial law, leasehold went for a Burton. Only the old country is left with the old ways.
I make that point to show that those of us who participate in today's debate calling for leasehold reforms are not, alas, bold politicians trying to break new ground; rather, we are a group of tired old hacks—I speak for myself—trying to get rid of a tired old system, and one which others reformed many years ago.
What might be suggested during the debate, and what would be new ground for English residential leaseholders, is long-established law elsewhere in the English speaking world. Indeed, it would be an unnecessary law in continental Europe. Those who doubt the need for, or efficacy of, reform must cite the advantages that accrue to Britain alone in having leasehold law, because not one of the 600 million people whom we would loosely call our richer socialist neighbours would put up with such a system.
Before leaving that point, I wish to make one general observation. Of all the great capital cities in the world, London is the only one consistently to have had a net loss of population over the past two generations. Is that because in London alone it is not possible for a flat dweller, that most common urban animal, to own his property on any basis other than as a dwindling terminal asset, worth less every passing year as his lease diminishes? If that is thought to be too fanciful, we should remember that the cities of Boston and Sydney revitalised their inner urban areas once their citizens were permitted to own and to invest in freehold flats in the hearts of their cities.
The English law of leasehold rests on a lacuna. Traditionally, it has been possible under English law to sell a property with a negative covenant on it—for example, buy a certain building, and its facade can never be changed. However, it is not possible under English law to enforce a positive covenant—for example, buy a certain building, and its common parts must be maintained. It was to get around that single quirk in the law that Victorian speculative builders—I am delighted to say that my grandfather was one of them—quite literally built on leasehold law. To paraphrase the Book of Common Prayer: "On this one commandment hang all the law and the profits." Those Victorian builders, just like the converters of flats today, sold 99-year leases because it was a way of getting around the difficulty posed by the fact that 579 they could not impose a positive covenant. It was most certainly not done so that, 99 years hence, the grandchildren—undeserving creatures like myself—could scoop the pool.
Flats are sold on leasehold in England and Wales because there is no other way in which they can be sold, and that is a disgraceful monopoly which needs reform. We must establish clearly that all of the varieties of leasehold reform that we shall discuss today are about property reform; they are not, and they must not be, about property grab. Look in this debate for an extension of the Government's highly successful policies of home ownership, but do not look for policies of confiscation.
I am often embarrassed by those few of my supporters in the campaign who say, "Good, these reforms will make us rich; we will be given assets that we did not have before." I do not believe that any of my hon. Friends would seek either to abrogate the law of contract or, in passing reforms, seek to force assets to be transferred by Government diktat from one private individual to another at an artificial price. I shall shortly set out the range of policies needed for leasehold reform for flats and houses, in the cities and in the countryside.
§ Mr. John Fraser (Norwood)
What is the difference in principle between a private lessee buying out the interest of the landlord at a discount and the right of the council tenant to buy out the interest of the landlord at a discount?
§ Mr. Fishburn
I said that I did not think that the House would permit the Government to say, "We will take private assets from one individual and give them to another." I shall elaborate on that point later.
All the possibilities of leasehold reform are intended to improve the law and so to improve the lot of those living as leasehold tenants. They are also intended to encourage home ownership. However, not one of those aims is to say, as the hon. Member for Norwood (Mr. Fraser) appears to be suggesting, "Bad luck, mate—Parliament has decided to take your property and to give it to someone else." Those who seek to oppose the reforms that we shall be discussing today will need a better argument than that.
This Government have championed market rents and a free market in property. Each of the changes in leasehold reform that are before us is likely to increase the confidence of potential investors in residential accommodation.
I should at this stage declare an interest. I have been a resident on the Grosvenor estate continuously for 42 years. That is longer than 90 per cent. of that estate's residents, and certainly longer than the present Duke of Westminster. I imbibed leasehold reform, if not with my mother's milk, at least on my mother's knee. During that time, I have seen no fewer than three leases whittled away from underneath me or my family. However, I am now a statutorily protected tenant and therefore have no conflict of interest—as, alas, I do not have a lease—in promoting leasehold reform.
The standards of the big London landlords, and especially the Grosvenor estate that I know so well, are excellent and thorough. As landlords, they have played an important part in the conservation and the appearance of 580 our capital city. Sadly, they are untypical; they are also only a small part of that market, which now contains some 1.5 million people living in leasehold flats.
Let us briefly consider the range of leasehold reforms on offer. First, there are the proposals for commonhold, which have been put forward by the Lord Chancellor. I was lucky enough to assist at the birth of those proposals by introducing two ten-minute Bills on the subject. However, congratulations are hardly in order, because the pace of the reforms has been painfully slow. Commonhold, under different names, has already been undertaken in many other countries.
In England, the building societies, which see at first hand the troublesome state of leasehold law, were the first to propose that we adopt a commonhold system. When 100 building societies and 70 of the largest providers of market finance, including the high street banks, speak with one mind, it is worth listening. The present commonhold proposals are a tribute to them and, above all, to the Law Commission. It is worth noting that the idea was floated earlier by the Grosvenor estate, so we should be clear about the proposal's provenance. It springs from those who believe in home ownership, capital formation and private property. Commonhold will give leaseholders in a block of flats the legal framework, as a group, to buy and be positively bound to maintain the common parts of their block, overcoming that quirk of the positive covenant. For the first time, it will permit individual flat owners to own freeholds. Furthermore, owners as a group would be obliged to maintain the common parts of their building and pay for improvements to it.
That is the ultimate leasehold reform, which is supported by the Law Commission, building societies, banks and estate agents, as well as more than 1 milllion tenants now living in leasehold blocks, from mansion blocks with 150 flats to converted town houses with perhaps only half a dozen. The law that will permit such a change is extremely detailed. The first draft, which could pass through the House with little delay, is already written, and is as thick as a telephone directory. The Lord Chancellor, on publishing it in November, asked for public comment by the end of February. Those comments are now in and are said to be overwhelmingly favourable.
The reform would allow the few remaining political questions rapidly to be decided. When should the legislation be introduced? I believe that it should be introduced now. It would be the perfect candidate for the last year of this Parliament. If it is not introduced now, the Government and the Opposition should at least make a commitment in their manifestos to adopting the draft proposals for commonhold. They should say, "Elect us and we shall take this law from a draft to a reality."
As all the homework has been done and it is now only a matter of finding parliamentary time—both sides of the House being in agreement on the broad principles—the legislation could be introduced in the first year of a new Parliament, at the latest. Although this debate will focus on other issues thrown up by commonhold, unless we have a commitment in our manifestos to adopting it fairly and squarely, it will never go beyond a debating point.
Long leaseholders, who have or have had leases of 21 years or more, should have the right of enfranchisement to buy their commonhold at the market price, provided that the majority of them in each block—say, 75 per cent.—vote so to do. For example, let us suppose that the year is 1993, there are 20 flats in a mansion block, each on a 581 60-year lease, and 16 of those flat-owners vote for a commonhold, knowing the rights and obligations that the new law confers on them and the price that they will have to pay to buy out their former landlord—the owner of the block—so that they can become the freeholders. The leaseholders enfranchise themselves at that market value. The building goes commonhold and each flat converts from leasehold to freehold. The obligations for the upkeep of the flat fall on the commonholder and the commonhold association is obliged to look after the common parts.
Those obligations are clearly set out in the new draft law. Money put into a building increases the value of the common parts, such as the roof, the stairs and the outside walls, which is reflected in the worth of an individual flat, owned in perpetuity by the person who lives there. Individuals keep what they invest; their flats are their assets, not someone else's.
Building societies, reluctant to lend on short and diminishing leases, would readily lend on such freeholds. As a consequence, their value would climb and when, later, the owner of a commonhold flat wished to sell it, he would find that the market value would be higher because he would be selling a freehold; more money would be available to the purchaser because the building societies, which are so reluctant to lend on leaseholds, would willingly lend on a freehold. As all commonhold property would carry the same rights and obligations wherever they were, the market for such property would flourish. People would be selling not a pig in a poke but a standard asset as defined by law.
The owner of a commonhold flat would not find that the commonhold would prevent a row with the neighbours, that it would lower the bills or that essential maintenance work could be put off. But at least the result of that row, that bill, or that essential work would all be reflected in the value of his property—a property that was his in perpetuity.
Leasehold flats vary widely, depending on the terms of the lease, the residual freeholder, the head leaseholder, the managing agents, service charges and so on. However, commonhold flats would be identical in their legal parameters, transparent in their obligations and essentially undiminishing in their worth.
At present, residual freeholders cannot, in the absence of commonhold, sell their interest to the people who would value it most. The law does not permit them to sell the freehold to an individual flat owner. They can sell their total interest to a company formed by the leaseholders. That is a welcome recent innovation, but is too complicated to have become widespread. Under common-hold, a new market opens up for the first time. The residual freeholder can, for the first time, sell his residual interest and leasehold enfranchisement would allow him to sell what had become unsellable.
§ Mr. Gerald Bowden (Dulwich)
Will my hon. Friend explain how a commonhold association would deal with an original commonholder or his successor who fails to fulfil his obligations, in payment or otherwise? Would the ultimate sanction be forfeiture of his interest?
§ Mr. Fishburn
The ultimate sanction would be laid out in the law and would have the full effect of the commonhold law behind it. Any member of a block would be legally obliged to meet his commonhold payments, 582 which would be identical to the legal obligations that exist today on any leaseholders. There would be no change in tenants' obligations.
I wish to set out the full range of leasehold reforms. The introduction of commonhold involves the Lord Chancellor. We are lucky to have a Scottish Lord Chancellor because, in Scotland, the apporoximate equivalent reform—the flying freehold—was undertaken generations ago. As I said earlier, other countries have ordered their housing laws better.
However, the other necessary reforms reside in the Department of the Environment, where the slow progress towards commonhold appears rapid by comparison. The policy of the Secretary of State for the Environment should be to encourage the maximum amount of housing stock to come on the market and be filled. Only leasehold reform will unlock that unused stock of private housing. I know that the Minister of State welcomes commonhold as a vital adjunct to our housing policy, as I do.
Of all the changes that could be made in leasehold law, the easiest—involving fewer than 20 words in an amendment to a single Act—and the least controversial and quickest to implement rests in the Landlord and Tenant Act 1987. As that Act comes under the aegis of the Under-Secretary of State for the Environment—my hon. Friend the Member for Suffolk, South (Mr. Yeo)—I am grateful that he is on the Government Front Bench. That is why, when I was asked by those who arrange these matters whether I should like the debate to be answered by the Solicitor-General or the Minister responsible for housing, I had no hesitation in choosing a Department of the Environment Minister.
The essential problem with leasehold is that, although someone may buy a 99-year lease on a property and therefore have the overwhelming interest in it, the residual freeholder, whose remaining interest is tiny in comparison, still has a disproportionately large amount of clout over the person who owns the home. That clout, as I am sure we shall hear later, is used in an increasingly disreputable way throughout swathes of the country.
The problem is not with London's large traditional landlords—they are here to stay, are part of London's heritage and think in terms of generations. A different kind of landlord has recently developed in huge swathes of London. His time horizon is not 99 years but the scope for profit in 99 weeks. Few leaseholders will ever see or know their freeholders. For example, in Kensington, often freeholders are overseas investors or companies registered outside this country and are for ever churning over between themselves the legal documents on someone's home.
It has been widely proposed that residents' associations, as recognised in the Landlord and Tenant Acts 1985 and 1987, should be allowed to appoint their own managing agents, because that is where the trouble lies. The legal cog to permit that is found in section 44 in part V of the 1987 Act. The provision that landlords appoint managing agents after consulting leaseholders—which they never do—should be reversed. Leaseholders should have the ability to appoint the managing agents after consulting the landlords. After all, it is the resident leaseholders who pay the managing agents for their work. It is an old principle, which is accepted on both sides of the House, that he who pays the piper should call the tune—residents' power to residents' associations. 583 At the moment, the law is unsatisfactory: by allowing a landlord to choose the managing agent, it gives residents no right of veto. In case after case in my constituency, there have been managing agents who—believe it or not—once the whole market has been scoured, turn out to be 100 per cent. owned by the freeholders. There was a property in my constituency where the managing agent's fee rose to a modest 77 per cent. of the cost of the work done. After we kicked up a fuss, the amount was reduced to 42 per cent. of the cost of the work done. That is scandalous.
In a large block in my constituency with 182 flats, managing agents control a budget of more than £1 million a year. But they will not respond to the demands or wishes of residents or even meet the transparency of accounting required by law. The managing agents are strictly and exclusively the servants of the residual freeholder.
§ Mr. Hugo Summerson (Walthamstow)
I agree with most of my hon. Friend's comments. Does he agree that, from time to time, there are problems even in well-run blocks of flats, caused by one or two lessees who are not prepared to co-operate or to pay service or maintenance charges, however reasonable those charges may be? How would commonhold deal with those difficult people?
§ Mr. Fishburn
I am talking here about a reform that does not involve commonhold. Clearly a leaseholder is under a legal obligation to improve his flat. Because there is a legal obligation, the leaseholder should be able to choose the managing agent who does the required work. As I explained in answer to an intervention by my hon. Friend the Member for Dulwich (Mr. Bowden), there will be no difference between the legal obligations under commonhold and those under leasehold. There is no suggestion in any of the leasehold reforms that somehow one can get a free ride. If that happened, we would get not property reform but property collapse. I assure my hon. Friend the Member for Walthamstow (Mr. Summerson) that, in all the carefully thought out draft provisions of the Law Commission, there are the same legal obligations about upkeep of flats under commonhold as under leasehold.
To a good freeholder or good leaseholder the job of the managing agent must be strictly neutral. The agent oversees the work. That is a legal condition of the lease, and no financial advantage should accrue to either side. That being so, good freeholders do not mind much about who appoints the managing agent—the expensive work which needs to be done is paid for by the residents. That makes this reform of who appoints the managing agents all the more important.
The Department of the Environment is about to undertake what it calls a detailed evaluation study of the working of the Landlord and Tenant Act 1987. It will find that, where leaseholders are involved, the law is very much in need of reform. There have been so many reforms of the Landlord and Tenant Acts 1985 and 1987, being the two most recent. that it is rather like local government Acts —the more Acts there are, the worse the situation clearly is. I know that the Government wish to review the Landlord and Tenant Act 1987 and I hope that, on their 584 recent third attempt, they will continue the momentum to give leaseholders the rights that they have sorely lacked over past years.
I hope that the Department will review the malpractices of the many bad landlords who have been getting into this market during the past 10 years. I suggest that if the Department has a little money left over, it should employ one of those bad freeholders for a day's consultancy work and get out of him the ways in which such people manage to squeeze profits out of this area of the law involving the residual freeholder and the hapless leaseholder.
While the Department of the Environment is reviewing the existing leasehold reform legislation, it may care to consider those houses that were excluded from the Leasehold Reform Act 1967, which permitted leaseholders living in houses to buy their leasehold. The Act was flawed in two ways. First, it fixed a price formula. That allowed many leaseholders to acquire their freehold at artificially low prices, which meant that they exercised their right to convert and promptly sold on for a huge profit.
That runs into the problem that I laid out as one of the first principles—transferring assets from one private individual to another. It was hardly property reform in that respect but, had leaseholders had the right of enfranchisement at market prices, discounted to recognise their leasehold entitlement, it would have been a wholly different matter.
There was a second flaw in that 1967 legislation—cynics said there was a connivance between the socialist Government of the day and some of London's larger landlords and that they were both in the market of soaking the rich. For some inexplicable reason, houses that had a rateable value of above £1,500 were excluded from the enfranchisement right. Hundreds of home owners in my constituency, and I am sure in the constituency of my hon. Friend the Member for Fulham (Mr. Carrington), found that they were barred from owning their own home by this exclusion clause.
Twenty years later, with the abolition of rates, that clause seems an historical holdover and a nonsense. All holders of long leases should have the right to enfranchise themselves at market values. I am pleased that there is growing public pressure for that to happen. The building societies believe that they could do so under commonhold legislation. I hope so. If not, perhaps my hon. Friend the Under-Secretary will consider this question in the review of the Landlord and Tenant Act 1987.
§ Mr. Matthew Carrington (Fulham)
I agree with my hon. Friend that enfranchisement should be at market value. However, does he not agree that a market value requires there to be a willing buyer and a willing seller, and some mechanism for determining the market value by an independent third party? Does he further agree that any legislation would have to embody some mechanism whereby justice can be seen to be done to both parties to the transaction?
§ Mr. Fishburn
My hon. Friend is right, and he knows much more about the subject than I do. If one had the right of enfranchisement and spurned—as it must be spurned—a fixed price formula, because that creates inequities, a fair valuation would have to be fixed by a third party. Hon. Members who are members of the Royal Institution of Chartered Surveyors know that such a 585 valuation can be obtained for a fee. It is a skilled art, but it is quite possible for a third party—or perhaps two third parties—to arrive at a specific and agreed price.
That aspect of leasehold reform was one on which my predecessor, Brandon Rhys Williams, used to fulminate. In February 1987, he introduced a ten-minute Bill that aimed at enfranchising home owners who were artificially cut off by the limit of £1,500 of rateable value from acquiring their freeholds. He concluded that debate with words that we should remember today:I should like to say to those who fear that the passing of my Bill will mean the end of long leasehold as a form of tenure, that I do not regard that as a matter of very deep regret. The time has come to stop playing Normans and Saxons with regard to home ownership. Everyone should be entitled to own the home in which they live and I am not content that there should be large numbers of people living in Kensington—and other parts of inner London—who are second-rate citizens in that respect."—[Official Report, February 1987; Vol. 109, c. 814.]How right he was.
