HC Deb 09 February 1993 vol 218 cc851-8

`There shall be no right under Chapters I or II to acquire any interest in or new lease of any property which is held by or in trust for a charity within the meaning of the Charities Act 1960.'—[Sir Jerry Wiggin.]

Brought up, and read the First time.

Sir Jerry Wiggin

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

Madam Deputy Speaker

I understand that it will be convenient to discuss at the same time the following amendments: No. 4, in clause 4, page 5, line 30, at end insert— `( ) This chapter does not apply to premises of which the reversioner or any relevant landlord is a charity within the meaning of the Charities Act 1960.'

No. 6, in clause 5, page 5, line 43, leave out from 'lease' to 'or' in line 45 and insert `or a relevant landlord is a charity within the meaning of the Charities Act 1960;'.

No. 7, in page 6, line 4, at end insert 'or (d) the lease is of a flat forming part of premises of which the freeholder is a charity within the meaning of the Charities Act 1960'.

No. 8, in page 6, line 5, leave out from beginning to end of line 7.

No. 12, in clause 59, page 63, line 42, at end insert— '(3) This section shall not apply to any house and premises of which the landlord is a charity within the meaning of the Charities Act 1960.'.

Sir Jerry Wiggin

The new clause and the amendments deal with a single point. It was clear from the previous debate that opponents of my view and that of my colleagues on this issue were seeking to build some of their case on the iniquities, or otherwise, of individual landlords who are frequently quite blameless. We heard the story of big estates.

The purpose of the new clause is to exempt charitable freeholders from the Bill's provisions. I acknowledge that it will not be difficult to make an intellectual case that charities should not be treated any differently from other landlords. However, Henry Smith's Charity, a very big charity which owns a large chunk of London, has made representations which it is reasonable to air.

Henry Smith's Charity distributes about £12 million a year to medical charities, hospitals, hospices, medical research, to the mentally and physically disabled and other social welfare organisations, such as those dealing with the young and the elderly and those providing services for drug and alcohol abusers.

To put that in context, about half the charity's income comes from Henry Smith's Kensington estate, which is centred on Onslow square and which has been owned by the chairty for many years. I shall argue later about the compensation terms, but Henry Smith's surveyors have done a calculation dealing only with Onslow square. It shows that, if the Bill is passed with its current provisions for compensation, the windfall gain that will accrue to tenants in that area alone will exceed £2 million. That means that £2 million of charitable money will be removed from the charity and handed to the leaseholders as a windfall. That seems unfair.

I have received other representations from charities, usually of an institutional type such as university colleges, which have for many years held property as part of their portfolio. I have not heard any hon. Member who supports the Bill say that such organisations fall into the category of bad landlords. That is far from the truth. Such organisations have been trying to preserve their investment for charitable purposes, and it is wrong that the Bill should apply to them. I believe that the case for other charities is self-evident, and I do not need to elaborate further.

Mr. Raynsford

I wish to respond to the specific point made by the hon. Member for Weston-super-Mare (Sir J. Wiggin) about Henry Smith's Charity and its activities in south Kensington.

I worked in the area for many years and frequently saw a large notice board displayed by an aggrieved leaseholder, proclaiming that Henry Smith's Charity was corrupt and should be investigated. That individual may or may not have had good reason for his point of view which he displayed so forcefully for several years, but it certainly suggested that there were grounds for concern about whether the kindly named Henry Smith's Charity was entirely blameless.

More recently, I have received from Pelham residents association a list of leases in that area which have been disposed of by the charity. When moving the previous new clause, the hon. Member for Weston-super-Mare said that it would be wrong to allow companies, speculators and others to benefit from the enfranchisement provisions. However, according to the residential residents of that area of south Kensington, it has been a deliberate policy of that charity to dispose of leases, which have been occupied by normal families in residence for many years—for hundreds of years in some cases—to companies.

I have a schedule of the current leaseholders in that area. No. I Pelham crescent has been leased to Rubyquote Ltd.; No. 3 to Howden Management and Data Services Ltd.; No. 6 to Credit Du Nord Societe Anonyme; Nos. 18 and 19 to Intro Properties (U.K.) Ltd.; No. 21 to First National Bank of Boston; and Nos. 27 and 27a to Moyna Holdings Inc. No. 1 Pelham place has been leased to Great Lakes Carbon International Ltd.; No. 2 to Kirkdale Ltd.; No. 11 to Eastwyn Sales Corporation and No. 29 to Merat Holdings Ltd.

