HC Deb 09 February 1993 vol 218 cc834-51

`(1) Nothing in Chapters I and II shall be taken to confer a right upon the tenant of a flat to acquire a leaseextension unless the tenant occupies the flat as hisprincipalresidence.

(2) In relation to a claim for collective enfranchisement under Chapter I such a claim shall not be valid unless not less than half of the participating tenants occupy flats in the relevant premises as their principal residence.

(3) In this section "principal residence" means a flat which a tenant—

  1. (a) occupies as his main or only residence; and
  2. (b) has so occupied for the last three years or periods amounting to three years in the last ten years.'—[Sir Jerry Wiggin.]

Brought up, and read the First time.

Sir Jerry Wiggin (Weston-super-Mare)

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

Madam Speaker

I understand that it will be convenient to discuss at the same time the following amendments:

No.5, in clause 5, page 5, line 40, after 'rent', insert 'and

  1. (a) occupies the flat as his principal residence, and
  2. (b) has so occupied the flat for the last three years or periods amounting to three years in the last ten years.'

No. 10, in page 6, line 37, at end insert—

`(7) In this section "principal residence" means a flat which a tenant occupies as his main or only residence.'.

Sir Jerry Wiggin

It is a matter of considerable regret to me that the Bill is modelled on a Labour precedent, the Leasehold Reform Act 1967. That Act was passed only after its opponents on the then Conservative benches, led by Mr. Anthony Barber, forced major concessions and amendments on the Government.

A number of us find it difficult to accept that a Conservative Government are retabling a socialist measure which has been described by Professor Wade QC, who is acknowledged to be the United Kingdom's foremost administrative lawyer, as a form of

expropriation (which) can scarcely be said to have been for public purposes, since its object was merely to enrich certain tenants at the expense of their landlords. However, we must accept that the principal motivation behind the Bill—to deal with abuses by landlords on leaseholders of flats—was contained in the 1992 Conservative manifesto, and neither I nor my right hon. and hon. Friends seek to renege on that promise. We seek a solution that is fair and equitable to all. The Bill is not. It is a sledgehammer to crack a nut; it is unjust.

On page 33 of the Conservative manifesto for the last election, under the title "Home Ownership", there is a preamble which outlines Conservative policy on housing: Conservatives have extended the right and opportunity to own a home and pass it on. I am sure that we all agree that that is one of the most important rights that an individual has in a free society.

In that context, the manifesto commits this Conservative Government to giving residential leaseholders"— I underline the word "residential"— living in blocks of flats the right to acquire the freehold of their block at the market rate. Those who see the matter in a different light have been quoting the manifesto at me, but the manifesto specifies residential leaseholders.

Similarly, the 1967 Act gives the right to enfranchise to tenants and leaseholders who occupy the property as their genuine home, and the 1966 Conservative general election manifesto committed Conservatives to providing choices for a ground leaseholder of residential property who had occupied the house as his principal residence for at least the last five years. One of the choices was the right to buy the freehold, but here Conservatives made it clear that the freehold should be purchased on the basis of full compensation to the freeholder.

In stark contrast, the Bill gives the right to enfranchise to any long leaseholder of a flat. It will therefore be possible for absentee leaseholders, corporations, foreign companies and speculators forcibly to acquire a freehold property at a discount. The Bill, as I propose to discuss later, offers inadequate levels of compensation to freeholders and allows leaseholders, in the words of my right hon. Friend the Minister of State, to acquire

an asset worth more than the price paid. So the Bill goes much further than the Conservative manifesto. Its provisions are even more confiscatory than the 1967 Act and, perhaps most disturbingly, it sets a dangerous constitutional precedent by giving rights of confiscation not to genuine home owners who may in late life regret having willingly entered into a leasehold contract, but to any investor with an interest in leasehold property.

The Bill does not set out to nationalise property—after all, the beneficiaries are private persons—nor does it bestow the right of eminent domain, which would enable the compulsory purchase of property for a public purpose or public interest such as building a road. No public interest is served by the collective enfranchisement of leaseholders, many of whom will be corporations, absentee overseas leaseholders and speculators. I cannot believe that Opposition Members really believe that it is sensible to pass legislation that benefits those classes of people. Instead, the interests of one set of private persons, the leaseholders, is served by the expropriation of the interests of another set of private persons, the freeholders.

Let us not imagine that all freeholders are dukes, vast estates or charities; many freeholders are single individuals who have invested in a block of flats or a house or have inherited the same. I have received a number of pathetic letters from people who will be seriously disadvantaged by the Bill, people against whom nobody could have any serious political angst. It is seriously wrong.

Mr. David Winnick (Walsall, North)

The hon. Gentleman paints a picture of poor freeholders, almost as people used to talk about "poor widows" when Rent Act protection was being discussed. Is he aware that one of the richest people in the country—sometimes described as the second richest person in Britain—the Duke of Westminster, has waged a campaign, obviously not among Labour Members but among Conservative Members? He has tried to do what he possibly can to persuade a sufficient number of Conservative Back Benchers to vote against the Bill. Is not the Duke of Westminster someone who has an interest in the matter and would feel much aggrieved if the Bill became law?

4.15 pm
Sir Jerry Wiggin

The hon. Gentleman cannot make a case based on one individual, any more than I can make the opposite case based on another individual. The fact of the matter is that, if confiscatory legislation is introduced, surely the House should protect the rights of the individual, whether duke or pensioner. It has been a principle of long standing of the House that it protects the rights of individuals. It would be a great mistake for us to depart from that principle simply because one individual or case did not fit.