The final area in which leasehold law fails to meet the proper standards of equity and transparency that we rightly expect is in the churning over of freeholds, and those monstrous things, the head leases of mansion blocks and of houses alike, with no reference to the people who own by far the largest financial stake in the properties concerned—the leaseholders. In London and the provinces, regular auctions are held at which the auctioneer holds up a bundle of papers, often a handful thick, and says, "I have here an assortment of properties and under leases. What am I bid for them?" In that way, blocks of flats and whole streets are churned and churned.
The head lease on my own flat in the heart of London was sold in such a package no fewer than four times in six years. Neither the freeholders, Grosvenor Estates, nor we tenants were able to do anything. The last sale was to a bankrupt, who cost the tenants and the estate more by far in damaged property and negligence than the sum that he paid for the marginal residual head lease.
In another case, a bundle of floating freeholds sold for £100 was found to contain the underlying freehold of one of London's largest and best known squares, Eccleston square. It was of no value in itself, and none of the square's tenants knew of its existence—until they discovered that planning permission was being sought for an underground car park in the square. I am sure we will hear from other speakers that, in the same way, whole streets of northern towns in particular have been purchased by an individual whose only intention was to work in that area of the law between freeholder and leaseholder where profit can be gained by intimidation and ill practice.
In my own constituency, many underlying residual freeholds and head leases on Kensington mansion blocks are owned not by residents of this country but by companies with addresses in far-flung but normally rather convenient islands. With every year that passes, the number of complaints grows in bitterness and frustration.
The piece of paper that is the residual freehold or head lease has in such cases become detached from the residents of the property. Except in cases such as Grosvenor Estates, in almost every instance, that piece of paper has been separated by a tenfold transaction from the original granter of the lease. In that broken continuum lies all the present misery of the law—a law which prior to commonhold, prevents individual flats from carrying their 586 own freehold. It is a law which gives the freeholder—that distant and often expatriate animal—disproportionate rights.
How fine it would be if all the owners of residual freeholds were landlords in the proper sense of that word, but why should they be? They have picked up for only a few sous the wadge of legal documents that are the underlying freeholds of properties they might never have visited. They are far more numerous than the big London estates. They will have churned over half their portfolio by the time that the future Duke of Westminster is out of nappies. The Department of the Environment must find a way of reuniting those errant freeholds with the people who need and value them—the resident leaseholders.
I am sure that we will hear this morning that leasehold law is in tatters, complaints are mounting and various Ministries—particularly the Department of the Environment and the Lord Chancellor's Office—are responding to that unsatisfactory state of affairs by introducing commonhold and reviewing the Landlord and Tenant Act 1987. Property law is momentous in the way that we make our society tick, for it is embedded in our political institutions. Brandon Rhys Williams, with his great sweep of history, went back 900 years and said that we should stop playing Normans and Saxons. We know that the last century had as its political leitmotif the marching together of property law and political law. The great Reform Acts of the 19th century were underpinned by reforms in property law and only in that way were great advances in our democracy made.
In the first part of this century, huge council estates became in effect socialist feudal empires, which did no good either for their residents or the country. That situation now has been reversed, in a way that right hon. and hon. Members in all parts of the House acknowledge as useful and practicable.
This morning, we are considering 3 million people who have been overlooked—3 million leaseholders who have not been part of the march of reform over the years—indeed who, in the past generation, have become far less happy. They are subject to the last sector of the property market that we must reform and unlock, so that we can truly say that Britain has a property-owning democracy.
§ Mr. Terry Lewis (Worsley)
Thank you for calling me so early, Mr. Deputy Speaker—you must know that my car is pointing north with the engine running.
I congratulate the hon. Member for Kensington (Mr. Fishburn) on his good fortune in winning the raffle and on choosing a subject in which I have shown some interest in the past six or seven years, as hon. Members will know. I wish to mention an entirely different leasehold problem from that aired by the hon. Gentleman—long leases of 999 years with a ground rent of £10 or perhaps as high as £35 a year—long leases which may be meaningless in terms of tenure.
The problem is fairly localised. It certainly exists to a large extent in the north-west of England and also—so I am told—around Bristol, in south Wales, in Sheffield and, to a smaller extent, in the north-east. During the great building boom of the 1960s, when private housing estates mushroomed on green field sites on the periphery of major conurbations—I am thinking of Greater Manchester in particular—leasehold tenure became widespread. Not to 587 put too fine a point on it, it was a way for builders not so much to keep a residual interest, as to get something "for nowt", as we say in my area. They created 999-year leases, with an annual ground rent of £15 in my case, which is representative.
The cash rolled in every year and could be collected fairly simply, so the builders were not too bothered, but with the ravages of inflation, resulting in a drop in the value of the ground rent, the leases became somewhat burdensome to the original builder. When it began to cost too much to collect the minuscule amount of money every year, the builder sold on the leaseholds, sometimes offloading them at auction.
As often happens in these cases, sharp lawyers—the type who probably sail close to the legal wind—realised that money was available, might be easy to key into, and set up a new breed of property company. I shall name some of the companies that have been most active in our area and caused most problems later. The prime motive was to buy large blocks of leases, make a quick return on investment and sell them off.
The system works in this way—once they had looked at the lease and realised that one or two clauses gave a disproportionate advantage to the lease owner, these people were able to milk the leaseholder.
The block of leases might comprise an estate of 100 or 200 houses, with ground rents of £ 15. As soon as the block of leaseholds was bought, the new owners sent around a man with a clipboard—a surveyor—to look around the properties and make notes.
The first that the leaseholder know about it—I use the term "leaseholder" in the loosest sense; perhaps I should say "home owner"—was when a letter dropped through the door saying that their lease had been bought. Such letters—variously threatening in tone—reminded people that one of the clauses in the lease meant that they had to ask permission of the owner of the lease if they wished to make changes to the property. Another clause said that, if they did not pay the rent on time, they could be evicted or the bailiffs could be sent in. Threats of that nature were part of the classic scam.
One of the worst property companies of that type, which has operated in my constituency as well as others, is Belfort Estates Ltd. I see the hon. Member for Warrington, South (Mr. Butler) in the House; I think that he has been involved in the same problem. Belfort Estates is operating forcefully at present. It bought ground rents from a builder and sent a surveyor round to check on improvements. Then the company sent out letters demanding money and also exploited another clause in the lease by telling home owners that they must have an insurance with a company of its choice and that if they did not do so, they would have to pay a waiver of £10 or £15.
Without going into too much detail of the letters that Belfort Estates sent out, I shall paraphrase some of them. As part of the scam on the insurance clause, Belfort Estates reminds leaseholders of their responsibilities under the obscure lease and asks for a £10 waiver fee. Very often, the insurance company knows nothing about it.
When Belfort Estates was carrying out this nonsense a year ago, it quoted Guardian Royal Exchange Assurance as the nominated insurer. I wrote to the chairman of Guardian Royal Exchange, who quickly wrote back to tell 588 me that the company knew nothing about it and that it was not the sort of thing that it would want to be involved in, because it was sailing close to the wind. He said that he hoped that he would be able to do something about it, and to his credit he did. He investigated and found that a sub-agent who worked on a Commission basis—as insurance agents often do—had been brought into the affair by the estate management company. As a result, a reputable insurer was given something of a bad reputation in my area, but that has been cured. I understand that Royal Insurance and several other companies have been similarly affected.
I have in my hand a restrospective consent application form which is sent out with the threatening letter and is another interesting activity that these companies get up to —this is where the man with the clipboard and pencil comes in. The form lists a number of alterations that the proud owner-occupier might wish to make to his or her property. One of the clauses in the lease provides that the owner-occupier must seek permission from the leaseholder before alterations are made.
I am talking about 999-year leases, with a minimaal ground rent of £10 or £15. Therefore, the lease owner has a minimal interest in the property. The real equity, the building, can have a value of up to £125,000 in my area. The leases grant a disproportionate amount of power, were set up for a wholly different purpose 30 years ago and have become utterly outmoded and out of date.
The interesting aspect of the retrospective application form is that it drops through the letterbox with the threatening letter, and the owner-occupier is reminded that he might not have asked for permission for a variety of improvements. The letter lists charges for retrospective consent for various improvements: £95 for a detached garage; £95 for a porch; £125 for a conservatory; £150 for a single-storey extension; £175 for a two-storey extension; £175 for a loft conversion. At the bottom, it mentions other minor works, such as replacement windows and chimneys, for which £85 is charged.
If that is not an outrageous scam, I do not know what is. Such a scam, together with the threat that the owner-occupier may not be able to sell his property unless he has paid those fees to the new lease owner, will mean that the lease owner will use that clause in the lease to stop a further sale of the house. One can imagine the pain and anguish that that causes to respectable owner-occupiers.
I have already mentioned Belfort Estates, but that company is not the only one currently operating in my area. Others include Salt Properties of London Ltd., which is related to a company called Munny Ltd.—that is not my regional accent—London and Auckland of Northampton, Fountaine Freeholds of Jersey and the Channel Islands, a local firm called Valerie Hawksworth Ltd. of Farnworth, the Estates Management Company of London and Hillson, (Properties) Ltd. of Peterborough. All those companies operate in and around the north-west and, in a variety of ways, they threaten people with the loophole in leases.
§ Mr. Summerson
Can the hon. Gentleman inform us whether it is possible for leaseholders to acquire the leasehold under the Leasehold Reform Act 1967? If so, and if they acquire their freeholds, how much do they pay? It may be better financially for people to acquire the freehold rather than to pay out sums of money for the improvements that they have made.
§ Mr. Lewis
I am glad that the hon. Gentleman has raised that issue. The 1967 Act allows enfranchisement and suggests a sum 10 times the annual value, so an annual value of £15 would mean a fee of £150 to be enfranchised. The problem is that the companies that I have mentioned have got around that suggestion to secure extra money from owner-occupiers by adding on management fees. We accept that legal charges would be disbursed by the owner-occupier, but management fees, handling charges and all the additional charges for any improvements that may have been made can be added.
The original lease owners were benign, in that they could not have cared less what the owner-occupier did to the property. That was covered by the planning laws, by planning applications to the local authority and by building regulations. The benign nature of the original lease owners makes it that much more probable that many people will have made alterations to their properties.
When the owner-occupier applies for enfranchisement, the characters I have mentioned demand a £150 fee. Legal charges, handling charges and management costs of another £400 or £500 may be added. A serious owner-occupier who has developed his property—I have many such records on my files—may face charges of £2,000 or more. Not every owner-occupier who is struggling with a mortgage can afford that.
The worst feature of the loophole is that a recent owner of a house can be held responsible—and some are being held responsible—for developments made to the property by the previous owners under the benign lease. I hope that that has comprehensively answered the intervention of the hon. Member for Walthamstow (Mr. Summerson).
§ Mr. David Martin (Portsmouth, South)
Has a typical case of the type that the hon. Gentleman has told us about been tested in the courts? If so, has it been confirmed that such payments must be paid under the law?
§ Mr. Lewis
To my knowledge, two cases have been tested in the courts, but there were conflicting results.
Part of the problem has been the way in which the property estate management companies have operated. Two of them have been fined £2,000 in south London for the way in which they have harrassed owner-occupiers. The specific question of the lease is rather ambiguous. The leases themselves are fairly firm and, as I understand it, a court case that was also in the London area had an ambiguous result. Therefore, the issue has not been tested as satisfactorily as the hon. Member for Portsmouth, South (Mr. Martin) and I would wish.
I believe that my solution to the problem is supported by the hon. Member for Kensington. We must consider leasehold reform. In its way, the 1967 Act dealt with many serious problems at that time and was amended in 1979 to deal with the problems of that time, and to some extent it succeeded. However, the Act must be reviewed. We must embrace the notion that a lease should not be transferred to a third party without the knowledge of the owner-occupier, and certainly not without his being given the opportunity to be the first purchaser of such a lease. It is outrageous that someone can attend an auction with a block of leases representing 100 or so owner-occupiers and flog it to someone else, who in turn will try to milk as much money as possible from the leaseholders through retrospective permissions, and then attend another auction with the residuary leases and flog them to someone else.
590 Most of the firms that I have mentioned are interrelated in some way. Nearly all are £2 nominal companies, which should be enough to encourage the House to act. No further such leases should be established. There is no moral justification for a 999-year lease in the housing market, because it is nonsense. We should establish a new formula to calculate the sale value of an existing lease to an occupier of a long-lease residential property. That is reasonable. If the House believes that 10 times the annual value is a reasonable sum, it should ensure that the on costs in such a transaction are controlled. There should be a reasonable cost, not the unreasonable cost about which I have been speaking.
In the interim, I should like to see the leaseholder relieved of the obligation to seek permission from the ground landlord to carry out improvements. My first suggestion would cure the problem completely, but I am not naive enough to suppose that it will happen merely because of today's debate. There must be interim protection for the people whom I have mentioned.
It is not much to ask that the balance of advantage be transferred from the minuscule interests of the property companies. I hope that I have demonstrated this morning that they are not well motivated in the provision of housing. They exist to make as much money as they can, as quickly as they can and sailing as close to the legal wind as they can. I hope that the Minister will take on board my suggestions about that aspect of the leasehold problem. I am grateful for the opportunity to make my point this morning.
§ Mr. Chris Butler (Warrington, South)
I am most grateful, Mr. Deputy Speaker, that you have called me so early in the debate. Like the hon. Member for Worsley (Mr. Lewis), I hope to get to the north-west by battling my way up the M1. I assure you, Mr. Deputy Speaker, and hon. Members that I intend no disrespect to the House by leaving early. I recognise the importance of today's debate.
Most of the debate about leasehold tends to concentrate on flats, although there are I million leasehold houses in England alone. For those who reside in leasehold houses, there can be just as much trouble from the landlord as there is in flats.
I do not wish to be cynical, least of all in this place, but I wonder whether all the brouhaha connected with flats—we hear most about flats—is related to the fact that the flat problem is concentrated in London. The hon. Member for Worsley said that the pattern of tenure of leasehold houses is patchy. It is indeed. Many hon. Members may not have confronted the problems. Some 50 per cent. of leasehold houses are in the north-west.
Why are there still leasehold houses? The vestigial reason given by my hon. Friend the Member for Kensington (Mr. Fishburn) was that positive covenants cannot run with a freehold. There may be some cases—I suspect, very few—in which it is necessary for positive covenants to run with the house. I suspect that the real reason why leasehold houses are still being built for sale is simply greed—an attempt by the owners to squeeze every last penny out of the transaction.
The Building Societies Association says:The leasehold system is incompatible with home ownership.591 I agree with that. Our property-owning democracy will not be complete until we tackle the anomalies of the leasehold house system.
Why is there a problem with leasehold houses? There used not to be a problem. The old landlords, who were connected with the estates, who managed them responsibly and who collected the ground rents annually without fuss, are now selling out to a different breed of landlords who are less rooted in the area and who have an eye to quick capital gains or quick profits out of the transactions in which they engage. Added to that, we find that many of the old 99-year leases, which were established towards the end of the 19th century, are now falling in, or are about to, which exposes many elderly people who live in such properties to a lot of anxiety about the roofs over their heads and to exploitation by the landlord. The position will get worse.
As the hon. Member for Worsley said, freeholds are sold in packages. At auction, the price reflects the ground rent value. The landlord works over the package as soon as he has it, to try to entice or to force the tenants to buy their freeholds, usually at a price far in excess of that established by the Leasehold Reform Act 1967. Once the landlords have made their quick capital gains, they put the package straight back on the auction market, and a new landlord, determined once again to work over the package even harder and perhaps using less scrupulous methods, gets in on the act. There is a vicious circle of decline, with increasingly less scrupulous landlords buying up packages and working them over.
The hon. Member for Worsley has already given the examples of Munny Ltd. It had hundreds of properties in my constituency and about 4,000 in the country. One of the directors of the company was Mr. Samuel Antonelli, who liked to be known, in rather avuncular fashion, as "Uncle Sam". He trades from a carpet shop on Clapton common in the east end.
The letters that he sent to thousands of his tenants were clearly designed to frighten them. He demanded money for ground rents already paid and he demanded money for insurance or substantial waiver fees if the tenants had already insured with other companies. He demanded money for the retrospective approval of extensions and alterations. He even demanded money for approval of extensions and alterations that had been known to the previous landlord. He also demanded extortionate prices for freeholds, using scarcely veiled threats.
I will quote some of the language that he used to threaten tenants:If you don't buy maybe you enjoy the excitement of solicitors, judges, bailiffs, moving vans and public auctions…Some freehold ground rent buyers and/or owners are off-shore companies, bad neighbours, former spouses, or even a black sheep member of a family. You can't pick your family, only your nose … Future freeholders will always be checking your lease for new money making ideas (you will learn to pay for them) … Think about the times that you would like to go on holiday or even just shopping and your freeholder places your ground rent in a public auction and the auctioneers ask you to stay home so that possible buyers can view your property and/or confirm location of 'For Sale' sign.Uncle Sam added, rather gratuitously that he wasnot willing to give interviews without payments to his Charity account.592 Several tenants also received letters headed in bold letters, "Breach of Lease", with various monetary demands, together with the statement:It is not our practice to send written demands for Ground Rents. After the due date BAILIFFS—which was always written in capital letters—will be instructed to collect on our behalf.Uncle Sam is not the kind of person with whom I should like to go on holiday. One should realise the impact of such language on elderly pensioners, when there are unsubtle threats of eviction and court cases, and when all sorts of financial penalties are threatened.
In a separate case in my constituency, two separate landlords demanded ground rents from the same block of properties at the same time. That was rather confusing for the tenants. They could not check with the Land Registry, because there was a continuing and lengthy dispute between the two landlords and because there are long delays in registering properties with the land registry. After failing to pay to the two ground landlords; the usual threats of bailiffs and evictions followed—the general reprehensible conduct. Even I received threats from one of the companies, Sapna, in case I ever raised the matter in the House. [HON. MEMBERS: "A breach of privilege."] It is indeed a possible breach of the privilege of the House.
