PREMISES EXCLUDED FROM RIGHT (Hansard, 9 February 1993)

§ Mr. Baldry

The Minister of State and I said in Committee that we would reflect further on the right threshold for commercial use, because clause 4(1) excludes from enfranchisement premises where more than 10 per cent. of the internal floor area is given over to commercial use.

We have considered the matter extremely carefully. My hon. Friend the Member for Kensington (Mr. Fishburn) has been a powerful advocate in favour of raising the threshold to 20 per cent. of the internal floor area. We have come to the conclusion that it should remain at 10 per cent. That threshold was chosen carefully, after extensive sampling and taking of expert advice.

There is great concern that our proposals for residential property should not spill over into the commercial market, as anything that undermined the generally satisfactory workings of that market would be unwelcome.

I am aware of the concerns of tenants residing in mixed-use property that will be excluded from enfranchisement. Many of them have argued for the 10 per cent. threshold to be increased. The business sector is, however, just as concerned that enfranchisement should not affect the commercial property market and commercial tenants are concerned about the implications of control by leaseholders who are inexperienced in the management of commercial property.

The commercial parts of a block are much more valuable than the residential space. Commercial space is typically worth 15 to 20 times as much as residential space, and if the threshold were raised, residential tenants might have to purchase property that was worth more than their own interest. In those circumstances, in many cases the participating tenants would not be able to afford to buy the freehold, and would be left with no benefit because they would not have the right to buy a new lease. They would be given the right without the remedy. We concluded that increasing the threshold, and thus the number of mixed-use blocks eligible for enfranchisement, would not help leaseholders and could harm many of them.

There are arguments on both sides, but we think that we have struck the right balance. We must remember that 927 leaseholders with leases that are not capable of enfranchisement will have the right to lease renewal under chapter II.

If experience shows that 10 per cent. threshold is causing problems, it can be dealt with using the reserve powers in clause 4(3), which allow the Secretary of State to specify a different percentage threshold later should the need arise, although we do not think that that is likely to be necessary.

I hope that I have reassured hon. Members that the threshold should remain at 10 per cent., and I invite my hon. Friend to withdraw his amendment.