Henry Smith's Charity may believe that it is in its interests to dispose of large numbers of their holdings to companies.

Mr. Dudley Fishburn (Kensington)

Only this week, a constituent of mine who has the disadvantage of being an Englishman and an individual was refused a lease by Henry Smith's Charity because he had a millstone around his neck—he has to be a company to acquire a lease.

Mr. Raynsford

I am grateful to the hon. Member for that intervention, which reinforces the point that the policy being pursued by this supposedly charitable body works explicitly against the interests of people seeking residential accommodation in the area of London in which it has so many landholdings.

It may be in the charity's intersts to let its properties to non-residential occupiers and to companies, but it is pretty rich for some hon. Members to argue that the charity should be exempt from these provisions on the ground that it is doing wonderful charitable works. If the charity chooses to pursue these policies for commercial gain, it has only itself to blame if the House rightly decides that the Bill should apply to it as it does to everybody else. It will be entirely justified for the leaseholders of Henry Smith's Charity in south Kensington to have the right to enfranchisement and not to be debarred, which would be the impact of the new clause.

5.30 pm
Mr. Michael Alison (Selby)

My right hon. and learned Friend the Secretary of State knows fairly intimately, as a result of my correspondence with him and as a result of some of our conversations, about the considerable disenchantment that the Church Commissioners, a parliamentary charity, feel about the draconian obliteration of their long-standing leasehold interests in properties in various parts of London. My right hon. and learned Friend has been kind enough to look not without sympathy—although, alas, without a specific response so far—at the urging, expressed in the new clause, that charities should be removed from the scope of the Bill.

It is worth pointing out to my right hon. and learned Friend and to the Minister of State that charities which, in the nature of things, have an indefinite lifespan that stretches from here to eternity—certainly that is true of the Church Commissioners—[HON. MEMBERS: "Commissioners?"] That was a slip of the tongue. I meant the Church Commission as a body. The Church Commissioners individually do not stretch from here to eternity.

For charities such as the Church Commission, 99 years is a small drop in the ocean of time of their lives and work. It becomes rational for charities such as the Church Commission to extend, to develop, to maintain and generally to sustain all their capital assets, which they develop and hold entirely for the advantage and benefit of certain limited beneficiaries. For the Church Commission, those beneficiaries are serving clergy, retired clergy and their dependants.

It remains reasonable for such charities to maintainleasehold properties, from which they take out initially a full or almost full market value, leaving aside the ground rent, over a 99-year lease period—99 years is a drop in the ocean of time from their point of view—and to look steadily forward to a reversionary interest as the period comes to an end. Charities are then once again presented with the opportunity to use their reverted properties to raise money, entirely for the benefit of their worthy beneficiaries and their dependants.

It was rational for bodies such as the Church Commissioners to have some property leases in their portfolio of assets. The Church Commissioners have maintained their leasehold interest in properties in good faith, believing that they did nothing but good both for the leaseholders and ultimately for their beneficiaries.

The Bill will narrow the scope for charities such as the Church Commission because it will suddenly remove opportunities from them and the potential for asset investment of this sort will be obliterated. It is neither necessary nor desirable that my right hon. and learned Friend's reform should extend to that particular type of charitable leaseholder, which includes leaseholders of properties owned by the Church Commissioners and by Henry Smith's Charity, merely because the justification for other aspects of leasehold reform may be more sustainable.

I urge my right hon. and learned Friend to consider whether it is really necessary to sweep up charities, which have a special dimension, in the Bill. If there is no escaping his final scything action against the Church Commission and other charities, and if my right hon. and learned Friend is determined to sweep away this perfectly attractive and desirable type of property ownership, I ask him to consider at least one little modification. If, after careful study, the modification appeals to him and seems reasonable, perhaps he will tell me that he will make the necessary changes to the Bill in the other place so that we need not press the new clause.

I mentioned the modification to my right hon. and learned Friend in conversation not long ago. He should exclude from the scope of the Bill leasehold owners—we have a few in the Church Commission properties—who are company leaseholders. Earlier exchanges dealt with Henry Smith's Charity's excursions into the realm of company ownership. The Church Commissioners have a few company leaseholders which we nominated as leaseholders entirely because, at the time of nomination, the Rent Acts made it difficult to recover let properties unless they were let to companies.

There was quite a development in company letting to avoid the squeeze of the Rent Acts. One result is that a small number of Church Commission leaseholders are companies that have taken up long leases. They have used properties essentially for the benefit of their visiting clients and of their visiting customers.