The law needs to be changed. It needs only simple changes. I am afraid to say that, so far, the Government have refused me those changes. However, we now have a new regime, and it is always worth floating the possibility of introducing such simple changes. They could be piggy-backed on the commonhold Bill which we all expect in the near future. After all, if there are 1 million properties with, say, 2 million people living in them, it is a thought that the approach of June may be a suitable time to start acting on the problem.
The legislation need not be confiscatory. The hon. Member for Worsley came up with some good ideas with which I wholly agreed, but I have eight suggestions of my own to make. First, to avoid any future leasehold problem, positive covenants should be allowed to run with the freeholds of houses; it would then be possible to ban the sale of any new leasehold houses, so that the problem would not recur. Secondly, housing associations could be appointed as licensing authorities to deter the sharks from becoming involved in leasehold package operations. Thirdly, although landlords may be justified in demanding insurance, the law should be amended to prevent the unreasonable withholding of consent to the use of the tenant's chosen insurance company. That may already apply in case law, but it needs clarification.
§ Mr. Donald Anderson (Swansea, East)
I am delighted that the hon. Gentleman has raised that point. Companies—especially Jersey companies in south Wales—have insisted on fixed and tied insurance deals, no doubt engaging in a professional tie-up with insurance companies, which receive the premiums. Surely, as long as the property is adequately covered, the landlord's interest should be satisfied.
§ Mr. Butler
As the hon. Gentleman knows, I come from south Wales, and I remember the case of Castle Beggs Investment, which may be the one to which he is referring. Demands for insurance are a stick with which the landlord can beat the tenant to try to persuade him to buy the freehold at an inflated price.
§ Mr. Anderson
Moreover, there must be arrangements between companies such as Castlebeegand insurance companies, as a result of which a ground landlord is given a financial incentive by an insurance company. Such action may be a means of pressurising the tenant, but it is also a means of raising finance for the company.
§ Mr. Butler
It can raise some finance, but the real advantage comes from the capital gain achieved by the sale of the freehold at an inflated price. That is part of the pattern of general harassment of leasehold tenants.
Another example is the refusal by landlords to grant permission for alterations or extensions unless the tenant coughs up several hundred pounds. Statute law should prevent the unreasonable withholding of landlords' consent in such cases.
Fifthly, landlords should be statutorily obliged to serve a ground rent bill and to provide a receipt at the tenant's request. Sixthly, any offer letter—such as the one from Munny Ltd., offering the freehold at an inflated price—should state whether the sum has been calculated under the provisions of the 1967 Act and should also inform the tenant of his rights under that Act. It is surprising how few people realise that they have such rights.
Seventhly, if more than one landlord claims the right to ground rent from the same property, it should be possible for the tenant to pay the money to a solicitor until the ground landlord can prove his right through the land registry. Eighthly, ground landlords should be legally obliged to warn tenants five and 10 years before their leases expire, and to notify them again of their rights under the 1967 Act.
Those eight simple, non-confiscatory measures would crack down on irresponsible landlords and minimise harassment. I hope that my hon. Friend will take them on board, and that the manifesto writer, if he is listening, will note that he may be able to bring a smile to 2 million faces in the United Kingdom at no cost to the Government. I hope that that appeals to him.
§ Mr. John Fraser (Norwood)
The prologue of my speech, which relates to landlord and tenant law, is unconnected with the rest.
A particularly daft decision by the Court of Appeal on the forfeiture of leases was reported this week. Section 146 of the Law of Property Act 1925 allows leases to be ended by means of a notice of forfeiture. The same Act provides that, if such a notice is served, the tenant can serve a counter-notice and apply to the court for relief from forfeiture. Let us assume that a notice of forfeiture is served because the tenant has built a porch, which is technically in breach of his lease. The tenant need only apply for relief against forfeiture, which the court would normally grant. It might award a small amount of compensation to the landlord, but the tenant would not be penalised in the long term: the court would take the sensible view about the respective interests of landlord and tenant.
According to this week's Court of Appeal decision, if a landlord does not serve a section 146 notice and exercises his old common-law right to enter the premises and demand forfeiture of the lease in a mediaeval fashion, the law will not allow relief against forfeiture. If that is the law —as a majority decision in the Court of Appeal has decided—the law is an ass, and should be amended as soon 594 as possible. It was a disgraceful decision. As is clear from some of the examples given this morning, an unscrupulous landlord could take advantage of that decision, and a tenant whose lease had 950 years to run could find himself homeless.
Let me begin the main part of my speech in the standard way, by congratulating the hon. Member for Kensington (Mr. Fishburn) on his luck in the ballot. I agree wholeheartedly with what he said about his predecessor, Sir Brandon Rhys Williams, who was a stalwart champion of leasehold reform. For most of the time he was out of touch with the rest of the Tory party, on that issue and many others—for instance, the right of workers to sit on the board of directors, and rights relating to pension schemes. Intellectually, he often seemed to be on the side of the Labour party.
Throughout my political life I have campaigned for political reform and I am only sorry that the hon. Member for Kensington has tabled such a wishy-washy motion. It makes no proposals apart from the proposal that the law be changed. The hon. Gentleman had the chance to table quite a lengthy motion; in view of all the problems, it is disappointing that he did not choose to specify the reforms that he would like to see.
I have been involved for a large part of my time in politics with leasehold reform, not least because part of my constituency embraces the Dulwich college estates where there have been considerable leasehold problems. Between 1962 and 1964, together with Sam Silkin, who subsequently became the Member of Parliament for Dulwich, I acted as rapporteur of the Dulwich leaseholders association. We knew that thousands of people in Dulwich, Norwood and other parts of south London risked losing their homes when their leases expired. When we held meetings at places such as Kingsdale school and William Penn school, hundreds, if not thousands, of people turned up. From that experience I know of the very deep anxiety and the gross exploitation of leaseholders. The lesson that I have learnt is that the shorter the term of the lease the greater the exploitation and the greater the anxiety.
The result of our efforts between 1962 and 1964 was a report that included recommendations about preservation of the amenities of the estate. It formed the basis of the Leasehold Reform Act 1967. In 1965 a Labour Government introduced a temporary provisions Act. As it was a hung Parliament, it was impossible to get the legislation through then. The temporary Act was based largely on the report produced by Sam Silkin and me. However, the Leasehold Reform Act 1967 has stood the test of time.
§ Mr. Gerald Bowden
The hon. Gentleman has paid a generous tribute to the part that my Labour predecessor in Dulwich played in leasehold reform. Will he also acknowledge the part played by Sam Silkin's predecessor, Robert Jenkins—a Conservative. Member who for many years fought for leasehold reform in that constituency? There has been an all-party effort and campaign in Dulwich.
§ Mr. Fraser
Yes, all-party, in the sense that the Conservative Member of Parliament wished leasehold reform to take place, but it was not all-party in the sense 595 of the Conservative party endorsing the views of the Conservative Member of Parliament for Dulwich. One should draw that distinction.
§ Mr. Anderson
My hon. Friend will remember the very special south Wales interest. Against the views of the Conservative party nationally, brave individuals such as Sir Raymond Gower stood out. However, their views went against the strong tide of Conservative opinion, which at the time acted very much as the party of the landlord. Only people such as my hon. Friend and Sam Silkin in London, George Thomas—now Lord Tonypandy—and particularly Leo Abse in south Wales spearheaded the campaign that resulted in the Leasehold Reform Act 1967.
§ Mr. Fraser
That is absolutely right. We must pay tribute to those other champions of the cause.
When there was such agitation and campaigning in south Wales, London and other parts of the United Kingdom the real problem was leasehold houses. The development of leasehold houses predated the development of leasehold flats. The leases of houses were coming to an end. Almost 25 years later, there is now a problem with leasehold flats. When the 1967 Act was passed there was no problem over the leases of flats, but it has now assumed great importance.
There is a basic human—indeed, animal—instinct about wanting to be in control of the space in which we and our families live. We want to be free from domination and exploitation in our own territory. That is why we demand leasehold enfranchisement. The word "enfranchisement" has three different meanings. It means to be freed from slavery—adopting the French word "franché" meaning free, and in French, the word "franchise" means freedom. Enfranchisement also means to be given the vote. To be able to participate in the control of the mansion block in which one lives is an extension of democracy. The third meaning, more recently adopted, is that of acquiring one's freehold or superior interest. In my view, however, the third meaning embraces both the first and the second.
If we study the history of almost any country, we see that there have been movements for land reform and enfranchisement. In this country there have been campaigns by tenants, crofters, peasants, farmers, traders, craftsmen and business men. Many of them were successful. The aim was to free tenants from the shackles and domination of landlords. Without the intervention of the law, the rights of landlord and tenant are seldom equal. Almost always there is domination by the landlord of the tenant, for self-evident reasons. That can never be left to market forces.
The legal structure of the ownership of blocks of flats and terraces of maisonettes in south London and other cities has always been based on the dominance of the landlord over the tenant. That was the only viable legal structure for the ownership of flats. No other legal system was available. Our land law was invented long before long leases were granted for flats. The market developed early this century. Only now, in the 1990s, do we have the problem of the shortening leases of residential flats. Unfortunately, because of the inadequacy of the law relating to landlord and tenant, the leasehold system is the only practical way of disposing of long leases of flats, not 596 least because—as the hon. Member for Kensington said —positive covenants are not enforceable against the successors in title when one disposes of the freehold.
All of our law relating to flats and maisonettes is built on a domination that is almost an integral part of the landlord-tenant relationship. In turn, domination is the mother of exploitation.
The law relating to flats should satisfy two basic human instincts—first, the right to be in control of one's own home and, secondly, the right to collective security.
In practice, the collective need in the case of leasehold houses does not matter very much; it is relatively unimportant. Under the 1967 Act, the lessee can always buy the freehold. It is rare to find a freehold estate that possesses any communal facilities. We are the poorer for not designing new estates with communal facilities. That is not true of Dulwich where there are woods, commons and other areas that people can enjoy. In 1967 we devised a successful system that accommodated both the desire to own the freehold and the need to preserve local amenities. However, because of the nature of our land law, there are no communal areas, drying areas, playgrounds for children or visitors parking space on new estates. All the land in a freehold development has to be conveyed away.
There is something to be said for trying to ensure that in future the commonhold system is extended to the development of what are now freehold estates so that a communal element can be provided. However, I should not be sidetracked down that path. All that matters to lessees of houses is the right to control their environment by being able to buy the freehold. For householders, the right to buy the freehold is supremely important and the right to extend a lease is marginal, but for flatholders the right to buy the lease and to have continued security is supremely important and the right collectively to buy the freehold may be more marginal.
I congratulate the Law Commission and the Lord Chancellor on producing the discussion paper, which gives us an opportunity to move to legislation. Acting on the findings of the Law Commission, the Lord Chancellor has suggested a new system of land law and has set out a series of questions that we should answer. One question that is mentioned time and again in his report is whether there should be compulsion to enable the majority of leaseholders to acquire the freehold or commonhold of their block of flats. My answer is that they should be able to use compulsion against their landlord to purchase the superior interest and to run their block of flats. Many other questions in the report should be answered in more detail.
The Government have plenty of legislative time on their hands. They planned to call an election in June and ditched a great deal of legislation. We are getting an extra week for the Easter recess, which is a sure sign that they have little business to consider. My practical suggestion is that they should introduce a commonhold Bill and commit it to a Select Committee, which could consider the Lord Chancellor's report. We should try to ensure that it reaches some agreement on the detailed provisions for commonhold reform so that after the election the Labour party can introduce its Bill, based on the Committee's mature consideration, and get on with the reform fairly rapidly. A draft Bill is available, to which one or two changes may have to be made in the light of this debate.
597 The Government could get on with it in this Session of Parliament. Evidence could be taken from outside bodies under the Select Committee procedure.
Three questions must be answered. First, should England and Wales—there is no problem in Scotland—adopt the option of a commonhold system of ownership, by which individual owners of flats would have perpetual rights, akin to a freehold, and would collectively enjoy the perpetual rights, responsibilities and ownership of the common parts? The answer of the Law Commission, the Labour party and almost every leaseholders' group that I have met is yes. We shall hear from the Minister shortly, but the Government's answer is a definite maybe.
Secondly, should a majority of residential leaseholders have the right collectively to enfranchise, to buy the freehold, regardless of whether the landlord agrees—that is compulsion—or is a good or bad landlord? We must consider the market value in detail because it would be discounted considerably by the rights in residence of leaseholders. As long as ransom values and marriage values are excluded, I do not think that there is a problem with valuation.
My answer, and the answer of leaseholders and the Labour party, to that second question is yes, but the Government's answer is no. Under the Landlord and Tenant Act 1987, the Government had the opportunity to allow collective enfranchisement. As an environment spokesman and a Back Bencher, I have tabled amendments enabling the Government to endorse that principle, but they refused them. Following the Nugee report, they did not give leaseholders the right collectively to buy their freehold; they gave them only the right of first refusal. If a landlord tells his tenants, "I want to sell my freehold for £100,000 and I am offering it to you first", those tenants still have no right to buy the freehold. Although the landlord cannot sell it to anybody else without offering it to the tenants for £100,000, he is not compelled to sell. That was the first weakness of the 1987 Act.
The second weakness of the 1987 Act—we could not have foreseen this at the time—is that, in practice, it is impossible to get many tenants together to pay a substantial sum for the freehold, particularly if they have short-term leases. It is a good idea in principle, but the 1987 Act certainly does not give tenants the collective right to enfranchise and acquire the superior interest.
As there is no right to buy the superior interest, and because the rights of first refusal do not work well, should leaseholders of flats have the right to extend their leases in much the same way as the leaseholder of a house has the right to extend his lease by 50 years under the Leasehold Reform Act 1967? That right is not often exercised for houses because it is usually preferable to purchase the freehold. Given the shortness of leases, should the tenants of leasehold flats also enjoy that right? My answer is yes, yes, yes. I have presented private Members' Bills to that end. I have taken every possible opportunity to amend the Government's housing legislation to that end. I drafted Labour housing policy to that end——
§ Mr. Lewis Stevens (Nuneaton)
The hon. Gentleman encourages us to allow people to extend their lease. Would not he want to limit the period for which leases can be extended?
§ Mr. Fraser
I have thought about that, and I think that the right interim solution is for all leaseholders to be allowed to extend their leases by up to 50 years. Some will say that a block of flats may have a life of less than 50 years. That can be the only reasonable objection to my proposal. One could add the proviso that if the life of the block of flats was less than 50 years, the extension should be for less than 50 years. We must bear it in mind, however, that the central thrust of the Government's proposals is that if the tenants acquire the commonhold, that problem will exist in any case. Therefore, my preferred solution is for tenants to have the right to extended leases and then to be left to sort things out for themselves. Let the tenants, not the landlord, make the decisions.
Leaseholders agree with me that there should be a right to extend leases. Leaseholders are sometimes driven to distraction by the thought of their dying leases. As they get shorter and shorter—certainly once they have less than 50 years to run—they become unsaleable at a reasonable price that would enable people to acquire another home. The properties become unmortgageable for a reasonable advance. Moreover, it becomes uneconomic to improve them, and that affects the whole community. If one has a short lease, it becomes uneconomic to install expensive double glazing, central heating or insulation. I have given three sound reasons why, in the public interest, we should allow the extension of such leases.
Leaseholders are bitter about their exploitation at the hands of freeholders and property speculators who sometimes sit like vultures on the branches of their superior property interests, feasting on the dying leasehold terms. Let me give the House an example that I came across the other day. In this case, the freeholder is prepared to consider granting an extension of lease, but his solicitor has told the tenant that he must give an unconditional undertaking to pay not less than £460 in solicitor's costs before the terms of the extended lease are seen—even if they turn out to be unacceptable and even if the work involved is worth much less than £460.
A second case involves someone who lives quite close to my mother in Streatham. She is a lady in her 80s. There are only about five years left on the lease of her flat. She has no prospect of being able to sell or live anywhere else. On any reasonable valuation, the cost of purchasing the freehold or getting an extended lease would be about £25,000. In this case, however, an unscrupulous landlord who had not been seen for getting on for 12 years, extracted £59,000—the life savings of that woman, who wanted the security of her own home. No kind of market is operating under those circumstances.
In my constituency I have many rows of maisonettes—a familiar scene in London and perhaps in other English cities. The properties are very desirable; they are almost like houses. Unfortunately, the leases have only about 30 or 40 years to run. The landlords and freeholders of those maisonettes routinely charge two or three times what on any objective assessment is a reasonable price for providing an extension of the lease.
The company that owns the freehold of a block of flats in Peckham Rye—I think that it is in the constituency of the hon. Member for Dulwich (Mr. Bowden)—is now charging about £8,000 to extend leases that still have about 50 years to run. I calculate that if one invested that £8,000 at current compound rates of interest, it would be worth well over £1 million by the time the existing leases expired. On any reasonable calculation, the fee that should be
599 charged for the extension of those leases is about £2,500. I do not say that the landlord is unscrupulous in other ways, but his valuation is certainly unscrupulous. He is trading on the fears and anxieties of elderly tenants and those who simply cannot move from one part of London to another because of the shortness of their lease. In addition to demanding an excessive price for the extension of the leases, the freehold company is charging a minimum of £460 for solicitors' costs and £250 for agents' fees, even though practically nothing may be done and the agent, if not the landlord, is a captive.