I should add that I have never heard the Duke of Westminster or his estate accused of being a bad landlord. But I am aware that many small landlords seriously abuse the law. Those are the people whom the Bill should get at. It should not seek to break up big estates or take people's property, at whatever level.

Britain has signed a European protocol which enforces certain rights and freedoms not included in section 1 of the European convention. Under article 1 of that protocol, the signatory Governments have agreed that Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law". The Bill deprives natural and legal persons of the peaceful enjoyment of their possessions—their freehold properties. If the Bill is to be accepted by the House, it must be amended to prevent a challenge under the first protocol.

The new clause sets out to achieve the aims that I have described. It includes the requirement that enfranchisement or lease extension will be limited to individuals who occupy the property solely for residential purposes and as their principal residence. Furthermore, he or she should so have occupied the flat for the past three years or for a period amounting to three years in the past 10 years.

In reply to anxieties properly expressed in Committee by my hon. Friend the hon. Member for Surrey, East (Mr. Ainsworth), the Government argued that the residential qualification

would considerably reduce the effectiveness of the proposals, not least because it would make it harder to achieve a two-thirds majority of qualifying tenants. At the same sitting on 17 November, the Minister of State said: It is not the object of the Bill to enable one investor in a property to enfranchise against another. Alternatively, such a person could block enfranchisement by other qualifying tenants in the building if the number of flats for which he was the qualifying tenant ensured that the requisite majority was never reached without his involvement."—[Official Report, Standing Committee B, 17 November 1992; c. 103, 113.] The new clause ensures that, if the principal private residence qualification interferes with the majority needed for enfranchisement to be agreed, lessees who occupy as their genuine home should be given the right to a new long lease. It is a fair and sensible new clause, and I commend it to the House.

Mr. Battle

The hon. Member for Weston-super-Mare (Sir J. Wiggin) seeks Labour support, but I have to disappoint him and say that we cannot offer him support for this clause because we believe that enfranchisement should be extended and not hedged by further exclusion clauses. We wholly reject the contention that enfranchisement should be limited to leaseholders who have owned the property as their principal residence for three or more years.

If we can refer back, as we did in Committee, to the Consumers Association report. although it revealed that there is no uniform profile of leaseholders, it showed that a large proportion, about 90 per cent., of leaseholders had bought their flats in the past 10 years, and that three quarters of those surveyed had purchased their flats in the past five years. In other words, the practical import of the new clause is that, at a stroke, it would effectively render by far the majority of long leasehold flat owners ineligible to take part in an enfranchisement bid.

We think that the Government enfranchisement proposals are already too restrictive, but the knock-on effect of this clause would be arbitrary and unfair, and it would totally undermine the Government's intention in extending leaseholder enfranchisement. We have for a long time argued for leasehold enfranchisement,and we shall continue to argue forit—to be extended to everybody, not agreed in principle, as it were, giving a kind of rhetorical assent to a right and extending it as a rhetorical right and then undermining it by hedging it with more and more extensions. We see this new clause as further exemption, which would undermine the intention to enfranchise leaseholders.

Mr. Michael Jopling (Westmorland and Lonsdale)

I must first declare an interest, in that I own some domestic property which is let, but I am advised that none of it comes within the provisions of this proposal.

I support the comments of my hon. Friend the Member for Weston-super-Mare (Sir J. Wiggin) in moving this new clause. This is the second time I have intervened in proceedings on the Bill. On the first occasion, the Secretary of State for Environment was kind enough to give way and I can do no better than repeat what I said then, that I can bring myself to agree, after much heart-searching, to legislation which forces people to sell their property when they do not want to. That, clearly, sometimes has to be done.

I am also just prepared to agree that, where people have entered freely into agreements without any pressure upon either side, those agreements freely entered into can be torn up, but my principal concern is about the level of compensation. We shall come to that a little later. But I do not like the proposals in this Bill. I find them basically offensive, and we shall come to the main reason why I find them offensive later.

I certainly find the provisions which are dealt with in new clause 2, together with amendments 5 and 10, very offensive, but that is because I do not see why it should be necessary at all to give a vast overnight windfall profit to people who have entered into agreements perfectly freely in the past. I cannot see why it is necessary for there to be a great moral crusade to allow the sort of bodies my hon. Friend referred to—corporations, investors, overseas residents, speculators and any others who happen to have a main residence elsewhere—to make vast overnight profits. We are all aware of foreigners who have houses or flats in London, for instance, and come to use them for relatively shortly periods of the year.

It is an injustice that those people should make, or in some cases, as the Bill stands, would make, vast overnight windfall profits just through the provisions of this Bill. I can think of no sensible argument, and have heard no sensible argument, that would justify giving such people of the opportunity presented by the Bill.

I strongly support what my hon. Friend the Member for West-super-Mare (Sir J. Wiggin) has said. Opposition Members are usually the first to seek to clobber speculators, overseas residents, investors and the like; I was astonished by the attitude of the hon. Member for Leeds, West (Mr. Battle), and I cannot understand why the Opposition do not support the new clause.

The provision in the Bill was not properly thought out. I understand that it was shuffled into the manifesto at the last minute, with the minimum of consultation and discussion. I do not think that it should have been included, but it is there and we shall have to honour it. I feel, however, that the House is perfectly entitled to trim it in the way proposed in new clause 2, moved so ably by my hon. Friend the Member for Weston-super-Mare.

Mr. Nick Raynsford (Greenwich)

Let me spell out the simple, straightforward and fundamentally just reasons for proceeding with leasehold enfranchisement at a far more energetic pace than the Bill allows. We are talking about dismantling an archaic and unjust form of tenure which has disappeared almost everywhere in the world except in this country. Here, its continued existence buttresses the privileges of certain exceptionally wealthy people, who have been able for many generations to live on the money that they have extracted from land that they happen to own, on which other people's efforts built houses and other people's money paid rent.