There seems to be no good reason why those companies, which are non-individual and non-personal leaseholders, should get the benefit of enfranchisement. I hope that my right hon. and learned Friend and my hon. Friend the Minister of State will agree that the small group of leaseholders involved, at least so far as the Church Commission is concerned, may be excluded from the scope of the Bill by an appropriate amendment in the other place.

Such leaseholders have no personal issues at stake, no personal pressures and no personal needs. There is no individual dimension in the small group of company leaseholders. They would not suffer and they would be perfectly content that their position should remain the same. Such leaseholders do not yearn for the personal security of a home of their own or for something to leave to their children. They take out the leasehold entirely as a commercial venture for the benefit of their business and clients. They do not mind whether they own the property completely or whether they continue as leaseholders.

It seems unnecessary that that group should be forced to acquire their leases when that was not the basis on which they entered into the arrangement. There seems to be no good reason why, on the ground of doing good to individuals or to those in personal housing circumstances, we should allow company leaseholders the same benefits. I hope that my right hon. and learned Friend will look sympathetically at this narrow point even if he is unable to give us the full exemption in the new clause.

Mr. Battle

When we debated new clause 2, the Secretary of State hinted that the Government would come back, perhaps in another place, with a principal residency exclusion concession. I shall watch with interest to see what the Government do, but I hope that they will not be pressed to make exemptions. If the Secretary of State accepts the words of the right hon. Member for Selby (Mr. Alison), it will be a case of moving the leasehold market in the direction of a two-tier housing market. Clearly, a distinction will be drawn and people will see a relative fall in the value of their homes because of the two-tier leasehold market.

The hon. Member for Weston-super-Mare (Sir. J. Wiggin) at least acknowledged that there are strong arguments against exemptions for charitable properties. I see no reason why properties that are held in trust for charities should be excluded from that part of the legislation on leasehold enfranchisement. Trustees of charities are legally bound to manage their properties on a fully commercial basis. Hon. Members should not be seduced by the word "charity" into thinking that, by opposing charities, we are therefore against the work of charities that have to look after their portfolios in that way.

There is no evidence that charities are any more benevolent in doing that than any other category of freeholder. I make that point because it is not as managers and freeholders that charities carry out charitable work; it is in their other aims and intentions. There is some evidence that they are not more benevolent, as my hon. Friend the Member for Greenwich (Mr. Raynsford) pointed out in respect of Henry Smith's Charity.

If the freehold is purely a form of investment for the charity, there is a fair argument that, if the charity is not happy with that as a sufficient return on its investment, alternatives are readily available. The right hon. Member for Selby said that freeholding was a drop in the ocean of time for the Church Commissioners. We should keep our eyes firmly on the people who live in houses over which the Church Commissioners have the freehold. It is not a drop in the ocean of time for the leaseholders. The focus should be on their lifetime and the quality of their lifetime.

The leaseholders involved have their homes at stake. Many of them have invested their savings in their homes. If they were now to be excluded from the legislation, they would see a relative fall in the value of their homes. In effect, their homes would become second-class properties. By offering exemptions, the Government would be opening the way to setting up a two-tier structure of leaseholders. I hope that that is not their intention.

Mr. Raynsford

I have been thinking about my hon. Friend's remarks and those of the right hon. Member for Selby (Mr. Alison). The logic of the case for the exemption of lettings by charities to non-residential occupants would lead inexorably in one direction. It would not be a two-tier situation, but one in which it was impossible for any individual to obtain a letting from any such freeholder, because all lettings would be given to companies in order to evade the provisions of the Bill. That would effectively entirely close off the option.

Mr. Battle

I am grateful to my hon. Friend. As usual, he has applied his logical mind to the direction in which the Bill could go. It could create space for practically everything to be redefined and therefore effectively close off the intentions of the Bill. In other words, the spirit might be retained—that is, that the Governmentwantleaseholdenfranchisement—but in practice everyone would see the possibility of opt-out. I hope that the Government are not going down that road. I urge the Minister not to accept the new clause.

Sir George Young

I am grateful to my right hon. and hon. Friends for the measured way in which they have addressed the new clauses. My hon. Friend the Member for Weston-super-Mare (Sir J. Wiggin) conceded that there was an intellectual argument against his new clause, and I hope briefly to deploy it. It is no part of the Government's case that Smith's Charities, the Church Commissioners or other charitable landlords have acted other than honourably in the management of their estates. Indeed, we applaud the work of Smith's Charities and other charities, some of which was mentioned by my hon. Friend the Member for Weston-super-Mare.