Ask any leasehold flat owner with a dwindling term whether he should have the right to extend the lease and the answer will be yes. The creation of commonholds does not solve that problem. Let me put the question clearly to the Minister: should the resident owners of long leases of flats have the right to extend those leases, analogous to the rights of householders under the Leasehold Reform Act 1967? My answer is yes; the Labour party's answer is yes; the leaseholders' answer is yes. Unfortunately, I suspect that the Minister's answer will be no and that there is about as much chance of a Conservative Government providing the right to extend leases as there is of a prioress turning up at an Ann Summers tea party.
Let us examine the Tory party's record on this matter. The Conservatives voted against the Leasehold Reform Act 1967 and called it Rachmanism in reverse. Since then, they have had 12 years, but they have never given the right to people collectively to purchase the freehold of flats or individually to extend the leases on their flats. The 1987 Act gave them another opportunity. I tabled an amendment that would have provided for the right to extend. Let me quote the answer that we got from the Minister on that occasion:Anyone buying a lease should not be under any illusion about the nature of the interest which she or he is purchasing … Leaseholders of flats do not have the right to extend their leases, although they may be able to negotiate an extension.We know all about negotiating extensions and about exploitation. The Minister continued:I am not sure that we would be justified in giving such a right, which would override the terms of a contract that had been freely entered into between the landlord and the tenant.But the contract had not been freely entered into at all: the tenant had no choice in the matter. It is a case in which the law needs to intervene.
The Minister then said:The hon. Member for Norwood argued, rightly, that the Leasehold Reform Act has been on the statute book for 20 years. What an issue it was, I understand, 20 years ago in one part of my constituency in Oxford. That is certainly accepted by all political parties, but that is not in itself an argument or justification for leasehold enfranchisement of those living in flats." [Official Report, 5 May 1987; Vol. 115, c. 600.]The Minister was talking about my amendment to allow leaseholders of flats with short leases the right to extend them. I should like a different answer today, although I suspect that I will hear the same answer as I received back in 1987.
The Government could have changed the law in the Housing Act 1980, the Housing and Building Control Act 1984 and the Landlord and Tenant Acts of 1987 and 1988. I gave the Government the chance to change the law in amendments that I tabled. However, they did nothing.
The real test of the Government's good will towards leaseholders of flats can be seen in the Housing Act 1988.
600 In that Act the Government ratted on leaseholders. They treated them treacherously. When the lease ended, a person used to become a statutory tenant with a rent fixed by the rent officer and with generous relief from schedules of dilapidations. That was an important part of the tenant's negotiating rights. If the tenant was negotiating to buy the freehold or to extend the lease, he could tell the landlord that he had a statutory tenancy with a fair rent when that lease ended. That would make some difference to the value. However, the Government ratted on that in the Housing Act 1988.
According to the 1988 Act, once a long lease ends, the tenant will no longer be a statutory tenant and have a fair rent. He will be an assured tenant without any rent control. That substantially altered the bargaining scales between the landlord and the tenant. By ensuring that the leaseholder was an assured tenant when the lease ended, the Government robbed them of the rights of succession for a spouse or other members of the family if the leaseholder were to die after receiving the assured tenancy at the end of the lease. We know something about the Government's attitude in this respect.
Over the years improvements to leaseholders' rights have always attracted obstruction and resistance from the Tory party. The word "Tory" is an Irish word that symbolises the absent exploiting landlord. Except in an attempt to save Tory seats such as Dulwich, Streatham, Hampstead, Westminster and North Kensington, it seems that the Conservative party has little real interest——
§ Mr. Fraser
I was about to say that the minimum qualification for Tory party policy is to save the Finsbergs, the Fishburns, the Sheltons, the Bowdens and the Wheelers and—if we had any—the dealers as well.
§ Mr. Martin
The hon. Gentleman is concentrating on matters that he says divide the House. My hon. Friend the Member for Kensington (Mr. Fishburn) is trying to promote a reform for which there is wide support on both sides of the House. Some of us with constituency interests are waiting to support that reform. We do not want to hear a diatribe against Government policy which could be made in debates on Government Bills, not in private Members' time.
§ Mr. Fraser
At the end of the day, that depends on the Government introducing a Bill.
The Labour party's policy with regard to leaseholders has been clear and consistent for many years. I quote from Labour party policy from as long ago as 1985—I remember it well because I drafted most of it myself—and the policy remains the same today:We will give leaseholders important new rights and safeguards: the right to hire and fire the managing agents in blocks of flats;maximum limits for management fees;the right to have freeholder's accounts examined by an auditor of the tenant's choice…the right to extend the lease (as is the law on houses);the right to buy the freehold collectively;the right to covenants in leases that, for instance, clearly fix the responsibility to repair and ensure…revised legal framework for the sale of flats and maisonettes.That policy encompasses the commonhold system that we have been discussing this morning.
We have stated our policy consistently and argued for it for some time. Commonhold will certainly come.
601 However, the immediate complementary need with commonhold is the right for leaseholders to extend their leases. My experience of these matters dates back nearly 25 years. I believe that the Government do not have the guts, the determination or the conviction to make that change. We await a Labour Government to provide the solution.
§ Mr. Gerald Bowden (Dulwich)
I congratulate my hon. Friend the Member for Kensington (Mr. Fishburn) on his twofold good fortune. First, he has given us the opportunity to debate leasehold reform; secondly, he has had the good fortune to win the draw to sponsor a private Member's Bill to open up, and perhaps place on the statute book sooner rather than later, the opportunity for the tenure of commonhold. My colleagues and I are delighted to be co-sponsors of the proposal and we hope that it will become legislation.
I noted the claim of my hon. Friend the Member for Kensington to apostolic succession to Brandon Rhys Williams in inheriting the mantle of leasehold reform in Kensington. I can claim a similar succession. As I said earlier, two of my successors in Dulwich, one Labour and one Conservative, were greatly concerned with the need to ensure that the proper rights of a landlord are related to the proper rights of a tenant in the relationship between leasehold and freehold and the difficulties of trying to reconcile what can sometimes be conflicting interests.
The history and development of Dulwich has been the history and development of English land law, and the development of land under the freehold and leasehold systems. I was interested to note that my hon. Friend for Kensington attributed scriptural authority to the idea of leasehold and its relationship to freehold, stating that, on that, "all law stands."
I wondered whether, on this occasion beyond all others, our Chaplain this morning might have varied the time-honoured Prayers said in this House and used one of Cranmer's collects from the Prayer Book:Let us pray for all those who are troubled in mind, body or estate.Today we are concerned with those who are troubled in estate. We have all witnessed the uneasy relationship between leaseholders and particularly those leaseholders for whom the leasehold is their home, and freehold landlords, especially commercial landlords.
My remarks this morning will be largely addressed to the interests of my constituents in Dulwich, many of whom are leaseholders of the estate governors of Alleyn's College of God's Gift. I have given them their full title, but in future I will refer to them as the Dulwich estates governors.
For the past 300 years, there has been benefit in the way in which the estate governors have exercised their stewardship and developed Dulwich. Over the years, into the 1980s, they have maintained Dulwich as a highly desirable residential, suburb of London, Their good stewardship has ensured that the amenities of the locality are maintained. Having said that there is great good will and stewardship on the landlords' part, and while there is no malice or bad feeling on the part of the leasehold tenants, there are clear signs that problems are arising, and that there must be a new way of looking at the relationship.
602 That is not peculiar to the Dulwich estate or to the other large landed estates in London. Over the years, there have been makeshift arrangements to try to find something that approximates to a commonhold.
My hon. Friend the Member for Kensington said that the idea of a flying freehold is not unknown in Scotland. Indeed, it is well established there. There is evidence that certain developers or ground landlords have attempted to sell, with their flats, what they purport to be flying freeholds, but that is not a creature known to English law. In a sense, it is an unidentified flying object from north of the border. Closer inspection when it has landed in England and Wales reveals that it does not bear real scrutiny. Great scepticism naturally surrounds this, because what purports to be flying freehold is nothing more than a lease in fancy dress, masquerading as a freehold. It enjoys few of the benefits that a leasehold should have, and certainly none of the benefits that a freehold should have.
Clearly, therefore, there is a gap that needs to be filled, and it is the duty of the legislature to fill it. Although this morning's debate may not be taking place in the most thronged of Houses, it is nevertheless an opportunity to see that this matter is put on the agenda for further discussion. We are looking for a framework in which the uneasy relationship that exists in many places between the leaseholder and the freeholder can be developed.
We must remember the interests of the leaseholder whose flat is his home. As has already been said, there is some magic about the word "home" as opposed to "house". Most people who are owner-occupiers regard their home as more than a commercial investment; it is more of a personal investment in which they have invested not only their money, but their personality. In due course, they may wish to capitalise on that investment with some benefit—perhaps on retirement or when their family has grown up and moved away—and move, perhaps, to less costly and smaller accommodation. They wish to take with them the surplus that they have realised on selling the original investment.
That is a benefit which has been enjoyed by the freeholders of houses and many people recognise it as a provision for their retirement. Therefore, it seems particularly unfair on leasehold tenants who have purchased long leases, perhaps early in their working lives, and who, for a period, see the lease increase in value, but who then find that it declines in value just when they want to capitalise on it and make other arrangements for their retirement. They are not enjoying the benefits that they could rightfully expect from the investment that they have made in their own homes over the years. Therefore, the social- context of this issue—let alone the legal and financial context—should give us cause for further consideration.
This problem could and should be solved by the proposals that, my hon. Friend the Member for Kensington has explained to the House today and advanced in his Bill. There is clearly a need for change. I have seen an example in my constituency—I am not referring to the Dulwich college estate in this instance—of the way in which the tenants of a block had the opportunity some 20 or so years ago to purchase their flat from the former freeholder, the Greater London council.
At that stage, what amounts to an early model of a commonhold was established. There is a management company through which the owner-occupiers with long 603 leases individually have an equity stake in the freehold. Therefore, they are both equity stakeholders in the freehold interest of the block and possessors of a leasehold interest in the flat that they occupy. That system takes account not only of long-lease occupants who do not wish to join in but of tenants who have remained council tenants and who wish to remain in the block. In any future Committee stage that considers these proposals Ruskin Park house in Camberwell should be regarded as an illustrative model for future commonhold developments.
I return to the Dulwich college estate, where recognition of the need for change exists not only among the tenants who wish to purchase a longer lease or to ensure that they have a greater say in the way in which their block is managed or to enjoy something broader and wider than their leasehold interest at the moment, because that natural desire is also recognised by the estate governors—the landlord. At present, they are embarking with good will upon an experiment with one block to ascertain the way in which such a model might be developed.
However, there is a need for urgency as well as good will. Although negotiations can be conducted with good will, we also need a statutory framework. That is why I agree with my hon. Friend the Member for Kensington that we need a Bill containing such provisions, and we need it now. Putting my own gloss on it, I suggest that a solution might be achieved by establishing a statutory framework while holding voluntary negotiations with the freeholders to move towards a commonhold when a substantial number of the leasehold occupants of the block—for example, 75 per cent.—wish to do so.
That should be attempted on a voluntary basis first, because that would help both sides, especially where the landlord is benign and has an interest in the well-being of the estate as well as the leasehold tenants. However, if the voluntary negotiations fall, founder or come up against some impossible obstruction, mandatory arrangements should be brought into play. Many obstructive landlords might put on the face of a benign landlord with a view to protracting the negotiations and hoping that the request and requirements to move to a commonhold would dissolve. We should therefore be able to move to a statutory phase if the voluntary negotiations should fail.
The voluntary negotiations would be expedited if existing leaseholders were given the opportunity in the meantime statutorily to extend their leases for a period. That would not only protect the leaseholder, but would show that there would not be any immediate residual advantage to the freeholder in not negotiating, or in dragging his feet, until the majority or all the leases fell in, when he could then negotiate from a different basis.
The need for such change is agreed by all parties. I am not making any party political point, nor am I claiming solely to represent a particular constituency interest in the face of opposition from the Government. All sides have the will to look at this problem afresh and find ways of dealing with it. We could take this issue forward from a debate such as this morning's if that will can be shown to exist in the House to the same extent as the need exists in our constituencies. My constituents who have an interest in these matters—some of them vote for me, of course, while others certainly do not—will benefit from the 604 proposals that my hon. Friend the Member for Kensington has outlined. I hope that it will be possible to introduce legislation at an early moment.
§ Mr. David Martin (Portsmouth, South)
I am grateful to my hon. Friend the Member for Kensington (Mr. Fishburn) for giving us the opportunity to discuss leasehold reform. At quite an early stage in my representation of Portsmouth, South I received an extremely articulate letter from the chairman and the secretary of the St. Helen's Court lessees association. St. Helen's Court is a substantial block of flats on the front at Southsea. The letter summed up the position that has been so elegantly and expertly presented by my hon. Friend the Member for Kensington, especially in terms of the leasehold reform that is required.
My hon. Friend the Member for Kensington conducted a fascinating tour of the history of leasehold. He explained how it came about and the developments that took place, especially in the 19th century, which were subject to the leasehold arrangment. One of the main signs that leasehold has become a dated concept and that something needs to be done is that it is an arrangement which is no longer employed. No one erects blocks of flats and uses the arrangement that is set out in the letter which I received from the St. Helen's Court lessees association.
Instead, we have the sort of arrangement which my hon. Friend the Member for Dulwich (Mr. Bowden) mentioned, although in a slightly different context—that flat owners have a share in a management company which owns the freehold. If an owner passes on his flat within the block, he also passes on a share in the management company. That company organises the common parts externally and internally, to the satisfaction, it is to be hoped, of all those living within the block.
I had experience of such an arrangement when I lived in a block of eight flats in Hammersmith. That was when I first owned a place in London jointly with my brothers and sister. Developments along these lines are common. The arrangement ensures that those who are buying what is effectively a leasehold have control of the freehold, with a share in a management company. The fact that the arrangement is used so widely rather than the arrangements that existed traditionally for leaseholds shows how unsatisfactory the leasehold arrangement has become. It is an arrangement that is not used in modern times.
I welcome to the Government Front Bench my hon. Friend the Member for Suffolk, South (Mr. Yeo), the Under-Secretary of State for the Environment. I shall listen with fascination when he makes his contribution to the debate. I have been in correspondence with my hon. Friend, as I was with his precedessors, on behalf of the extremely articulate people who make up the St. Helen's Court lessees association. I shall couple what I have to say about their representations and the representations that they would wish to make through me with what appears in the Lord Chancellor's document on commonhold. I believe that the Lord Chancellor is approaching the issue in good faith with a desire to act positively. I have no doubt that his experience of Scotland will motivate him strongly to act practically to improve English law in this respect.
605 There is a good summary at the end of the consultation document. The heading on page 32 isParticular issues on which comments are sought".I shall briefly go through some of the issues and highlight areas where I believe that practical arrangements can be made for commonhold that could be incorporated in a Bill sooner rather than later. The first is:Should there be a provision whereby the long-leaseholders of premises suitable for conversion to a commonhold could require the freeholder (and the owners of superior leases) of wholly or mainly residential buildings to sell them the freehold (and superior leases) in order to convert to commonhold?The question in the consultation document whether there should be compulsion is an important one and the answer is that there should be.
The second is:What should be the basis of payment for the freehold (and superior leases)? In particular, should there be any, and if so, what qualifications on open market value?The simple answer to that is that there should be market value with no element of confiscation in legislation. It is felt that there should be reference to ground rents in dealing with valuation.
The third is:Should any compulsion provision be available only if all the long-leaseholders want to take advantage of it, or should it be available to a specified majority of them? If the latter, what majority should be specified?The answer is 75 per cent. I understand that 80 per cent. has been canvassed, but 75 per cent. would be a sensible balance and it is one that I support.
The fourth point is:If the compulsion provision were to be available at the instance of a majority, how should the position of the non-participants be dealt with after the establishment of the commonhold?What to do with those who either do not want to or cannot afford to go along with the new commonhold arrangements is a crucial issue. The answer can be simply summed up—only the leaseholders who wish to convert should be involved and they would have to bear the cost of the conversion. Those not wishing to convert, and their successors, may subsequently join the commonhold association on payment of a sum to be agreed. I leave it in that form for the moment—on payment of a sum to be agreed. In the meantime, they should pay any ground rent and maintenance charges to the commonhold association. That would be a sensible arrangement.
The fifth point is:Should there be provision to override the opposition of mortgages of long-leaseholders?As we have heard, the building societies are very much involved and we need to satisfy the mortgagees. Where necessary, application could be made to the courts to override the opposition of mortgagees. If they were unreasonably withholding consent to the arrangements, that would be a matter for the courts.
My last point on the issues on which comments have been sought by the Lord Chancellor relates to whether there should be a ban on long leases of commonhold units. As the report said:Bearing in mind the implications for compulsion, should any such ban cover all long leases, or should it only apply to the grant of long leases following the establishment of the commonhold?Should the Leasehold Reform Act 1967 be extended to provide for the enfranchisement of long-leases of common-hold flats (if it is decided not to ban long-leases of commonhold units)?606 My short answer to that is that there should be no disagreement about the granting of long leaseholds within the sphere and control of the commonhold association, once set up. That would be a matter for the association.
Those are the particular views that I wish to express. They are highly sensible, and are based on my constituency interest. I have already referred to the St. Helen's Court lessees association, the chairman of which is Mr. Gould and the secretary of which is the honourable alderman Frank Sorrell, both of whom have been most helpful in informing my mind on those issues. They represent many more people in my constituency who have problems similar to those that they face.
My final and crucial point is to question whether we have a Minister who will vigorously promote such reform in his Department. Without that vigour and enthusiasm, the commonhold provisions are never likely to reach the statute book. I personally know my hon. Friend the Under-Secretary. I must ask whether he is the sort of chap to hustle when the going gets tough. My experience of my hon. Friend on the golf course would lead me to say, "Yes, he is that sort of chap," but I wanted further guidance.