Lest the hon. Member for Weston-super-Mare (Sir J. Wiggin) has any doubts, let me remind him that, as long ago as 1889, fear of the possibility ofleaseholdenfranchisement—then much in public debate—made the first Duke ofWestminster and his board decide not to renew leases. The writing was on the wall in 1889; it is sad that it has taken more than 100 years to reach this point, at which we are taking a significant step to dismantle an archaic and absurd form of tenure which has allowed a small number of people to become fat and wealthy at the expense of many others.

Let us look at the reality of the leaseholder's position. As the Bill stands, many leaseholders will find it impossible to exercise their right to enfranchise, because of the hurdles that they must overcome to qualify. They will have to establish that they themselves have a qualifying tenancy: that involves serious tests which we shall probably debate later, notably the low rent test, which may well prove an obstacle. They will have to establish that an appropriate percentage of the occupants are also qualifying tenants —in fact, two thirds ofresidentsintheblock—before they can proceed. They will have to establish that two thirds are willing to proceed with the enfranchisement; that no more than 10 per cent. of the accommodation is in non-residential use; and that there is no resident freeholder. All those serious tests will have to be passed if leaseholders are to benefit from the Bill, which is nowhere near as simple and straightforward as it should be.

If leaseholders negotiate those hurdles successfully, they must pay a significant price, allowing freeholders to obtain half the marriage value of the process for nothing. Let us hear no more cant about the poor unfortunate multi-millionaires who have lived off their landholdings for generations, and are now being required to dispose of them as part of the process of leasehold enfranchisement. We want a far more energetic pursuit of enfranchisement, and the removal of many of the obstacles that we shall discuss later. I sincerely hope that the House will dismiss this wrecking amendment for what it is—an attempt to impose yet another obstacle on leaseholders who deserve the earliest possible opportunity of enfranchisement.

4.30 pm
Sir John Wheeler (Westminster, North)

I am glad to speak after the hon. Member for Greenwich (Mr. Raynsford) because on this occasion I agree with him and disagree with my hon. Friend the Member for Weston-super-Mare (Sir J. Wiggin) and those who support the new clause. But then, I would, considering the constituency that I represent.

On the face of it, the proposed new clause looks sensible, and there must be many hon. Members who consider it to be a reasonable condition to place on those seeking to enfranchise. But some of the most dangerous things in life are disguised to look the most harmless. Anyone who knows anything about the housing market, particularly in central London, will be aware that, far from being an innocuous addition to this part of the Bill, the new clause would effectively wreck it.

I am sure that its proposers are not unaware that, if the new clause were adopted, the vast majority of leaseholders, certainly in my constituency, would be prevented from enfranchising. So we would be passing a piece of legislation that enabled leaseholders to gain control over their homes in principle, but prevented from doing so in practice. It would be a worthless piece of legislation.

The enfranchisement of blocks of flats is a collective action. A certain number of leaseholders must meet the criteria set out in the Bill if they wish to get together and exercise their right to enfranchise. By dramatically extending the scope of the criteria that must be met, the new clause would severely limit the number of cases in which sufficient qualifying leaseholders existed.

As the hon. Member for Greenwich said, hon. Members with first-hand knowledge of the need to reform the leasehold system feel that the hurdles that those wishing to enfranchise must cross are already too high. They must have leases of over 21 years; they must pass the ridiculous and indefensible low rent test, a subject which we shall discuss later; they must have at least two thirds of the flats in their block enfranchiseable; they must not have more than 10 per cent. of the floor space in commercial use; they must have a two-thirds majority in favour of enfranchising; they must pay a disproportionate amount of the marriage value to the freeholder; and they must buy up excess flats if the freeholder so demands.

All those hurdles already combine to exclude many genuine long leaseholders from the provisions of the legislation. Consider the effect that the new clause would have. Westminster city council, which has virtually nothing but leasehold property in the city, is an ardent campaigner for leasehold reform. Unlike some of my hon. Friends who do not have leasehold properties in their constituencies, Westminster city council knows only too well the misery and hardship caused by the perverse leasehold system and is clear that the proposed additional hurdle would exclude the vast majority of leaseholders from enfranchising.

The reasons why the new clause would emasculate the Bill are simple. For example, it would exclude from the equation those who have not yet lived in their long-lease flats for over three years. But the housing market is never static, particularly in central London. There will always be a sizeable portion of leaseholders who have lived in their flats for one, two or just under three years. No sooner will one flat owner have crossed the three-year mark than another will move out, and the new leaseholder will again count against in the enfranchisement equation. Add the flats owned and used by businesses and the second homes of people working in London, of whom there are many in Parliament, and one appreciates how difficult it would be to cross the proposed new hurdle.

The danger of the new clause is that it would prevent those identified in it from enfranchising and would make it impossible for those who meet all the stated requirements to do so. These leaseholders would simply not be able to assemble the required proportion of qualifying leaseholders.

I realise that some of my hon. Friends may not want businesses to be able to buy and sell freeholds for speculative gain, but that has already been dealt with. My hon. Friend the Member for Weston-super-Mare is arguing a case which I contend would wreck the Bill. The amendment accepted in Committee would prevent any person or corporate body that owned two or more leases in the same block from taking part in any collective enfranchisement. That amendment stops property speculation. The new clause will virtually stop all enfranchisement, even by genuine long leaseholders. I urge the House not to support it. It is a wrecking measure, and it should be stopped.