On the specific point made by my right hon. Friend the Member for Selby (Mr. Alison) about the Church, a few moments ago we debated company leaseholders. My right hon. and learned Friend the Secretary of State explained why it would not be possible to make the exemption which my right hon. Friend has pressed on us. I hope that, when the day of judgment comes, the Church will not hold it against Ministers for the actions that they might have taken against the Church Commissioners' interests on earth, but it is the Government's intention that leasehold enfranchisement should apply to as many long leaseholders as possible and that there should be few exemptions.

5.45 pm

The purpose behind the amendments is to secure an exemption for charities from leasehold enfranchisement of flats and higher-value houses and also lease renewal for flats. The debate has taken a course similar to the one which took place more than 25 years ago, in 1967, when the Leasehold Reform Bill was before Parliament. Parliament decided then that charities should not be exempt landlords, and the Bill was passed without such an exemption.

Apart from resident landlords, inalienable land held by the National Trust and certain Crown properties, only charitable housing trusts that let flats in pursuit of their charitable purposes will have any form of exemption from enfranchisement and lease renewal. In such circumstances, if the charity is the immediate landlord, the tenant of the flat will cease to be a qualifying tenant. But some of the amendments would exclude all properties from both enfranchisement and lease renewal where any landlord is a charity. A block of flats with a charity as head leaseholder would be outside the scope of the Bill. Others would prevent certain leaseholders from becoming qualifying tenants, irrespective of whether the charity was their immediate landlord.

The Bill is concerned with leasehold reform. In such a reform, it is wrong to distinguish between the profession or the character of freeholders. If a leaseholder, by reason of leasehold tenure, qualifies for enfranchisement, he should qualify regardless of who his landlord is. I do not see the case for denying some leaseholders the right to enfranchise or, indeed, to extend their leases just because their landlord is a charity. There certainly is no precedent for such a sweeping exemption.

The fact that a charity applies its income for the benefit of others is not a reason for exemption and because charities will receive full market value for their interests there is no reason why they should not continue to do the excellent work that they do now. Indeed, part of my right hon. Friend's remarks related to compensation. The Bill is neutral on the assets of a charity. Nothing in the Bill need inhibit the excellent work which charities fund.

At issue is the derivation of a charity's income. Although a charity may apply or use its income in a charitable way, it by no means follows that the income was obtained in a similar fashion. Where a charity invests, whether in property, shares or similar, the chief underlying intention is to make financial gains. An appropriate comparison might be drawn with the position of charities owning shares. When a company is taken over, individual shareholders such as charities do not have veto rights.

For tenants, it really is of little importance whether the landlord is a charity; it is all the same to them. Their landlord, although a charity, will behave towards them simply as a commercial landlord. Indeed, one charitable landlord has confirmed that the trustees are generally bound to set premiums and rents that match the market price.

A few days ago, I happened to listen to my right hon. Friend the Member for Selby answer questions on behalf of the Church Commissioners. In reply to my hon. Friend the Member for Hendon, South (Mr. Marshall), my right hon. Friend said: The commissioners' investment policy is to seek to achieve the best total return on their assets—that is, growth of both income and capital. This reflects their primary objective, which is to provide adequate financial support for the Church's serving and retired clergy."—[Official Report, 1 February 1993; Vol. 113, c. 12.1] That is the objective of most charities when they look at how they derive their income.

Where a charity has a property in which two thirds or more of the flats are let on long leases, we consider that the charity has disposed of a major interest in that property. When a property is let on a long lease at a low rent, the greatest interest, often substantially the whole interest, passes to the leaseholder and the landlord's predominant role then becomes a residual management one. We will shortly have a debate about the price that leaseholders will have to pay for the freehold which will reflect the full market value of that interest. Like others, charitable landlords will be fairly compensated for the loss of their interest.

The Government's firm belief is that it would be wrong to distinguish leaseholders whose landlord is a charity from other leaseholders. We do not believe that it is in the general interest so to do. The landlord's identity makes little or no difference to such leaseholders.

An exemption for charities along the lines proposed by the amendments is, in the Government's view, difficult to defend. The amendments would exclude unfairly many tenants from the benefits of the Bill to which they are greatly looking forward. If my hon. Friend the Member for Weston-super-Mare cannot be persuaded to withdraw the new clause, I hope that the House will oppose it.

Sir Jerry Wiggin

I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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