I looked at Andrew Roth's "Parliamentary Profiles" to see whether I could learn anything about my hon. Friend that I had not learnt from my personal contact with him. The only problem is that the book is rather out of date, because the modern version has not yet reached "Y". I noted one or two of my hon. Friend's past performances. He contested Bedwellty against the Leader of the Opposition in 1974, but failed to win it—not a good start. However, it gets better. He is described as
Energetic, ambitious, independent minded, socially-conscious reformer.That last word was the one that I was looking for, and most wanted to see. My hon. Friend is a reformer, so we can guarantee that, to the best of his ability, he will be promoting these ideas within his Department—ideas wh ichhave achieved such support not only on the Conservative Benches, but on the Labour Benches.
Whether before a new Queen's Speech in November, or at the time of a general election, I look forward to seeing my hon. Friend in his shirtsleeves, with those colourful braces that were on display at the time of the leadership election, promoting this reform as a major pillar of Government policy. We shall never again suffer the loss of a by-election such as we suffered yesterday if we have in the forefront the reform of leasehold and the creation of commonhold.
I have no doubt that, once the full force of the Under-Secretary's enthusiasm and energy is applied to this problem—I am delighted that he was chosen by my hon. Friend the Member for Kensington to reply to the debate—and works in conjunction with the Lord Chancellor's ideas, we shall be able to show our constituents that the Government have achieved a reform that is second to none.
§ Mr. George Howarth (Knowsley, North)
I, too, congratulate the hon. Member for Kensington (Mr. Fishburn) on choosing this important subject. I canvassed in the by-election that brought him to this place—although not for him. I have never spoken to so many answerphones as when I walked through the streets of his constituency.
607 I am conscious of his sharp constituency interest in the subject. It is proper and commendable that he should take such a line on behalf of his constituents.
I, too, should declare an interest, because I own a leasehold property and am sure that I would benefit in some way from any reform of the legislation, along with 3 million others. Therefore, I shall not hesitate to continue to pursue the matter.
Over the years, many problems have arisen from a legal framework that was never intended to do what it currently does. The problems can be split into three categories. The first is the neglect and mismanagement aspect of leaseholds, the worst problems of which appear to relate to maintenance, management and insurance of buildings, together with the difficulties of getting value for money from service charges. The problem of mismanagement is rooted in the fact that responsibility for the upkeep of a property tends not to lie with the leaseholder, who is likely to be both the occupier and the person with the greatest financial interest in the property. The landlord who controls the management of a block of flats is usually non-resident and therefore has little incentive to have work done promptly, efficiently and economically. Several speeches have brought home that point strongly.
When repairs are carried out, a landlord or managing agent almost always has effective control over the choice of contractor, while the leaseholder has little option but to pay the bills. At worst, that unequal arrangement can lead to leaseholders paying large sums for virtually nothing, for fear of forfeiting their leases if they refuse to pay the charges levied by the landlord or management agency with which they do not agree. Although methods of legal redress exist, they are often expensive and difficult to use.
The second major concern is the difficulty in selling leasehold flats. Again, hon. Members on both sides of the House have outlined that problem, which involves difficulties over the satisfactory resale value of a leasehold flat, especially where the terms of a long lease have diminished significantly. That problem is primarily caused by the fact that leases are granted for a limited period only, after which ownership reverts to the freeholder. Naturally, the value of the property declines towards the end of the lease.
Research has shown that mortgage lenders require that the term of a long lease is between 25 and 35 years beyond the term of the mortgage, which is usually 25 years. Thus, flats can become unmortgageable and greatly devalued on the open market, with leases as long as 60 years to run. Many 99-year leases were granted in the 1950s and 1960s, and will soon be approaching the 60-year threshold. We can expect the saleability problem, which is already too common, to worsen.
My hon. Friend the Member for Worsley (Mr. Lewis) outlined amply the third set of problems and my hon. Friend the Member for Swansea, East (Mr. Anderson) mentioned them in a brief intervention. They do not relate specifically to London but involve south Wales, the south-west and, to a limited extent, the north of England.
My hon. Friend the Member for Worsley put the case forcefully. In the 1960s, developers offered long freeholds —usually for 999 years—at low ground rent. Unfortunately, because the value of that ground rent has diminished over the years, the buildings are often 608 auctioned—my hon. Friend gave an exhaustive list of firms in his constituency active in that regard—and sold to organisations that deliberately set about harassing owner-occupiers under obscure clauses in leases. In the words of the right hon. Member for Old Bexley and Sidcup (Mr. Heath), that is very much the unacceptable face of capitalism. The problem must be resolved.
Hon. Members with constituency interests have put the case forcefully, but the most extensive evidence has been collected by the Consumers Association. I am grateful to the association for the extensive briefing which it has given me and, I am sure, other hon. Members who bothered to ask for it. The association highlighted difficulties arising specifically from the major problems that I mentioned. In 1990, the association published a request in Which? for letters on this subject. The letters come under several headings, the first of which is neglect of the building fabric. One person said:All 17 residents are extremely annoyed and unhappy about paying for a Service we are not getting … The downpipes on the outside walls were neglected over several years which resulted in dampness which has blasted the plaster in my dining room … the Managing Agents are a joke —their internal administration is farcical and, above all, we believe they are not complying by the terms of the lease.Under the heading of delays in getting repairs done and escalating costs, a resident stated,I live in a block of eight converted flats, all of which are owner-occupied … since August 1988 … Correspondence began at this time to urge the landlod to undertake the repairs needed without delay. He was always slow to respond, if at all, and evasive … The landlord to date has not yet instructed that these repairs go ahead, with the result that the dry rot has spread over the past two years. The flat in question is now uninhabitable, as are some of the rooms in the flat downstairs".
§ Sir Geoffrey Finsberg (Hampstead and Highgate)
I am sure that the hon. Gentleman appreciates that, under earlier Acts, tenants can go to court to obtain a management order. Tenants can also go to environmental health officers of public health departments. The hon. Gentleman is right to say that the means are already available, but does he agree that they should be used more?
§ Mr. Howarth
I accept the hon. Gentleman's point. As has been said repeatedly in the debate, it is often difficult to track down a managing agent. A name will be recorded somewhere, but it may be difficult to find the person. Often, a freeholder lives abroad or there may be no record of his name. It can also be expensive to apply the law and difficult to track down the person who should be taken to court. I accept that provisions already exist, but the evidence is that it is difficult to pursue those people.
On the subject of unreasonable freeholders, another resident wrote:The vendor has failed to maintain the property, breaching the terms of the lease. He was claiming moneys for insurance, repairs, solicitors fees, and cleaning of common parts—none of which have been substantiated and which I wholly refute. The property has also been greatly devalued as a result of all the problems, plus the fact that I have spent in the region of £3,000 without any result.That answers to some extent the point made by the hon. Member for Hampstead and Highgate (Sir G. Finsberg). The resident of a large block of flats wrote:Our management agents are renowned crooks, who take advantage of the overwhelming power they have in order to make as much money as quickly as possible, by asking high service charges, while on the other hand flaunting their responsibilities and the law. Mr. G uses his own building contractor, D Property Services, to do repair and 609 redecoration work on the buildings … Apparently, even if lower estimates are obtained by residents, they come back with a slightly lower estimate again. They then commence work and find other things that need doing. The bill then goes up and up … We are not even sure whether we have proper buildings insurance cover … We as a residents' association are at our wits end. We obtained a surveyor's report to estimate repair work to the building, which is put at £70,000 plus. This is incredible, because in 1985, £41,000 was spent on the building … Apparently, the flat roof was redone, but five years later needs total replacement. How can that be? It is obvious that the sum of £41,000 did not all go on the building.Absentee landlords and the lack of contact with them were the subject of another letter to Which?:Our leaseholder has emigrated to Australia, where we send our annual cheque for ground rent and 'maintenance'. There has been no maintenance to the property since it was converted. Even after the hurricane last year, the already-leaking roof was not repaired, and the owner of the top flat has had to repair it herself. The management company turned out not to exist.On service charges and accounts, another resident wrote:I paid the first year's service charge and then asked to see the accounts, to see how the money had been spent—which I understand they are obliged to do. After five years, I am still waiting. I usually receive a bill each year, and I tell them that I cannot pay it until I see the accounts for the first year. Consequently, I have paid nothing since 1985. Fortunately, we have not needed any major repairs, but reports of minor ones have always been ignored.Another letter received by Which? stated:The new freeholder imposed a flat-rate service charge of £50 for the cost of administering the lease. We have steadfastly refused to pay this sum … The leaseholder has made no attempt to examine, visit or maintain our property. All running repairs have been arranged and paid for with the other flat owners.Building insurance was the subject of another letter to Which?:In early February this year, we were hit by a hurricane … The wall holding up the land below our principal approach road collapsed, closing our approach road … The lessor, it emerges, has not insured us sufficiently to cover this kind of event. Dealing with the insurers is complicated by the fact that our policy is not in our names. So far C's"—the lessors—have done nothing about this, and over three months have passed since the loss adjuster's report was submitted to them. What can you do with such casual management? One feels quite helpless. Meanwhile, three of our 12 apartment owners are offering their apartments for sale. Despite much interest, all prospective buyers say the same thing—'We will only be interested when your present difficulties are solved.' So these lovely properties stand blighted … If we were freeholders, we could all club together and get the work done.Those are just a few of the many examples that could be cited of the problems that confront leaseholders.
It is our intention to be co-operative, so, on behalf of the Labour party, I make an offer to the Minister. Earlier this week, my hon. Friend the Member for Hammersmith (Mr. Soley) published a document entitled "New Rights for Leaseholders", which makes four main points. First, we call for the right to buy the freehold collectively from non-resident freeholders at market value; secondly, for the right to extend the lease; thirdly, for the right to choose managing agents; and, fourthly, for the right to examine the freeholder's accounts. The first demand is in line with the principle being articulated today.
In answer to the question of the hon. Member for Kensington, something to that effect will be included in the 610 Labour party manifesto. He will have to take up with his hon. Friend the Minister or his colleagues what goes into the Conservative manifesto.
My offer is that, if the Government take up one, two, three or all of those demands, made in our policy statement earlier this week, the Opposition will co-operate in every way to ensure that the legislation—which we hope will be proposed by the Government—gets on to the statute book. We would do nothing to detain or delay such legislation and would co-operate as fully as possible, by whatever means—either those suggested by my hon. Friend the Member for Norwood (Mr. Fraser) in his knowledgeable and experienced speech or those suggested by other hon. Members.
I understand that the Minister is to speak immediately after me. He can intervene now to accept our offer, if he wishes. It is a genuine offer.
There are many scandals in our society, but this problem is a major scandal and need not happen. The history of the problem has been explained in some detail and we believe that there is support on both sides of the House for reform. There is certainly a need for reform, as has been illustrated by the cases that I and other hon. Members have quoted.
The hon. Member for Kensington has introduced the motion in good faith, and the House should take it up in good faith. The Opposition are certainly willing to co-operate. All we need are the right signals from the Minister when he replies. Then something could be put on the statute book this side of even an early general election.
§ The Parliamentary Under-Secretary of State for the Environment (Mr. Tim Yeo)
I thank my hon. Friend the Member for Kensington (Mr. Fishburn) for initiating such a timely debate on leasehold reform and pay tribute to his eloquent and forceful speech. I know that he has a long and deep interest in the subject. In the relatively brief time that he has been in the House he has attempted to introduce several Bills to improve the position for leaseholders.
I noticed in The Guardian diary the other day a report that Mr. Gorbachev told the Prime Minister that he thinks that a leasehold system is best for housing in Russia. My hon. Friend the Member for Kensington might like to make his contribution to the reform of the Soviet system by travelling to Moscow to advise on the benefits of leaseholds.
My hon. Friend has continued a long campaign, started by his distinguished predecessor, the late Sir Brandon Rhys Williams, to improve the present leasehold system in England and Wales. It is a system which many consider to be less than ideal for home ownership.
My hon. Friend received support from hon. Members on both sides, including my hon. Friends the Members for Dulwich (Mr. Bowden) and for Portsmouth, South (Mr. Martin), who paid a rather over-generous tribute to my qualities as a reformer. His tactful and diplomatic use of language showed the House why he is so well qualified to be the Parliamentary Private Secretary to my right hon. Friend the Foreign Secretary—a position which has had a number of distinguished occupants.
My hon. Friend the Member for Kensington has many constituents living in leasehold flats for whom he is a powerful and effective advocate. I am well aware that 611 problems have arisen with the management of such properties. Those problems are a source of great anxiety and concern to many leaseholders.
Sometimes it is suggested that mangement problems associated with leasehold flats are inherent in the basic system of leasehold ownership and that they can be overcome only by allowing long leaseholders of flats to acquire the freehold—in the same way as long leaseholders of houses can usually acquire them under the Leasehold Reform Act 1967. Or it is suggested that the difficulties would be resolved were the leasehold system abolished. I am not convinced that that is the case.
In many instances, the leasehold system works perfectly well, with no cause for dissatisfaction on the part of landlord or leaseholder. It certainly works well in the case of commercial property. However, I accept that there have been many cases where things have gone wrong, especially with the management of large blocks of flats and sometimes in sheltered accommodation where long leaseholders have a legitimate cause for complaint. That is why the Government have given priority to tackling abuses of the leasehold system and have introduced those provisions now contained in the Landlord and Tenant Act 1987.
At the same time we have been pressing ahead with the development of an entirely new way of owning property, called commonhold. This is a timely debate because the consultation by the Lord Chancellor on the details of our proposed commonhold legislation, which was published last year, ended only last week. It is timely also because the commonhold proposals have generated much public interest in leasehold matters generally and particularly in the question of leasehold enfranchisement for the owners of flats and maisonettes.
Many hon. Members will have received approaches from members of the commonhold flats campaign, whose aim is to give leaseholders of flats the right to purchase the freehold of the block in which they live.
The debate is also timely because, as the hon. Member for Knowsley, North (Mr. Howarth) said, only yesterday the Labour party published a statement outlining its position on this issue. It is trying to leap on board the bandwagon by announcing its own commonhold proposals. It is convenient for the Labour party that we have already published a draft Bill——
§ Mr. Fraser
Obviously the Minister's speech was written before he heard the debate. We excuse him as he did not write it himself.
We proposed a commonhold system in the policy statement from which I quoted and which was published in 1985. The Government did not initiate the proposal for commonhold—it was initiated by the Law Commission.
§ Mr. Yeo
We have already had a long tour down memory lane from the hon. Member for Norwood (Mr. Fraser), most of it irrelevant to the debate. Clearly, he has not seen the news release published by the Labour party which described the proposal as a "new package of rights." It is convenient for the Labour party that we have published a draft Bill as that will save it the trouble of working out its own proposals.
The main difference between the Government and the Opposition is that we are analysing the results of the 612 consultation before finalising the details of the Bill. As usual, the Opposition have rushed ahead without waiting to see the results of that consultation. The degree of interest in the subject within the Labour party can be judged by the fact that the hon. Member for Knowsley, North has been supported by only two colleagues this morning.
§ Mr. Yeo
Three colleagues; I beg his pardon.
This is also a timely debate because later this month I shall receive a report on the research into the implementation of the Landlord and Tenant Act 1987. That Act considerably strengthened the position of leaseholders living in blocks of flats and for the first time gave them the right of first refusal. That is the right of leasehold tenants collectively to purchase the freehold of a block where the landlord is proposing to sell his interest. In most circumstances, a landlord who wishes to sell a block of flats must give qualifying tenants, mainly long leaseholders, the first opportunity to buy the freehold before he can offer it to anyone else. He cannot offer it to anyone else at a lower price without re-offering it to his tenants. That is not a right to buy and the landlord cannot be forced to sell his interest. Where there is a purchase resulting from the right of first refusal, the leaseholders still retain their leases, but additionally acquire a share in the freehold.
I am the first to acknowledge that that is not entirely satisfactory. The tenants collectively acquire the freehold of the block, but cannot own their individual flats on a freehold basis. Although there are a few freehold flats, the owners of such properties will know that English law does not, at present, provide a satisfactory means of creating and enforcing mutual obligations among people living in separate parts of the same building. I am aware that most lending institutions are reluctant to grant mortgages on such properties.
It is widely recognised that English law is defective in failing to provide a satisfactory machinery for the imposition on freeholders of positive obligations to maintain and repair their property, or to require them to contribute towards communal maintenance costs which can then be enforced against successors in title.
In January 1984, the Law Commission recognised that fact in its report to my right hon. Friend the Lord Chancellor on land obligations and the law of positive and restrictive covenants.
With a view to solving that problem, the report set out and proposed a scheme of land obligations and recommended adoption of some form of condominium legislation similar to that which exists in America. As a direct result, the Government established an interdepart-mental working group, under the chairmanship of a Law Commissioner, Mr. Trevor Aldridge, to produce proposals for similar legislation in this country. Its report, in July 1987, recommended commonhold as a new way of owning property.
As I said, the proposals for commonhold are similar to the American condominium system and to the system of strata title in Australia. Commonhold would facilitate the creation of freehold flats within a commonhold by providing a legislative framework under which such a system could operate.
613 In November last year, the Lord Chancellor published a draft Commonhold Bill, which was prepared at the Law Commission, and a consultation paper which discussed the issue of compulsion and invited views on the different problems that would need to be resolved if any provision for compulsion were to be included in the commonhold legislation.
We are keen to introduce commonhold as an alternative option to leasehold. I hope that the proposed legislation can progress with the minimum delay. I was glad to hear the hon. Members for Knowsley, North and for Norwood express their support for moving ahead in that direction.