Ms. Glenda Jackson (Hampstead and Highgate)

It is a pleasure to follow the right hon. Member for Westminster, North (Sir J. Wheeler) and my hon. Friend the hon. Member for Greenwich (Mr. Raynsford), because I endorse wholeheartedly the points that they so eloquently made about the new clause.

I must tell the hon. Member for Weston-super-Mare (Sir J. Wiggin), who spoke about individuals, that Opposition Members who served on the Committee are unstinting in their praise for the groups that have furnished us with evidence about what it is like being a long leaseholder under the present law. I should like to list some of them. Under the heading of the Leasehold Reform Co-ordinating Committee, there are six organisations: the Commonhold Flats Campaign, the Consumers Association, the Council of Mortgage Lenders, the Federation of Private Residents' Associations, the Leasehold Enfranchisement Association and the National Consumer Council. All of them are concerned that the present law, which is inequitable and almost feudal in its exercise, should be changed.

We are much concerned that the Government's proposals are far too narrowly drawn. The hon. Member for Weston-super-Mare regards the Bill as a measure of expropriation. I have received a copy of a letter written by someone who really knows what expropriation is about. She came here as a refugee from Hungary in 1948, and she says: Good God, how different that was from the expropriation threat to the Duke of Westminster". She and her family had everything taken away from them: You woke up one morning and found that you had nothing, not even the coat on one's back. The right hon. Member for Westmorland and Lonsdale (Mr. Jopling) described the Bill as offensive. The lady who came here as a refugee from Hungary finds the low-rent test deeply offensive, as do Opposition Members.

What is it really like for people who are leaseholders, for instance, on the Cadogan and Grosvenor estates? The Cadogan estate had every intention of evicting a leaseholder after she had been in her home for 43 years—despite her repeated but unsuccessful appeals to the estate for a negotiated settlement. Once legal proceedings started, she claims that the estate obstructed her at every turn, wore her down to the point of extreme exhaustion and landed her with annihilating costs—to such a degree that she was eventually forced to withdraw from the case.

A leaseholder on the Grosvenor estate carried out extensive building improvements. This is a recurring theme in all the evidence that we have received from associations and individuals. Leaseholders are responsible for the upkeep of their property; for the repairs, decoration and security of their homes. In many instances, they pay large amounts—

Mr. Geoffrey Clifton-Brown (Cirencester and Tewkesbury)

I think that the hon. Lady is incorrect in citing those two cases. Even under existing law, all leaseholders are protected by the Rent Act 1977 and there is no way that the lessor could throw out either of those lessees.

Ms. Jackson

The hon. Member for Weston-superMare said that it was a battle between equals. I was attempting to point out that it is anything but that. It is a battle between leaseholders and the might of the major estates. In the second instance that I referred to, the lease was running out and because the estate categorically refused to consider an extension, the lessee submitted that evidence.

Sir Jerry Wiggin

Surely the hon. Lady agrees that in my opening remarks I ceded the argument about landlords who abuse their tenants and that something had to be done to put that right. Does she not agree that her argument has failed on one important point of information—that the lease is a voluntary contract for every leaseholder?

Ms. Jackson

Wherein lies the equality in entering an agreement freely, when the definition of what constitutes the contract inevitably lies in the hands of the freeholder?

Despite his intervention, I must disagree with the hon. Member for Weston-super-Mare. The estates are financially immensely powerful and can employ the best that the legal profession is able to offer, which is not the case for the leaseholder.

The leaseholder on the Grosvenor estate had carried out such extensive building improvements to his home that he could have been eligible to apply for the freehold. As in so many cases, the estate decided to fight the application. The leaseholder had limited resources and a family of five and had to abandon all thoughts of taking action. That is why the Opposition oppose the new clause. The requirements for enfranchisement drawn on the fact of the Bill by the Government are infinitely too narrow and restrictive, but the new clause would make a mockery of the Bill and of the House.

Mr. Nigel Waterson (Eastbourne)

I am delighted to add my voice to those who oppose the new clause and, although I am advised that it is not an interest, I must mention that I own a leasehold flat in my constituency.

To take up the argument of the hon. Member for Hampstead and Highgate (Ms. Jackson), like anyone who tries to acquire a flat, I had no choice when I entered into the contract because I could not obtain a freehold. I share that burden with people who live in England, Wales and Hawaii, as those are the only countries which have the leasehold system—not even our friends the Scots have ever gone down the leasehold route in the way that we have done.

I fervently support the remarks of my right hon. Friend the Member for Westminster, North (Sir J. Wheeler), who said that this is a wrecking new clause. I agree that it would emasculate this new, important and useful Bill, and that it is totally contrary to the spirit of the legislation. I should be doing a disservice to my right hon. and hon. Friends who tabled the new clause if I did not suggest that they were well aware of that when they tabled it.

Many people have leasehold flats in constituencies such as Eastbourne and other resorts along the south coast. Many use them as holiday properties or have them in mind for their retirement. Often people of slender means have invested their money in those new homes. Under the new clause they would be told that they are not allowed to purchase control—the freehold—of their homes and they would not even be entitled to an extension of the lease. The new clause would effectively make them second-class citizens, despite an enormous capital outlay to purchase the leasehold and to pay for maintenance and repairs. Many people want to buy such homes, particularly for their retirement, and would like to own the freehold.

Given the collective nature of enfranchisement in blocks of flats, as my right hon. Friend the Member for Westminster, North said, the new clause would prevent enfranchising by leaseholders who might meet all the relevant criteria but would be unable to assemble the proportion of flats required for a block to enfranchise.