At the same time, the Government are taking great care to ensure that we get the legislation right. Introducing a new form of tenure into our law is a major step with many pitfalls and we are conscious of the need to consult all the bodies that are likely to be affected so that we can produce a system of ownership that is both workable in practice and attractive to those who will use it.
My hon. Friend the Member for Kensington described many of the advantages of commonhold and I accept his argument. He also acknowledged that commonhold is not a panacea for all the problems faced by leaseholders. As he said, it will not cut bills for essential work; nor will it defer the need for those works. It will not solve disputes between neighbours which, regrettably, arise from time to time.
The consultation paper deals with many issues, but the question of compulsion is perhaps the most important unresolved policy issue. I realise that for many people, the main appeal of commonhold lies in the possibility of being able to compel their landlords to sell them the freehold interest in their block of flats at full market value so that they can then establish a commonhold. I accept that there is considerable public demand for that form of enfranchisement. I also accept that without the element of compulsion, the use of commonhold may be limited—perhaps confined to new buildings. Without compulsion, the situation created by an unwilling or irresponsible freeholder will not be resolved.
I also accept that such enfranchisement is likely to be unwelcome to some landlords, including those who have treated their leaseholders well and properly. The level of compensation may turn out to be the crucial factor. I especially welcome the recognition by my hon. Friends the Members for Kensington and for Portsmouth, South of the need for fair compensation. In the case of leases that are getting short, the compensation could be substantial.
Characteristically, the Labour party document is a bit short on that aspect. Its catalogue of so-called "rights" for leaseholders is not worth a great deal on close examination, as the Labour party's fox has largely been shot by our commonhold proposals, together with the provision that already existed in the Landlord and Tenant Act 1987. Labour's proposals could have damaging effects on freeholders unless the point of compensation is fully recognised. In that context, Labour's traditional hostility to private landlords is not an encouraging background. I have to say that the possibility of Labour——
§ Mr. George Howarth
My hon. Friend the Member for Norwood (Mr. Fraser) and I entered the debate in a constructive spirit. The hon. Member for Kensington (Mr. Fishburn) has tried to build up a consensus on the subject in the House. The Minister is not helping the case.
614 We are willing to discuss with the Government, openly and genuinely, means of enacting sensible legislation. 'We have never suggested that we are the only people who are advancing this argument; we recognise that hon. Members on both sides of the House have the same interests. We are making a serious offer: we are prepared to discuss the issue not in a spirit of hostility towards private or any other landlords, but on the understanding that a problem needs to be resolved. We intend to resolve it, either in co-operation with the Government or when we ourselves are in government.
§ Mr. Yeo
I am happy to say that the latter prospect seems fairly remote, in view of the disastrous collapse of the Labour vote in the Ribble Valley by-election. Interestingly, although the Conservative vote declined by a third, the Labour vote declined by 50 per cent. I should not have thought that that result was a subject to which Labour would wish to draw our attention today.
If the hon. Gentleman is saying that Labour recognises the need for proper and adequate compensation for freeholders who may be compelled to give up their rights as a result of future legislation, I welcome that commitment. It will certainly help either the current or the next Conservative Government to pass the relevant legislation smoothly and quickly.
Providing for compulsory leasehold enfranchisement is an important process and the decision to do so should not be made lightly. The draft commonhold legislation has proved much more complex and time consuming than was originally envisaged and the issue of compulsion is especially complex. It has raised a number of important questions that need to be resolved.
For example, should compulsion apply if only a simple majority of leasehold tenants are in favour, if a larger majority are in favour or only if all are in favour? Many people may not want to convert to a commonhold or, indeed, may not be able to afford it. What would be the basis of compensation or payment for the freehold? That is a particularly complex question, which may involve the buying out of head or superior leases. What would be the position of non-participating leaseholders after the establishment of a commonhold? Should there be a ban on long leases of commonholder units? What will be the position of mortgagees?
All those questions need careful consideration and I do not think that anyone has suggested that there are easy answers to any of them. I am sure that solutions can be found, but it would be unwise to rush into a commonhold scheme without full and careful consideration of the implications. We shall certainly need procedures to resolve the disputes that will inevitably arise.
In my view, the real benefits of commonhold will be felt only if compulsion is included in the package. I am very sympathetic to the pleas of my hon. Friend the Member for Kensington and I have noted his suggestion that, if a general election intervenes before the current Parliament can act, a firm commitment should be included in our manifesto.
If the House passes legislation to introduce common-hold with a right to enfranchise, we shall review the rights of leaseholders who do not opt for it and I undertake to review the right to extend leases. The Government are something of an expert on the extension of leases, having 615 done so twice on our own account in the past few years —and as, I am sure my hon. Friends will agree, we are likely to do again at some stage in the next 15 months.
§ Mr. Fraser
The Minister said that the Government will review the extension of leases. Does that mean that he is for or against, or has he not made up his mind?
§ Mr. Yeo
It means that the legislation to introduce commonhold will be extremely complex. No doubt its progress will allow the issues to be ventilated even further. It strikes me as sensible and, indeed, desirable to leave the consideration of whether leases should be extended—and, if so, how that should be done—until we have dealt with the question of commonhold.
The Lord Chancellor's consultation paper states that the commonhold system might equally be adopted for commercial and mixed-use developments. It could be used for housing or industrial estates, or even shopping precincts with flats or offices above. I recognise that some features of the proposals have caused concern to the commercial property market. It is notable that this morning hon. Members have not suggested at any stage that commonhold should be extended to the commercial market. The existing business leasehold system works well.
It could, therefore, be argued that commonhold for business premises is unnecessary. There is no history of lobbying by business tenants for commonhold. There is a real risk that commonhold could damage the business property investment market. It could deter investors and create uncertainty over future development. It would be generally unwelcome. Those points will be considered when the responses to the consultation paper are assessed. However, it is unlikely that we shall seek to impose compulsory commonhold on an unwilling commercial property market.
The question of commonhold for residential premises is complicated by the presence in some buildings or blocks of flats of non-residential units—shops or offices. That will be a particular problem if we decide to include an element of compulsion in the provisions. We should have to consider whether commercial units ought to be included. The difficulties are recognised in the Lord Chancellor's consultation paper, although very little attention has been paid to them in the debate. There is no simple answer to the problem of using commonhold for mixed-use buildings. We shall have to look at it carefully in the light of the responses to the consultation paper.
When the Law Commissioner's interdepartmental working group reported on commonhold, it considered that legislation should not impose restrictions on the use to which buildings in a commonhold are put. The working group believed that if commonhold were restricted to residential properties, problems would arise if a commonhold unit owner subsequently wished to seek a change of use of his premises for business purposes. A balance has to be struck. Again, we shall consider the responses to that proposal.
I am aware that a number of problems have arisen in recent years, particularly with sheltered accommodation, and that they have often been a cause of great anxiety to the tenants affected. However, the launch on 22 October 1990 of the sheltered housing advisory and conciliation service will go a long way towards alleviating some of the 616 problems. The service is being funded by a consortium of developers, private management organisations and housing associations. It offers advice about leasehold sheltered housing, including conciliation in the event of disputes arising between residents and their developers or their managing agents. It appears to be working well. I should like the new service to be allowed time to settle down. However, we shall continue to keep an eye on the possible need for action.
§ Mr. David Martin
That problem has arisen several times in my constituency, particularly when the managing agent is connected with the company that runs the sheltered accommodation. It gives rise to the feeling that there has been considerable abuse, even if it has not actually taken place. I am pleased that the problem is being addressed so robustly.
§ Mr. Yeo
I am grateful for that intervention. We shall continue to keep an eye on any alleged abuse.
The Government's main response to complaints in the 1980s about the management of leasehold flats was to set up the Nugee committee under the chairmanship of Mr. E. G. Nugee. The committee conducted a wide-ranging inquiry into the management of blocks of flats. It collected evidence of problems and of mismanagement and identified where the main difficulties lay and the solutions that seemed appropriate. The committee's recommendations were implemented as the Landlord and Tenant Act 1987.
The Act introduced the right of refusal and also provided leaseholders who considered that their landlord or managing agent was failing in his duties under the terms of the lease with the right to apply to the county court for the appointment of a manager to take over the running of the block. In extreme cases, the Act entitles long leaseholders to acquire the block compulsorily if the court is satisfied that the landlord has failed in his duties and that the appointment of a manager would be an insufficient remedy. I recognise, however, that this is a lengthy and complex process and is unlikely to be used frequently.
§ Sir Geoffrey Finsberg
I pressed that issue on the Government at the time. There is no need for the process to be lengthy or expensive. We specified the county court. It would be helpful if the Minister provided encouragement instead of saying that it is a lengthy and difficult process. The provisions are there. In the county court the process is relatively easy. It would be nice if the Minister welcomed and backed it, instead of saying that there are problems.
§ Mr. Yeo
I did not intend my remark to be interpreted as being other than encouraging the procedure. We are happy for it to be used and I hope that in practice it will be sufficiently simple, but I do not think that every unhappy leaseholder will necessarily see it as an immediate answer to his difficulties.
My hon. Friend the Member for Kensington and other hon. Members argued strongly for giving long leaseholders the right to appoint managing agents. I recognise the attraction of the proposition, but my hon. Friend understated some of the difficulties that could arise. The Government considered giving long leaseholders that right, but accepted the Nugee committee's recommendation that it would blur the lines of accountability between the landlord, his managing agent and the tenant.
617 A managing agent is sometimes appointed by the landlord or freeholder to undertake all or some of the duties that the landlord is contracted to carry out under the terms of the lease, but the landlord does not have to use a managing agent.
The Nugee committee concluded that the standard of performance of a managing agent could best be maintained not by giving tenants a right to challenge their appointment or by giving them a hand in their appointment, but by emphasising the managing agent's accountability to the landlord and by placing squarely on the landlord the responsibility for performing his obligations under the terms of the lease. If leaseholders appointed the managing agent, as suggested, considerable practical difficulties could occur if they wished to take legal action against the landlord, who is ultimately responsible for the duties performed by the managing agent and for the satisfactory management of the block. If things go wrong, the leaseholder's main redress is against the landlord, the other party to the lease.
If leaseholders were given the right to appoint managing agents, freeholders would have to be released from some of their obligations or they in turn would be exposed to the problems that could arise from incompetent or irresponsible managing agents. In trying to solve one problem, we should be in danger of creating another. I am sure that my hon. Friend the Member for Kensington recognises that the solution to the problem that he identified is complex and that it must balance the legitimate interests of the leaseholder and the landlord.
If tenants were ultimately made responsible for certain duties, or if they were able to acquire the freehold of a block, there would be no practical difficulties in appointing the managing agent.
I shall shortly receive a report on research into the implementation of the 1987 Act, which, by any reckoning, was a major reform that considerably strengthened the position of the leasehold flat owner. I wish to assess the impact of the Act before considering further legislative changes, but if my hon. Friend the Member for Kensington or other hon. Members have solutions to overcome the contractual difficulties of giving leaseholders the right to appoint managing agents, I should be pleased to consider them.
My hon. Friend the Member for Kensington referred to the Leasehold Reform Act, which since 1967 has given the majority of long leaseholders of houses in England and Wales the right to buy the freehold or to extend leases by 50 years. He said that the rateable value limits prescribed by the Act exclude some expensive properties found mainly in Belgravia, Chelsea, Kensington and Westminster.
The White Paper which preceded the 1967 Act made it clear that the right to enfranchise would not apply to the most expensive properties. The intention of the Act was to protect ordinary leaseholders, especially in the north of England and south Wales, who were disadvantaged by a leasehold system that worked unfairly against them. They were owner-occupiers in all but name.
When that Act was debated, the then housing Minister said that a line would be drawn by reference to the value of the house so that the benefit of enfranchisement was confined to those in real need. That view has prevailed and successive Governments have not wished to confer the rights of enfranchisement across the board or to apply them to people who live in expensive accommodation. I 618 should therefore need to be persuaded that there are good reasons to change or to abolish the rental-equivalent value limits. I recognise, however, that no huge issue of principle is involved and I shall certainly reflect carefully on my hon. Friend's argument.
My hon. Friend also mentioned what he described as the mass purchase by disreputable freeholders of freehold and leasehold houses in Wales and the north of England. He gave a touching description of how he was the unwilling pawn of a series of perhaps unscrupulous property dealers as the head lease of his home was passed from hand to hand. I must say that he seems to have survived the experience pretty well.
There is nothing wrong with ground landlords selling their freehold interest in houses—whether in the north of England, in Wales or anywhere else. The legal position is clear. The respective rights and obligations of a ground landlord and a leaseholder should be clearly set out in the terms of the lease agreement. New landlords do not acquire any additional rights over and above those of the original lease.
I am aware of the practices adopted by some new ground landlords who exercise rights embodied in the terms of a lease in a way that the previous landlord did not and I deplore instances in which landlords seek to enforce leaseholders' obligations in an unpleasant or threatening manner.
§ Mr. Anderson
The Minister said that he deplores the practice. Does he propose to do anything about it?
§ Mr. Yeo
Let me develop the point further.
The hon. Member for Worsley (Mr. Lewis) gave a number of examples from his constituency. My hon. Friend the Member for Warrington, South (Mr. Butler) spoke of others—courageously as threats have apparently been made against him by unscrupulous landlords. I should point out to the House that the Landlord and Tenant Act 1927 safeguards all leaseholders against unreasonable charges for consent to alterations, extensions to the property and so on. Similarly, the 1987 Act provides that a landlord cannot require a property to be insured by his choice of insurer unless the lease specifically permits that.
I certainly do not endorse the way in which a minority of landlords conduct their business. I am aware that my hon. Friend the Member for Calder Valley (Mr. Thompson), who is unfortunately not with us this morning, has a number of constituents who have been asked to pay a fee before their landlord will enter into any correspondence with them. That particular landlord even asked my hon. Friend to pay a fee for answers to his letters. Hon. Members might like to consider adopting that practice on their own account, might they not?
Unfortunately, the way in which some people choose to conduct their affairs is sometimes extremely difficult to legislate for. Nevertheless, under the Landlord and Tenant Act 1987, landlords have a statutory duty to provide certain information about their identity and the insurance of the property. There are also statutory provisions requiring the landlord to make facilities available for the inspection of supporting documents in connection with the insurance and with any variable service charges that the tenants may be obliged to pay. The landlord is entitled to 619 make a small charge for providing photocopying facilities where they are available, but not for providing the information that he is statutorily bound to give.
I profoundly deplore the way in which some landlords attempt to coerce their leaseholders into purchasing the freehold when they do not wish to do so and at a price far higher than they would have to pay under the Leasehold Reform Act. My hon. Friend the Member for Warrington, South referred to that abuse.
The vast majority of long leaseholders of houses who wish to free themselves from the terms of their leases already have the option to purchase the freehold under the Leasehold Reform Act 1967—whether or not the landlord wishes to sell. Moreover, most covenants would disappear with the acquisition of the freehold. The Act sets out the basis for a fair price and disputes can be referred to local leasehold valuation tribunals. I recommend that route to constituents of the hon. Member for Worsley and my hon. Friend the Member for Warrington, South who are long leaseholders encountering difficulties with their freehold landlords.
§ Mr. Anderson
The Minister has properly set out the possibilities available to leaseholders. But given that many leaseholders will be elderly and wary of consulting solicitors, is not there a case for including with the information that the landlord has to provide to the tenant concerning his identity and insurance information about the right to buy or extend—on the analogy of the rent book, for example? Individuals who would not otherwise be aware of their rights would then be clearly told them and would know whom they might consult.
§ Mr. Yeo
The hon. Gentleman makes an interesting point. We should like to find ways of ensuring that all leaseholders in that position, many of whom may be elderly and unaccustomed to taking legal advice, have a clear understanding of their rights. I welcome the fact that some local authorities that have disreputable freeholders in their areas have conducted local information campaigns. My Department publishes free booklets that set out leaseholders' legal rights and any assistance in distributing those booklets would be most welcome. Whether it is possible to lay a statutory duty on the freeholder to distribute the information is something which we would wish to consider, but I recognise that the best way to deal with the problem is to ensure that all leaseholders fully understand their rights under existing law.
This has been a useful debate and several relevant and important points have been made. I assure the House that I shall take careful note of them. I have mentioned the difficulties that we believe exist in changing the law of property and the amount of detailed work that we have put into that subject over the past few years.
The most recent legislation in that respect, the Landlord and Tenant Act 1987, has been in force for less than three years. Its impact is only beginning to be felt. However, I am only too well aware that saying that we have done a lot, and saying that change is difficult, can easily be characterised as complacency. I want to conclude, therefore, by making two things absolutely clear. First, we are committed to bringing forward commonhold as soon as possible. It is only a week since 620 consultation closed and we still have to take final decisions on details. I can safely say that the version of commonhold that we introduce will tackle the problems which hon. Members have raised. We will not introduce legislation that dodges the issue.
Secondly, commonhold is the priority and over the next few months we shall be concentrating our resources on bringing that forward. However, I assure the House that once we are clear about the shape of commonhold and once we have the results of the research on the 1987 Act to which I referred, we will take a fresh look at the position of those who remain leaseholders and who, for one reason or another, are unable to take advantage of commonhold. I hope that hon. Members will clearly understand that this is an issue which we take seriously and which, as a Government who promote home ownership, we will carry forward vigorously.
§ Mr. Donald Anderson (Swansea, East)
The Minister's speech was a gem. He said that the Government take the issue seriously; they are concerned; and they deplore the activities of unscrupulous landlords. However, where was the beef? As an afterthought, the Minister referred to the commitment in relation to commonhold, but the kind of problems outlined by the hon. Member for Kensington (Mr. Fishburn) and others have existed during the 11 years that the Government have been in office. I also remind the Minister that the Law Commission working party reported in respect of commonhold in July 1987.
There does not seem to be a sense of urgency about the matter. The Minister's speech was one of those "Rome was not built in a day" speeches. He seemed to say that these are complex issues and that, whenever we tamper with property law which dates back to the middle ages, deep private rights are involved. I contrast that laid-back approach—so laid-back as to be almost horizontal—with the more robust view taken by the Labour Government in 1964, when, after 30 years of Conservative Government, they faced problems that were in many ways no less acute than those facing the residents of mansion blocks in Kensington and other parts of the metropolis.
I concede that they faced a different sort of problem, but for the individuals concerned it is no less acute. South Wales contains estates with row upon row of private terraced houses, often built at the turn of the century. I refer to the Beaufort estates and others in Cardiff, and to similar estates in Swansea and the Welsh Valleys, where there was a groundswell of opposition based on the sheer unfairness and the anguish that was caused to so many of what we in Wales would term "tidy" individuals who found that their ownership and possession of their properties were threatened by the falling in and expiry of the lease.
The Labour Government of the day did not take a laid-back attitude. In 1965, shortly after the election, we introduced a temporary or holding Bill and then the major legislation—the Leasehold Reform Act 1967. I concede that I am the only Welsh Member in the Chamber this morning, but if this debate had taken place before 1967, the Benches would have been crowded with hon. Members representing Welsh constituencies. That shows that, to some extent, the focus of attention has now moved to the 621 mansion blocks in the metropolis instead of being concentrated on the smaller terraced houses of south Wales.
Nevertheless, it was a major battle. The names of those involved belong on the roll call of the great. My hon. Friend the Member for Norwood (Mr. Fraser) was very involved. Sam Silkin, whose Parliamentary Private Secretary I was between 1974 and 1979, had a total commitment to this issue and did a remarkable job, helped by Leo Abse, who also was a solicitor and who used his own professional competence and knowledge, and added to the campaign led by those such as George Thomas, who became a distinguished Speaker of this House. We won what I suppose would now be called "the mother of battles" in that 1967 Act.
The battle having been largely won, what we are now faced with in south Wales and, I am confident, in several of the older industrial areas, is a mopping-up operation to solve the residual problems that were not tackled at that time, when attention was focused on the problems of the less prosperous individuals who occupied the properties that I have described. The reform was designed as a staged process.
The problems that now come to me in my mail bag derive from the activities of the unscrupulous landlords who were described in the remarkably good and comprehensive speech of the hon. Member for Warrington, South (Mr. Butler), who hails, I believe., from south Wales and who therefore has some personal knowledge of such matters.
The starting point in property legislation, the law of landlord and tenant, and the related law of the ground landlord and his tenant, is that the public interest must be to ensure that we hold the balance between the stronger and the weaker elements. Almost by definition in this area, the tenant is likely to be the weaker of the two parties. Although I accept that there are also thoroughly unscrupulous tenants, the law must seek to intervene to protect tenants from the unscrupulous activities that have now come to light.
The hon. Member for Warrington, South mentioned Castlebeeg Investments (Jersey) Ltd., which has offices in Jersey, and which tends not to reply to letters from either Members of Parliament or those writing on behalf of tenants. For time reasons, I shall not repeat all the types of exploitation that are practised—they have already been mentioned by the hon. Gentleman—but they include the insurance fiddle, in which the landlord's only interest is that his rights are adequately ensured.
Surely the landlord has no right to insist that a named insurer has the policy, but if the right for the landlord to nominate is included in the original lease, that remains the position. Surely that is wrong in principle. I accept, of course, that the legitimate interests of the landlord must be safeguarded, including insurance arrangements, exten-sions and adaptations.
I was recently involved in a case—I shall not give names, for obvious confidentiality reasons—in which an ordinary family of no great wealth in my constituency, wished to improve their leasehold property—to add an extension or make an adaptation. The family found—this was a Castlebeeg case—that it was difficult to get the consent of the ground landlord. Subsequently, the ground landlord insisted that his valuers or surveyors should go to the property. That added substantially to the costs of the leaseholder, who was seeking only to improve the 622 property, which for most purposes was his. The extension was to add to the value of the property and thus provide greater security for the landlord.
Where there are disputes about insurance, extensions or adaptations, it should be possible to set up a simple and flexible procedure to deal with them. Perhaps the procedure should be on the lines of the leasehold valuation tribunals, which are effectively rent assessment committees in another form.
The tribunals have proved their effectiveness over the years in providing a simple remedy for the tenant. It may be that the same cheap and flexible arrangement could be provided to hold the balance between landlord and tenant in the sort of dispute to which I have referred. It is suspected that landlords, by actions which include adding to the professional fees of related companies, which perhaps they own, increase—improperly, in my judgment —tenants' costs.
I have already mentioned adding to the statutory obligations that fall on ground landlords by making clear to tenants the nature of their rights. Surely that would not be difficult. Ground landlords are already under an obligation to provide the tenant with the name of his landlord and the name of the insurer. Surely it would not be difficult to make it clear to the tenant in an appropriate way that he has the right to buy or the right to extend and that he, the tenant, may wish to seek advice. There are statutory terms that apply to rent books and no great imposition would result in an extension of such terms. No reasonable ground landlord would be harmed if there were a requirement that the statutory rights of the tenant were to be made clear to him or her.
The Minister has conceded that, in south Wales, the generality of tenants tend to come from the less prosperous parts of the community and live in two-up, two-down houses. These are people who are often frightened to take professional advice from solicitors, for example. They would feel worried about adding to their costs. They should be informed of their statutory rights in the recognition that, in terms of the balance of power, property companies are allowed now to exploit and not to reveal.
Perhaps a flexible approach would be to add to the responsibilities of the leasehold valuation tribunals, which have proved highly effective, by giving them the task of resolving disputes in areas where the more unscrupulous landlords will seek to exploit tenants.
When a Bill is considered to take up the greater issue that has been outlined by the hon. Member for Kensington, who is my Member—I shall not say which way I vote—and who follows in the distinguished footsteps of the late Sir Brandon Rhys Williams, I hope that note will be taken of the arguments that have been advanced today. I am delighted that the mantle of Sir Brandon has fallen on a gentleman who is prepared to take up those issues.
I hope that, when a Bill dealing with commonhold and related matters is introduced—I anticipate that it will be my party that does so—included in that will be additional protection for the sort of tenants that I have described in south Wales and in the older industrial areas.
§ 1.5 pm
§ Mr. Lewis Stevens (Nuneaton)
I congratulate my hon. Friend the Member for Kensington (Mr. Fishburn) on selecting leasehold reform as the subject of today's debate. It is a matter of great interest to him, and he has done a great deal of work on it. I also congratulate my hon. Friend the Under-Secretary of State on giving a commitment that the Government are prepared to bring forward a Bill in, as I understood his words, as short a time as possible. My hon. Friend also said that he accepted the principle of compulsion and that the leaseholders of flats should have the right to purchase freeholds in some form or another, depending on how the Bill is drafted. That is, perhaps, the most important point for leaseholders who may wish to purchase the freeholds.
However, my hon. Friend the Under-Secretary of State expressed reservations about the availability of parliamen-tary time, how long the Bill would take to go through the House because of its complexity and the possibility of an election this year, or definitely next year. If we adopted the right approach to a Bill, it would be much easier to get the primary legislation through Parliament—it would be enabling legislation—than it would be if we tried to incorporate a great amount of detail in the Bill, as that would delay it both in its drafting and in Committee. I urge my hon. Friend to introduce such an enabling Bill in this Session or certainly early in the next Session.
The principles that have been expounded this morning appear to have common support across the Chamber, so I am sure that an enabling Bill would go through its stages without too much difficulty. Some of the difficulties and complexities could be dealt with through regulations at a later date. That has happened with some Bills over the past 15 years and it has proved to be successful. I urge my hon. Friend to consider that suggestion.
Dealing with leasehold reform has been delayed time and again, although it has certainly not been neglected —far from it. The subject has been of interest to individuals and to the Government. Many leaseholders, especially those in London, have long been expecting some action. The issue has been raised by hon. Members, by people outside and by various organisations. It is inevitable that something must happen, but the question is when. The speeches so far, especially that of my hon. Friend the Member for Kensington, have been responsible ones. Hon. Members have set out in considerable detail the problems and how they should be resolved, although it has perhaps not been stated firmly enough that some landlords exploit the leaseholders, either directly or indirectly by also being the managers of the flats. Many people are left with a feeling of great insecurity and uncertainty.
People purchase flats for reasons that suit them at the time. It may be the cheapest way to purchase a property, but people seldom realise how high charges can be through no fault of the leaseholder, who has virtually no control over them.
An increasing number of large and not so large houses in our cities are being converted from single occupancy properties to flats. Leaseholders' difficulties vary widely. In large blocks of flats, leaseholders' organisations are fairly well organised. If the flats have long leases, the block is likely to be well managed and the charges, which often depend on the district, are often reasonable, although rarely cheap. With the increasing number of houses being converted into flats, there is more and more scope for 624 managers and landlords of the freehold property to exploit leaseholders. That is another reason for the need to introduce reforms as quickly as possible.
I shall not comment on some of the other fears that have been expressed today but shall concentrate on the subject of flats. I foresee problems in the mechanism whereby leaseholders have a right to purchase a freehold. I agree that they must have that right, but am unsure how matters can be brought to arbitration. Under the leasehold system, there already exists a possibility of arbitration when people wish to buy a freehold. We must define at an early stage how arbitration can function effectively, cheaply and quickly. It is often neither cheap nor quick to achieve a resolution.
If a majority of leaseholders want to form a commonhold association, it is relatively straightforward —provided that they can agree on the price—to define how that price will be shared by each purchaser. What about those who do not want to purchase the freehold at that time? Although the freeholder would remain in control of the other freeholds, or their equivalent, he might not wish to do so, perhaps for economic reasons. In order for the landlord to sell the freehold, will he have to sell the freehold of each flat in a block at the same time? That could create problems unless guidelines were laid down in legislation or regulations on the limit to the number of freeholds that the commonhold association could purchase. There might be a block of shares in the freehold, which the leaseholders did not want to purchase but which the landlord wanted to sell. I am worried about how the simple concept of a leaseholder having the right to purchase a freehold will affect a commonhold association.
§ Sir Geoffrey Finsberg
We could easily deal with that problem. A block in my constituency was owned by the Church Commissioners. I persuaded them not to sell the block to an offshore company but to sell it to the tenants. The tenants who did not wish to buy remained as tenants of the new company which was owned by the others and they paid a fair rent, laid down by the rent officer. They had a choice—they could buy or they could remain as tenants. That is a simple solution, which would take the Department only five minutes to put into law.
§ Mr. Stevens
I am grateful to my hon. Friend. That is an excellent way forward.
People feel insecure because of the dwindling value of their asset as leases run down and because of exploitation by landlords and managing agents. Tenants are not given fair protection under the existing law. The sooner we have a new set of conditions for the development of commonhold, the better. It is not just a choice. To protect leaseholders, it is imperative that we have such a law.
§ Mr. Matthew Carrington (Fulham)
I, too, congratulate my hon. Friend the Member for Kensington (Mr. Fishburn). As well as being immensely fortunate in winning the debate, he has campaigned tirelessly to promote the cause of commonhold and leasehold reform. He took on the mantle that was nobly worn by his precedessor, Sir Brandon Rhys Williams, who was a dear friend of mine, and I am glad that he fights as valiantly for his constituents as Sir Brandon did.
The constituents of my hon. Friend the Member for Kensington have similar problems to my constituents. We 625 have neighbouring constituencies, although they touch only at the north-eastern corner of my constituency and the south-western corner of my hon. Friend's constituency. There are the same patterns of occupancy, the same types of mansion block and the same types of conversion of large houses into flats, the latter having gone on since the war.
The leasehold problem is common to west London—indeed, as we heard in the debate, common to the whole of London. It is becoming increasingly urgent, because many mansion blocks that were built in the late 19th century and the early years of this century were originally let to tenants under some form of short-term tenancy. In my constituency and in Kensington, those blocks were converted into leasehold property in the 1950s, 1960s or as late as the 1970s. On the whole, that property was let on 99-year leases and the remaining years left on the leases are causing doubts about the ability to remortgage the properties if they are sold. Those doubts figure large in the minds of the leaseholders who own them.
There is also a problem with mini-conversions. Conversions of large properties in my constituency started after the war. The properties were let by leasehold. Sometimes, there were as many as five flats to a house, but occasionally there were just two, the upstairs and the downstairs flats. That process still goes on. It is happening —this point has not been mentioned in the debate—because of right-to-buy legislation. A new group of people are becoming leaseholders in conversions and in blocks of flats which were originally council flats.
I am glad that my hon. Friend the Under-Secretary has made an encouraging commitment to rapid progress in implementing the results of the consultation exercise on commonhold carried out with the Lord Chancellor. My constituents will be grateful for such a commitment and my hon. Friend will have my strong support in making progress as fast as possible.
Because it is impossible to remortgage a property that has less than 60 years of its lease remaining, it is made difficult for the existing leaseholder to realise a price that compensates him for what he originally paid for the property. The price falls dramatically the shorter the length of the lease remaining, with a lease of 30 years producing a marked discount in comparison with one of 60 years. That is the reverse of what one normally expects in the property market in which, over a period of time, the value of property normally increases at least as fast as inflation.
The freeholds of blocks of flats or of converted houses are often bought by people, not with the intention of becoming responsible landlords or of obtaining a return through ground rent and the management of the building, but because they are increasingly interested in the flats' reversionary value at the end of the leaseholds. Blocks where leases have been let at different times, and where the leasehold drops in over a period of some 20 years, say, at the rate of a few flats per year, make an interesting business proposition.
It is often in the freeholder's interest not to maintain the block but rather to drive out existing leaseholders so as to obtain vacant possession, with the intention of selling it on or of redeveloping the property. The freeholder ceases to have an interest in protecting the property and the block may consequently become run down. That is seen increasingly in my constituency and, I suspect, in that of my hon. Friend the Member for Kensington.
626 As leases become shorter, leaseholders also take less of an interest in maintaining their property than they would if they were the owners of a freehold. The consequence is a spiral of decline in the building's fabric and maintenance, which is detrimental not only to its future but to the community at large. Commonhold is the right way of addressing that problem.
Mention has also been made of the rogue freeholder, who attempts to exploit leaseholders by forcing up service charges and terrorises them by using other methods of legal and quasi-legal manipulation, in order to extract every last penny. The Landlord and Tenant Act 1987 is helpful in dealing with such persons, but it works best where there is co-operation between the freeholder and leaseholder. Where there is an active obstruction by the freeholder to implement its provisions, it may be necessary to initiate legal proceedings. They can produce a satisfactory outcome and, because of county court provisions, may not be as expensive as leaseholders fear. Nevertheless, that course is one which many leaseholders are reluctant to pursue.
Commonhold would be beneficial to all and particularly to responsible freeholders. I am sure that they would be delighted to see a proper price paid for their freehold, to reflect the true value of the building. It would also get them out of all the problems of managing a block of flats. Given that freeholders are being paid off at the market rate, I believe that commonhold would be attractive to them and to everyone's advantage. Also, that is a way to get around the problem of extending reducing leaseholds, which would become automatic with commonhold.
I strongly support the provision that if compulsion is to exist to enable leaseholders to insist that a freeholder sell his freehold—as I believe it should—a free market valuation that is satisfactory to both parties should be made by an independent valuer. Alternatively—that is the usual wording in these matters I believe—a valuer could be appointed by the president of the Royal Institution of Chartered Surveyors. There are all sort of mechanisms for agreeing a price in such transactions and that provision would properly protect the rights of the freeholder.
I strongly support the introduction of commonhold. It is the way forward and it is long overdue. I hope that legislation will soon be introduced to enable it to happen.
At what point do we allow leaseholders to insist on buying the freehold? One suggestion is that it should he, when leases have only 60 years left to run, but in my view that is too long. In many cases, 60 years would not solve my constituents' problems and I should like the limit to be as low as 40 years. A great deal of thought needs to go into deciding what period is right and what consultation is necessary.
How many owners of flats would have to be in favour of buying the freehold of the block for that to proceed'? I understand that the Consumers Association has suggested 80 per cent., and 75 per cent. has been suggested this morning. I think that 75 per cent. might be too great, provided that proper provision is built in to protect the rights of leaseholders and tenants who do not wish to participate. It seems to me that a resident, as opposed to an absentee landlord, is of substantial benefit to everyone. If the limit were 75 per cent., the freeholder would have a real ability to block sale of the freehold by keeping control —through tenancy or vacancy—of a sufficient number of flats.
627 I should like the percentage to be more flexible. For example, in a terraced house that has been converted into two flats, as is frequently the case in my constituency, there would have to be a choice of 50 or 100 per cent. That may be an extreme case, but in that situation it seems to me that the figure should be 50 per cent., rather than requiring unanimity between tenants. There is a case for flexibility, perhaps depending on the number of tenants and I commend that to my hon. Friend the Under-Secretary.
It is important that the right protections are built in for tenants and that can easily be handled within this legislation. Having said that, everyone's rights need to be protected. It is essential that leaseholders are given control so that they can insist on managing their own blocks and are able to take on the freehold, perhaps through some sort of commonhold.
I congratulate my hon. Friend the Member for Kensington and I end my speech with the wish that this legislation proceeds as soon as possible, ideally before the end of the next Session.
§ Mr. Hugo Summerson (Walthamstow)
It is pleasant to be able to take part in this most interesting debate on a truly fascinating subject. The origins and the basis of property law go back centuries and we must be careful when we think of changing that law. By filling in one pit, we have to ensure that we do not dig another.