4.45 pm

Retirement flats will count against the other leaseholders, which will discriminate against my constituents and those of my colleagues who represent towns on the south coast. Leaseholders who moved in to their flats one, two or three years ago will count against them —and think how many people in any one block will not have lived there for three years. The housing market is such that there will always be some flats in a block that are owned by people who have not lived there for the length of time proposed in the new clause. All flats owned by businesses will count against them, as will flats whose owners have rented them out for the short term arid flats owned by people who are temporarily working abroad.

One can readily see why the new clause would bring such comfort to people who are fundamentally opposed to the concept of enfranchisement. The clause would exclude not only people who could not claim their flats to be their principal residences—perhaps for the best of reasons—but most of those people who can.

Dame Jill Knight (Birmingham, Edgbaston)

I have been following my hon. Friend's argument carefully, but I do not understand why he thinks that someone who has lived in a flat for three years and has established it as his or her principal residence, would be unable to apply for the freehold under the Bill. By then, the leaseholder would have met all the conditions necessary for the purchase.

Mr. Waterson

Given the constant turnover in a block, there are bound to be people who have not lived there for the requisite amount of time, and a majority is required.

Mr. Patrick Nicholls (Teignbridge)

My hon. Friend seems to have a fair point. Many people want to move within three years. If there were no time qualification, but merely a statement that the flat should be occupied as a main residence, it would tie in with the manifesto on which we both fought the last election. It seems to me that the removal of that qualification might cheer up my hon. Friend. Would he care to comment on that?

Mr. Waterson

As my hon. Friend knows, I am a cheerful sort of fellow and that might give me a modest amount of cheer, but I still have a fundamental objection to the new clause, with or without the three-year restriction.

Even Opposition Members have grudgingly accepted that the legislation is important and beneficial for leaseholders, and I believe that as many people as possible should be able to reap the benefits.

Mr. Battle

I cannot allow the hon. Gentleman to suggest that we are grudgingly supporting leasehold reform. We are actively campaigning for it. We have been looking forward not only to the hon. Gentleman's speech on the new clause, but to his voting for our new clause to widen and enhance leasehold enfranchisement.

Mr. Waterson

I am delighted to accept support from wherever I can find it in the House. I wonder whether I can take it from the hon. Gentleman's remarks that, unlike on Second Reading, he and his hon. Friends will vote for the legislation on Third Reading. The hon. Member is uncharacteristically silent on that issue. No doubt we shall hear more from him later.

The point I was making was that the new clause would exclude not only those who could not claim their flats to be their principal residences, but most of those who could legitimately do so. Its ramifications reach far beyond those who are mentioned in the new clause. I believe that if it were allowed to pass, it would wreck this legislation.

When my hon. Friend the Member for Weston-super-Mare speaks of socialist legislation, confiscation, and so on, he is, I believe, missing the fundamental point. This issue is not really about the great London estates; it is about individual, often retired, folk in places such as Eastbourne who have put all their savings into a piece of property which is, in effect, a wasting asset; people who, like myself, when they came to acquire a flat in that constituency had no choice but to take leasehold.

As I have said, this applies only in England and Wales and, I think, Hawaii. It has always been an indefensible system and I am delighted that this legislation will sound its death knell.

I am therefore happy to oppose the new clause on behalf of my constituents and those of many other right hon. and hon. Members.

Mr. Nicholls

I start by declaring my interest in Port Enterprises Ltd., the Waterfront Partnership and Howard de Walden Estates Ltd., and the fact that I have a flat in London on a long lease.

One thing that has become starkly obvious in the debate is that my right hon. and hon. Friends on the Front Bench have found themselves deriving comfort, and indeed votes, from some strange quarters. It must have been obvious to all of us that, although the Opposition are apparently entirely behind the Government in opposing this new wrecking clause, they are working to a different agenda and marching to a different tune.

I know why I am in favour of the Bill and why I voted for it on Second and Third Readings. The reason was set out in a very straightforward manner by my hon. Friend the Member for Weston-super-Mare (Sir J. Wiggin), who opened the debate. I thought that this was all about ensuring that residential home owners were enabled to buy their own homes. That carries with it some rough justice, because ultimately it means that some people will be deprived of their property against their will. As a Conservative, I do not particularly like that, but politics is an imperfect trade and this is an imperfect world, and sometimes one has to balance interests. It certainly seemed to me that the greater Conservative interest was met by home owners being able to own their own homes. So far, so good.

What we heard from the hon. Member for Greenwich (Mr. Raynsford) was an entirely different tune. He is in the business of reversing history. He has a jolly, romantic and completely ridiculous view of history. He wants to divest dukes. That is what he thinks this is all about: robbing the robber barons. I dare say his view is sincerely held, but it is quite potty. When my right hon. and hon. Friends on the Front Bench suddenly find that hon. Gentlemen are all in favour of opposing this clause, I hope that they will pause and reflect that, although misery is supposed to acquaint one with strange bedfellows, it is a bit odd to have to rely on that sort of support to get legislation through.

I am extremely grateful to my right hon. and hon. Friends for the care that they have taken in listening to the representations that I have made in recent months. It must be said—I hope that this will not embarrassthem—that they have come a considerable way towards meeting the substance of the objections that we have been hearing from these Benches this evening.

As long ago as 14 August, my hon. Friend the Under-Secretary of State wrote a very helpful letter to me. In view of some of the remarks that have been made in this debate, I ask whichever of my right hon. or hon. Friends will reply to confirm that this is still the position. My hon. Friend said in his letter: You were concerned that the present proposals would enable long resident leaseholders, including corporate bodies and professionals, to enfranchise. I explained that we had already decided that commercial tenants would not be qualifying tenants for the purposes of enfranchisement. I have no reason to doubt that that remains the position. I have come to the House today believing that to be so and if by any chance it is not, I hope that that will be made clear in the winding-up speech.