I congratulate my hon. Friend the Member for Kensington (Mr. Fishburn) on his good luck in coming first in the ballot for private Members' motions. I also congratulate him on the tenacity with which he has pursued the subject. Last year—or possibly even the year before—he managed to persuade me to be a sponsor of one of his Bills, which takes some doing. It shows that he also has great powers of persuasion.
I have taken a great interest in the subject for a long time. I must declare several interests. I am a fellow of the Royal Institution of Chartered Surveyors, a member of the Royal Agricultural College, the chairman of a firm of mortgage and insurance brokers and the director of a company whose sole asset is a number of freeholds of small blocks of flats. So I am supposed to know something about it.
In 1989, I introduced a Bill under the ten-minute rule which called for a standard form of lease. That subject causes a tremendous amount of ill odour. A person wishing to buy the lease of a flat goes to his solicitor, who may discover a problem if, for some reason, the lease is not in the correct form and, as drafted, will not be acceptable to a building society. I experienced that problem.
I bought a small flat in Westminster about three years ago. It was handy for the House, but it was a mere shoe box with a 70-year lease. I bought it when I was still a bachelor and my wife soon ensured that I got rid of it. She said that she was fed up with tripping over me every time she went in.
Before I bought the flat, my solicitor said that the lease was incorrectly drawn and must be changed. To change it, my solicitor had to contact the freeholder, who was a foreigner. I do not know where he lived, but it was not in this country—and perhaps not even in Europe. He lived thousands of miles away, so my solicitor had to contact his 628 solicitor and we all know that such cases always benefit the legal profession. My solicitor talked to his solicitor and after much toing and froing and much correspondence, because he could not be found immediately, he was tracked down going walkabout in Australia near Ayers rock. It took a long time and the freeholder then said that he was going to charge me for changing the lease. He charged me about £2,000, which was a wholly undeserved windfall for him.
The original solicitors who drew up the terms of the leases nearly 30 years earlier had made a mistake. It seemed extraordinary that the freeholder should be able to benefit from that mistake and that it should redound to his benefit each time a flat in the block was sold. Prospective purchasers and their solicitors had to go through the same old routine and every time the freeholder collected £2,000. That is a disgraceful state of affairs which does not reflect well on the legal profession.
Having delivered myself of that, I congratulate the Lord Chancellor's Department on having drawn up its excellent consultation paper. It is large and heavy and contains a lot of paper, which shows that a lot of work has gone into it. As I said, when we are thinking of changing property law, it must be done properly. The consultation paper is well considered and well thought out. I have some reservations about the complexity of the proposed legislation, but it can be sorted out.
The period for consultation has just closed. I do not know how many people wrote in with observations on the consultation paper, but I hope that many did. I hope that we shall have a chance to debate it in future. I am very glad that we have the basis for new statute law and I look forward to a full-scale debate on it.
Some of the big estates were mentioned earlier, especially the Grosvenor estate. My hon. Friend the Member for Kensington told us that he lives on that estate. He will agree that in many respects, it is a model for the management of urban property. It is thanks to the Grosvenor estate that many parts of London are so beautiful and so appreciated, not only by residents, but by visitors. On the whole, the Grosvenor estate has done a good job in preserving the appearance of some of the most important parts of our capital city.
However, it must be said that there are problems not only on the Grosvenor estate, but in other places because leases, by definition, decline in years. That may not be such a problem on the Grosvenor estate, where a lease for a flat with only two or three years left to run still has considerable value. The lease of a flat with 40 years to run is expensive. Until the great crash of 1989, it could be said that the values of leases were increasing despite the fact that the number of years on those leases was declining. That happens only in isolated cases with estates such as the Grosvenor estate which will always be in demand.
The case is different in other areas. As the term of the lease declines, its value declines. People start to experience all the problems that go with leases that are declining in years and in value. They will probably not be able to find a purchaser, because building societies will not grant a mortgage. Other hon. Members have mentioned those problems.
In Walthamstow, several blocks of flats suffer from that problem. Leases for some purpose-built flats—not conversions—that were originally long are now down to 25 years. The elderly people who live in those flats suddenly find that although they thought they had 629 something of value, they do not. A 25-year lease has some value, but it is difficult to realise. No building society will grant a mortgage on a lease that has only about 25 years left to run. People find it impossible to realise the value of the equity and are in serious difficulties.
The problem is compounded by the fact that the freeholders are not performing as they should. In the case that I have in mind, the freeholders are the Freshwater group. Hon. Members have mentioned the names of other freeholders and the Freshwater group is another notorious freeholder in the London area. Constituents have come to me to complain about some of its practices, such as unitemised bills, bills coming out of the blue which are wholly unrelated to any of the usual quarter days, bills that do not comply with statute and bills that are remarkable not only for their lack of detail, but for their size. A bill will arrive which merely says, "Maintenance—£500", or whatever. That is against the law, as we all know, but it does not stop the bills arriving. Many elderly constituents are driven almost to distraction by such practices by unscrupulous people.
Even if commonhold legislation were established., there would still be a problem. The current lessees would have to purchase the commonhold, given the obvious difference in value between a 25-year lease and what is effectively freehold. The problem could be solved by a provision allowing the assumption, on the sale of a lease of, say, 50 years, that that lease had 99 years to run. In such circumstances, rather than the entire "marriage value" going to the freeholder, a goodly proportion could go to the leaseholder, who would then be able to realise a reasonable amount of his equity on the sale of the property.
I listened with interest to what the hon. Member for Worsley (Mr. Lewis) had to say about leasehold houses. The original idea was that, on the sale of houses with long leases, estates built in the 1950s, 1960s and 1970s could be managed as estates, for the benefit of the residents. I do not believe that any greedy motivation existed then; it was hardly worth while to collect £10 a year in ground rent from 200 houses, given the high costs of collection. Requiring all the lessees to insure with a specific company would guarantee that the amount insured was appropriate to the houses concerned. It would not have done the estate any good if a house had burnt down and proved to have been under-insured: the presence of a gaping, blackened ruin in the middle of the estate would have had a detrimental effect on the values of the other houses.
Similarly, I doubt whether the requirement for a freeholder to give the go-ahead for improvements constituted an attempt to obtain £100 here for the building of a garage and £100 there for the building of a conservatory. The aim was probably to ensure that any extensions, or insertions of dormer windows in the roof spaces, were carried out in accordance with the character of the estate. Such additions were intended not to stick out like a sore thumb, or to destroy the rhythm of the estate and thus affect its value. It is unfortunate that such good intentions have been so manipulated by unscrupulous people, whose actions have led to cries for help from lessees—cries to which we must listen.
The problem of mixed hereditaments has been mentioned, but only in passing. When, for example, a shop has a flat over it, or several flats—perhaps with part of the building serving as an office, with a garage below—there is a danger that a mixture of tenure will result. To have afreeholder, leaseholder and commonholder all working in the same 630 building would be a recipe for chaos and possibly for disaster. We must be very careful before we go down that road.
The lease system works well with commercial properties. It is not, I believe, intended that the leases of commercial property should become commonhold. The landlord and tenant system works perfectly well in commercial buildings under the aegis of the Landlord and Tenant Act 1954. It is one of the better Acts relating to property. It is well understood and it governs the relationship between landlord and tenant, to the satisfaction of both parties.
Some years ago I regularly attended property auctions. What fascinating occasions they are. All sorts of extraordinary-looking people make bids for property. The sale of ground rents has always been popular. At an auction that I attended 10 or 12 years ago the freehold of a house in Kensington was offered for sale. The house had been turned into two or three flats. The leases of the flats were due to expire in about 70 years. The freehold of that property was sold on a year's purchase of only £50. That sale stuck in my mind. Ever since I have regretted not buying the freehold. I bet the lessees regretted even more not buying it. The 1987 Act has put that right. I commend the Government for it. As its provisions become better known, I hope that more and more lessees will realise that they can buy the freehold of the building in which they have flats.
One might ask why anybody should want to buy the freehold of a building that has been turned into flats which have been sold on long leases. The best example that I can give is that of a small property company based in south Kensington. Unfortunately, I do not know its name. In the 1950s and 1960s enormous houses in that area were turned into flats and sold. The freeholds had little value, particularly as the ground rent amounted to only £5 or £10 a year. That dozy little property company bought many of the freeholds in the south Kensington area. Ten or 12 years ago it suddenly discovered that, due to property prices increasing sharply and the length of leases having come down to 70, 50 or 60 years, it was sitting on a gold mine. Consequently, the company has sold extensions to leases and made a killing, not because the people who run the company are particularly able, but because they have been able to exploit this aspect of the leasehold system.
It is possible to gain income other than ground rents from these investments. One can gain income from management charges and from collecting a percentage of the cost of work carried out to a building. Insurance Commission has been mentioned. Some people buy only the freeholds of blocks of flats that have flat roofs in the hope of obtaining planning permission to build so-called penthouse flats on top. Others like to buy blocks of flats in extensive grounds so that they can build garages. We must bear in mind the factors that affect the values of blocks of flats.
We have heard much about short leases. We must remember the advantages of short or comparatively short leases. For example, a foreign business man who is working in this country for five years can buy a 20-year lease on a flat, at the end of which, particularly in central London, he will have an asset to sell. In addition, despite the lease running for 15 years instead of 20 years, it may increase in value.
631 A further advantage of the leasehold system is that sometimes a freehol-der, especially a responsible freeholder, can exert pressure on recalcitrant lessees. Property maintenance is expensive. The provisions of the Landlord and Tenant Act 1987 must be complied with, but some lessees cavil at having to spend money on maintenance and others will complain down to the last penny. Sometimes it is an advantage for a freeholder to be able to say, "Here are the provisions on the maintenance of the property, as set out in the lease. We are bound not only by the terms of the lease but by statute to carry out these necessary works." Compulsion can be valuable, but it would not be as strong under commonhold.
The arrangements whereby the freehold to a block of long-lease flats is owned by an association of lessees can work perfectly well, but from time to time a lessee will dig his toes in and say, "I do not care whether the maintenance is essential, I shall not contribute to the costs." That places the freeholder, the managing agents and, perhaps worst of all, the other lessees in a difficult position. They may know perfectly well that the block needs essential maintenance, but it is delayed by one or two people who simply say no. I realise that they may be unable to afford to contribute to that maintenance. In that respect, the leasehold system is inferior to the freehold system. If one owns the freehold of a house and the roof starts to leak, one can say, "I cannot afford to repair it this year, but I can afford a bucket. I will put the bucket under the leak and when I can afford to repair the roof I will repair it." Lessees do not have that luxury and that is certainly a disadvantage.
I have spoken about the compensation arrangements that would apply when lessees took over from the freeholder and set up a commonhold. If compensation is to be paid—and it will be—it must reflect the element of compulsion. We all know that there is difficulty with the channel tunnel and the main line to London. One may ask, "What on earth is the connection?" The connection is that someone whose house is acquired compulsorily at market value only will be much less happy about it than someone who is paid compensation based on the French model, which is very generous. Such compensation would make it easier for someone to give up his home. I suggest that if there is an element of compulsion—we shall have to wait to see what the legislation says—it should be reflected in the compensation that is paid.
We have had an interesting debate on an interesting subject. I think that commonhold will come and we must take every care possible to ensure that it works. When we have done that, I am sure that it will be to the advantage of most people who live in flats.
§ Mr. John Bowis (Battersea)
I shall speak briefly and belatedly. I apologise to my hon. Friend the Member for Kensington (Mr. Fishburn), to the Minister and to the Opposition Front-Bench spokesmen for having been delayed by meetings both inside and outside the House. I welcome the opportunity that my hon. Friend the Member for Kensington has given us to discuss this subject, which is important to people in many parts of the country—not least in London. I represent a constituency where there is block after block—mansion blocks, tower blocks—you name them, I have them. The problems that could be 632 solved by a commonhold policy are self-evident. However, I am talking not just about blocks, but about one-up, one-down conversions, where people have difficulty controlling the destiny of their own homes. Over the past few years, we have moved towards much greater self-help and collective independence for people living in blocks. We have seen co-operative movements emerge from local council blocks and I hope that, with commonhold, the same will apply to private leaseholders.
We have numerous problems in Battersea. As my hon. Friend the Member for Walthamstow (Mr. Summerson) said, some residents cannot get works done because there is difficulty in reaching agreement. The other side of the coin is that residents may object to unnecessary work being done by the freeholder and charged to them. They do not have control over their destiny. I have received letters from tenants who have had unnecessary work done to their homes at exorbitant cost by firms that arrive at unreasonable hours of the day and sometimes even at night. Such problems cannot be overcome without some help and I understand why the reform is needed. However, when an offer is made and the leaseholders are willing to purchase the freehold, the freeholder often sets the price so high that that is not feasible.
I welcome the commitment of my hon. Friend the Minister. Commonhold is the way forward, although I ask that we should examine carefully the needs of elderly people living in such properties who may be frightened by the notion of compulsion. Compulsion may well be right, but we need to examine their circumstances carefully and ensure that their requirements are properly catered for in proposals which, in broad terms, will benefit all the residents.
As we consider commonhold, I hope that we shall also examine the present system of passing the freehold on to subsidiary companies. When that happens there appears to be no requirement to consult the residents of the flats or the estate. That is unreasonable.
I commend my hon. Friend the Member for Kensington for raising the issue and I commend my hon. Friend the Minister for making pledges. There is virtual unanimity in the House about the proposition that an Englishman's home should become a commonhold castle rather than a feudal one.
§ 2 pm
§ Mr. Fishburn
I hoped to have widespread support for the motion from all parts of the House and I am delighted that that has happened. I am even more delighted that support has come from hon. Members representing all areas of England and Wales. It shows that although the problem with leasehold applies predominantly to London flats, it is by no means restricted simply to London and the south-east. Indeed, it is not simply restricted to flats; although 1.5 million people live in leasehold flats, more than 1 million people live in leasehold houses.
The hon. Member for Worsley (Mr. Lewis) and my hon. Friend the Member for Warrington, South (Mr. Butler) opened up the debate most effectively. They showed that while we may be considering 60-year leases as rapidly diminishing assets, there are poor souls in the north with 999-year leases who might have thought that those leases gave them the benefits of freehold, but have found, courtesy of cuddly Sam Antonelli and others like him, that there is a freeholder who can threaten them and 633 raise money from them in the most unseemly way. The nature of our dissatisfaction about leasehold spreads across the country and ranges from those on short leaseholds to those enjoying a modest 999-year lease.
The hon. Member for Norwood (Mr. Fraser) took me to task for moving a motion that was too brief. I would have taken his criticism more to heart had he not made a contribution lasting 45 minutes. His speech was too long. The full and proper use of the debate was made by my hon. Friends the Members for Dulwich (Mr. Bowden), for Portsmouth, South (Mr. Martin) and for Battersea (Mr. Bowis). They contributed their thoughts and those of their constituents about the way in which we should proceed with the adoption of the Lord Chancellor's commonhold proposals. My hon. Friend the Member for Hampstead and Highgate (Sir G. Finsberg) wanted to speak, but he had to leave before he could catch your eye, Mr. Deputy Speaker.
I want particularly to thank my hon. Friend the Member for Fulham (Mr. Carrington), who knows a great deal about the subject. I am particularly grateful because, without him, I would not be a Member of the House. I was elected at a by-election, which is not something unknown for returning Conservative Members. My hon. Friend the Member for Fulham was my minder then and he kept me from making many mistakes. His contribution about the way in which we should proceed with the Lord Chancellor's proposals was particularly apt.
The hon. Member for Swansea, East (Mr. Anderson), on behalf of many Welsh Members, reminded us of the widespread difficulty with leasehold reform in Wales. have spoken to many of his colleagues who represent Welsh constituencies and they welcomed the opportunity to consider the inadequacies of leasehold reform. Had this been any other day but Friday, we would have heard many a Welsh voice raised in support.
I thank especially my hon. Friend the Member for Walthamstow (Mr. Summerson) for his knowledgeable contribution because he, perhaps alone among those who have spoken today, is a fellow of the Royal Institution of Chartered Surveyors——
§ Mr. Fishburn
I had not realised that my hon. Friend the Member for Dulwich is also a fellow of the RICS.
I thank the hon. Member for Knowsley, North (M r. Howarth) and my hon. Friend the Minister, not least for their courtesy in staying in the Chamber for the entire debate. That is very much appreciated. I thank the hon. Member for Knowsley, North also for the straightforward way in which he said that, as we move towards adopting commonhold procedures and passing them into legislation, the Labour party will adopt a constructive and helpful attitude and will not seek to stand in the way.
Recognising that the problem spans the House and its political parties, the hon. Gentleman said that the Labour party would extend all its good will to such legislation.
In conclusion, I must express my special thanks to my hon. Friend the Minister for his forceful speech and for listening fairly to the arguments that have been made. I shall read Hansard with great care on Monday, but I took it that he was making a clear commitment to push forward with the proposals for commonhold. He expressed the near-certainty—I know that my hon. Friend has to he cautious, being a Minister, but I choose to emphasise the word "certainty" rather than "near"—that the enfranchisement of leaseholds will be given as a matter of right to their leaseholders. He went on to say that as his Department reviews the Landlord and Tenant Act 1987, it will take on board several of the points that have been made today, not least the recommendation that leaseholders should have the right to nominate their managing agents. I fully understand that that was not recommended in the Nugee report and am also aware that few people in this country know more about property law than Mr. Nugee, but I regard that as a mistake and believe that a reform by which lessees could appoint their own managing agents would be worth while.
We have had a good debate and I commend my motion to the House.
§ Question put and agreed to.
That this House believes that the law of leasehold as a method of providing residential tenure in flats or houses is in need of widespread reform.