It was clear that, even after that undertaking, there was a risk that one form of commercial investor would be able to enfranchise against another form of commercial investor. I put that point to my right hon. and learned Friend on Second Reading and he was kind enough to say that he would look into it.

Subsequently, in Standing Committee, my hon. Friend the Member for Surrey, East (Mr. Ainsworth) tabled an amendment that dealt almost entirely with the point. I commend my hon. Friend, because it was a remarkable piece of draftsmanship. Interestingly, it accorded exactly, it would appear, with the Government's thoughts on the matter after my intervention on Second Reading. In Standing Committee, that clause was accepted and the substance of it was that a head lessee cannot be the qualifying tenant of more than one flat in a block for the purpose of enfrachisement. It is a lawyer's point, but none the worst for that. It took some time for that to come; it arrived because of representations made throughout the month, and it is very welcome.

It seems to me that it is only a small step from there to asking whether anything needs to be done, in addition to my hon. Friend's amendment, to tidy things up a bit. The way that I would have tidied it up is in amendment 115, which, for reasons of I know nothing, finds itself in a forlorn position further down the list of amendments, perhaps because of the way in which I tackled it. In substance, if not in reality, it belongs in this group of amendments.

I was seeking to achieve the acceptance of a residual qualification that the home must be a person's principal or primary residence. That would seem to accord exactly with what was in the manifesto, because it talked about residential home owners. This is in no sense a novel concept; it is known already. It is known for the purposes of MIRAS and of the capital transfer tax laws. It is also known for the purposes of the Landlord and Tenant Act 1967, which, to some extent in our deliberations, has now achieved a status close to that of a bible. People dine a la carte on it where it seems to be in their interest to do so. Therefore, I will do the same and commend the 1967 Act in this respect at least, because it makes the case and accepts the concept of a principal primary residence.

What can be the objections to that concept? I know what the objections will be from the Opposition; they have been expressed with great eloquence and sincerity. I also appreciate that some constituency pressures may produce a particular approach to it in other parts of the Chamber. But, from the point of view of the manifesto that we walked the streets of England, Wales and Scotland advocating, what could be wrong with the concept of principal primary residence? I know that in due course my hon. Friends will be telling me what the objections are. Happily, in the light of correspondence that I have had with them, I can perhaps give an answer in advance to some of their objections.

The proposal is supposed to be novel and complicated. Well, it is not. A more serious and worthwhile objection that certainly must be addressed is that there is no doubt that some people in a block would find it harder to enfranchise, and I accept that that is a problem that must be dealt with. I made that point on Second Reading and I said that there would be lots of time for officials, with all the resources of intellect and ingenuity available to them, to come up with a solution to that problem.

I even, as a humble country lawyer from the backwoods, suggested one way in which they might proceed. They could say that, if a person in a block was unable to enfranchise because of this proposal, he should be entitled to a long lease. That would not have been quite the same as full ownership, but it would have been very much further towards it and would have made sure that the policy objective set out in the manifesto would have been achieved. If that is not feasible for some reason, I look forward to hearing why. The point is that there has been sufficient time to think how that might be taken forward.

What other objections might there be? One suggestion, as I understand it, is that it is really all a bit of a misunderstanding, because, if people are conducting a business when they are essentially in a residential context, they must be in breach of a planning law. If that were the case, one could tootle along to the local planning authority and say that those people are not really residential, but are running businesses. Perhaps one could, and perhaps one could not; I neither know, nor, frankly, do I care.

I do not see why one should have to use the planning laws as an instrument of property protection. It is perfectly clear that, a long time before there was any such thing as planning laws, head lessees sold leasehold interests in property. We are now in the business of home ownership, yet we find that there are places where there are no homes at all. Let us take, for instance, a Harley street doctor. For the purposes of equality, I suppose I had better talk as well about the Manor House hospital which prominent trade unionists use; I would be out of order in going too far down that road, so I will leave it.

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Anyone who has ever been to see a Harley street doctor does not believe that he actually lives in his house in Harley street. He is into hot bunking; he is virtually into revolving brass nameplates outside. It is a rabbit warren. It has nothing whatever to do with residential accommodation and everything to do with business accommodation. It does not matter what the planning laws say; the reality is that someone who is a business person will suddenly find as a result of the legislation that he will be in a position to enfranchise. I cannot believe that that was the intention of my right hon. and hon. Friends when they introduced these proposals.

On my final point 1 must part company with my hon. Friend the Member for Weston-super-Mare. Someone who can move within three years these days is lucky, but there could be a problem about setting a three-year qualification period. The way to address the problem is simple, although it would make things harder for the landlord. Let there be a qualification without time limit, so that, the instant someone buys, it becomes the principal private residence. That would take care of the practical abuse.

When we have gone to the country with a commitment to do something to help residential home owners, I do not understand how business use can get in on the side. The Government have done so well in listening to the representations, in making the concession that was made in correspondence in August, and in dealing with the point made in Standing Committee by my hon. Friend the Member for Surrey, East (Mr. Ainsworth), that it would not take very much for them to get it exactly right. Were they to do that, they would know that they have done the right thing because of the undying abuse and criticism of the Opposition. I should like to think that they would feel consoled when they heard that.

Mr. Michael Stern (Bristol, North-West)

Many points have already been made in the debate, so I shall be brief. May I disabuse those Opposition Members who believe that the Bill is about getting another kick at nasty landlords? That has come through clearly in their speeches. The socialism of envy has been prominent on the Opposition Benches, particularly from the hon. Members for Greenwich (Mr. Raynsford) and Walsall, North (Mr. Winnick), who is no longer in his place.

A number of people—not a large but a significant number—on retirement, perhaps after selling a small business or after saving for a number of years, invest their savings funds not in a leasehold flat but in freehold reversions. That is not illegal, or even immoral. It was a way of investing money over a long period to provide a fixed income through what was regarded as a safe investment.

The reason why I and some of my hon. Friends are doubtful about some aspects of the Bill is that we can see the life savings of those small investors being significantly devalued by the provisions of the measure. While I accept the principle of the Bill—I voted for it on Second Reading and I shall support it on Third Reading, because it increases the availability of freehold property to a substantial number of people—we should be wary of confusing that principle with using the power and force of Government to make financial adjustments between landlord and tenant. That is why I look forward to a discussion later on the extent to which marriage value is to be divided between the two.

I raise the point on the new clause because there has been much discussion about the meaning of residence. All of us have different views about the extent to which residence as such, or residence over a period, needs to be a qualification under the Bill. I take issue with my hon. Friend the Member for Weston-super-Mare (Sir J. Wiggin) on one detail of the proposed new clause, in that I know of many people, some of them hon. Members, who live in flats in London during the week and in homes in their constituencies at the weekend, but who for tax or whatever purposes regard their constituency home as their principal private residence. I can see no reason why such people should be debarred from enfranchisement under the Bill, despite the fact that technically the flat that they are trying to enfranchise is not their principal private residence.

When I lived in a block of flats in the constituency of my right hon. Friend the Member for Westminster, North (Sir J. Wheeler), I found that on the two floors where I knew the tenants well—the floor that I lived on and the floor beneath—I was the only tenant who was not occupying a company let. I have no idea who the landlord was. He might have been one of the dukes referred to in such slighting terms by Opposition Members, or he might have been a private investor. All the other tenants were there because they were occupying flats for the benefit of the companies for which they worked.

I do not object to those people having votes or not having votes when it comes to enfranchisement. What I question is their reason for playing any part in the process. If we are dealing with something as fundamental as the right of the occupier of a flat to enfranchise and become a freeholder, and the right of the ultimate freeholder to receive a fair price for the freehold reversion, what possible interest does a company tenant have in the process on either side? Why should the votes of the temporary or permanent companies who are renting for business purposes determine the financial adjustment between the long leaseholder and the freeholder? We are ignoring the legitimate rights recognised by the Government in their election manifesto and allowing disinterested third parties to determine who should get wealthy and who should become poor.

Ms. Tessa Jowell (Dulwich)

I join hon. Members on both sides of the House in opposing the new clause, specifically because of the undesirability of creating any greater obstacles than those which already exist and which will not be removed by the legislation for leaseholders wishing to enfranchise. This has been of great concern not only to me but to my predecessor, Gerry Bowden, who was a strong advocate of commonhold, as I am, and before him to Sam Silkin. It has been a chronic problem, so far unresolved by legislation, in dealing with the fraught relationship between leaseholders and freeholders.

The provisions are modest and do not extend to commonhold. They do not provide adequate protection against poor management and negligent freeholders, a situation brought vividly to my attention by the case of a constituent whose experience bears out the conclusions of the recent study commissioned by the Joseph Rowntree Foundation.

My constituent has suffered exploitation by a large south London freeholder managing agent. She found it impossible to identify other leaseholders in a similar position. She was a woman of average means and, in her own words, she was forced to scrape together money to buy a flat due to to the chronic shortage of affordable accommodation to rent. Since that time, she has paid the freeholder whatever was asked of her in ground rent, management fees and service charges.

As yet, services are non-existent. Urgent repairs are not carried out. Worse still, repairs have been started and have never been completed. For most of the last six months she has had no steps up to her front door, the steps having collapsed last August. She has been in the ridiculous position of having to spend many hours negotiating with the freeholder to get that work completed.

I suspect that that picture is repeated across London and it remains a major failing of the Bill that leaseholders excluded from enfranchisement are not more adequately protected in law against the bad practice of freeholders. As the Bill is already inadequate in the protection that it extends, I hope that hon. Members will oppose the new clause.

The Secretary of State for the Environment (Mr. Michael Howard)

In moving the new clause, and speaking to the amendments grouped with it, my right hon. and hon. Friends have touched on a number of important issues of principle concerning the Government's proposals for leasehold reform. I well understand why they have approached the matter in that way. Their concerns are legitimate and I hope that I shall be forgiven if, before dealing with the residency test, I put the debate in a wider context.

The proposals in part I are aimed primarily at giving the owners of flats the opportunity to enfranchise. The Bill stands in a long line of measures that Parliament has introduced to regulate the relationship between landlord and tenant. From time to time, Parliament has judged it necessary to intervene to change the balance of rights. Inevitably, that has an effect on the expectations that the various parties might have enjoyed and must necessarily mean interfering with pre-existing property rights.

It was a Conservative Government who instituted the most radical reform of our land tenure system since Edward I legislated in 1290. The 1925 package of legislation—the Law of Property Act, the Settled Land Act, the Land Registration Act and the Land Charges Act —had the effect, among other changes, of abolishing many anachronistic forms of land tenure and simplifying conveyancing procedures in favour of purchasers. The Landlord and Tenant Act 1927 gave business tenants new statutory rights against their landlords and the Landlords and Tenant Act 1954 extended that protection to residential tenants. All those measures were passed by Conservative Governments. Residential tenants under long leases now generally have the right to hold over as statutory tenants at the end of their leases. Those legislative Acts necessarily applied to pre-existing leases and were introduced to deal with the practical problems that resulted from the operation of the leasehold system.

Enfranchisement has been a matter of concern and debate for more than a century. The first Bill to provide a right to enfranchise was introduced in 1884. The Conservative party promised enfranchisement on fair terms in its manifesto for the 1966 election, although a Labour Government introduced the Leasehold Reform Act 1967. The Conservative Opposition welcomed the principle of that Act, although they had grave concerns about the basis of compensation that it introduced. I hope to say more about that when we debate the amendments on the valuation.

In 1974, the Conservative Opposition moved amendments bringing medium-value houses within the scope of the 1967 Act, although on a new and fairer valuation basis. Conservative Members have consistently taken the lead in bringing the concerns of their constituents to the attention of the House. My right hon. Friend the Member for Westminster, North (Sir J. Wheeler), my hon. Friend the Member for Kensington (Mr. Fishburn) and his predecessor, the late Sir Brandon Rhys Williams, and the predecessor of the hon. Member for Dulwich (Ms. Jowell), Gerry Bowden, lost no opportunity in pressing the case of their disadvantaged constituents, and the Bill is primarily a response to their concerns.

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The Bill takes enfranchisement a step further. Almost all owners of leasehold houses have had the right to enfranchise since 1967 or 1974. The Bill extends that right to many of the 750,000 or so owners of leasehold flats. They will be able to buy their freehold at a fair market price.

Flat owners face two serious problems. The first is that their lease is a wasting asset which, once it has fewer than 60 years to run, becomes difficult to mortgage and hence to sell. The second is that, although they pay all the costs of maintenance, they are in the hands of the freeholder when it comes to getting work done. This gives rise to many difficulties and complaints, as independent research and the evidence of many letters from constituents has shown.

In English law, there is no satisfactory alternative to leasehold ownership for flats. Commonhold will remedy that in due course, but alongside commonhold we need a mechanism for existing leaseholders to take control of their own homes.

Because the nature of a flat is different from that of a house, the right can be exercised only collectively rather than individually and it will apply only where certain qualifying conditions are satisfied, to ensure that enfranchisement takes place only where tenants can be said to have the greater interest in the property—essentially, where two thirds of the flats in a block are let on long leases at a low rent. Where a building does not qualify for collective enfranchisement, there will instead be a right for qualifying tenants to extend their leases at market price, which will at least deal with the problem of the lease as a wasting asset.

The Bill also extends the right to enfranchise to those few high-value houses that remain excluded from the 1967 legislation on the basis of their rateable value. Again, we shall debate that matter later this evening.

The amendments and the new clause seek to introduce a residency test for the enfranchisement of flats. Amendments Nos 5 and 10 would mean that a tenant of a flat would not be a qualifying tenant unless the flat were used as a principal residence and had been occupied as such for the previous three years or for three years out of the previous 10. The new clause uses a slightly different approach. The right to lease extension would be available only where the tenant satisfied the residency test, but for collective enfranchisement at least half the participating tenants would have to satisfy that test.

The Bill does not propose a residence qualification for the enfranchisement of flats, because it is a collective rather than an individual action. That is the second of the reasons that were identified in advance by my hon. Friend the Member for Teignbridge (Mr. Nicholls). Tenants must already clear two hurdles before they are entitled to enfranchise: first, two thirds of the flats in a block must be held on long leases at low rent; and, secondly, of those qualifying tenants, two thirds must wish to participate. The amendments would make it significantly more difficult for tenants to clear those hurdles. If tenants are disqualified unless resident, it will be more difficult to satisfy the first test. If in order to participate at least 50 per cent. must be resident, it will be more difficult to pass the second.

The reason is that, like other people, those who live in flats move from time to time. If there were a residency test, at any one time a number of flat owners would still be completing their period of qualification. If, on average, people move every nine years, typically one third would fail a residency test at any one time. A block that may be entirely occupied by home owners living in their own homes could hover between qualifying for enfranchisement simply according to the pattern of moves.

Genuine long-term owners of flats in the block might never have the chance to enfranchise, simply because, whenever they come near to establishing the necessary majority, one of their neighbours moves. Indeed, the worst managed blocks, which experience the most difficult problems with maintenance or exploitation of service charges and from which people move as soon as they can, may experience the most difficulty in qualifying.

There is also the possibility that some freeholders might use the existence of the residency test to defeat the right to enfranchise. There are instances at present where landlords have refused consent to assign a lease other than to a company, purely with the object of taking a house outside the scope of enfranchisement. If they were able to do that with one or two flats in a block, they could deny other tenants access to the collective right.

We have already accepted an amendment in Committee which will prevent anyone owning more than two flats in a block from enfranchising. That will eliminate the risk that speculative landlords may be able to enfranchise against the freeholder. To go beyond that and to include a residency test would make the right to collective enfranchisement, given by chapter I, unenforceable by many tenants who can themselves meet the residency test and all other requirements.

I accept that the case against a residency test for lease extension is not so strong. It is an individual right, and the same difficulties of assembling a sufficient quorum to exercise the collective right do not apply. I accept the force of the argument put to me by my right hon. and hon. Friends on that point and I am prepared to undertake to table an amendment at a later stage which would have the effect of applying a residency test on the same lines as that which currently applies to houses in the provisions of chapter II.

I hope that my right hon. and hon. Friends will accept that I understand what lies behind their concern. I have tried to meet it where it would not imperil the fundamental purpose of the legislation. On that basis, I urge the House to reject the new clause and its associated amendments, which would apply a general residency test and would make chapter I unenforceable for many people.

Sir Jerry Wiggin

I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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